UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10753
GULPORT ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 73-1521290
(State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.)
6307 Waterford Blvd.
Building D, Suite 100
Oklahoma City, Oklahoma 73118
(405) 848-8807
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive office)
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 Issuer was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities and
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
The number of shares of the Registrant's Common Stock, $0.01 par value,
outstanding as of April 13, 2002 was 10,146,566.
1
GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q QUARTERLY REPORT
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets at March 31, 2002 (unaudited) and December 31, 2001 4
Statements of Income for the Three Month Periods Ended
March 31, 2002 and 2001 (unaudited) 5
Statements of Common Stockholders' Equity for the Three Months
Ended March 31, 2002 and 2001 (unaudited) 6
Statements of Cash Flows for the Three Months Ended
March 31, 2002 and 2001 (unaudited) 7
Notes to Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II OTHER INFORMATION
Item 1 Legal Proceedings 20
Item 2 Changes in Securities and Use of Proceeds 20
Item 3 Defaults upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 5 Other Information 20
Item 6 Exhibits and Reports on Form 8-K 20
Signatures 22
2
GULFPORT ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
March 31, 2002 and 2001
Forming a part of Form 10-Q Quarterly Report to the
Securities and Exchange Commission
This quarterly report on Form 10-Q should be read in conjunction with Gulfport
Energy Corporation's Annual Report on Form 10-K for the year ended December 31,
2001.
3
GULFPORT ENERGY CORPORATION
BALANCE SHEETS
March 31, December 31,
2002 2001
(Unaudited)
----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 3,334,000 $ 1,077,000
Accounts receivable, net of allowance for
doubtful accounts of $239,000 as of
March 31, 2002 and December 31, 2001 1,154,000 1,096,000
Accounts receivable - related party 195,000 160,000
Prepaid expenses and other current assets 182,000 253,000
------------ ------------
Total current assets 4,865,000 2,586,000
------------ ------------
Property and equipment:
Oil and natural gas properties 104,075,000 103,344,000
Other property and equipment 1,983,000 1,976,000
Accumulated depletion, depreciation, amortization (70,369,000) (69,597,000)
------------ ------------
Property and equipment, net 35,689,000 35,723,000
------------ ------------
Other assets 2,646,000 2,583,000
------------ ------------
$ 43,200,000 $ 40,892,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 2,272,000 $ 2,637,000
Note payable - related party - 3,000,000
Current maturities of long-term debt 790,000 1,120,000
------------ ------------
Total current liabilities 3,062,000 6,757,000
------------ ------------
Long-term debt 135,000 143,000
------------ ------------
Total liabilities 3,197,000 6,900,000
------------ ------------
Commitments and contingencies - -
Redeemable 12% cumulative preferred stock,
Series A, $.01 par value, with a redemption
and liquidation value of $1.000 per share;
15,000 and 0 authorized, 6,001 and 0 issued
and outstanding at March 31, 2002 and
December 31, 2001, respectively 6,001,000 -
Preferred stock, $.01 par value; 4,985,000
and 1,000,000 authorized at March 31,2002
and December 31, 2001, respectively, none
issued - -
Common stockholders' equity:
Common stock - $.01 par value, 20,000,000
and 15,000,000 authorized, 10,146,566 issued
and outstanding at March 31, 2002 and
December 31, 2001, respectively 101,000 101,000
Paid-in capital 84,192,000 84,192,000
Accumulated deficit (50,291,000) (50,301,000)
------------- ------------
34,002,000 33,992,000
------------- ------------
Total liabilities and stockholders'
equity $ 43,200,000 $ 40,892,000
============= ============
See accompanying notes to financial statements.
4
GULFPORT ENERGY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
2002 2001
---------- ----------
Revenues:
Gas sales $ 61,000 $ 134,000
Oil and condensate sales 2,471,000 3,267,000
Other income 234,000 49,000
---------- ----------
2,766,000 3,450,000
---------- ----------
Costs and expenses:
Operating expenses 1,255,000 1,602,000
Production taxes 281,000 368,000
Depreciation, depletion, and amortization 785,000 715,000
General and administrative 353,000 456,000
---------- ----------
2,674,000 3,141,000
---------- ----------
INCOME FROM OPERATIONS: 92,000 309,000
---------- ----------
OTHER (INCOME) EXPENSE:
Interest expense 93,000 97,000
Interest income (11,000) (52,000)
---------- ----------
82,000 45,000
---------- ----------
INCOME BEFORE INCOME TAXES 10,000 264,000
---------- ----------
INCOME TAX EXPENSE (BENEFIT):
Current 4,000 106,000
Deferred (4,000) (106,000)
---------- ----------
- -
---------- ----------
NET INCOME $ 10,000 $ 264,000
========== ==========
NET INCOME PER COMMON SHARE:
Basic $ - $ 0.03
========== ==========
Diluted $ - $ 0.03
========== ==========
See accompanying notes to financial statements.
5
GULFPORT ENERGY CORPORATION
Statements of Common Stockholders' Equity
(Unaudited)
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------ ----- ---------- -------- ----------- ------------
Balance at December 31, 2000 - $ - 10,145,400 $101,000 $84,190,000 $(55,718,000)
Net income - - - - - 264,000
------ ----- ---------- -------- ----------- ------------
Balance at March 31, 2001 - $ - 10,145,400 $101,000 $84,190,000 $(55,454,000)
====== ===== ========== ======== =========== ============
Balance at December 31, 2001 - $ - 10,146,566 $101,000 $84,192,000 $(50,301,000)
Net income - - - - - 10,000
------ ----- ---------- -------- ----------- ------------
Balance at March 31, 2002 - $ - 10,146,566 $101,000 $84,192,000 $(50,291,000)
====== ===== ========== ======== =========== ============
See accompanying notes to financial statements.
6
GULFPORT ENERGY CORPORATION
Statements of Cash Flows
(Unaudited)
For the Three Months
Ended March 31,
--------------------------
2002 2001
---------- ----------
Cash flows from operating activities:
Net income $ 10,000 $ 264,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depletion, depreciation and amortization 772,000 715,000
Amortization of debt issuance costs 13,000 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (58,000) (95,000)
(Increase) decrease in accounts receivable -
related (35,000) -
(Increase) decrease in prepaid expenses 58,000 34,000
(Decrease) increase in accounts payable
and accrued liabilities (102,000) 4,731,000
(Decrease) increase in other liabilities - 145,000
----------- -----------
Net cash provided by operating activities 658,000 5,794,000
----------- -----------
Cash flows from investing activities:
(Additions) to cash held in escrow (55,000) (55,000)
(Additions) to other assets (8,000) (14,000)
(Additions) to other property, plant and equipment (7,000) (3,000)
(Additions) to oil and gas properties (731,000) (7,437,000)
----------- -----------
Net cash used in investing activities (801,000) (7,509,000)
----------- -----------
Cash flows from financing activities:
Principal payments on borrowings (338,000) (209,000)
Proceeds from issuance of preferred stock 2,738,000 -
----------- -----------
Net cash provided by (used in) financing activities 2,400,000 (209,000)
----------- -----------
Net increase (decrease) in cash and cash
equivalents 2,257,000 (1,924,000)
Cash and cash equivalents at beginning of period 1,077,000 3,657,000
----------- -----------
Cash and cash equivalents at end of period $ 3,334,000 $ 1,733,000
=========== ===========
Supplemental disclosure of cash flow information:
Interest payments $ 15,000 $ 22,000
=========== ===========
Supplemental disclosure of non-cash transactions:
Repayment of note payable to related party
through issuance of Series A Preferred Stock $ 3,000,000 $ -
=========== ===========
Repayment of accrued interest due on note
payable to related party through issuance
of Series A Preferred Stock $ 263,000 $ -
=========== ===========
See accompanying notes to financial statements.
7
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
These condensed financial statements have been prepared by Gulfport Energy
Corporation (the "Company") without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission, and reflect all adjustments, which
are in the opinion of management, necessary for a fair statement of the results
for the interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financials statements should be read in
conjunction with the financial statements and the summary of significant
accounting policies and notes thereto included in the Company's most recent
annual report on Form 10-K.
1. ACCOUNTS RECEIVABLE - RELATED PARTY
Included in the accompanying March 31, 2002 balance sheet are amounts
receivable from entities that have similar controlling interests as those
controlling the Company. These receivables represent amounts billed by the
Company for general and administrative functions performed by Gulfport's
personnel on behalf of the related party companies during 2002. Gulfport has
reduced its corresponding expenses for the three months ending March 31, 2002 by
$115,000 billed to the companies for performance of these services.
2. PROPERTY AND EQUIPMENT
The major categories of property and equipment and related accumulated
depreciation, depletion and amortization are as follows:
March 31, 2002 December 31, 2001
-------------- -----------------
Oil and gas properties $ 104,075,000 $ 103,344,000
Office furniture and fixtures 1,506,000 1,499,000
Building 217,000 217,000
Land 260,000 260,000
------------- -------------
Total property and equipment 106,058,000 105,320,000
Accumulated depreciation, depletion,
amortization and impairment reserve (70,369,000) (69,597,000)
------------- -------------
Property and equipment, net $ 35,689,000 $ 35,723,000
============= =============
9
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
3. OTHER ASSETS
Other assets consist of the following:
March 31, 2002 December 31, 2001
-------------- -----------------
Plugging and abandonment escrow account
on the WCBB properties $ 2,335,000 $ 2,272,000
CD's securing letter of credit 200,000 200,000
Deposits 111,000 111,000
------------- -------------
$ 2,646,000 $ 2,583,000
============= =============
4. LONG-TERM DEBT
The building loan of $155,000 relates to a building in Lafayette,
Louisiana, purchased in 1996 to be used as the Company's Louisiana headquarters.
The building is 12,480 square feet with approximately 6,180 square feet of
finished office area and 6,300 square feet of warehouse space. This building
allows the Company to provide office space for Louisiana personnel, have access
to meeting space close to the fields and to maintain a corporate presence in
Louisiana.
A break down of long-term debt is as follows:
March 31, 2002 December 31, 2001
-------------- -----------------
Note payable $ 770,000 $ 1,100,000
Building loan 155,000 163,000
------------- --------------
925,000 1,263,000
Less - current maturities of long term debt (790,000) (1,120,000)
------------- --------------
Debt reflected as long term $ 135,000 $ 143,000
============= ==============
5. NOTE PAYABLE - RELATED PARTY
On March 29, 2002, the outstanding balance of the Company's note payable
due to Gulfport Funding, LLC ("Gulfport Funding") along with all related
accumulated interest on the note, were retired through Gulfport Funding's
participation in the Company's Private Placement Offering as described in Note
9.
6. CASTEX BACK-IN
Gulfport sold its interest in the Bayou Penchant, Bayou Pigeon, Deer Island
and Golden Meadow fields to Castex Energy 1996 Limited Partnership effective
April 1, 1998 subject to a 25% reversionary interest in the partnership after
Castex had received 100% of the initial investment. Castex informed Gulfport
that the investment had paid out effective September 1, 2001. In lieu of a 25%
interest in the partnership, Gulfport elected to take a proportionately reduced
25% working interest in the properties. During March, 2002 the Company received
9
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
approximately $220,000 from Castex which the Company believes consists of sales
income for the period after payout net of operating expenses, although the
Company has not received confirmation of such. As a result, this amount
received has been included in the accompanying statement of income for the three
months ended March 31, 2002 as "Other Income".
7. EARNINGS PER SHARE
A reconciliation of the components of basic and diluted net income per
common share is presented in the table below:
For the Three Months Ended March 31,
2002 2001
-------------------------------------------------------
Per Per
Income Shares Share Income Shares Share
------- ---------- ----- -------- ---------- -----
Basic:
Income attributable
to common stock $10,000 10,146,566 $0.00 $264,000 10,145,400 $0.03
===== =====
Effect of dilutive securities:
Stock options 346,749 - 323,499
------- ---------- -------- ----------
Diluted:
Income attributable to
common stock, after
assumed dilutions $10,000 10,493,315 $0.00 $264,000 10,468,899 $0.03
======= ========== ===== ======== ========== =====
Common stock equivalents not included in the calculation of diluted
earnings per share above consists of 1,163,195 warrants issued at the time of
the Company's reorganization. Also not included in the calculation of 2002
diluted earnings per share are 108,625 warrants issued in connection with the
Company's revolving line of credit with Gulfport Funding, which was retired
during March 2002. These potential common shares were not considered in the
calculation due to their anti-dilutive effect during the periods presented.
8. COMMITMENTS
Plugging and Abandonment Funds
In connection with the acquisition of the remaining 50% interest in the
WCBB properties, the Company assumed the obligation to contribute approximately
$18,000 per month through March, 2004, to a plugging and abandonment trust and
the obligation to plug a minimum of 20 wells per year for 20 years commencing
March 11, 1997. Texaco retained a security interest in production from these
properties until abandonment obligations to Texaco have been fulfilled. Once
the plugging and abandonment trust is fully funded, the Company can access it
for use in plugging and abandonment charges associated with the property. As of
March 31, 2002, the plugging and abandonment trust totaled $2,335,000, including
interest received during 2002 of approximately $8,000.
During March 2002, Gulfport began to fulfill its yearly plugging commitment
of 20 wells at WCBB for the twelve-month period ending March 31, 2002. As of the
date of this filing, the plugging had been completed.
10
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
9. PRIVATE PLACEMENT OFFERING
In March 2002, the Company commenced a Private Placement Offering of $10
million dollars consisting of 10,000 Units. Each Unit consists of (i) one (1)
share of Cumulative Preferred Stock, Series A, of the Company (Preferred) and
(ii) a warrant to purchase up to 250 shares of common stock, par value $0.01 per
share. Dividends accrue on the Preferred prior to the Mandatory Redemption Date
(as defined below) at the rate of 12% per annum payable quarterly in cash or, at
the option of the Company for a period not to exceed two (2) years from the
Closing Date, payable in whole or in part in additional shares of the Preferred
based on the Liquidation Preference (as defined below) of the Preferred at the
rate of 15% per annum. No other dividends shall be declared or shall accrue on
the Preferred. To the extent funds are legally available, the Company is
obligated to declare and pay the dividends on the Preferred. The Warrants have
a term of ten (10) years and an exercise price of $4.00. The Company is
required to redeem the Preferred on the fifth anniversary of the first issuance
and the Company may at its sole option, choose to redeem the Preferred at any
time before the expiration of the five years. Accordingly, the Preferred issued
in connection with this Offering is treated as redeemable stock in the
accompanying balance sheet.
Two-thirds of the Preferred Stockholders can affect any Company action,
which would effect their preference position. The Preferred cannot be sold or
transferred by its holders and the Company must use its best efforts to register
with the Securities and Exchange Commission ("SEC") the common stock issued in
connection with the exercise of the Warrants or, if possible, piggyback the
issued common stock if the Company participates in a public offering with the
SEC.
The Offering was made available to stockholders and affiliates of the
Company as of December 31, 2001 who were known to be accredited investors by the
Company. Purchasers were able to participate up to their pro rata share of
ownership in the Company as of December 31, 2001. The Offering's initial closing
began March 29, 2002 and continued until April 15, 2002, with a total
subscription of $9,289,000 or 9,288.84 units. Mike Liddell, the Company's Chief
Executive Officer, shall have until September 30, 2002 to subscribe for his
proportionate share of the Offering.
On March 29, 2002, Gulfport Funding, LLC, participated in the Offering
through a conversion of its $3.0 million dollar loan along with the accumulated
interest due from the Company for 3,262.98 Units. Additionally, on March 29,
2002 entities controlled by the majority shareholder initially funded a share of
the Preferred Offering in the amount of $2,738,000.
10. DIVIDENDS ON SERIES A PREFERRED STOCK
As discussed in Note 9, the Company may, at its option, accrue additional
shares of Preferred for the payment of dividends at a rate of 15% per annum
rather than accrue cash dividends payable at a rate of 12% per annum during the
initial two years following the closing date of its Offering. The Company has
chosen to do such for the three-month period ended March 31, 2002 and has
therefore accrued 5 additional shares payable as of that date related to the
Preferred Stock Series A shares issued and outstanding during that time period.
11. RECLASSIFICATIONS
Certain reclassifications have been made to the 2001 financial statements
presentation in order to conform to the 2002 financial statements presentation.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). All
statements, other than statements of historical facts, included in this Form
10-Q that address activities, events or developments that Gulfport Energy
Corporation ("Gulfport" or the "Company"), a Delaware corporation, expects or
anticipates will or may occur in the future, including such things as estimated
future net revenues from oil and gas reserves and the present value thereof,
future capital expenditures (including the amount and nature thereof), business
strategy and measures to implement strategy, competitive strengths, goals,
expansion and growth of the Company's business and operations, plans, references
to future success, references to intentions as to future matters and other such
matters are forward-looking statements. These statements are based on certain
assumptions and analyses made by the Company in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate in the
circumstances. However, whether actual results and developments will conform
with the Company's expectations and predictions is subject to a number of risks
and uncertainties; general economic, market or business conditions; the
opportunities (or lack thereof) that may be presented to and pursued by the
Company; competitive actions by other oil and gas companies; changes in laws or
regulations; and other factors, many of which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this Form
10-Q are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized, or even if realized, that they will have the expected consequences to
or effects on the Company or its business or operations.
The following discussion is intended to assist in an understanding of the
Company's financial position as of March 31, 2002 and its results of operations
for the three-month periods ended March 31, 2002 and 2001. The Financial
Statements and Notes included in this report contain additional information and
should be referred to in conjunction with this discussion. It is presumed that
the readers have read or have access to Gulfport Energy Corporation's 2001
annual report on Form 10-K.
Overview
Gulfport is an independent oil and gas exploration and production company
with properties located in the Louisiana Gulf Coast. Gulfport has a market
enterprise value of approximately $37.0 million dollars on May 9, 2002 and
generated EBITDA of $0.9 million and $1.8 million dollars for the three months
ended March 31, 2002 and March 31, 2001, respectively.
The Company is currently consulting with its financial advisors to
determine how to take advantage of the current markets whether through internal
value creation or a capital markets transaction.
As of January 1, 2002, the Company had in excess of 28.9 MMBOE proved
reserves with a present value (discounted at 10%) of estimated future net
reserves of $130 million dollars.
12
Gulfport is actively pursuing further development of its properties in
order to fully exploit its reserves. The Company has a substantial portfolio of
low risk developmental projects for the next several years providing the
opportunity to increase production and cash flow. Gulfport's developmental
program is designed to reach the Company's high impact, higher potential rate of
return prospects through the penetration of several producing horizons.
Additionally, Gulfport owns 3-D seismic data, which along with the
Company's technical expertise, will be used to identify exploratory prospects
and test undrilled fault blocks in its existing fields.
The Company's operations are concentrated in two fields: West Cote Blanche
Bay and the Hackberry Fields. In addition, during the first quarter of 2002,
the Company backed in to a working interest in the Bayou Penchant, Bayou Pigeon,
Deer Island and Golden Meadow fields operated by Castex Energy.
West Cote Blanche Bay
Background
West Cote Blanche Bay ("WCBB") Field lies approximately five miles off the
coast of Louisiana primarily in St. Mary's Parish in a shallow bay, with water
depths averaging eight to ten feet. WCBB overlies one of the largest salt dome
structures in the Gulf Coast. There are over 100 distinct sandstone reservoirs
throughout most of the field and nearly 200 major and minor discrete intervals
have been tested. Within almost 900 wellbores that have been drilled to date in
the field, over 4,000 potential zones have been penetrated. The sands are
highly porous and permeable reservoirs primarily with a strong water drive.
As of March 31, 2002, there have been 871 wells drilled at WCBB, and of
these 38 are currently producing, 313 are shut-in and 5 are utilized as salt
water disposal wells. The balance of the wells (or 515) have been plugged and
abandoned.
During April 2001, Gulfport finished the seven well drilling program it
commenced in January of 2001. The Company successfully drilled, completed and is
currently producing six intermediate depth wells, with total depths averaging
approximately 9,000' and one shallow well, with a total depth of 2,500'. These
wells found significant oil and gas deposits in multiple targets ranging from
relatively low risk proven undeveloped objectives to higher potential
exploratory targets. Gulfport feels that by taking most future wells to a depth
of 9,000' there will be an increased chance of converting reserves currently
classified as possible and probable to proved.
Gulfport has an ongoing plan to review and increase production from
existing marginal and non-producing wells and has continued its ongoing program
to modernize and service the existing production facilities at West Cote Blanche
Bay. During the second quarter of 2001, the Company put two new gas compressors
into full time service at the field replacing two outdated compressors. The new
compressors increased efficiency and together with a new header valve Gulfport
installed at one of the tank batteries reduced the Company's gas usage by 50%.
During October 2001, Gulfport completed the yearly program to meet its
plugging liability for the year ended March 31, 2001. The Company plugged 26
non-producing wells at West Cote Blanche Bay.
13
Activity for the Quarter Ended March 31, 2002
During the first quarter of 2002, Gulfport performed two re-completions and
one workover at the West Cote Blanche Bay Field. Some of this work commenced
during the fourth quarter of 2001.
In March 2002, Gulfport began work on the yearly 20 well plugging
commitment at West Cote Blanche Bay. As of the date of this filing, the plugging
had been completed.
During March 2002, Gulfport's net current daily production in this field
averaged 1,019 barrels of oil equivalent
During April 2002, the Company commenced drilling the first well of an 8-10
well drilling program. The vast majority of the wells in this drilling program
have multiple objectives with some of the target reserves classified as
relatively low risk, proven undeveloped and other reserves classified as higher
risk, higher potential and exploratory. Most of the subject wells are being
drilled to intermediate depths of around 9,000 feet and are being steered with
downhole motors in an attempt to encounter as many potential target formations
as possible at their maximum structural position with a single wellbore.
Gulfport also plans to drill a horizontal well in this program that will have a
500' lateral in a relatively shallow zone of unconsolidated sand. This well
will use state of the art drilling and completion technology and should have
significant oil production and limited water production. If this well is
successful, the Company should be able to repeat the idea in over 100 other
locations in the field. This drilling program also contains one relatively
shallow exploratory well that is being drilled close to the Company's lease
boundary in order to test the productive limits of the field.
Since the end of the first quarter of 2002, Gulfport has completed an additional
six workovers, one re-completion and one capital maintenance project.
Hackberry Fields
Background
The Hackberry fields are located along the shore of Lake Calcasieu in
Cameron Parish, Louisiana. The Hackberry Field is a major salt intrusive
feature, elliptical in shape with East Hackberry on the east end of the ridge
with West Hackberry located on the western end of the ridge. There are over 30
pay zones in this field. The salt intrusion at East Hackberry trapped Oligocene
through Lower Miocene rocks in a series of complex, steeply dipping fault
blocks. The Camerina sand series at East Hackberry is a prolific producer with
1-2 MMBL per well oil potential. West Hackberry consists of a series of fault
bounded traps in the Oligocene-age Vincent and Keough sands associated with the
Hackberry Salt Ridge.
The East Hackberry field was discovered in 1926 by Gulf Oil Company (now
Chevron Corporation) by a gravitational anomaly survey. The massive shallow salt
stock presented an easily recognizable gravity anomaly indicating a productive
field. Initial production began in 1927 and has continued to the present. The
estimated cumulative oil and condensate production through 1999 was 111 million
barrels of oil with casinghead gas production being 60 billion cubic feet of
gas. There have been a total of 170 wells drilled on Gulfport's portion of the
field with 17 having current daily production; 3 produce intermittently; 73
14
wells are shut-in and 4 wells have been converted to salt water disposal wells.
The remaining 73 wells have been plugged and abandoned.
At West Hackberry, the first discovery well was drilled in 1938 and was
developed by Superior Oil Company (now Exxon-Mobil Corporation) between 1938 and
1988. The estimated cumulative oil and condensate production through 2000 was
170 million barrels of oil with casinghead gas production of 120 billion cubic
feet of gas. There have been 36 wells drilled to date on Gulfport's portion of
West Hackberry and currently 3 are producing, 24 are shut-in and 1 well has been
converted to a saltwater disposal well. The remaining 8 wells have been plugged
and abandoned. During the first quarter of 2001, Gulfport unsuccessfully
sidetracked an existing non-producing well at West Hackberry and conducted
remedial operations to increase production.
During the 3rd quarter of 2001, Gulfport tested 22 shut-in wells on the
State Lease 50 portion of East Hackberry Field to check the viability of putting
these wells back into production. After the tests were completed the Company
elected to reactivate seven of the 22 wells that were tested. To put the wells
back on production certain parts of the field's infrastructure had to be
repaired or replaced. Gulfport repaired the main gas lift supply line in order
to reactivate a satellite tank battery at State Lease 50 and made other minor
repairs to the battery. The Company also repaired and or replaced flow lines
and gas lift lines to the seven wells that were restored to production.
Gulfport's continued plan of development includes the testing of additional
wells that are currently inactive, mostly in the southern portion of State Lease
50, which will also entail dredging. These additional tests should allow the
Company to restore more wells to productive status in the near future.
Activity for the Quarter Ended March 31, 2002
During the first quarter of 2002, Gulfport worked over one salt-water
disposal well at the East Hackberry Field. The Company also commenced a four
well plugging program on the State Lease 50 portion of East Hackberry and
completed the work in the second quarter.
Later during 2002, Gulfport plans to re-complete two wells at the State
Lease 50 portion of the East Hackberry field.
Total net production per day for both Hackberry fields was 209 barrels of
oil equivalent for the three-month period ended March 31, 2002.
Castex Back-In
Gulfport sold its interest in the Bayou Penchant, Bayou Pigeon, Deer Island
and Golden Meadow fields to Castex Energy 1996 Limited Partnership effective
April 1, 1998 subject to a 25% reversionary interest in the partnership after
Castex had received 100% of the initial investment. Castex informed Gulfport
that the investment had paid out effective September 1, 2001. In lieu of a 25%
interest in the partnership, Gulfport elected to take a proportionately reduced
25% working interest in the properties. During March, 2002 the Company received
approximately $220,000 from Castex which the Company believes consists of sales
income for the period after payout net of operating expenses, although the
Company has not received confirmation of such. As a result, this amount
received has been included in the accompanying statement of income for the three
months ended March 31, 2002 as "Other Income".
15
The following financial table recaps the Company's operating activity for
the three-month periods ended March 31, 2002 as compared to the same periods in
2001.
FINANCIAL DATA (unaudited):
Three Months Ended
March 31,
2002 2001
----------- -----------
Revenues
Gas Sales 61,000 134,000
Oil and condensates sales 2,471,000 3,267,000
Other income, net 245,000 101,000
----------- -----------
2,777,000 3,502,000
----------- -----------
Expenses
Lease operating expenses 1,255,000 1,602,000
Production taxes 281,000 368,000
General and administrative 353,000 456,000
----------- -----------
1,889,000 2,426,000
----------- -----------
EBITDA (1) 888,000 1,076,000
Depreciation, depletion
and amortization 785,000 715,000
----------- -----------
Income before interest and taxes 103,000 361,000
Interest expense 93,000 97,000
----------- -----------
Income before taxes 10,000 264,000
Income tax expense (benefit):
Current 4,000 106,000
Deferred (4,000) (106,000)
----------- -----------
Net income 10,000 264,000
=========== ===========
Per share data:
Net income $ 0.00 $ 0.03
=========== ===========
Weighted average common shares 10,146,566 10,145,400
=========== ===========
(1) EBITDA is defined as earnings before interest, taxes, depreciation,
depletion and amortization. EBITDA is an analytical measure frequently used
by securities analysts and is presented to provide additional information
about the Company's ability to meet its future debt service, capital
expenditure and working capital requirements. EBITDA should not be
considered as a better measure of liquidity than cash flow from operations.
16
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2002 and 2001
During the three months ended March 31, 2002, the Company reported net
income of $10,000, a decrease from net income of $0.3 million for the
corresponding period in 2001. This decrease is primarily due to the following
factors:
Oil and Gas Revenues. For the three months ended March 31, 2002, the
Company reported oil and gas revenues of $2.5 million, a decrease from $3.4
million for the comparable period in 2001. This decrease was due principally to
a 29% decrease in oil prices from $28.85 to $20.43 for the three months ended
March 31, 2001 and 2002, respectively. The decrease in total revenues due to
lower product prices was partially offset by an increase in production for the
three months ended March 31, 2002 as compared to the same period in 2001. This
increase in production was due to the new oil production generated from the
Company's drilling program initiated during the first quarter of 2001.
The following table summarizes the Company's oil and gas production and
related pricing for the three months ended March 31, 2002 and 2001:
Three Months Ended March 31,
2002 2001
---- ----
Oil production volumes (Mbbls) 121 113
Gas production volumes (Mmcf) 19 13
Average oil price (per Bbl) $20.43 $28.85
Average gas price (per Mcf) $3.15 $10.51
Operating Expenses. Lease operating expenses decreased $0.3 million from
$1.6 million for the three months ended March 31, 2001 to $1.3 million for the
comparable period in 2002. This decrease was due primarily to a $.44 million
decrease in gas lift costs for the three months ended March 31, 2002 as compared
to the same period in 2001, which was partially offset by increases in various
other operating costs. This decrease in gas lift costs was a result of lower
prices paid for gas used for gas lift during the first quarter of 2002 as
compared to the same period in 2001.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased $.07 million from $.72 million for the three months ended
March 31, 2001 to $.79 million for the comparable period in 2002. This increase
was attributable primarily to an increase in production to 124 MBOE's for the
three months ended March 31, 2002 as compared to 115 MBOE's for the same period
in 2001.
General and Administrative Expenses. General and administrative expenses
decreased 23% from $.46 million for the three months ended March 31, 2001 to
$.35 million for the comparable period in 2002. This decrease is due mainly to
a general and administrative expense reimbursement of $.12 million by entities
that have similar controlling interests as those controlling the Company. This
administrative expense reimbursement began subsequent to the first quarter of
2001. However, only $18,000 of reimbursements related to the period ended March
31, 2001 were booked as a subsequent periods reduction of general and
administrative expenses in 2001.
17
Interest Expense. Interest expense decreased slightly from $.97 million
for the three months ended March 31, 2001 to $.93 million for the comparable
period in 2002. This decrease was primarily due to the settlement of the
disputed amounts with Texaco in April 2001. Previously, the Company was accruing
interest expense related to the unsettled and disputed amounts. This decrease
was partially offset by an increase in average debt outstanding due to the loan
from related party. See Note 5 to Financial Statements.
Income Taxes. As of December 31, 2001, the Company had a net operating
loss carryforward of approximately $83 million, in addition to numerous timing
differences which gave rise to a deferred tax asset of approximately $47
million, which was fully reserved by a valuation allowance at that date.
Utilization of net operating loss carryforwards and other timing differences
will be recognized as a reduction in income tax expense in the year utilized. A
current tax provision of $4,000 was provided for the three-month period ended
March 31, 2002, which was fully offset by an equal income tax benefit due to
operating loss carryforwards.
Capital Expenditures, Capital Resources and Liquidity
Net cash flow provided by operating activities for the three-month period
ended March 31, 2002 was $.66 million, as compared to net cash flow provided of
$5.8 million for the comparable period in 2001. This decrease was primarily due
to a decrease in the Company's accounts payable as a result of the completion of
the Company's drilling program initiated in January 2001 offset by the gain on
the settlement of amounts previously in dispute with Texaco.
Net cash used in investing activities during the three months ended March
31, 2002 was $.80 million as compared to $7.5 million used during the same
period of 2001. This decrease was a result of the Company's drilling program it
initiated and completed in 2001.
Net cash provided in financing activities for the three months ended March
31, 2002 was $2.4 million as compared to net cash used of $.21 million during
the same period of 2000. The increase is primarily a result of the initial
proceeds received as a result of the Private Placement Offering initiated in
March 2002. See Note 9 to the Financial Statements.
Capital Expenditures. During the three months ended March 31, 2002,
Gulfport invested $.73 million in oil and gas properties and other property and
equipment as compared to $7.4 million invested during the comparable period in
2001. The $.73 million the Company spent in the first three months of 2002 was
spent on workover activity on existing wells.
During the three month period ended March 31, 2002, Gulfport financed its
capital expenditures payment requirements with cash flows provided by
operations, borrowings under the Company's credit facilities and borrowings from
a related third party.
Gulfport's strategy is to continue to increase cash flows generated by its
properties by undertaking new drilling, workover, sidetrack and recompletion
projects in the fields to exploit its extensive reserves. The Company has
upgraded its infrastructure by enhancing its existing facilities to increase
operating efficiencies, increase volume capacities and lower lease operating
expenses. Additionally, Gulfport completed the reprocessing of its 3-D seismic
data in its principal property, West Cote Blanche Bay. The reprocessed data will
enable the Company's geophysicists to generate new prospects and enhance
existing prospects in the intermediate zones in the field thus creating a
portfolio of new drilling opportunities in the most prolific depths of the
field.
18
Capital Resources. On July 11, 1997 Gulfport entered into a $15,000,000
credit facility with ING (U.S.) Capital Corporation ("ING"). During 1998 and
1999, there were two amendments to the facility and the maturity date was reset
to September 30, 2000. On September 28, 2000, the Company repaid in full its
credit facility at ING and established a new credit facility at Bank of Oklahoma
("BOK"). Gulfport was advanced $1.6 million on this new facility, which called
for interest payments to be made monthly in addition to twelve monthly principal
payments of $100,000, with the remaining unpaid balance due on August 31, 2001.
On March 22, 2001, Gulfport executed a new note with BOK increasing the
availability to $1,760,000, increasing the monthly payments slightly to $110,000
beginning July 1, 2001 and extending the maturity date to October 1, 2002. This
new note replaces the original BOK note dated September 28, 2000. In April 2001,
the Company borrowed the amount remaining and available on its BOK credit
facility.
On May 22, 2001, the Company entered in to a revolving line of credit
agreement with Gulfport Funding, LLC, ("Gulfport Funding") which has ownership
in common with the Company. Under the terms of the agreement, the Company may
borrow up to $3,000,000, with borrowed amounts bearing interest at Bank of
America Prime Rate plus four percent. All outstanding principal amounts along
with accrued interest are due on February 22, 2002. At March 29, 2002, the
Company had borrowed the $3,000,000 available under this line. As a result of
the Private Placement Offering initiated in March 2002, this debt along with its
accumulated interest was retired in exchange for shares of preferred stock and
related detachable warrants.
The Company has initiated discussions with Bank of Oklahoma and is
attempting to put in place a larger and longer-term revolving credit facility.
The Company cannot be sure however that it will be successful.
The Company is currently consulting with its financial advisors to
determine how to take advantage of the current market whether through internal
value creation or a capital markets transaction.
Liquidity. The primary capital commitments faced by the Company are the
capital requirements needed to continue developing the Company's proved reserves
and to continue meeting the required principal payments on its Credit
Facilities.
In Gulfport's January 1, 2002 reserve report, 85% of Gulfport's net
reserves were categorized as proved undeveloped. The proved reserves of
Gulfport will generally decline as reserves are depleted, except to the extent
that Gulfport conducts successful exploration or development activities or
acquires properties containing proved developed reserves, or both.
To realize reserves and increase production, the Company must continue its
exploratory drilling, undertake other replacement activities or utilize third
parties to accomplish those activities. In the year 2002, Gulfport expects to
undertake an intermediate drilling program. It is anticipated that these reserve
development projects will be funded either through the use of cash flow from
operations when available, funds received through its Preferred Stock Offering,
interim bank financing or related third party financing, a long-term credit
facility or by accessing the capital markets. The cash flow generated from these
new projects will be used to make the Company's
19
required principal payments on its debt with the remainder reinvested in the
field to complete more capital projects.
COMMITMENTS
Plugging and Abandonment Funds
In connection with the acquisition of the remaining 50% interest in the
WCBB properties, the Company assumed the obligation to contribute approximately
$18,000 per month through March 2004 to a plugging and abandonment trust and the
obligation to plug a minimum of 20 wells per year for 20 years commencing March
11, 1997. Texaco retained a security interest in production from these
properties and the plugging and abandonment trust until such time the Company's
obligations to Texaco have been fulfilled. Once the plugging and abandonment
trust is fully funded, the Company can access it for use in plugging and
abandonment charges associated with the property. As of March 31, 2002, the
plugging and abandonment trust totaled $2,335,000. These funds are invested in
a U.S. Treasury Money Market.
During March 2002, Gulfport began to fulfill its yearly plugging commitment
of 20 wells at WCBB for the twelve-month period ending March 31, 2002. As of
the date of this filing, the plugging had been completed.
In addition, the Company has letters of credit totaling $200,000 secured by
certificates of deposit being held for plugging costs in the East Hackberry
field. Once specific wells are plugged and abandoned the $200,000 will be
returned to the Company.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Gulfport has been named as a defendant in various lawsuits. The ultimate
resolution of these matters is not expected to have a material adverse effect on
the Company's financial condition or results of operations for the periods
presented in the financial statements.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 5, 2002, the holders of a majority of the outstanding shares of
the Company's common stock executed a written consent electing five directors
for the next year.
ITEM 5. OTHER INFORMATION
None
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2.1 Form 8-K filed on March 8, 2002 between registrant and Gulfport
Funding, LLC.
10.1 Credit Agreement dated June 28, 2000 between Registrant and Bank of
Oklahoma filed March 31, 2001 (1)
10.2 Stock Option Plan filed March 30, 2001 (1)
10.3 Credit Agreement dated February 1, 2001 between Registrant and Bank of
Oklahoma (1)
10.4 Credit Agreement dated May 22, 2001 between Registrant and Gulfport
Funding, LLC (1)
10.5 Warrant Agreement dated May 22, 2001 between Registrant and Gulfport
Funding, LLC (1)
10.6 Promissory Note dated May 22, 2001 between Registrant and Gulfport
Funding, LLC (1)
10.7 Confidential Disclosure Statement Relating to Offer and Sale of Up to
10,000 Units dated March 29, 2002
- --------------------------------------------------------------------------------
(1) Previously filed as an exhibit to Form 10-K for the year ended
December 31, 2001, and incorporated herein by reference.
21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GULFPORT ENERGY CORPORATION
Date: May 14, 2002
/s/Mike Liddell
-----------------------------------------
Mike Liddell
Chief Executive Officer
/s/Mike Moore
-----------------------------------------
Mike Moore
Chief Financial Officer
22
Gulfport Energy Corporation
CONFIDENTIAL DISCLOSURE STATEMENT
Relating to its Offer and Sale of
Up to 10,000 Units
Each Unit Consisting of
One Share of Cumulative Preferred Stock, Series A, par value $0.01 per share,
And
One Warrant to Purchase 250 Shares of Common Stock, par value $0.01 per share.
Purchase Price: $1,000.00 per Unit
Estimated Proceeds of $10,000,000
PROSPECTIVE INVESTORS SHOULD REVIEW AND CONSIDER CAREFULLY THE DISCUSSION
UNDER "SPECIAL CONSIDERATIONS AND RISK FACTORS" IN THIS CONFIDENTIAL DISCLOSURE
STATEMENT OF GULFPORT ENERGY CORPORATION (THE "COMPANY") TOGETHER WITH THE
INFORMATION SET FORTH IN THE PUBLICLY AVAILABLE DOCUMENTS REGARDING THE COMPANY
LISTED IN THIS CONFIDENTIAL DISCLOSURE STATEMENT, WHICH INFORMATION IS
INCORPORATED HEREIN BY REFERENCE.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES
COMMISSION. NEITHER THE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS CONFIDENTIAL DISCLOSURE STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ANY BENEFITS NORMALLY
ACCRUING TO INVESTORS BY REVIEW OF AN OFFERING BY THE COMMISSION WILL NOT BE
AVAILABLE. THE SECURITIES OFFERED HEREBY ARE "RESTRICTED" SECURITIES UNDER
FEDERAL AND STATE SECURITIES LAWS AND CANNOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT of 1933, as amended, AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
THIS CONFIDENTIAL DISCLOSURE STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL
OR SOLICITATION OF AN OFFER TO BUY TO ANYONE OTHER THAN THE PROSPECTIVE INVESTOR
NAMED BELOW, OR TO ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT AUTHO-RIZED. ANY REPRODUCTION OR DISTRIBUTION OF THIS
CONFIDENTIAL DISCLOSURE STATEMENT, IN WHOLE OR IN PART, OR THE DIVULGENCE OF ANY
OF ITS CONTENTS WITH-OUT THE PRIOR WRITTEN CONSENT OF THE COMPANY, IS
PROHIB-ITED. BY ACCEPTING DELIVERY OF THIS CONFIDENTIAL DISCLOSURE STATEMENT,
THE OFFEREE AGREES NOT TO TRANSFER IT AND TO RETURN IT AND ALL RELATED
DOCU-MENTS TO THE COMPANY IF THE OFFEREE DOES NOT UNDERTAKE TO PURCHASE ANY OF
THE SECURITIES OFFERED HEREBY. EACH PROSPECTIVE INVESTOR REMAINS BOUND BY THE
TERMS AND CONDITIONS OF THE NON-DISCLOSURE AND RESTRICTED TRADING AGREEMENT
BETWEEN THE COMPANY AND SUCH PROSPECTIVE INVESTOR, THE FORM OF WHICH IS ATTACHED
HERETO AS EXHIBIT B.
MARCH 2002
Prospective Investor:____________
No.:_________
THIS OFFERING IS BEING MADE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND THE
REGULATIONS THEREUNDER FOR AN OFFER AND SALE OF SECURITIES THAT DOES NOT INVOLVE
A PUBLIC OFFERING. THE SECURITIES OFFERED HEREBY MAY NOT BE TRANSFERRED, SOLD
OR OTHERWISE DISPOSED OF, EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM
AND EXCEPT AS PERMITTED UNDER THE TRANSACTION DOCUMENTS (AS DEFINED ON PAGE 3).
EACH PROSPECTIVE INVESTOR SHOULD PROCEED ON THE ASSUMPTION THAT SUCH PROSPECTIVE
INVESTOR MAY BE REQUIRED TO BEAR THE ECONOMIC RISK OF AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY FOR AN INDEFINITE PERIOD OF TIME. SEE "SPECIAL
CONSIDERATIONS AND RISK FACTORS" AND "INVESTOR SUITABILITY REQUIREMENTS."
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF
THIS CONFIDENTIAL DISCLOSURE STATEMENT, THE OTHER DOCUMENTS DELIVERED HEREWITH,
OR ANY OTHER COMMUNICATION FROM THE COMPANY OR ANY REPRESENTATIVE THEREOF AS
INVESTMENT OR LEGAL ADVICE. THIS CONFIDENTIAL DISCLOSURE STATEMENT AND THE
OTHER DOCUMENTS DELIVERED HEREWITH, AS WELL AS THE NATURE OF AN INVESTMENT IN
THE SECURITIES OFFERED HEREBY, SHOULD BE REVIEWED BY EACH PROSPECTIVE INVESTOR
AND SUCH INVESTOR'S INVESTMENT, TAX, LEGAL, ACCOUNTING AND OTHER ADVISORS.
THIS INVESTMENT IS SUITABLE ONLY FOR INVESTORS OF SUBSTANTIAL MEANS WHO HAVE NO
NEED OF LIQUIDITY IN THEIR INVESTMENT. SEE "INVESTOR SUITABILITY REQUIREMENTS."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. IN ADDITION, THERE
IS NO PUBLIC OR OTHER MARKET FOR THE SECURITIES OFFERED HEREBY NOR IS THERE ANY
ASSURANCE THAT A MARKET WILL DEVELOP. SEE "SPECIAL CONSIDERATIONS AND RISK
FACTORS."
- --------------------------------------------------------------------------------
2
In this Confidential Disclosure Statement, any references to "Company", "we",
"our", and "us" refer to Gulfport Energy Corporation, a Delaware corporation and
its predecessor.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder and, in accordance therewith, files annual
and quarterly reports, proxy/information statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports,
proxy/information statements and other information filed with the Commission may
be inspected and copied at the public reference facilities maintained by the
Commission, Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549, and at the offices of the Commission's New York Regional Office, 233
Broadway, New York, New York 10279, and the Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of theses materials may be obtained from the Public Reference Section of
the Commission, Room 1024, 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. In addition, the Commission maintains a Web site on the
Internet that contains reports, proxy and information statements and other
information regarding registrants, such as the Company, that file such reports,
statements and information electronically with the Commission. The Commission's
Web site address is http://www.sec.gov. The Company's Common Stock is listed
for quotation on the NASD's Over-the-Counter Bulletin Board under the symbol
"GPOR".
The following publicly-available documents regarding the Company are
incorporated by reference and made a part of this Confidential Information
Statement, and shall be deemed to be delivered to the prospective investor
listed on the first page of this Confidential Disclosure Statement in connection
with the delivery of this Confidential Disclosure Statement (collectively, the
"SEC Documents").
1. Form 10-K Annual Report for the year ended December 31, 2000.
2. Form 10-K Annual Report for the year ended December 31, 1999.
3. Form 10-K Annual Report for the year ended December 31, 1998.
4. Form 8-K dated March 12, 2002 relating to the Company's agreement
with Gulfport Funding LLC.
5. Form 10-Q Quarterly Report for the quarterly period ended September
30, 2001.
6. DEF 14C - Information Statement on Schedule 14C dated December 16,
2001, in connection with the election of directors.
7. Form 10-Q Quarterly Report for the quarterly period ended June 30,
2001.
8. Form 10-Q Quarterly Report for the quarterly period ended March 31,
2001.
The Company expects to file its 10-K for the year ended December 31, 2001
on Monday April 1, 2002 (the "2001 10-K"). Copies of the 2001 10-K should be
available either on the Commission's Web site set forth above or, alternatively,
at http://www.freeedgar.com beginning on April 1, 2001. If you would like a
copy of the 2001 10-K sent to you, please contact Lisa Holbrook, Esq. at the
Company at (405) 848-8807 ext. 104. Upon filing, the 2001 10-K shall be deemed
to be delivered to the prospective investor listed on the first page of this
Confidential Disclosure Statement and, thereafter, shall be included in the
defined term "SEC Documents".
This Confidential Information Statement contains summaries of certain provisions
of the documents that will govern the purchase and sale of the Units (the
"Transaction Documents"), forms of which are attached hereto as Exhibits C-F
(see below).
The summaries do not purport to be complete and are qualified in their entirety
by reference to the texts of the Transaction Documents. Copies of the documents
that have been referred to in this Confidential Disclosure Statement (including,
without limitation, the SEC Documents and the Transaction Documents) have either
been provided to prospective investors as part of this Confidential Disclosure
3
Statement or are available from us upon request. Investors must not rely upon
any representations or information other than as set forth in the SEC Documents,
the Transaction Documents, this Confidential Information Statement and in any
documents referred to herein available from us upon request.
Attached hereto as exhibits, are the following documents:
Exhibit A Unaudited Balance Sheet, Income Statement and Statement of
Cash Flow for the Company for the year ended December 31,
2001 (the "2001 Unaudited Financials").
Exhibit B Form of Non-Disclosure and Restricted Trading Agreement.
Exhibit C Form of Securities Purchase Agreement.
Exhibit D Form of Registration Rights Agreement.
Exhibit E Form of Warrant.
Exhibit F Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of the
Company's Cumulative Preferred Stock, Series A, par value
$0.01 per share, and Qualifications Limitations and
Restrictions thereof.
Exhibit G Investor Qualifications
The 2001 Unaudited Financials are incorporated by reference herein and
deemed to form a part of this Confidential Disclosure Statement.
Each prospective investor will be given an opportunity to ask questions of,
and receive answers from, us and our officers and directors concerning the terms
and conditions of this offering and to obtain any additional information, to the
extent that we possess such information or can acquire it without unreasonable
effort or expense, as necessary to verify the accuracy of the information
contained in this Confidential Disclosure Statement. Questions regarding this
Confidential Disclosure Statement or written requests for additional information
should be directed to:
GULPORT ENERGY CORPORATION
6307 WATERFORD BLVD., SUITE 100
OKLAHOMA CITY, OKLAHOMA 73118
ATTENTION: LISA HOLBROOK, GENERAL COUNSEL, VICE PRESIDENT AND
SECRETARY
TELEPHONE: (405) 848-8807 ext. 104
THE RECIPIENT, BY ACCEPTING DELIVERY OF THIS CONFIDENTIAL DISCLOSURE STATEMENT,
AGREES TO OBSERVE THE CONFIDENTIAL NATURE OF THIS CONFIDENTIAL DISCLOSURE
STATEMENT, AND AGREES NOT TO DUPLICATE, REPRODUCE OR DISTRIBUTE THIS
CONFIDENTIAL DISCLOSURE STATEMENT, EXCEPT TO HIS, HER OR ITS LEGAL COUNSEL,
OTHER ADVISORS, OR DULY APPOINTED PURCHASER REPRESENTATIVE, IN EACH CASE ONLY TO
THE EXTENT THAT SUCH THIRD PARTY AGREES TO BE BOUND BY THE TERMS OF THE
NON-DISCLOSURE AND RESTRICTED TRADE AGREEMENT TO WHICH THE RECIPIENT IS BOUND.
THE RECIPIENT WILL NOT USE OR DISCLOSE ANY OF THE INFORMATION CONTAINED HEREIN
IN ANY FASHION OR MANNER DETRIMENTAL TO US. THE RECIPIENT AGREES TO RETURN THE
CONFIDENTIAL DISCLOSURE STATEMENT AND ALL OTHER RELATED DOCUMENTS TO US
IMMEDIATELY IF THE RECIPIENT DECIDES NOT TO INVEST IN THE SECURITIES OFFERED
HEREBY.
4
DISCLOSURE regarding FORWARD-LOOKING STATEMENTS
This Confidential Disclosure Statement contains, and incorporates by
reference, forward-looking statements and information relating to us, as well as
our business and operations. We intend to identify forward-looking statements in
this Confidential Disclosure Statement by using words such as "believes,"
"intends," "expects," "may," "will," "should," "plan," "projected,"
"contemplates," "anticipates," or similar statements. These statements are based
on our beliefs as well as assumptions we made using information currently
available to us. Because these statements reflect our current views concerning
future events, these statements involve risks, uncertainties, and assumptions.
Our actual future results may differ significantly from the results discussed in
the forward-looking statements in this Confidential Disclosure Statement. Some,
but not all, of the factors that may cause this kind of difference include those
which we discuss in the special considerations and risk factors included herein.
The Offering
The Company is hereby offering (the "Offering") for sale 10,000 Units (a
"Unit"), each Unit consisting of (i) one (1) share of Cumulative Preferred
Stock, Series A, par value $0.01 per share ("Series A Preferred Stock"), of the
Company and (ii) a warrant (a "Warrant", together will all warrants sold in the
Offering, the "Warrants") to purchase up to 250 shares (subject to adjustment
upon certain events) of common stock, par value $0.01 per share ("Common
Stock"), of the Company, each as described in more detail in the summary of
principal terms included in this Confidential Disclosure Statement in Schedule I
hereto (the "Summary of Principal Terms"). NOTE - The Summary of Principal Terms
is qualified in its entirely by reference to the Transaction Documents. The
purchase price is $1,000 per Unit.
The Units are being offered to certain stockholders of the Company which
are "accredited investors" as that term is defined in Rule 501(a) of Regulation
D promulgated by the Commission. Each offeree of Units shall be entitled to
purchase up to a percentage of the Units offered hereby equal to such offeree's
beneficial ownership percentage of the Company's Common Stock as of December 31,
2001, subject to possible increase at the Company's sole discretion. Attached
hereto as Exhibit G are the Investor Qualifications to be met by each investor
who purchases Units.
Investors who purchase Units must execute and deliver a Securities Purchase
Agreement and Registration Rights Agreement, substantially in the forms attached
hereto as Exhibit C and Exhibit D, respectively. The Securities Purchase
Agreement sets forth, among other matters, certain representations and
warranties which will be made by us and the investors who purchase Units.
EACH OFFEREE SHOULD READ AND EVALUATE THE TRANSACTION DOCUMENTS (INCLUDING
WITHOUT LIMITATION THE SECURITIES PURCHASE AGREEMENT AND THE REGISTRATION RIGHTS
AGREEMENT) CAREFULLY WHEN DETERMINING WHETHER TO INVEST IN THE UNITS OFFERED
HEREBY.
The Offering will terminate on April 15, 2002 (the "Offer Termination
Date"); provided, however, that Mike Liddell, our Chief Executive Officer shall
have the right to purchase up to 746.208 Units (the "Liddell Units") on or prior
to September 30, 2002. There will be an initial closing of the Offering on
March 29, 2002. Any Units offered by the Company (other than the Liddell Units)
but not sold on or prior to the Offer Termination Date, shall be purchased by
Gulfport Funding LLC, a Delaware limited liability company ("Gulfport Funding")
on the Offer Termination Date. Gulfport Funding is affiliated with Chuck
Davidson and Wexford Capital, LLC, each of which is in turn affiliated with the
Company.
The Units are being offered and sold to investors by the Company directly
and not through a placement agent.
THIS CONFIDENTIAL DISCLOSURE STATEMENT IS THE EXCLUSIVE OFFERING DOCUMENT
RELATING TO THE OFFERING. PROSPECTIVE INVESTORS SHOULD NOT RELY ON ANY
INFORMATION NOT CONTAINED IN THIS CONFIDENTIAL DISCLOSURE STATEMENT OR
INCORPORATED HEREIN BY REFERENCE.
5
USE OF PROCEEDS
The cash proceeds to us from the sale of the Units offered hereby is
expected to be approximately $6.75 million (including sale of the Liddell
Units). The Company has agreed to sell approximately 3,252 of the Units to
Gulfport Funding, in consideration of the surrender by Gulfport Funding of a
promissory note dated May 22, 2001 in the principal amount of $3.0 million (the
"Gulfport Funding Note") and cancellation of accrued and unpaid interest thereon
of approximately $252,000. We intend to use the cash proceeds of this Offering
of approximately $6.75 million to finance our drilling and exploration
operations in West Cote Blanche Bay, Louisiana through the drilling of
approximately 10 additional wells on the property and for general corporate
purposes.
THE COMPANY
Prospective investors are directed to the Company's SEC Documents for a
description of the Company's properties (including West Cote Blanche Bay) and
operations. Set forth below is certain supplemental information concerning the
Company, its current and contemplated operations and certain financing plans,
for consideration by a prospective investor in determining whether to invest in
the Units.
Agreement with Gulfport Funding. On May 22, 2001, the Company entered
into a revolving line of credit agreement with Gulfport Funding, which is
wholly-owned by one of the Company's stockholders. Under the terms of the
agreement, the Company has borrowed $3 million with interest accruing thereon at
Bank of America Prime Rate plus 4%, evidenced by the Gulfport Funding Note. All
outstanding principal amounts together with accrued interest thereon became due
on February 22, 2002. On March 8, 2001, the Company entered into a letter
agreement (the "Gulfport Funding Agreement") with Gulfport Funding pursuant to
which, among other things, the Company agreed to offer and sell the Units
offered hereby to certain of its stockholders and Gulfport Funding agreed to
purchase such of the Units offered by the Company not otherwise sold to such
offerees on the terms set forth in the Summary of Principal Terms attached
hereto as Schedule I. In connection therewith, the Company agreed to accept
surrender of the Gulfport Funding Note to the Company for cancellation and
cancellation of the accrued and unpaid interest thereon, in partial payment for
the Units to be purchased by Gulfport Funding. A summary of the Gulfport
Funding Agreement is provided in the Company's report on Form 8-K filed with the
Commission on March 12, 2002, a copy of which is available from the Company upon
request.
Contemplated Debt Offering. The Company has retained Jefferries & Company,
Inc. to conduct a senior secured notes offering in an amount currently expected
to be $25 million. If the note offering is completed the Company's debt will be
increased to approximately $26 million. While no assurances can be made that
the note offering will be completed, we currently anticipate completion of the
offering in the second quarter of 2002. We currently contemplate that the net
proceeds from the note offering would be used primarily to finance additional
exploration and development operations in West Cote Blanche Bay and to shoot 3-D
seismic at East Hackberry.
Current Exploration and Exploitation Plans. The Company has identified 170
developmental wells and 36 workovers to be completed at West Cote Blanche Bay.
The Company currently has plans to drill eight developmental wells, one
horizontal well and one shallow exploratory well. The Company hopes that the
cash flow generated from this drilling program will allow the Company to
contract a drilling rig continuously for one year.
6
SPECIAL CONSIDERATIONS AND RISK FACTORS
You should carefully consider the following matters, as well as the other
information contained in this Confidential Disclosure Statement, before making
an investment decision. Information contained in this Confidential Disclosure
Statement contains "forward-looking statements," which are qualified by the
information contained in the section of this Confidential Disclosure Statement
entitled "Disclosure Regarding Forward-Looking Statements." If any of the risks
described below materialize, our ability to satisfy our obligations to the
holders of the Series A Preferred Stock and the trading price of our Common
Stock could be adversely affected.
Considerations and Risks Relating to Our Business and the Company
Oil and natural gas prices are volatile.
Fluctuations in the prices of oil and natural gas will affect many aspects
of our business, including:
- our revenues, cash flows and earnings;
- our ability to attract capital to finance our operations;
- our cost of capital;
- the amount we are allowed to borrow under our senior credit
facilities; and
- the value of our oil and natural gas properties.
Both oil and natural gas prices are extremely volatile. Oil prices are
determined by international supply and demand. Political developments,
compliance or non-compliance with self-imposed quotas, or agreements between
members of the Organization of Petroleum Exporting Countries can affect world
oil supply and prices. Any material decline in prices could result in a
reduction of our net production revenue and overall value. The economics of
producing from some wells could change as a result of lower prices. As a
result, we could elect not to produce from certain wells. Any material decline
in prices could also result in a reduction in our oil and natural gas
acquisition and development activities.
We are in technical breach of our obligations to Texaco as a result of which
Texaco has the right to take control of our revenue from the West Cote Blanche
Bay
In connection with the Company's acquisition from Texaco Exploration and
Production, Inc. ("Texaco") of its West Cote Blanche Bay properties, the
Company, among other things, agreed to plug a minimum of 20 wells per year for
20 years to be completed by March 17 of each year. The Company has engaged a
local contractor to plug the twenty wells for the 2001 commitment that was due
by March 17, 2002. However, due to equipment and crew unavailability the
contractor has not completed the plugging of the wells. It is anticipated that
the plugging program due to have been completed by March 17, 2002 will be
completed by mid-April 2002. Texaco has not declared the Company in default for
not meeting the March 17, 2002 deadline. The Company does not anticipate that
the tardiness in fulfilling this commitment will have a material adverse effect
on the Company.
You should not unduly rely on reserve information because reserve information
represents estimates.
Estimates of oil and natural gas reserves involve a great deal of
uncertainty, because they depend in large part upon the reliability of available
geologic and engineering data, which is inherently imprecise. Geologic and
engineering data are used to determine the probability that a reservoir of oil
and natural gas exists at a particular location, and whether oil and natural gas
are recoverable from a reservoir. Recoverability is ultimately subject to the
accuracy of data regarding, among other factors:
- geological characteristics of the reservoir structure;
- reservoir fluid properties;
- the size and boundaries of the drainage area; and
- reservoir pressure and the anticipated rate of pressure depletion.
7
The evaluation of these and other factors is based upon available seismic
data, computer modeling, well tests and information obtained from production of
oil and natural gas from adjacent or similar properties, but the probability of
the existence and recoverability of reserves is less than 100% and actual
recoveries of proved reserves usually differ from estimates, in some instances
significantly.
Estimates of oil and natural gas reserves also require numerous assumptions
relating to operating conditions and economic factors, including, among others:
- the price at which recovered oil and natural gas can be sold;
- the costs associated with recovering oil and natural gas;
- the prevailing environmental conditions associated with drilling and
production sites;
- the availability of enhanced recovery techniques;
- the ability to transport oil and natural gas to markets; and
- governmental and other regulatory factors, such as taxes and
environmental laws.
A change in any one or more of these factors could result in known
quantities of oil and natural gas previously estimated as proved reserves
becoming unrecoverable. For example, a decline in the market price of oil or
natural gas to an amount that is less than the cost of recovery of such oil and
natural gas in a particular location could make production thereof commercially
impracticable. Each of these factors, by having an impact on the cost of
recovery and the rate of production, will also affect the present value of
future net cash flows from estimated reserves.
In addition, estimates of reserves and future net cash flows expected from
them prepared by different independent engineers or by the same engineers at
different times may vary substantially.
In addition, in accordance with GAAP, we could be required to write down
the carrying value of our oil and natural gas properties if oil and natural gas
prices become depressed for even a short period of time, or if there are
substantial downward revisions to our quantities of proved reserves. A write
down would result in a charge to earnings and a reduction of stockholders'
equity.
We might be unable to replace reserves that we have produced.
Our future success depends upon our ability to find, develop and acquire
additional oil and gas reserves that are economically recoverable. Without
successful exploration, exploitation or acquisition activities, our reserves,
revenues and cash flow may decline. We cannot assure you that we will be able
to find and develop or acquire additional reserves at an acceptable cost.
We might not be able to develop our reserves or make acquisitions if we are
unable to generate sufficient cash flow or raise capital.
We will be required to make substantial capital expenditures to develop our
existing reserves and to discover new oil and gas reserves. Historically, we
have financed these expenditures primarily with cash from operations, proceeds
from bank borrowings and proceeds from the sale of debt and equity securities.
We cannot assure you that we will be able to generate sufficient cash flow or
raise capital in the future. We also make offers to acquire oil and gas
properties in the ordinary course of our business. If these offers are
accepted, our capital needs may increase substantially.
Information in this Confidential Disclosure Statement regarding our future
exploitation and exploration projects reflects our current intent and is subject
to change.
We describe our current exploitation and exploration plans in this
Confidential Disclosure Statement. Whether we ultimately undertake an
exploitation or exploration project will depend on the following factors:
- availability and cost of capital;
8
- current and projected oil or gas prices;
- the costs and availability of drilling rigs and other equipment supplies
and personnel necessary to conduct these operations;
- success or failure of activities in similar areas;
- changes in the estimates of the costs to complete the project.
We will continue to gather data about our projects and it is possible that
additional information will cause us to alter our schedule or determine that a
project should not be pursued at all. You should understand that our plans
regarding our projects might change.
Drilling activities are subject to many risks.
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. We cannot assure you
that new wells we drill will be productive or that we will recover all or any
portion of our investment. Drilling for oil and natural gas could involve
unprofitable efforts, not only from dry wells, but from wells that are
productive but do not produce enough net revenue to return a profit after
drilling, operating and other costs. The cost of drilling, completing and
operating wells is often uncertain. Our drilling operations cold be curtailed,
delayed or canceled as a result of numerous factors, many of which are beyond
our control, including:
- adverse weather conditions;
- compliance with governmental requirements; and
- shortages or delays in the delivery of equipment and services.
Our operations are affected by operating hazards and uninsured risks.
There are many operating hazards in exploring for and producing oil and
natural gas, including:
- our drilling operations could encounter unexpected formations or
pressures that could cause damage to equipment or personal injury;
- we could experience blowouts, accidents, oil spills, fires or other
damage to a well that could require us to redrill it or take other
corrective action;
- we could experience equipment failure that curtails or stops production;
- our drilling and production operations, such as trucking of oil, are
often interrupted by bad weather; and
- we could be unable to access our properties or conduct our operations
due to surface conditions.
Any of these events could result in damage to or destruction of oil and
natural gas wells, production facilities or other property, or injury to
persons. In addition, any of the above events could result in environmental
damage or personal injury for which we will be liable.
We cannot assure you that we will be able to maintain adequate insurance at
rates we consider reasonable to cover our possible losses from operating
hazards. The occurrence of a significant event not fully insured or indemnified
against could seriously harm our financial condition and operating results.
Furthermore, we cannot assure you of the continued availability of insurance or
its availability at commercially acceptable prices.
Complying with environmental and other government regulations could be costly
and could negatively impact our production.
Our operations are governed by numerous laws and regulations at the state
and federal level. These laws and regulations govern the operation and
maintenance of our facilities, the discharge of materials into the environment
and other environmental protection issues. The laws and regulations may, among
other potential consequences:
9
- require that we acquire permits before commencing drilling;
- restrict the substances that can be released into the environment in
connection with drilling and production activities;
- limit or prohibit drilling activities on protected areas such as
wetlands or wilderness areas;
- require the reclamation measures to mitigate pollution from former
operations, such as plugging abandoned wells and remediating
contaminated soil and groundwater; and
- require remedial measures be taken with respect to property designated
as a contaminated site, for which we are a responsible person.
Under these laws and regulations, we could be liable for personal injury,
clean-up costs and other environmental and property damages, as well as
administrative, civil and criminal penalties. We maintain limited insurance
coverage for sudden and accidental environmental damages as well as
environmental damage that occurs over time. However, we do not believe that
insurance coverage for the full potential liability of environmental damages is
available at a reasonable cost. Accordingly, we could be liable, or could be
required to cease production on properties, if environmental damage occurs.
Although we currently believe that the costs of complying with
environmental laws and regulations will not have a material adverse effect on
our financial condition or results of operations, we cannot assure you that the
costs of complying with environmental laws and regulations in the future will
not have that kind of effect. Furthermore, future changes in environmental laws
and regulations could result in materially increased costs for us, and changes
could occur that result in stricter standards and enforcement, larger fines and
liability, and increased capital expenditures and operating costs, any of which
could have a material adverse effect on our financial condition or results of
operations.
Factors beyond our control affect our ability to market production.
Our ability to market oil and gas from our wells depends upon numerous
factors beyond our control. These factors include:
- the availability of capacity to refine oil;
- the availability of natural gas processing capacity;
- the availability of pipeline capacity;
- the supply of and demand for oil and natural gas;
- the availability of alternative fuel sources;
- the effects of inclement weather;
- federal and state regulation of oil and natural gas marketing.
Because of these factors, we could be unable to market all of the oil or
gas we produce. In addition, we could be unable to obtain favorable prices for
the oil and gas we produce.
Essential equipment might not be available.
Oil and natural gas exploration and development activities depend upon the
availability of drilling and related equipment in the particular areas where
those activities will be conducted. Demand for that equipment or access
restrictions may affect the availability of that equipment to us and delay our
exploration and development activities. Our breach of plugging obligations to
Texaco is attributable, in part, to the lack of availability of essential
equipment to perform such operations on a timely basis.
We operate in a highly competitive industry.
The oil and natural gas industry is highly competitive. Our competitors
include companies that have significantly greater financial and personnel
resources than we do. Our ability to acquire additional properties and to
discover reserves in the future depends upon our ability to evaluate and select
suitable properties and to complete transactions in a highly competitive
environment.
10
We depend upon key personnel.
We rely upon key employees and their expertise. If we lose any of our key
technical employees or executive officers, our operations could suffer.
Risks Relating to the Units
We are in the process of raising approximately $25 million in debt financing
which could be issued within a short time after the completion of this Offering.
Our increased debt level could limit flexibility in obtaining additional
financing and in pursuing business opportunities.
As of March 26, 2002, we have approximately $880,000 of senior debt,
represented primarily by our credit facility with Bank of Oklahoma which becomes
due on October 1, 2002. The Company has retained Jefferies & Company, Inc., an
investment bank, to conduct an offering of $25 million dollars of senior notes.
If that offering is completed the Company's debt will be increased to $25.9
million.
Our debt level will have important effects on our future obligations,
including:
- a portion of our cash flow could be used to pay interest and principal
on our debt and would not be available for other purposes;
- our ability to obtain additional financing for capital expenditures and
other purposes may be limited.
In addition, our ability to make scheduled payments (including, without
limitation, dividend and mandatory redemption payments in respect of the Series
A Preferred Stock) or to refinance our obligations on debt will depend upon our
financial and operating performance, which, in turn, depends upon prevailing
industry specific and general economic conditions that are beyond our control.
If our cash flow and capital resources are insufficient to fund our debt service
obligations, we might be forced to:
- reduce and/or delay scheduled capital expenditures;
- sell material assets or operations;
- obtain additional capital; or
- restructure our debt.
We cannot assure you that our operating performance, cash flow and capital
resources will be sufficient to repay our debt in the future or meet our
dividend payment and redemption obligations in respect of the Series A Preferred
Stock. If we are required to dispose of material assets or restructure our debt
to meet our debt service and other obligations, we cannot assure you about the
terms of any transaction or how soon any transaction could be completed.
If we borrow more money, the related risks described above could be
significantly increased. If we become insolvent or are liquidated, payment
under our debt instruments would be accelerated, and debtholders of the Company
will be entitled to exercise the remedies available under applicable law and
will have a claim on our assets before the holders of our equity securities
(including the Series A Preferred Stock and Warrants). We can not be sure the
liquidation value of our assets would be sufficient to repay in full the
obligations under the Series A Preferred Stock.
There will not be a liquid market for resale of the Units and any resale of the
Units will require the prior written consent of the Company.
We have not registered the Units, the Series A Preferred Stock or the
Warrants under the Securities Act or any state securities laws. Until we
register such securities, they may not be offered or sold except under an
exemption from, or in a transaction not subject to, the registration
11
requirements of the Securities Act and applicable state securities laws. In
addition, pursuant to the Securities Purchase Agreement under which the Units
are to be purchased and sold, the Units will not be transferable, in whole or in
part, without the prior written consent of the Company, which may be given or
withheld in the Company's sole discretion. We have agreed to use our best
efforts, in certain limited circumstances, to register the shares of Common
Stock issuable upon exercise of the Warrants under a shelf registration
statement. See "Restrictions on Resale."
Restrictions on Resale
Pursuant to the Securities Purchase Agreement pursuant to which the Units
will be sold (the form of which is attached as Exhibit B), the Units will not be
transferable, in whole or in part, without the prior written consent of the
Company, which may be given or withheld in the Company's sole discretion. In
addition, upon consummation of this Offering, all of the Units, Series A
Preferred Stock and the Warrants sold in this Offering will be deemed
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act, and may not be resold, except pursuant to registration under the
Securities Act or an exemption from registration, including an exemption
afforded by Rule 144, when such exemption becomes available. At the present
time, Rule 144 would not be available to holders of Units, Series A Preferred
Stock or Warrants due to the holding period required by Rule 144, the absence of
a public trading market for the Units, the Series A Preferred Stock or the
Warrants. We cannot make any representations or give any assurances as to the
future availability of a public market for the Units, Series A Preferred Stock
or the Warrants or the availability of Rule 144 to holders of restricted
securities. Therefore, an investor may be required to hold Units for an
indefinite period of time.
12
INVESTOR SUITABILITY REQUIREMENTS
We are offering the Units in reliance upon certain exemptions from the
registration and qualification requirements of federal and state securities
laws. We have established certain standards that must be met by persons who
wish to purchase the Units. All prospective investors must be capable of
evaluating the merits and risks of their investment and have a net worth or
income level sufficient to withstand a loss of their entire investment. Those
persons who wish to invest in the Units must meet all applicable criteria set
forth in Exhibit G attached hereto.
Restrictive Legend - Investor RepresentationsRestrictive Legend - Investor
Representations
Each of the shares of Series A Preferred Stock and certificates representing the
Warrants will be imprinted with a conspicuous legend stating that the securities
have not been registered under the Securities Act or qualified under the
securities laws of any state of the United States or other jurisdictions and
summarizing appropriate restrictions on transfer and sale.
The Securities Purchase Agreement accompanying this Confidential Disclosure
Statement contains representations and agreements on the part of investors
regarding (i) a prohibition on the sale or transfer of the Units (including the
Series A Preferred Stock and the Warrants) without the prior written consent of
the Company, in its sole discretion, and without registration and qualification
under the Securities Act, qualification under the securities laws of any state
of the United States and foreign securities laws or available exemptions
therefrom and (ii) appropriate restrictions on transfer and sale.
The legend appearing on any certificate representing shares of Series A
Preferred Stock or Warrants will be substantially in the following form:
"The securities evidenced hereby have not been registered under Federal or
applicable state securities laws and instead are being issued pursuant to
exemptions contained in said laws. The securities represented by this
certificate may not be transferred unless (1) a registration statement with
respect to such securities shall be effective under the Securities Act of 1933
(the "Securities Act") or (2) GULFPORT ENERGY CORPORATION (the "Company") shall
have received an opinion of counsel reasonably satisfactory to it that no
violation of THE SECURITIES act or similar state acts will be involved in such
transfer; provided that in the event such securities are transferred pursuant to
Rule 144, or any successor rule, under the Securities Act, no such opinion shall
be required unless requested in writing by the transfer agent of such
securities. The securities evidenced hereby are SUBJECT TO THE TERMS OF A
certain securities purchase agreement by and among the Company and certain
Stockholders identified therein, providing for certain restrictions on transfer,
including a requirement for the prior written consent of the Company. A COPY OF
SUCH SECURITIES PURCHASE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
COMPANY."
13
LEGENDS
NASAA UNIFORM LEGEND:
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
FOR RESIDENTS OF CALIFORNIA:
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA DOES NOT
RECOMMEND OR ENDORSE THE PURCHASE OF THESE SECURITIES. IT IS UNLAWFUL TO
CONSUMMATE A SALE OR TRANSFER OF THE SECURITIES OR ANY INTEREST THEREIN OR TO
RECEIVE ANY CONSIDERATION THEREFOR WITHOUT THE PRIOR CONSENT OF THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
THE SALE OF THE SECURITIES OFFERED HEREBY HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY SECTIONS 25100, 25102, OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE.
FOR RESIDENTS OF CONNECTICUT:
THE SECURITIES OFFERED HEREBY ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION
AND HAVE NOT BEEN REGISTERED UNDER SECTION 36-485 OF THE CONNECTICUT UNIFORM
SECURITIES ACT. THE SECURITIES OFFERED HEREBY CANNOT, THEREFORE, BE RESOLD OR
TRANSFERRED UNLESS THEY ARE REGISTERED UNDER THAT ACT OR UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
FOR RESIDENTS OF FLORIDA:
PURSUANT TO SECTION 517.061(11)(a)(5) OF THE FLORIDA SECURITIES ACT,
FLORIDA INVESTORS HAVE A RIGHT TO RESCIND THEIR SUBSCRIPTIONS WITHIN THREE
BUSINESS DAYS AFTER THE DELIVERY OF ANY CONSIDERATION FOR THE SECURITIES. YOUR
WITHDRAWAL WILL BE WITHOUT ANY FURTHER LIABILITY TO YOU. TO ACCOMPLISH SUCH
WITHDRAWAL, YOU NEED ONLY TELEPHONE OR SEND A TELEGRAM (WITHIN SUCH TIME PERIOD)
TO THE OFFICES OF THE COMPANY AT THE ADDRESS SET FORTH IN THIS CONFIDENTIAL
DISCLOSURE STATEMENT, ATTENTION: Lisa Holdbrook. SHOULD YOU MAKE THIS REQUEST
ORALLY, YOU MUST ALSO SEND A TELEGRAM CONFIRMING YOUR REQUEST.
14
THE FLORIDA DEPARTMENT OF BANKING AND FINANCE HAS NOT REVIEWED THE OFFERING
OR THE CONFIDENTIAL DISCLOSURE STATEMENT AND THE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE FLORIDA SECURITIES ACT. UNLESS THESE SECURITIES ARE
REGISTERED, THEY MAY NOT BE SOLD OR TRANSFERRED IN FLORIDA, EXCEPT IN A
TRANSACTION THAT IS EXEMPT UNDER SAID ACT.
FOR RESIDENTS OF NEW YORK:
THIS CONFIDENTIAL DISCLOSURE STATEMENT HAS NOT BEEN REVIEWED BY THE
ATTORNEY GENERAL OF THE STATE OF NEW YORK PRIOR TO ITS ISSUANCE AND USE. THE
ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
FOR RESIDENTS OF ALL STATES:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF CERTAIN STATES AND ARE BEING
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT IN VARIOUS STATES TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING
AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY
OF ADEQUACY OF THE CONFIDENTIAL DISCLOSURE STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
FOR FOREIGN INVESTORS:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION AND ARE BEING OFFERED AND
SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT
AND SUCH LAWS. THE SECURITIES ARE SUBJECT IN VARIOUS JURISDICTIONS TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, OR ANY OTHER SECURITIES
COMMISSION OR REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES
PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OF ADEQUACY
OF THE CONFIDENTIAL PRIVATE OFFERING CONFIDENTIAL DISCLOSURE STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PROSPECTIVE INVESTORS WILL BE REQUIRED TO REPRESENT THAT THEY ARE NOT U.S.
PERSONS AND ARE NOT ACQUIRING THE SECURITIES FOR THE ACCOUNT OR BENEFIT OF A
U.S. PERSON.
No person has been authorized to give any information or to make any
representation other than those contained in this Confidential Disclosure
Statement in connection with this offering of the units. If information or
representations other than those contained in this Confidential Disclosure
Statement are given or made you must not rely on it as if we authorized it.
15
Neither the delivery of this Confidential Disclosure Statement nor any sale made
hereunder shall, under any circumstances, create an implication that the
information contained or incorporated by reference herein is correct as of any
time subsequent to its date or that there has been no change in our affairs
since such date. This Confidential Disclosure Statement does not constitute an
offer to sell or a solicitation of an offer to buy any securities offered hereby
in any jurisdiction in which such offer or solicitation is not permitted, or to
anyone whom it is unlawful to make such offer or solicitation. The information
in this cconfidential disclosure statement is not complete and may be changed.
16
ADDITIONAL NOTICES TO INVESTORS
This Confidential Disclosure Statement has been prepared in connection with
the private offering to accredited investors, as defined in Rule 501(a) under
the Securities Act of units comprised oF SHARES OF series a preferred stock and
warrants of THE COMPANY. Each investor will be required to execute and deliver
a securities purchase agreement and registration rights agreement in order to
make an investment. If any of the terms, conditions, or other provisions of
such agreements are inconsistent with, or contrary to, the descriptions or terms
in this Confidential Disclosure Statement, such agreements shall govern and
control. This Confidential Disclosure Statement AND ITS CONTENTS, EXHIBITS,
SCHEDULES, AMENDMENTS, AND SUPPLEMENTS ARE intended only for the use of the
person named on the cover page hereof and is not intended to be reproduced or
redistributed IN ANY MANNER, EXCEPT TO SUCH OFFEREE'S AGENTS AND ADVISORS.
THE OFFEREE ACKNOWLEDGES THAT THE INFORMATION CONTAINED IN THIS
CONFIDENTIAL DISCLOSURE STATEMENT, TO THE EXTENT NOT PREVIOUSLY DISCLOSED IN A
FILING TO THE COMMISSION, IS CONFIDENTIAL AND NON-PUBLIC AND AGREES THAT ALL
SUCH INFORMATION SHALL BE KEPT IN CONFIDENCE BY THE OFFEREE AND NEITHER USED BY
THE OFFEREE FOR THE OFFEREE'S PERSONAL BENEFIT (OTHER THAN IN CONNECTION WITH A
SUBSCRIPTION FOR THE SECURITIES OFFERED HEREBY) NOR DISCLOSED TO ANY THIRD PARTY
FOR ANY REASON.
THIS OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE ANY CLOSING AND IS
SPECIFICALLY MADE SUBJECT TO THE TERMS DESCRIBED IN THIS CONFIDENTIAL DISCLOSURE
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNAUTHORIZED AND MUST NOT BE
RELIED UPON.
ANY PROSPECTIVE INVESTOR MAY ASK QUESTIONS AND RECEIVE ANSWERS CONCERNING
THE COMPANY, THE UNITS AND THE TERMS AND CONDITIONS OF THIS OFFERING AND MAY
REQUEST ADDITIONAL INFORMATION TO VERIFY THE INFORMATION CONTAINED HEREIN BY
CALLING Lisa holbrook, Vice president, general counsel and secretary OF THE
COMPANY AT (405) 848-8807 x104 OR BY WRITING TO THE COMPANY, ATTENTION: Lisa
Holbrook, AT THE ADDRESS SET FORTH IN THE CONFIDENTIAL DISCLOSURE STATEMENT.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
NEITHER THE DELIVERY OF THIS CONFIDENTIAL DISCLOSURE STATEMENT NOR ANY SALES OF
SHARES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF, OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
17
Schedule I
Gulfport Energy Corporation
Summary of Principal Terms
Private Placement of Units Each Comprised of (i) One Share of Cumulative
Preferred Stock, Series A, par value $0.01 per share, and (ii) One warrant to
purchase 250 shares of common stock, par value $0.01 per share
The summary terms set forth below are qualified in their entirety by reference
to, and should be read in conjunction with, the definitive documents relating to
the proposed offering (the "Offering").
- --------------------------------------------------------------------------------
Issuer Gulfport Energy Corporation, a Delaware
corporation (the "Company")
Purchasers Gulfport Funding, LLC, a Delaware limited
liability company ("Gulfport Funding"), and
certain other "accredited investors" (as that
term is defined in Rule 501(a) of Regulation
D promulgated by the Commission) which are
stockholders of the Company (each, a
"Purchaser") Purchasers Securities Units (a
"Unit"), each Unit consisting of 1 share of
Cumulative Preferred Stock, Series A, par
value $0.01 per share (the "Series A
Preferred Stock"), and 1 warrant (a
"Warrant") to purchase 250 shares of common
stock, par value $0.01 per share ("Common
Stock"), of the Company.
Offering
Securities offered Up to such Purchaser's pro rata percentage
of the Units offered by the Company based on
such Purchaser's ownership percentage of the
Company as of December 31, 2001 (with respect
to each Purchaser, the "Pro Rata
Percentage"); provided that Gulfport Funding
shall be entitled and has agreed to
purchase all Units offered by the Company not
purchased by any other Purchaser (excluding
the Liddell Units (as defined below)).
Offering price per Unit $1,000 per Unit
Closing Date March 31, 2002 or such later date as the
Company and Gulfport Funding may agree;
provided that the closing date of any sale of
Liddell Units shall occur no later than
September 30, 2002.
Liddell Option Mike Liddell, the Company's Chief Executive
Officer, has been granted the option (the
"Liddell Option") to purchase up to his Pro
Rata Percentage of the Units offered by the
Company (the "Liddell Units") on or prior to
September 30, 2002. Any Liddell Units not
purchased by Mike Liddell shall not be sold
to any other party.
Structure The Offering shall be structured as a
transaction exempt from Section 5 of the
18
Securities Act of 1933, as amended (the
"Securities Act"), and shall comply with
Section 4(2) of the Securities Act and state
securities law and shall be offered and sold
solely to "accredited investors," as defined
in Regulation D under the Securities Act. The
Offering shall be limited to $10,000,000 of
Units.
Series A Preferred Stock
Designation and Number
of Shares The series of preferred stock described
herein shall consist of 15,000 shares and
shall be designated "Cumulative Preferred
Stock, Series A", par value $0.01 per share,
hereinafter referred to "Series A Preferred
Stock".
Dividends Dividends shall accrue on the Series A
Preferred Stock prior to the Mandatory
Redemption Date (as defined below) at the
rate of 12% per annum payable quarterly in
cash or, at the option of the Company for a
period not to exceed two (2) years from the
Closing Date, payable in whole or in part in
additional shares of Series A Preferred Stock
based on the Liquidation Preference (as
defined below) of the Series A Preferred
Stock at the rate of 15% per annum. No other
dividends shall be declared or shall accrue
on the Series A Preferred Stock. To the
extent funds are legally available, the
Company is obligated to declare and pay the
dividends on the Series A Preferred Stock.
Voting Each share of Series A Preferred Stock shall
be entitled to vote only on those matters
required by law and, unless the vote or
consent of holders of a greater number of
shares shall be required by law or by the
Company's certificate of incorporation, the
vote of at least 66 2/3% of the votes
entitled to be cast by the holders of the
shares of Series A Preferred Stock shall be
necessary for: (i) amendment, alteration or
repeal of any of the provisions of the
Company's certificate of incorporation that
materially adversely affects the voting
powers, rights or preferences of the holders
of the Series A Preferred Stock action which
adversely alters or amends the terms,
relative rights, preferences, and limitations
of the Series A Preferred Stock; and (ii) the
authorization or creation or, or the increase
in the authorized amount of any shares of (x)
any class or series of a class of capital
stock of the Company the terms of which
expressly provide that the shares thereof
rank senior as to the payment of dividends or
the distribution of assets upon the
liquidation, dissolution or winding up of the
Company to the shares of the Series A
Preferred Stock ("Senior Securities"), or (y)
any security convertible into, or
exchangeable or exercisable for shares of any
Senior Securities.
Mandatory Redemption On the fifth anniversary of the first
issuance of Series A Preferred Stock (the
"Mandatory Redemption Date"), the shares of
Series A Preferred Stock shall be redeemed by
the Company out of the funds of the Company
19
legally available therefor, for an amount per
share equal to the Redemption Price (as
defined below). Upon the redemption thereof,
the shares of Series A Preferred Stock shall
become authorized, but undesignated and
unissued, shares of the preferred stock of
the Company. To the extent that, as of the
Mandatory Redemption Date, the funds of the
Company legally available for redemption
payments to the holders of Series A Preferred
Stock will be, or are anticipated to be,
insufficient to redeem all shares of Series A
Preferred Stock (as determined in the sole
discretion of the Company), the Company shall
redeem the Series A Preferred Stock to the
extent of its funds legally available for
such redemption, pro rata among the holders
of Series A Preferred Stock. Notwithstanding
anything to the contrary herein, any holder
(or all holders) of Series A Preferred Stock
may waive his or its respective rights to
redemption of its Series A Preferred Stock on
the Mandatory Redemption Date. To the extent
shares of Series A Preferred Stock are not
redeemed on the Mandatory Redemption Date,
such shares shall remain outstanding and
shall continue to accrue dividends until such
time as the Company has sufficient funds
legally available to redeem such shares
(including payment of all accrued and unpaid
interest), whereupon such shares shall
promptly be so redeemed by the Company.
"Redemption Price" shall mean the amount
equal to the sum of (i) the Liquidation
Preference per share of Series A Preferred
Stock (as the same shall be proportionately
adjusted for stock splits, combinations or
recapitalizations affecting Series A
Preferred Stock or dividends or distributions
of shares of Series A Preferred Stock, or
similar events or transactions), plus (ii)
accrued, but unpaid, dividends on such share
of Series A Preferred Stock as of the
Redemption Date.
Optional Redemption The Company may, at its sole discretion, at
any time, redeem all or a portion of the then
outstanding shares of Series A Preferred
Stock at a redemption price per share equal
to the Liquidation Preference per share of
Series A Preferred Stock plus all accrued and
unpaid dividends thereon as of the effective
date of such optional redemption; provided,
however, to the extent not all shares of
Series A Preferred Stock are to be redeemed
by the Company, any such redemption shall be
made among holders of Series A Preferred
Stock pro rata based on their respective
ownership percentage of Series A Preferred
Stock as of the relevant redemption date.
Liquidation Rights In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of
the Company prior to the Redemption Date (a
"Liquidation"), before any payment or
distribution of assets of the Company shall
be made to, or set apart for, the holders of
the common stock or any other capital stock
of the Company not ranking prior to, or on a
parity with, the Series A Preferred Stock in
20
respect of rights upon a Liquidation, the
holders of the Series A Preferred Stock shall
first be entitled to receive payment out of
such assets of the Company legally available
therefor equal to $1,000 per share of Series
A Preferred Stock (as the same may be
adjusted proportionately for splits,
combinations, recapitalizations, etc.) (the
"Liquidation Preference"). If the assets of
the Company legally available for
distribution to holders of Series A Preferred
Stock in connection with a Liquidation (after
payments have been made to the creditors of
the Company and as otherwise required by law)
are insufficient to permit full payment to
the holders of the Series A Preferred Stock
of an amount equal to the Liquidation
Preference per share, such assets legally
available for distribution in connection with
a Liquidation (after payments have been made
to the creditors of the Company and as
otherwise required by law) shall be
distributed ratably among the holders of the
outstanding Series A Preferred Stock
Liquidation Rights Conversion Rights
Conversion Rights None.
Warrants Each Warrant shall entitle its holder to
purchase up to 250 shares (as the same shall
be proportionately adjusted for stock splits,
combinations or recapitalizations affecting
Common Stock or dividends or distributions of
shares of Common Stock, or similar events or
transactions and as the same may be adjusted
upon certain issuances of additional shares
of Common Stock by the Company) at a price
per share of $4.00 (as the same shall be
proportionately adjusted for stock splits,
combinations or recapitalizations affecting
Common Stock or dividends or distributions of
shares of Common Stock, or similar events
or transactions and as the same may be
adjusted upon certain issuances of additional
shares of Common Stock by the Company) (the
"Exercise Price"). The Exercise Price shall
be payable either in (i) cash, (ii) by
surrender of shares of Series A Preferred
Stock, with each share surrendered having a
value equal to the Liquidation Preference
thereof together with accrued and unpaid
dividends thereon through the date of such
surrender, (iii) a combination of cash and
Series A Preferred Stock or (iv) by cashless
exercise of the Warrant.
Warrants will be exercisable after the
Closing Date and on or prior to the tenth
anniversary of the Closing Date.
Registration Rights S-3 Demand Rights:
--------------------
The Company will use its best efforts to file
a registration statement on Form S-3 (if
available) with the Securities and Exchange
Commission, covering the shares of Common
Stock issued or issuable upon the conversion
of the Warrants (the "Warrant Shares"), as
soon as practicable following the request of
holders of a majority of the Warrant Shares.
The Company will use its best efforts to
cause such registration statement to become
effective as soon as reasonably practicable
21
thereafter. Notwithstanding anything to the
contrary herein, the Company shall not be
required to file such a registration
statement (i) if it is not eligible for use
of Form S-3 (or any successor form thereto),
(ii) if the Company has already effected two
such registrations, (iii) if the holders of
the Warrants propose to sell Warrant Shares
at an aggregate price to the public of less
than $1,000,000 or (iv) if the securities to
be registered pursuant hereto are eligible to
be sold pursuant to Rule 144 of the
Securities Act during any 90-day period. The
selling holders shall be responsible for all
of their own selling expenses.
Piggyback Rights:
------------------
Each holder of Warrant Shares shall have the
right to have its Warrant Shares included in
any registration statement of the Company
(subject to limited exceptions) registering
shares of its Common Stock; provided,
however, if the underwriter determines in
good faith that marketing factors require a
limitation of the number of shares to be
underwritten, the number of shares that may
be included in the underwriting shall be
allocated, first to the Company, second to
the holders of the Warrant Shares pro rata
based on the number of Warrant Shares
proposed to be sold in the offering held by
such holders; and third to any other
stockholders of the Company on a pro rata
basis.
22
EXHIBIT A
UNAUDITED BALANCE SHEET, INCOME STATEMENT AND STATEMENT OF CASH FLOW FOR THE
----------------------------------------------------------------------------
COMPANY FOR THE YEAR ENDED DECEMBER 31, 2001
--------------------------------------------
EXHIBIT B
FORM OF NON-DISCLOSURE AND RESTRICTED TRADING AGREEMENT
-------------------------------------------------------
EXHIBIT C
FORM OF SECURITIES PURCHASE AGREEMENT
-------------------------------------
EXHIBIT D
FORM OF REGISTRATION RIGHTS AGREEMENT
-------------------------------------
EXHIBIT E
FORM OF WARRANT
---------------
EXHIBIT F
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
------------------------------------------------------------------------------
AND OTHER SPECIAL RIGHTS OF THE COMPANY'S CUMULATIVE PREFERRED STOCK, SERIES A,
- -------------------------------------------------------------------------------
PAR VALUE $0.01 PER SHARE, AND QUALIFICATIONS LIMITATIONS AND RESTRICTIONS
--------------------------------------------------------------------------
THEREOF
-------
Exhibit G
Investor Qualifications
-----------------------
Accredited Purchaser Financial Requirements
In the United States, we may sell Units only to investors who are both (1)
"accredited investors" as that term is defined in Rule 501(a) of Regulation D
promulgated by the Commission and (2) accredited, exempt or otherwise excluded
purchasers under all other applicable "blue sky" statutes and regulations
("Accredited Purchasers"). Under Regulation D, an investor must meet at least
one of the following criteria in order to be an "accredited investor":
(1) Any bank as defined in section 3(a)(2) of the Securities Act of 1933,
or any savings and loan association or other institution as defined in
section 3(a)(5)(A) of the Securities Act of 1933 whether acting in its
individual or fiduciary capacity; any broker or dealer registered
pursuant to section 15 of the Securities Exchange Act of 1934; any
insurance company as defined in section 2(13) of the Securities Act of
1933; any investment company registered under the Investment Company
Act of 1940 or a business development company as defined in section
2(a)(48) of that Act; any Small Business Investment Company licensed
by the U.S. Small Business Administration under section 301(c) or (d)
of the Small Business Investment Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions for the
benefit of its employees, if such plan has total assets in excess of
$5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974 if the investment
decision is made by a plan fiduciary, as defined in section 3(21) of
such Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if
a self-directed plan, with investment decisions made solely by persons
that are accredited investors;
(2) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer of
the securities being offered or sold, or any director, executive
officer, or general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his or her purchase exceeds
$1,000,000;
(6) Any natural person who had (i) an individual income in excess of
$200,000 in each of the two most recent years and has a reasonable
expectation of reaching the same income level in the current year, or
(ii) joint income with that person's spouse in excess of $300,000 in
each of the two most recent years and has a reasonable expectation of
reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in Section
230.506(b)(2)(ii) of Regulation D;
(8) Any entity (other than an irrevocable trust) in which all of the
equity owners are accredited investors.
Business Knowledge and Investment Sophistication
Section 4(2) under the Securities Act, many state securities laws, and
general principles of fair dealing all make it necessary that each purchaser of
Units be able to demonstrate that, by reason of his, her or its knowledge and
experience in business and financial matters, he, she or it is capable of
evaluating the merits and risks of an investment in the Units and protecting
his, her or its own interests in connection with the transaction. A purchaser
who does not have sufficient knowledge and experience in financial and business
matters must employ a "purchaser representative" who has that knowledge and
experience either alone, together with other purchaser representatives of the
purchaser, or together with the purchaser. A purchaser who wishes to use and
rely upon a purchaser representative in connection with making an investment in
the Units should be aware that a purchaser representative (1) must meet certain
statutory requirements, (2) must be acknowledged by the purchaser in writing to
be his or her purchaser representative in connection with evaluating the merits
and risks of purchasing the Units, (3) must be an attorney, a certified public
accountant, a broker-dealer or agent thereof, an investment adviser, a bank, a
savings and loan association, or any other person who, as a regular part of such
person's business, is customarily relied upon by others for investment
recommendations or decisions and who is customarily compensated for such
services either specifically or by way of compensation for related professional
services, (4) may not be affiliated with us or our management and (5) may not
receive compensation from any of the persons or entities listed in (4). No
broker-dealer or any person receiving a commission from us may act as purchaser
representative on behalf of any investor in this Offering.
GULPORT ENERGY CORPORATION
Non-Disclosure and Restricted Trading Agreement
In connection with the private placement by Gulfport Energy Corporation, a
Delaware corporation (the "Company") of Units consisting of shares of Cumulative
Preferred Stock, Series A, par value $0.01 per share, and warrants to purchase
shares of common stock, par value $0.01 per share, of the Company, the Company
has disclosed or may disclose to you in the Confidential Information Statement
dated March 2002 of the Company certain material non-public information
concerning the business, operations and finances of the Company ("Proprietary
Information").
In consideration of the disclosure and the ability to negotiate concerning
the proposed equity investment, you agree as follows:
1. You will hold in confidence and not use (except to evaluate the
proposed equity investment) or disclose any Proprietary Information,
except as required by law or government tribunal, unless you can
document that such information (a) is in the public domain through no
fault of yours, or (b) was properly known to you, without restriction,
prior to disclosure to you by the Company.
2. You will not, directly or indirectly, (a) offer for sale, contract to
sell, sell, trade, pledge or otherwise dispose of (or enter into any
transaction which is designed to, or could be expected to, result in
the disposition by any person at any time in the future of) any shares
of the common stock or securities convertible into, or exercisable or
exchangeable for, the common stock of the Company, or (b) enter into
any swap or other derivatives transaction that transfers to another,
in whole or in part, any of the economic benefits or risks of
ownership of shares of common stock, in each case, until such time as
the Company discloses the Proprietary Information to the public in
a filing with the Securities Exchange Commission on Form 10-Q, 10-K,
or 8-K.
3. If you decide not to proceed with the proposed equity investment, or
if requested by the Company, you will promptly return, destroy or
irretrievably erase, as requested by the Company, all Proprietary
Information and all copies and extracts of the Proprietary
Information, in any physical or other medium in or on which the
Proprietary Information may be contained or embodied.
4. You will promptly notify the Company of any unauthorized release of
Proprietary Information.
5. You understand that this agreement does not obligate the Company to
disclose any information, negotiate or enter into any agreement or
relationship or otherwise commit or obligate the Company.
6. You acknowledge and agree that due to the unique nature of the
Proprietary Information, any breach of this agreement would cause
irreparable harm to the Company for which damages are not an adequate
remedy and that the Company shall therefore be entitled to injunctive
relief in addition to all other remedies available at law or in
equity, including money damages.
7. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York (without giving effect to any choice
or conflict of laws provisions). Each of the parties hereby
irrevocably and unconditionally submits to the jurisdiction of the
courts of the State of New York and of the federal courts sitting in
the City of New York in all actions or proceedings arising out of or
relating to this agreement. Each of the parties agrees that all
actions or proceedings arising out of or relating to this Agreement
must be litigated exclusively in any state or federal court that sits
in the City of New York, and accordingly, each party irrevocably
waives any objection which it may now or hereafter have to the laying
of the venue of any such litigation in any such court. The prevailing
party in any such litigation shall be entitled to recover attorneys'
fees and costs.
8. If any provision of this Agreement is found to be unenforceable, such
provision will be limited or deleted to the minimum extent necessary
so that the remaining terms remain in full force and effect. This
agreement may not be assigned without the prior written consent of the
Company.
Acknowledged and Agreed:
By: [____________________]
Dated as of: March __, 2002
--------------------------------------
Signature of Authorized Signatory
--------------------------------------
Printed Name of Authorized Signatory
--------------------------------------
Title of Authorized Signatory
2
- --------------------------------------------------------------------------------
Gulfport Energy Corporation
Securities Purchase Agreement
March 29, 2002
- --------------------------------------------------------------------------------
Gulfport Energy Corporation
Securities Purchase Agreement
This Securities Purchase Agreement (this "Agreement") is made and entered into
as of March 29, 2002, by and among Gulfport Energy Corporation, a Delaware
corporation (the "Company"), Gulfport Funding, LLC, a Delaware limited liability
company ("Gulfport Funding"), and each other purchaser listed on the Schedule of
Purchasers hereto (together with Gulfport Funding, the "Purchasers").
Recitals
Whereas, the Company has authorized the sale and issuance of an aggregate
of 10,000 shares (the "Series A Shares") of Cumulative Preferred Stock, Series
A, par value $0.01 per share, of the Company (the "Series A Preferred Stock")
and 10,000 warrants (each, a "Warrant"), each Warrant conferring the right to
purchase initially up to 250 shares of the common stock, par value $0.01 per
share, of the Company (the "Common Stock");
Whereas, the Company desires to sell and issue the Series A Shares and the
Warrants together as investment units, with each unit consisting of (i) one
Series A Share and (ii) one Warrant, and has therefore authorized the sale of
10,000 units (the "Units");
Whereas, the Company has offered certain stockholders of the Company (the
"Offerees") the right to purchase up to their respective pro rata portions of
the Units based on their respective ownership percentages of the Company as of
December 31, 2001;
Whereas, pursuant to a letter agreement with the Company dated March 8,
2002, Gulfport Funding has agreed to purchase any Units offered to but not
purchased by other stockholders of the Company (other than the Liddell Units (as
defined below));
Whereas, as of the date of this Agreement, the Company owes $3,000,000 plus
accrued and unpaid interest thereon (collectively, the "Note Amount") to
Gulfport Funding under that certain Promissory Note of the Company dated May 22,
2001 (the "Note");
Whereas, Gulfport Funding desires to pay, and the Company has agreed to
accept as payment, in part, for the Units to be purchased by Gulfport Funding,
by the surrender of the Note for cancellation;
Whereas, the Company desires to sell and issue the Units to Gulfport
Funding and the other Purchasers pursuant to the terms and conditions herein.
Agreement
Now, Therefore, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Agreement To Sell And Purchase.
1.1 Authorization of Shares. On or prior to the Initial Closing
Date (as defined in Section 2 below), the Company shall have (a) authorized the
sale and issuance to the Purchasers of the Series A Preferred Stock and the
Warrants, (b) adopted and filed the Certificate of Designations, Preferences and
Relative, Participating, Optional and other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions Thereof of the Company's Series
A Preferred Stock in the form attached hereto as Exhibit A (the "Series A
Preferred Certificate of Designations"), and (b) reserved for issuance the
shares of Common Stock issuable upon the exercise of the Warrants (the "Warrant
Shares"). The Series A Shares shall have the rights, preferences, privileges and
restrictions set forth in the Restated Certificate of Incorporation of the
Company (including the Series A Preferred Certificate of Designations), and the
amendments thereto, in the form attached hereto as Exhibit B (the "Certificate
of Incorporation").
1.2 Sale and Purchase. Subject to the terms and conditions hereof, at
the Closing (as hereinafter defined), the Company hereby agrees to issue and
sell to the Purchasers, and each Purchaser hereby agrees to purchase from the
Company, the number of Units set forth opposite such Purchaser's name on the
Schedule of Purchasers attached hereto, at a purchase price of One Thousand
Dollars ($1,000) per Unit.
2. Closing, Delivery And Payment.
2.1 Closing. The initial closing of the sale and purchase of the Units
under this Agreement (the "Initial Closing") shall take place at 10:00 a.m. on
March 29, 2002, at the offices of the Company, 6307 Waterford Blvd., Suite 100,
Oklahoma City, OK 73118 or at such other time or place as the Company and the
Purchasers may mutually agree (such date is hereinafter referred to as the
"Initial Closing Date"). Subsequent closings (each a "Subsequent Closing") may
take place at any time prior to 5:00 p.m. Central Standard Time) on April 15,
2002, at the offices of the Company as the Company and the Purchasers
participating in such Subsequent Closing may mutually agree (each, a "Subsequent
Closing Date").
2.2 Delivery. At each Closing, subject to the terms and conditions
hereof, the Company will deliver to each Purchaser participating in such
Closing, for each Unit to be purchased at the Closing, (i) a stock certificate
representing One (1) Series A Share and (ii) a warrant certificate representing
One (1) Warrant. At the Company's discretion, the Company may deliver
certificates representing the aggregate number of Series A Shares and Warrants
purchased by any Purchaser of more than one Unit. The Company's delivery of such
certificates shall be against payment of the purchase price therefor by (i)
check in immediately available funds, wire transfer made payable to the order of
the Company, or any combination of the foregoing ("Cash"), and (ii) in the case
of Gulfport Funding, a combination of Cash and the surrender for cancellation of
the Note. At the Initial Closing, Gulfport Funding shall deliver the original
Note to the Company marked "paid in full".
2.3 Liddell Option. Notwithstanding anything herein to the contrary,
Mike Liddell ("Liddell"), the Company's Chief Executive Officer, shall have the
right (the "Liddell Option"), extending through and including September 30, 2002
2
(the "Expiration Date"), to purchase up to 742.208 Units (the "Liddell Units")
at the price and on the terms set forth herein. The Liddell Option shall be
exercisable by Liddell upon delivery to the Company on or before the Expiration
Date of (i) written notice to the Company setting forth the number of Units to
be purchased by Liddell; (ii) an executed signature page to each of this
Agreement and the Registration Rights Agreement (as defined below), pursuant to
which Liddell agrees to be bound by the terms and conditions hereof and thereof;
and (iii) Cash in the amount of the purchase price for such Units. Upon exercise
by Liddell of the Liddell Option prior to the Expiration Date, the Company shall
make such deliveries to Liddell as are contemplated by Section 2.2.
3. Representations And Warranties Of The Company.
The Company hereby represents and warrants to each Purchaser as of the
date of this Agreement as set forth below. For purposes of this Section 3, a
person shall be deemed to have "knowledge" of a particular fact or other matter
if (a) the person is actually aware of such fact or other matter or (b) if a
reasonably prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a reasonably
diligent and reasonably comprehensive investigation concerning the truth or
existence of such fact or other matter. A person that is a corporation,
partnership or other business entity shall be deemed to have "knowledge" of a
particular fact or other matter if any employee, officer or director of the
person has knowledge (as described in the preceding sentence) of such fact or
other matter. Organization, Good Standing and Qualification
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement, as well as the Registration Rights Agreement in the form
attached hereto as Exhibit C (the "Registration Rights Agreement"), to issue and
sell the Series A Shares and the Warrants comprising each Unit, to issue the
Warrant Shares upon exercise, and against payment therefor, of the Warrants, to
carry out the provisions of this Agreement, the Registration Rights Agreement,
and the Certificate of Incorporation, and to carry on its business as presently
conducted and as presently proposed to be conducted. The Company is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its activities and of
its properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so would not have a
material adverse effect on the Company or its assets, liabilities, financial
condition, prospects or operations (a "Material Adverse Effect").
3.2 Subsidiaries. Except as set forth in the SEC Reports (as defined
below), the Company does not own or control any equity security or other
interest of any other corporation, limited partnership or other business entity
and is not a participant in any joint venture, partnership or similar
arrangement.
3.3 Capitalization; Voting Rights3.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, immediately
prior to the Closing, consists of (i) 20,000,000 shares of Common Stock, par
3
value $0.01 per share, 10,146,566 of which are issued and outstanding, and (ii)
5,000,000 shares of Preferred Stock, par value $0.01 per share, 15,000 of which
are designated Cumulative Preferred Stock, Series A and none of which are issued
and outstanding.
(b) Under the Company's 1999 Stock Option Plan (the "Stock Option
Plan"), (i) no shares of Common Stock have been issued pursuant to restricted
stock purchase agreements, (ii) 3,333 shares of Common Stock have been issued
upon the exercise of outstanding options, (iii) options and warrants to purchase
607,355 shares of Common Stock have been granted and are currently outstanding,
and (iv) 883,386 shares of Common Stock remain available under the Stock Option
Plan for future issuance. Warrants to purchase 399,424 shares of Common Stock
have been issued and are currently outstanding.
(c) Other than as set forth above or contemplated in this
Agreement, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or agreements of any kind for the purchase or
acquisition from the Company of any of its securities.
(d) All issued and outstanding shares of the Company's Common
Stock (i) have been duly authorized and validly issued and are fully paid and
non-assessable, and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(e) The rights, preferences, privileges and restrictions of the
Series A Shares are as stated in the Certificate of Incorporation. The Warrant
Shares have been reserved for issuance upon exercise of the Warrants in
accordance with their terms. When issued in compliance with the provisions of
this Agreement and the Certificate of Incorporation, and, in the case of the
Warrant Shares, in accordance with the Warrants, the Series A Shares and the
Warrant Shares will be validly issued, fully paid and non-assessable, and will
be free of any liens or encumbrances; provided, however, that the Series A
Shares and the Warrant Shares may be subject to restrictions on transfer under
state and/or federal securities laws and this Agreement.
3.4 Authorization; Binding Obligations. The Company has all corporate
right, power and authority to enter into this Agreement and the Registration
Rights Agreement and to consummate the transactions contemplated hereby and
thereby. All corporate action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization of this Agreement
and the Registration Rights Agreement, (ii) the performance of all obligations
of the Company hereunder and thereunder, (iii) the authorization, sale, issuance
and delivery of the Series A Shares and the Warrants pursuant hereto, and (iv)
the issuance and delivery of the Warrant Shares upon exercise of the Warrants,
has been taken or will be taken prior to the Closing. This Agreement and the
Registration Rights Agreement, when duly executed and delivered by the Company,
will constitute valid and binding obligations of the Company, enforceable in
accordance with their respective terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and the rules of
law governing specific performance, injunctive relief or other equitable
remedies, and to limitations of public policy. The sale and issuance of the
Units, and the subsequent exercise of the Warrants, are not and will not be
subject to any preemptive rights or rights of first refusal that have not
properly been waived or fulfilled.
4
3.5 Accuracy of Reports, Information Statement and Representations.
All reports required to be filed by the Company within the two years prior to
the date of this Agreement (the "SEC Reports") under the Securities Act of 1934,
as amended (the "Exchange Act"), have been duly filed with the Securities and
Exchange Commission (the "SEC"), and complied at the time of filing in all
material respects with the requirements of their respective forms and, except to
the extent updated or superseded by any subsequently filed report, to the best
of the Company's knowledge, were complete and correct in all material respects
as of the dates at which the information was furnished, and contained (as of
such dates) no untrue statements of a material fact nor omitted to state any
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading. The
Disclosure Statement of the Company dated March 2002 and any of the documents or
instruments attached thereto as exhibits or incorporated therein by reference
(collectively, the Disclosure Statement"), when taken as a whole, do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
3.6 Financial Information. The financial statements of the Company
included in the SEC Reports and the unaudited financial statements of the
Company for the year ended December 31, 2001, a copy of which has previously
been delivered to each Purchaser as an exhibit to the Disclosure Statement,
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations with respect thereto, have
been prepared in accordance with generally accepted accounting principles
(except that the financial statements that are not audited do not have notes
thereto) and fairly present (subject only, in the case of the unaudited
statements, to normal, recurring audit adjustments) the financial position of
the Company as of the date thereof and the results of its operations and its
cash flows for the periods then ended.
3.7 Liabilities. Except as set forth in the SEC Reports, the Company
has no material liabilities and, to the best of its knowledge, no material
contingent liabilities, except current liabilities incurred in the ordinary
course of business.
3.8 Obligations to Related Parties. Except as set forth in the SEC
Reports, there are no obligations of the Company to any current or former
officers, partners, directors, stockholders, or employees of the Company other
than (i) for payment of salary for services rendered, (ii) reimbursement for
reasonable expenses incurred on behalf of the Company, and (iii) for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under the Stock Option Plan).
3.9 Title to Properties and Assets; Liens, Etc. Except as set forth in
the SEC Reports, the Company has good and marketable title to its properties and
assets, and good title to its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those
resulting from taxes which have not yet become delinquent, and (b) minor liens
and encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
5
leased or used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used. The
Company is in compliance with all material terms of each lease to which it is a
party or is otherwise bound and each such lease is enforceable against the
parties thereto.
3.10 Intellectual Property. The Company owns or possesses sufficient
legal rights to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes
necessary for its business as now conducted and as presently proposed to be
conducted, without any infringement of the rights of others. The Company owns or
possesses sufficient legal rights or has valid licenses to all third party
software necessary for its business as now conducted and as presently proposed
to be conducted. Other than such licenses or agreements arising from the
purchase of "off the shelf" software or standard products, there are no
outstanding options, licenses or agreements of any kind relating to the
foregoing proprietary rights, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity.
3.11 Compliance with Other Instruments. The execution, delivery and/or
filing by the Company of each of this Agreement, the Registration Rights
Agreement, the Series A Preferred Certificate of Designations, and the
certificates evidencing the Series A Shares and the Warrants, the performance by
the Company of its obligations and undertakings contemplated under each of such
agreements and the Certificate of Incorporation, and the consummation of the
transactions contemplated under each of such agreements, Certificate of
Incorporation and certificates, does not and will not conflict with, or result
in any violation of, or default (with or without notice or lapse of time, or
both) under, or entitle any person to receipt of notice or to a right of consent
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or to any increased,
additional, accelerated or guaranteed rights or entitlement of any person under,
or result in the creation of any pledge, lien, encumbrance or charge upon any of
the properties or assets of the Company under, any provision of (i) the
Certificate of Incorporation or the by-laws of the Company, (ii) any note, bond,
mortgage, indenture, deed of trust, license, lease, contract, commitment,
agreement, instrument or arrangement to which the Company is a party or by which
any of its respective properties or assets are bound, (iii) any license,
franchise, permit or other similar authorization held by the Company, or (iv)
any judgment, order or decree or statute, law, ordinance, rule or regulation
applicable to the Company or its respective properties or assets.
3.12 Absence of Certain Changes. Since September 30, 2001, no event,
occurrence or circumstance has occurred which has resulted in a Material Adverse
Effect or that reasonably could be expected to result in a Material Adverse
Effect.
3.13 Litigation. There are no pending, or to the Company's knowledge
threatened, legal or governmental proceedings against the Company, except as set
forth in the Disclosure Statement.
3.14 Material Agreements. Except as set forth in the SEC Reports, the
Company is not party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required
6
to be filed with the SEC as an exhibit to Form 10-K, Form 10-Q or Form 8-K
(each, a "Material Agreement"). Except as set forth in the SEC Reports, the
Company has in all material respects performed all the obligations required to
be performed by it to date under the Material Agreements, has received no notice
of default and, to the best of the Company's knowledge it is not in default
under any Material Agreement.
3.15 Transactions with Affiliates. Except as set forth in the SEC
Reports, there are no loans, leases, agreement, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions with
aggregate obligations of any party exceeding $25,000 between (a) the Company or
any of its customers or suppliers on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company or any person who
would be covered by Item 404(a) of Regulation S-K or any Company or other entity
controlled by such officer, employee, consultant, director or person.
3.16 Tax All Federal, state, local and foreign income, profits,
franchise, sales, use, occupation, property, excise, employment, withholding and
other tax returns and tax reports required to by filed by the Company for
periods ending on or prior to the relevant Closing Date have been or will be
filed on a timely basis (including any extensions) with the appropriate
governmental authorities in all jurisdictions in which such returns and reports
are required to be filed. All such returns and reports are and will be true,
correct and complete. All Federal, state, local and foreign income, profits,
franchise, sales, use, occupation, property, excise, employment, withholding and
other taxes (including interest, penalties and withholdings of tax) due from and
payable by the Company or otherwise required to be remitted by the Company, on
or prior to the relevant Closing Date, have been or will be fully paid on a
timely basis. The Company is not currently the beneficiary of any extension of
time within which to file any tax return. No claim has ever been made by a
governmental authority in a jurisdiction where the Company does not file tax
returns that it is or may be subject to taxation by that jurisdiction, and the
Company has not received any notice, or request for information from any such
authority. No issues have been raised with the Company by the Internal Revenue
Service (the "IRS") or any other taxing authority in connection with any tax
return or report filed by the Company and there are no issues which, either
individually or in the aggregate, could result in any liability for tax
obligations of the Company relating to periods ending prior to the date of the
Financial Statements, in excess of the accrued liability for taxes shown on the
Financial Statements.
3.17 Employees. (a) The Company does not have, and never has had, any
collective bargaining agreements with any of its employees and there are no
collective bargaining agreements which pertain to employees of the Company.
There is no labor union organizing activity pending or, to the Company's
knowledge, threatened with respect to the Company. Except for Mike Liddell, no
employee of the Company has been granted the right to continued employment by
the Company or to any material compensation following termination of employment
with the Company. Hours worked by and payment made to employees of the Company
have been in compliance with the Fair Labor Standards Act or any other
applicable labor or employment law. The Company is not aware that any officer,
key employee or group of employees intends to terminate his, her or their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any officer, key employee or group of employees.
7
There are no complaints or charges against the Company pending or, to the
Company's knowledge, threatened to be filed with any governmental authority or
arbitrator based on, arising out of or in connection with, or otherwise relating
to, the employment or termination of employment by the Company of any
individual.
(b) Except as disclosed in the SEC Reports, the Company has no
pension, retirement, savings, deferred compensation, and profit-sharing plan and
each stock option, stock appreciation, stock purchase, performance share, bonus
or other incentive plan, severance plan, health, group insurance or other
welfare plan, or other similar plan and any "employee benefit plan" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA"), under which the Company has any current or future obligation or
liability or under which any employee or former employee (or beneficiary of any
employee or former employee) of the Company has or may have any current or
future right to benefits on account of employment with the Company (the term
"plan" shall include any contract, agreement, policy or understanding, each such
plan being hereinafter referred to individually as a "Plan"). Each Plan intended
to be tax qualified under Sections 401(a) and 501(a) of the Code is, and has
been determined by the IRS to be, tax qualified under Sections 401(a) and 501(a)
of the Code and, since such determination, no amendment to or failure to amend
any such Plan or any other circumstance adversely affects its tax qualified
status. There has been no prohibited transaction within the meaning of Section
4975 of the Code and Section 406 of Title I of ERISA with respect to any Plan.
(c) Except as disclosed in the SEC Reports, no Plan is
subject to the provisions of Section 412 of the Code or Part 3 of Subtitle B of
Title I of ERISA or Title IV of ERISA. During the past five years, neither the
Company nor any business or entity then controlling, controlled by, or under
common control with the Company contributed to or was obliged to contribute to
an employee pension plan that was subject to Title IV of ERISA.
(d) Except as disclosed in the SEC Reports, the Company has
satisfied all funding, compliance and reporting requirements for all Plans.
With respect to each Plan, the Company has timely paid all contributions
(including employee salary reduction contributions) and all insurance premiums
that have become due and any such expense accrued but not yet due has been
properly reflected in the Financial Statements. The Company has no liabilities,
contingent or otherwise, including without limitation, liabilities for retiree
health, retiree life, severance or retirement benefits, which are not fully
reflected on the Company's most recent balance sheet contained in the SEC
Reports or not fully funded. The Company has not terminated any "employee
pension benefit plan" as defined in Section 3(2) of ERISA or incurred or expects
to incur any outstanding liability under Title IV of ERISA.
(e) Except as set forth in the SEC Reports, no Plan provides
or is required to provide, now or in the future, health, medical, dental,
accident, disability, death or survivor benefits to, or in respect of, any
person beyond termination of employment, except to the extent required under any
state insurance law or under Part 6 of Subtitle B of Title I of ERISA and under
Section 4980(B) of the Code. No Plan covers any individual other than employees
of the Company, other than dependents or spouses of employees under health and
child care policies.
(f) None of the execution and delivery of this Agreement or the
Registration Rights Agreement by the parties thereto, the performance by any
8
party to this Agreement or the Registration Rights Agreement of their respective
obligations or undertakings contemplated thereunder, or the consummation of the
transactions contemplated thereby will (i) entitle any employee of the Company
to severance pay or termination benefits or (ii) accelerate the time of payment
or vesting, or increase the amount of compensation due to any such employee or
former employee.
3.18 Registration Rights and Voting Rights. Except as set forth in the
Registration Rights Agreement and the Warrant to Purchase Common Stock of the
Company dated May 2001 issued to Gulfport Funding, the Company is presently not
under any obligation, and has not granted any rights, to register any of the
Company's presently outstanding securities or any of its securities that may
hereafter be issued. Except for the Certificate of Incorporation and by-laws,
the Company is not a party to any agreement with respect to the voting of any
capital stock of the Company and, to the Company's knowledge, no stockholder of
the Company has entered into any agreement with respect to the voting of equity
securities of the Company.
3.19 Compliance with Laws; Permits. The Company is not in violation of
any applicable statute, ordinance, rule, regulation, interpretation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which violation could result in a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with either the execution and delivery of this Agreement or
the Registration Rights Agreement or the issuance of the Series A Shares, the
Warrants or the Warrant Shares, except such as has been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner.
3.20 Environmental and Safety Laws. The Company is not in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. Except as disclosed in the SEC Reports, no Hazardous Materials
(as defined below) are used or have been used, stored, or disposed of by the
Company or, to the Company's knowledge after reasonable investigation, by any
other person or entity on any property owned, leased or used by the Company. For
the purposes of the preceding sentence, "Hazardous Materials" shall mean (i)
materials which are listed or otherwise defined as "hazardous" or "toxic" under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials or (ii)
any petroleum products or nuclear materials.
3.21 Offering Valid. Assuming the accuracy of the representations and
warranties of each of the Purchasers contained in Section 4.2 hereof, the offer,
sale and issuance of Units (including the Series A Shares and the Warrants) and
the issuance of the Warrant Shares, upon exercise of the Warrants, will be
exempt from the registration requirements of the Securities Act of 1933 (the
"Securities Act"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
9
qualification requirements of all applicable state securities laws. Neither the
Company nor any agent on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part of the Units
to any person or persons so as to bring the offer and sale of such Units by the
Company within the registration provisions of the Securities Act or any state
securities laws.
3.22 Broker's Fees. Except for Gulfport Funding as provided in Section
6.10, no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of the Company is or will be entitled to any broker's or
finder's fee or any other commission or fee directly or indirectly in connection
with the transactions contemplated herein.
3.23 Insurance. The Company maintains insurance policies which
are in full force and effect and are in amount and for coverage customary for
the industry in which the Company operates.
4. Representations And Warranties Of The Purchasers.
Each Purchaser hereby individually represents and warrants to the
Company as follows:
4.1 Requisite Power and Authority. The Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Registration Rights Agreement and to carry out
their respective provisions. All action on the Purchaser's part required for the
lawful execution and delivery of this Agreement and the Registration Rights
Agreement have been or will be taken prior to the Closing. Upon their execution
and delivery, this Agreement and the Registration Rights Agreement will be valid
and binding obligations of the Purchaser, enforceable in accordance with their
terms, subject to laws of general application relating to bankruptcy, insolvency
and he relief of debtors and the rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy.
4.2 Investment Representations. The Purchaser understands that neither
the Units (including the Series A Shares and the Warrants) nor the Warrant
Shares have been registered under the Securities Act. The Purchaser also
understands that the Units (including the Series A Shares and the Warrants) and
the Warrant Shares are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon the Purchaser's
representations contained in this Agreement. The Purchaser hereby represents and
warrants as follows:
(a) Purchaser Bears Economic Risk. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. The Purchaser understands that it must
bear the economic risk of this investment indefinitely unless the Series A
Shares, the Warrants or the Warrant Shares are registered pursuant to the
Securities Act, or an exemption from registration is available. The Purchaser
understands that, except as provided in the Registration Rights Agreement with
respect to the Warrant Shares, the Company has no present intention or
10
obligation to register the Series A Shares, the Warrants, the Warrant Shares or
any shares of its Common Stock. The Purchaser also understands that there is no
assurance that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption or the Company may not
allow Purchaser to transfer all or any portion of the Series A Shares, the
Warrants or the Warrant Shares under the circumstances, in the amounts or at the
times the Purchaser might propose.
(b) Acquisition for Own Account. The Purchaser is acquiring the
Units (including the Series A Shares and the Warrants) and, upon exercise of the
Warrants, the Warrant Shares for the Purchaser's own account for investment
only, and not with a view towards their distribution.
(c) Purchaser Can Protect Its Interest. The Purchaser represents
that by reason of its, or of its management's, business or financial experience,
the Purchaser has the capacity to protect its own interests in connection with
the transactions contemplated in this Agreement and the Registration Rights
Agreement. Further, the Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in this
Agreement.
(d) Accredited Investor. The Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5. Conditions To Closing.
5.1 Conditions to Purchasers' Obligations at the Closing. Each
Purchaser's obligations to purchase the Units at the relevant Closing are
subject to the satisfaction, at or prior to the relevant Closing Date, of the
following conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by the Company in Section 3
hereof shall be true and correct as of such Closing Date with the same force and
effect as if they had been made as of such Closing Date, and the Company shall
have performed all obligations and conditions herein required to be performed or
observed by it on or prior to such Closing.
(b) Legal Investment. On such Closing Date, the sale and issuance
of the Units (including the Series A Shares and the Warrants) and the issuance
of the Warrant Shares upon exercise of the Warrants shall be legally permitted
by all laws and regulations to which the Purchasers and the Company are subject.
(c) Consents, Permits, and Waivers. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement and the
Registration Rights Agreement (except for such as may be properly obtained
subsequent to the Closing).
(d) Filing of Series A Preferred Certificate of Designations. The
Series A Preferred Certificate of Designations shall have been filed with the
Secretary of State of the State of Delaware and shall continue to be in full
force and effect as of such Closing Date.
11
(e) Corporate Documents. The Company shall have delivered to the
Purchasers or their counsel, copies of such corporate documents of the Company
as the Purchasers shall reasonably request.
(f) Reservation of Warrant Shares. The Warrant Shares issuable
upon exercise of the Warrants shall have been duly authorized and reserved for
issuance upon such exercise.
(g) Compliance Certificate. The Company shall have delivered to
the Purchasers a Compliance Certificate, executed by the Chief Executive Officer
of the Company, dated the relevant Closing Date, to the effect that the
conditions specified in subsections (a), (c), (d) and (f) of this Section 5.1
have been satisfied.
(h) Secretary's Certificate. The Purchasers shall have received
from the Company's Secretary, a certificate having attached thereto (i) the
Company's Certificate of Incorporation, certified by the Secretary of State of
the State of Delaware, as in effect at the time of the Closing, (ii) the
Company's by-laws as in effect at the time of the Closing, (iii) resolutions
approved by the Board of Directors of the Company authorizing the transactions
contemplated hereby, and (iv) good standing certificates (including tax good
standing) with respect to the Company from the applicable authority(ies) in
Delaware and any other jurisdiction in which the Company is qualified to do
business, dated a recent date before the Closing.
(i) Registration Rights Agreement. The Registration Rights
Agreement shall have been executed and delivered by the parties thereto.
(j) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
counsel, and the Purchasers and their counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
(k) Fees of Purchaser's Counsel. The Company shall have paid, in
accordance with Section 6.10, the fees and disbursements of counsel to the
Purchasers invoiced at Closing.
5.2 Conditions to Obligations of the Company5.2 Conditions to
Obligations of the Company. The Company's obligation to issue and sell the Units
at Closing to each Purchaser is subject to the satisfaction, on or prior to the
relevant Closing Date, of the following conditions:
(a) Representations and Warranties True. The representations and
warranties in Section 4 made by such Purchaser shall be true and correct at such
Closing Date with the same force and effect as if they had been made as of such
Closing Date.
(b) Performance of Obligations. Such Purchaser shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by the Purchaser on or before such Closing.
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(c) Consents, Permits, and Waivers. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement and the
Registration Rights Agreement (except for such as may be properly obtained
subsequent to such Closing).
6. Miscellaneous.
6.1 Survival. The representations, warranties, covenants and
agreements made herein shall survive the closing of the transactions
contemplated hereby. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by the Company hereunder solely as
of the date of such certificate or instrument.
6.2 Benefits of Agreement. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
6.3 Transfer Restrictions; Assignment. (a) None of the Purchasers may
assign or transfer all or any portion of the Series A Shares or the Warrants,
this Agreement or any of the rights and obligations hereunder or thereunder
without the prior written consent of the Company, which may be given or withheld
in the Company's sole discretion. Any instrument purporting to make an
assignment in violation of this Section 6.3 shall be void.
(b) Each certificate representing a Series A Share or Warrant
shall be stamped or otherwise imprinted with a legend substantially similar to
the following (in addition to any legend required under applicable state
securities laws):
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER FEDERAL OR
APPLICABLE STATE SECURITIES LAWS AND INSTEAD ARE BEING ISSUED PURSUANT TO
EXEMPTIONS CONTAINED IN SAID LAWS. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES SHALL BE EFFECTIVE UNDER THE SECURITIES ACT OF 1933
(THE "SECURITIES ACT") OR (2) GULFPORT ENERGY CORPORATION (THE "COMPANY") SHALL
HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT NO
VIOLATION OF THE SECURITIES ACT OR SIMILAR STATE ACTS WILL BE INVOLVED IN SUCH
TRANSFER; PROVIDED THAT IN THE EVENT SUCH SECURITIES ARE TRANSFERRED PURSUANT TO
RULE 144, OR ANY SUCCESSOR RULE, UNDER THE SECURITIES ACT, NO SUCH OPINION SHALL
BE REQUIRED UNLESS REQUESTED IN WRITING BY THE TRANSFER AGENT OF SUCH
SECURITIES. THE SECURITIES EVIDENCED HEREBY ARE SUBJECT TO THE TERMS OF A
CERTAIN SECURITIES PURCHASE AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN
STOCKHOLDERS IDENTIFIED THEREIN, PROVIDING, AMONG OTHER THINGS, FOR CERTAIN
RESTRICTIONS ON TRANSFER WITHOUT THE CONSENT OF THE COMPANY. A COPY OF SUCH
SECURITIES PURCHASER AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
COMPANY."
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6.4 Entire Agreement. This Agreement, the exhibits and schedules
hereto, the Registration Rights Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
This Agreement and the Registration Rights Agreement collectively supersede and
replace in its entirety that certain letter agreement dated March 8, 2002 by and
between the Company and Gulfport Funding.
6.5 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
6.6 Further Assurances. Each party agrees to execute such other
documents, instruments, agreements and consents, and take such other actions as
may be reasonable requested by the other parties hereto to effectuate the
purposes of this Agreement.
6.7 Amendment and Waiver. This Agreement may be amended, modified or
waived only upon the written consent of the Company and the holders of a
majority of the Series A Preferred Shares and a majority of the Warrants.
6.8 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Registration
Rights Agreement or the Certificate of Incorporation, shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of any such
breach, default or noncompliance, or any acquiescence therein, or of or in any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character on
any Purchaser's part of any breach, default or noncompliance under this
Agreement, the Registration Rights Agreement or under the Certificate of
Incorporation or any waiver on such party's part of any provisions or conditions
of this Agreement, the Registration Rights Agreement, or the Certificate of
Incorporation must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, the Registration Rights Agreement, the Certificate of Incorporation,
by law, or otherwise afforded to any party, shall be cumulative and not
alternative.
6.9 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after d posit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company and the Purchasers at the addresses as set forth on the signature page
hereof or at such other address as the Company or the Purchasers may designate
by ten (10) days advance written notice to the other parties hereto.
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6.10 Fees and Expenses. Each party shall pay all costs, fees and
expenses that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement; provided, however, that the Company shall, at the
Closing, pay the reasonable fees and expenses of Reitler Brown LLC.
6.11 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs,
and expenses of enforcing this Agreement, including without limitation, such
reasonable fees and expenses of attorneys and accountants.
6.12 Titles and Subtitles6.11 Titles and Subtitles. The titles of the
sections and subsections of this Agreement are for convenience of reference only
and are not to be considered in construing this Agreement.
6.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.14 Pronouns. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
6.15 GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAWS PROVISIONS). EACH OF
THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK AND OF THE FEDERAL COURTS SITTING IN THE
STATE OF NEW YORK IN ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT. EACH OF THE PARTIES AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT MUST BE LITIGATED EXCLUSIVELY IN
ANY SUCH STATE OR FEDERAL COURT THAT SITS IN THE CITY OF NEW YORK, AND
ACCORDINGLY, EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH LITIGATION IN ANY SUCH
COURT.
6.16 WAIVER OF JURY TRIAL. EACH PARTY HEREBY AGREES THAT ANY ACTION OR
PROCEEDING RELATING TO OR ARISING OUT OF, WHETHER DIRETLY OR INDIRECTLY, THIS
AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT (A "LITIGATION"), SHALL BE TRIED
WITHOUT A JURY. TO THAT END, EACH PARTY HEREBY WAIVES ANY RIGHT TO A TRIAL BY
JURY OF ANY LITIGATION AND CERTIFIES THAT NO PERSON HAS REPRESENTED OR IMPLIED
TO IT THAT, IN THE EVENT OF LITIGATION, IT WOULD NOT SEEK TO ENFORCE THE
FOREGOING AGREEMENT AND WAIVER. THE PARTIES ACKNOWLEDGE THAT THEY HAVE BARGAINED
FOR THE TERMS SET FORTH IN THIS SECTION 6.16 AND, AS SUCH, THESE TERMS ARE A
PART OF THE CONSIDERATION EXCHANGED TO ENTER INTO THIS AGREEMENT.
15
General. All Exhibits and Schedules are hereby incorporated by reference and
made a part of this Agreement.
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In Witness Whereof, each of the parties has caused this Securities Purchase
Agreement to be duly executed and delivered as of the date first above written.
Gulfport Energy Corporation
By:
-----------------------------------------
Name: Mike Liddell
Title: Chief Executive Officer
Address: 6307 Waterford Blvd., Suite 100
Oklahoma City, OK 73118
The Purchasers:
Gulfport Funding, LLC
By:
--------------------------------------
Name:
Title:
Address:
--------------------------------------
By:
--------------------------------------
Name:
Title:
Address:
Schedule of Purchasers
----------------------
- --------------------------------------------------------------------------------
Purchasers' Name and Address Purchase Number Total Total Number of
Price of Number Warrant Shares
Units of Series issuable upon exercise
A Shares of the Warrants
- --------------------------------------------------------------------------------
Gulfport Funding, LLC
c/o Wexford Capital Partners
411 W. Putnam Ave.
Greenwich, CT 06830
- --------------------------------------------------------------------------------
Other Purchasers
- --------------------------------------------------------------------------------
List Of Exhibits
----------------
Exhibit A Certificate of Designations of Series A Preferred Stock
Exhibit B Certificate of Incorporation
Exhibit C Form of Registration Rights Agreement
Gulfport Energy Corporation
Registration Rights Agreement
This Investor Rights Agreement (the "Agreement") is entered into as of the
29th day of March, 2002, by and among Gulfport Energy Corporation, a Delaware
corporation (the "Company"), Gulfport Funding LLC, a Delaware limited liability
company ("Gulfport Funding"), and each other investor listed on the Schedule of
Investors hereto (together with Gulfport Funding and their permitted assigns,
the "Investors").
Recitals
Whereas, the Investors are purchasing certain securities from the Company
pursuant to that certain Securities Purchase Agreement (the "Purchase
Agreement") of even date herewith among the Company, Gulfport Funding and the
other Investors (the "Financing").
Whereas, the obligations in the Purchase Agreement are conditioned upon the
execution and delivery of this Agreement; and
Whereas, in connection with the consummation of the Financing, the parties
desire to enter into this Agreement in order to grant registration and other
rights to the Investors as set forth below.
Now, Therefore, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree hereto as follows:
SECTION 1. General
1.1 Definitions. As used in this Agreement the following terms shall
have the following respective meanings:
"Common Stock"means the Common Stock, par value $0.01 per share of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934.
"Form S-3"means such form under the Securities Act as in effect on the
date hereof or any successor or similar registration form under the Securities
Act subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"Holder" means any person owning of record Registrable Securities that
have not been sold to the public or any assignee of record of such Registrable
Securities in accordance with Section 2.9 hereof.
"Register," "registered," and "registration"refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"Registrable Securities" means (a) Common Stock of the Company issued
or issuable upon exercise of the Warrants; and (b) any Common Stock of the
Company issued as or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of, such Common Stock.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to the public either pursuant to a registration
statement or Rule 144 or sold in a private transaction in which the transferor's
rights under Section 2 of this Agreement are not assigned.
"Registrable Securities then outstanding" mean the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable or convertible
securities. "Registration Expenses" mean all expenses incurred by the Company in
complying with Sections 2.2 and 2.3 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements of a single special
counsel for the Holders, blue sky fees and expenses, including the fees and
disbursements of blue sky counsel and the expense of any special audits incident
to or required by any such registration (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933. "Selling Expenses"
means all underwriting discounts and selling commissions applicable to the sale.
"Series A Stock" means the Company's Cumulative Preferred Stock,
Series A, par value $0.01 per share, issued in connection with the purchase and
sale of the Units pursuant to the Purchase Agreement.
"Special Registration Statement" means a registration statement
relating to any employee benefit plan or with respect to any corporate
reorganization or other transaction under Rule 145 of the Securities Act.
"Warrants" means the warrants, each of which entitles the holder
thereof to purchase 250 shares (subject to adjustment) of Common Stock at an
exercise price of $4.00 per share (subject to adjustment), issued in connection
with the purchase and sale of the Units pursuant to the Purchase Agreement.
2
"Units" shall mean the securities purchased by the Investors pursuant
to the Purchase Agreement, each of which is comprised of (i) one share of Series
A Stock and (ii) one Warrant.
SECTION 2. Restrictions on Transfer and Registration
2.1 Restrictions on Transfer
(a) Each Holder agrees not to make any disposition of all or any
portion of the Registrable Securities unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by the
terms of this Agreement, (B) such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (C) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act.
(iii) Notwithstanding the provisions of paragraphs (i) and (ii)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer (A) by a Holder which is a partnership, to its partners or former
partners in accordance with partnership interests, (B) to the Holder's family
member or trust for the benefit of an individual Holder or such Holder's family
member(s); provided, that in each case the transferee will be subject to the
terms of this Agreement to the same extent as if such transferee were an
original Holder hereunder, (C) pursuant to Rule 144(k); provided, however, that
the Company must be satisfied in its reasonable discretion that the proposed
sale of securities fully qualifies with all Rule 144 requirements, or (D) to a
Holder's "affiliates", as the term "affiliates" is defined by the Securities Act
or regulations promulgated under the Securities Act.
(b) Each certificate representing shares of Series A Stock, Warrants
or Registrable Securities shall (unless otherwise permitted by the provisions of
the Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws):
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
FEDERAL OR APPLICABLE STATE SECURITIES LAWS AND INSTEAD ARE BEING
ISSUED PURSUANT TO EXEMPTIONS CONTAINED IN SAID LAWS. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES SHALL BE
EFFECTIVE UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR
(2) GULFPORT ENERGY CORPORATION (THE "COMPANY") SHALL HAVE RECEIVED AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT NO VIOLATION OF
THE SECURITIES ACT OR SIMILAR STATE ACTS WILL BE INVOLVED IN SUCH
3
TRANSFER; PROVIDED THAT IN THE EVENT SUCH SECURITIES ARE TRANSFERRED
PURSUANT TO RULE 144, OR ANY SUCCESSOR RULE, UNDER THE SECURITIES ACT,
NO SUCH OPINION SHALL BE REQUIRED UNLESS REQUESTED IN WRITING BY THE
TRANSFER AGENT OF SUCH SECURITIES. THE SECURITIES EVIDENCED HEREBY ARE
SUBJECT TO THE TERMS OF A CERTAIN REGISTRATION RIGHTS AGREEMENT BY AND
AMONG THE COMPANY AND CERTAIN STOCKHOLDERS IDENTIFIED THEREIN,
PROVIDING FOR. AMONG OTHER THINGS, CERTAIN RESTRICTIONS ON TRANSFER. A
COPY OF SUCH REGISTRATION RIGHTS AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE COMPANY."
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any Holder thereof if the Holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
2.2 Piggyback Registrations. (a) The Company shall notify all Holders of
Registrable Securities in writing at least twenty (20) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding Special Registration Statements) and will afford each
such Holder an opportunity to include in such registration statement all or part
of such Registrable Securities held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by it shall, within twenty (20) days after the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities in
any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(b) Underwriting. (i) If the registration statement with respect to
which the Company gives notice under this Section 2.2 is for an underwritten
offering, the Company shall so advise the Holders of Registrable Securities. In
such event, the right of any such Holder to be included in a registration
pursuant to this Section 2.2 shall be conditioned upon such Holder's
4
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Agreement, if the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated, first, to the Company; second, to the
Holders on a pro rata basis based on the total number of Registrable Securities
proposed to be sold in the offering held by the Holders; and third, to any
shareholder of the Company (other than a Holder) on a pro rata basis. In no
event will shares of any other selling shareholder be included in such
registration which would reduce the number of shares which may be included by
Holders without the written consent of Holders of not less than sixty-six and
two-thirds percent (66 2/3%) of the Registrable Securities proposed to be sold
in the offering.
(ii) If any Holder disapproves of the terms of any such underwriting,
such Holder may elect to withdraw therefrom by written notice to the Company and
the underwriter, delivered at least ten (10) business days prior to the
effective date of the registration statement. Any Registrable Securities
excluded or withdrawn from such underwriting shall be excluded and withdrawn
from the registration.
(c) Right to Terminate Registration. (i) The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 2.2 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The Registration
Expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 2.4 hereof.
(d) Registrations effected pursuant to this Section 2.2 shall not
be counted as Form S-3 registrations effected pursuant to Sections 2.3.
2.3 Form S-3 Registration2.4 Form S-3 Registration. In case the Company
shall receive from any Holder or Holders of a majority of the Registrable
Securities (the "Initiating Holders") a written request or requests that the
Company effect a registration on Form S-3 (or any successor to Form S-3) or any
similar short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect more than
5
two (2) registrations on Form S-3 and shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.3:
(i) if Form S-3 is not available for such offering by the
Holders; or
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than one million dollars ($1,000,000) (unless the
registration request is for all remaining Registrable Securities).
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. If the registration statement under which
the Company files under this Section 2.3 is an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event the
right of any Holder to be included in a registration pursuant to this Section
2.3 shall be conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their
Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Holders.
2.4 Expenses of Registration. Except as specifically provided herein,
all Registration Expenses incurred in connection with each registration under
Section 2.2 or Section 2.3 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for (i) expenses of any registration proceeding begun pursuant to Section
2.3, the request of which has been subsequently withdrawn by the Initiating
Holders unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were not aware at the
time of such request or (b) the Holders of sixty-six and two-thirds percent (66
2/3%) of Registrable Securities agree to forfeit their right to one demand
registration pursuant to Section 2.3, as applicable, in which event such right
shall be forfeited by all Holders). If the Holders are required to pay the
Registration Expenses, such expenses shall be borne by the holders of securities
(including Registrable Securities) requesting such registration in proportion to
the number of shares for which registration was requested. If the Company is
required to pay the Registration Expenses of a withdrawn offering pursuant to
clause (a) above, then the Holders shall not forfeit their rights pursuant to
Section 2.3 to a demand registration.
2.5 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) prepare and, after a request or demand (as the case may be) for
registration has been given to the Company, file with the Commission a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective; provided,
6
that the Company may discontinue any registration of its securities which is
being effected pursuant to Section 2.2 at any time prior to the effective date
of the registration statement;
(b) prepare and file with the Commission such amendments and
supplements to any registration statement referred to in clause (i) of this
Section 2.5 and the prospectus used in connection therewith as may be necessary
to keep such registration statement effective for a period not in excess of one
hundred eighty (180) days (except with respect to any registration statement
filed pursuant to Rule 415 under the Securities Act if the Company is eligible
to file a Form S-3 registration statement, in which case the Company shall use
its best efforts to keep such registration statement effective and updated until
such time as all of the Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the Holder or Holders set
forth in such registration statement) and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such registration statement; provided, that before filing a registration
statement or prospectus, or any amendments or supplements thereto, the Company
will furnish to one counsel selected by the Holders holding a majority of the
Registrable Securities covered by such registration statement to represent all
Holders of Registrable Securities covered by such registration statement, copies
of all documents proposed to be filed, which documents will be subject to the
review of such counsel;
(c) if such registrable securities have not been registered under
Section 12 of the Exchange Act, prepare and, in any event within 40 days after a
request for registration has been given to the Company, file with the Commission
a registration statement with respect to such Registrable Securities under the
Exchange Act and use its best efforts to cause such registration statement to
become effective; provided, that the Company may discontinue any registration of
its securities which is being effected pursuant to Section 2.2 at any time prior
to the effective date of the registration statement;
(d) furnish to each seller of such Registrable Securities such number
of copies of any registration statement referred to in clause (i) of this
Section 2.5 and of each amendment and supplement thereto (in each case including
all exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and summary
prospectus), and any other prospectus filed under Rule 424 under the Securities
Act in conformity with the requirements of the Securities Act, and such other
documents as such seller may reasonably request;
(e) use its best efforts to register or qualify such Registrable
Securities covered by any registration statement referred to in clause (i) of
this Section 2.5 under such other securities or blue sky laws of such
jurisdictions as each seller of such Registrable Securities shall reasonably
request, and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such seller, except
that the Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction where, but for the
requirements of this clause (v), it would not be obligated to be so qualified or
to consent to general service of process in any such jurisdiction;
7
(f) use its best efforts to cause such Registrable Securities covered
by a registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities;
(g) notify each seller of any such Registrable Securities covered by a
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the Company's becoming
aware that the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and at
the request of any such seller, prepare and furnish to such seller a reasonable
number of copies of an amended or supplemental prospectus as may be necessary so
that, as thereafter delivered to the sellers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(h) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable (but not more than eighteen months) after the
effective date of the registration statement, an earnings statement which shall
satisfy the provisions of Section 11(a) of the Securities Act and the rules and
regulations promulgated thereunder;
(i) use its best efforts to list such Registrable Securities on any
securities exchange or automated quotation system if (A) requested by Holders
holding a majority of such Registrable Securities and (B) such listing is then
permitted under the rules of such exchange or system, and to provide a transfer
agent and registrar for such Registrable Securities covered by a registration
statement not later than the effective date of such registration statement;
(j) enter into such customary agreements (including an underwriting
agreement in customary form) and take such other actions as sellers of a
majority of such Registrable Securities or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities;
(k) obtain a "cold comfort" letter or letters from the Company's
independent public accountants in customary form and covering matters of the
type customarily covered by "cold comfort" letters as the seller or sellers of a
majority of such Registrable Securities shall reasonably request;
(l) obtain an opinion of counsel for the Company in customary form and
covering matters of the type customarily covered in opinions of issuer's counsel
as the seller or sellers of a majority of such Registrable Securities shall
reasonably request; and
(m) make available for inspection by any seller of such Registrable
Securities covered by a registration statement, by any underwriter participating
in any disposition to be effected pursuant to such registration statement and by
any attorney, accountant or other agent retained by any such seller or any such
8
underwriter, all pertinent financial and other records, pertinent corporate
documents and properties of the Company, and cause all of the Company's
officers, directors and employees to supply all information reasonably requested
by any such seller, underwriter, attorney, accountant or agent in connection
with such registration statement.
2.6 Termination of Registration Rights. A Holder's registration rights
shall expire if all Registrable Securities held by and issuable to such Holder
(and its affiliates, partners, former partners, members and former members) may
be sold under Rule 144 during any ninety (90) day period.
2.7 Furnishing Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Section 2.2 or 2.3
that the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
2.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2.2 or 2.3:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers and directors of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively a "Violation") by the Company: (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will pay as incurred to
each such Holder, partner, officer, director, underwriter or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the Company shall not be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by such Holder, partner, officer, director, underwriter or
controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration qualifications or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers and each person, if
any, who controls the Company within the meaning of the Securities Act, any
9
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, or partner,
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will pay as
incurred any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter or other Holder, or
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; provided, however, that in no event shall any indemnity under this
Section 2.8 exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
2.8 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2.8, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 2.8 except to
the extent that the indemnifying party has been materially prejudiced.
(d) If the indemnification provided for in this Section 2.8 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the Violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by a court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
10
fact relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, that in no event shall any contribution by a Holder hereunder exceed
the net proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this Section 2.8
shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this agreement. No indemnifying
party, in the defense of any such claim or litigation, shall, except with the
consent of each indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
2.9 Assignment of Registration Rights2.10 Assignment of Registration
Rights. The rights to cause the Company to register Registrable Securities
pursuant to this Section 2 may be assigned by a Holder to a permitted transferee
or assignee of Registrable Securities which (a) is a subsidiary, parent, general
partner, limited partner, retired partner, member or retired member of a Holder,
(b) is a Holder's family member or trust for the benefit of an individual
Holder, or (c) is acquiring at least one hundred thousand (100,000) shares of
Registrable Securities (as adjusted for stock splits and combinations);
provided, however, (i) the transferor shall, at within ten (10) days after such
transfer, furnish to the Company written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned and (ii) such transferee shall agree to
be subject to all restrictions set forth in this Agreement.
2.10 Limitation on Subsequent Registration Rights. Other than as provided
in Section 3.12, after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders of at least a majority (50.1%)
of the Registrable Securities then outstanding, enter into any agreement with
any holder or prospective holder of any securities of the Company that would
grant such holder registration rights pari passu or senior to those granted to
the Holders hereunder.
2.11 "Holder Market Stand-Off" Agreement. (a) Each Holder hereby agrees
that such Holder shall not sell, transfer, make any short sale of, grant any
option for the purchase of, or enter into any hedging or similar transaction
with the same economic effect as a sale, any Common Stock (or other securities)
of the Company held by such Holder (other than those included in the
registration) for a period specified by the representative of the underwriters
of Common Stock of the Company not to exceed ninety (90) days following the
effective date of a registration statement registering Common Stock; provided,
that all officers and directors of the Company and holders of at least one
percent (1%) of the Company's voting securities enter into similar agreements.
(b) The Company hereby agrees that it will cause its officers and directors
and holders of at least one percent (1%) of its voting securities not to sell,
transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale,
any Common Stock (or other securities) of the Company held by such officers and
directors and holders of at least one percent (1%) of its voting securities
(other than those included in the registration) for a period specified by the
11
representative of the underwriters of Common Stock (or other securities) of the
Company not to exceed ninety (90) days following the effective date of a
registration statement of the Company filed under the Securities Act pursuant to
Section 2.3.
2.12 Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become subject
to such reporting requirements); a copy of the most recent annual or quarterly
report of the Company; and such other reports and documents as a Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing it to sell any such securities without registration.
SECTION 3. Miscellaneous
3.1 Survival. The representations, warranties, covenants, and agreements
made herein shall survive the closing of the transactions contemplated hereby.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
3.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors or legal representatives of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of Registrable Securities from time to time and who has become a party to this
Agreement by executing and delivering an additional counterpart signature page
to this Agreement; provided, however, that prior to the receipt by the Company
of adequate written notice (specifying the full name and address of any proposed
transferee) of, and the written consent of the Company to, the transfer of any
Registrable Securities, the Company may deem and treat the person listed as the
holder of such shares in its records as the absolute owner and holder of such
shares for all purposes, including the payment of dividends or any redemption
price. Notwithstanding the foregoing, the Company may not assign this Agreement
without the prior written consent of the Holders of at least a majority (50.1%)
of the Registrable Securities.
3.3 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by any
12
representations, warranties, covenants and agreements except as specifically set
forth herein and therein.
3.4 Third Party Beneficiaries. This Agreement is for the sole benefit of
the parties hereto and not for the benefit of any third party.
3.5 Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
3.6 Amendment and Waiver.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the holders
of at least a majority (50.1%) of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the holders of at least a majority (50.1%) of the
Registrable Securities.
(c) For the purposes of determining the number of Holders or Investors
entitled to vote or exercise any rights hereunder, the Company shall be entitled
to rely solely on the list of record holders of its stock as maintained by or on
behalf of the Company.
3.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
3.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed facsimile if sent during normal
business hours of the recipient; if not, then on the next business day, (c) five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the party to be
notified at the address as set forth on the signature pages hereof or Exhibit A
hereto or at such other address as such party may designate by ten (10) days
advance written notice to the other parties hereto.
13
3.9 Attorneys' Fees. In the event that any suit or action is instituted
to enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
3.10 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
3.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
3.12 Additional Investors. Notwithstanding anything to the contrary
contained herein, if the Company shall issue additional Warrants pursuant to the
Purchase Agreement (as contemplated by Section 2.3 of the Purchase Agreement),
the purchaser of such Warrants may become a party to this Agreement by executing
and delivering an additional counterpart signature page to this Agreement and
shall be deemed an "Investor" hereunder.
3.13 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO
ANY CHOICE OR CONFLICT OF LAWS PROVISIONS).
3.14 CONSENT TO JURISDICTION. EACH INVESTOR AND THE COMPANY HEREBY
IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR
STATE COURT OF NEW YORK SITTING IN NEW YORK CITY AND IRREVOCABLY AGREES THAT ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY SHALL BE LITIGATED EXCLUSIVELY IN SUCH COURTS.
EACH INVESTOR AND THE COMPANY AGREES NOT TO COMMENCE ANY LEGAL PROCEEDING
RELATED HERETO EXCEPT IN SUCH COURT. EACH INVESTOR AND THE COMPANY IRREVOCABLY
WAIVES ANY OBJECTION WHICH HE OR IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
THE VENUE OF ANY SUCH PROCEEDING IN ANY SUCH COURT and hereby further
irrevocably and unconditionally waives and agrees not TO plead or claim in any
such court that any such action, suit or proceeding brought in any such court
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
3.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT HE OR IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT, BY, AMONG OTHER
14
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 3.15.
[remainder of this page intentionally left blank.]
15
In Witness Whereof, the parties hereto have executed this Registration
Rights Agreement as of the date set forth in the first paragraph hereof.
COMPANY:
Gulfport Energy Corporation
By:
--------------------------------------
Name:
Title:
Address:
INVESTORS:
Gulfport Funding, LLC
By:
--------------------------------------
Name:
Title:
Address:
--------------------------------------
By:
--------------------------------------
Name:
Title:
Address:
Schedule of Investors
---------------------
[To be provided to each Investor after the close of the Offering on April 15,
2002]
17
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER FEDERAL OR
APPLICABLE STATE SECURITIES LAWS AND INSTEAD ARE BEING ISSUED PURSUANT TO
EXEMPTIONS CONTAINED IN SAID LAWS. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES SHALL BE EFFECTIVE UNDER THE SECURITIES ACT OF 1933
(THE "SECURITIES ACT") OR (2) GULFPORT ENERGY CORPORATION (THE "COMPANY") SHALL
HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT NO
VIOLATION OF THE SECURITIES ACT OR SIMILAR STATE ACTS WILL BE INVOLVED IN SUCH
TRANSFER; PROVIDED THAT IN THE EVENT SUCH SECURITIES ARE TRANSFERRED PURSUANT TO
RULE 144, OR ANY SUCCESSOR RULE, UNDER THE SECURITIES ACT, NO SUCH OPINION SHALL
BE REQUIRED UNLESS REQUESTED IN WRITING BY THE TRANSFER AGENT OF SUCH
SECURITIES. THE SECURITIES EVIDENCED HEREBY ARE SUBJECT TO THE TERMS OF A
CERTAIN SECURITIES PURCHASE AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN
STOCKHOLDERS IDENTIFIED THEREIN, PROVIDING, AMONG OTHER THINGS, FOR CERTAIN
RESTRICTIONS ON TRANSFER WITHOUT THE CONSENT OF THE COMPANY. A COPY OF SUCH
SECURITIES PURCHASE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
COMPANY.
WARRANT
TO
PURCHASE COMMON STOCK
OF
GULFPORT ENERGY CORPORATION
This certifies that, for good and valuable consideration, Gulfport Energy
Corporation, a Delaware corporation (the "Company"), grants to [________] or its
registered assigns (the "Warrantholder"), the right to subscribe for and
purchase from the Company the number of duly authorized and validly issued fully
paid and non-assessable shares of common stock, par value $0.01 per share, of
the Company (the "Common Stock") set forth in Subsection 1.1 at the Exercise
Price (as defined in Subsection 1.2). This Warrant shall be exercisable at any
time, and from time to time, from and after the date hereof (the "Initial
Exercise Date") to and including 5:00 P.M., Central Standard Time on the date
that is ten years after the Initial Exercise Date (the "Expiration Date"). The
Exercise Price and the number of Warrant Shares are subject to adjustment from
time to time as provided in Section 6.
SECTION 1. NUMBER OF WARRANT SHARES; EXERCISE PRICE.
1.1. NUMBER OF WARRANT SHARES. The Warrantholder shall initially have
the right to subscribe for and purchase hereunder [__] shares of Common Stock
(the "Warrant Shares"). The number of Warrant Shares that the Warrantholder
shall have the right to subscribe for and purchase from the Company is subject
to adjustment as provided in Section 6.
1.2. EXERCISE PRICE. The exercise price per Warrant Share shall be
$4.00, subject to adjustment as provided in Section 6 (the "Exercise Price").
SECTION 2. DURATION AND EXERCISE OF WARRANT; LIMITATION ON EXERCISE; TAXES;
TRANSFER; DIVISIBILITY.
2.1. DURATION AND EXERCISE OF WARRANT. This Warrant is immediately
exercisable on the Initial Exercise Date and may be exercised, in whole or in
part, at any time and from time to time from and after the Initial Exercise Date
to the Expiration Date. The rights represented by this Warrant may be exercised
by the Warrantholder of record, in whole or in part, from time to time, by (a)
surrender of this Warrant, accompanied by the Exercise Form annexed hereto (the
"Exercise Form") duly executed by the Warrantholder of record and specifying the
number of Warrants Shares to be purchased to the Company at the office of the
Company located at 6307 Waterford Blvd., Suite 100, Oklahoma City, Oklahoma
73118, Attention: Lisa Holbrook, Esq. (or such other office or agency of the
Company as it may designate by notice to the Warrantholder at the address of
such Warrantholder appearing on the books of the Company), during normal
business hours on any day (a "Business Day") other than a Saturday, Sunday or a
day on which the New York Stock Exchange is authorized to close (a "Nonbusiness
Day"), or after 9:00 A.M. Central Standard Time on the Initial Exercise Date,
but not later than 5:00 P.M. Central Standard Time on the Expiration Date (or
5:00 P.M. on the next succeeding Business Day, if the Expiration Date is a
Nonbusiness Day), (b) payment of the Exercise Price by (i) delivery to the
Company in cash or by certified or official bank check in New York Clearing
House Funds, of an amount equal to the Exercise Price for the number of Warrant
Shares specified in the Exercise Form, (ii) delivery to the Company of such
number of shares of Cumulative Preferred Stock, Series A, par value $0.01 per
share, of the Company having a Liquidation Preference plus accrued and unpaid
dividends, if any, equal to the Exercise Price for the number of Warrant Shares
specified in the Exercise Form, (iii) a combination of (i) and (ii), or (iv)
notice that the Warrantholder elects to effect a cashless exercise as
contemplated by Subsection 2.6, and (c) such documentation as to the identity
and authority of the Warrantholder as the Company may reasonably request. Such
Warrant Shares shall be deemed by the Company to be issued to the Warrantholder
as the record holder of such Warrant Shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for the
Warrant Shares as aforesaid. Certificates for the Warrant Shares specified in
the Exercise Form shall be delivered to the Warrantholder as promptly as
practicable, and in any event within ten (10) Business Days, thereafter. The
stock certificates so delivered shall be in denominations as may be specified by
the Warrantholder and shall be issued in the name of the Warrantholder or, if
permitted by Subsection 2.4 and in accordance with the provisions thereof, such
other name as shall be designated in the Exercise Form. If this Warrant shall
have been exercised only in part, the Company shall, at the time of delivery of
the certificates for the Warrant Shares, deliver to the Warrantholder a new
Warrant evidencing the rights to purchase the remaining Warrant Shares, which
new Warrant shall in all other respects be identical with this Warrant. No
adjustments or payments shall be made on or in respect of Warrant Shares
issuable on the exercise of this Warrant for any cash dividends paid or payable
2
to holders of record of Common Stock prior to the date as of which the
Warrantholder shall be deemed to be the record holder of such Warrant Shares.
2.2. LIMITATION ON EXERCISE. If this Warrant is not exercised prior to
5:00 P.M. Central Standard Time on the Expiration Date (or the next succeeding
Business Day, if the Expiration Date is a Nonbusiness Day), this Warrant, or any
new Warrant issued pursuant to Subsection 2.1, shall cease to be exercisable and
shall become void, and all rights of the Warrantholder hereunder shall cease.
2.3. PAYMENT OF TAXES. The issuance of certificates for Warrant Shares
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificates for
Warrant Shares in a name other than that of the then Warrantholder as reflected
upon the books of the Company.
2.4. RESTRICTIONS ON TRANSFER. Neither this Warrant nor any of the
Warrant Shares may be transferred or sold, in whole or in part, without the
prior written consent of the Company and except in compliance with applicable
United States federal and state securities laws. Subject to the foregoing, this
Warrant and all rights hereunder are transferable, in whole or in part, by the
Warrantholder and any such transfer is registrable at the office of the Company
referred to in Subsection 7.6(a) by the Warrantholder in person or by its duly
authorized attorney, upon surrender of this Warrant in accordance with Section
4. The Company may not transfer or assign any of its rights or obligations under
this Warrant, or any portion thereof.
2.5. DIVISIBILITY OF WARRANT. This Warrant may be divided into multiple
warrants upon surrender at the office of the Company referred to in Subsection
7.6(a) on any Business Day, without charge to the Warrantholder.
2.6. CASHLESS EXERCISE. At the option of the Warrantholder, the
Warrantholder may exercise this Warrant, without a cash payment of the Exercise
Price, through a reduction in the number of Warrant Shares issuable upon the
exercise of the Warrant. Such reduction may be effected by designating that the
number of the shares of Common Stock issuable to the Warrantholder upon such
exercise shall be reduced by the number of shares having an aggregate Fair
Market Value as of the date of exercise equal to the amount of the total
Exercise Price for such exercise. For purposes of this Warrant, the "Fair
Market Value" of the Common Stock on any date in question shall be the average
closing sale price of the Common Stock on the principal stock exchange, stock
market or quotation market on which the Common Stock is traded for the thirty
(30) Business Days immediately preceding such date, as quoted in The Wall Street
Journal or other nationally recognized, reputable publication. If the Common
Stock is not listed or qualified for trading or quotation on a stock exchange or
stock market or national quotation system at such time, then the Fair Market
Value shall be determined using such method as the Warrantholder and the Company
shall agree. In connection with any cashless exercise, no cash or other
consideration will be paid by the Warrantholder in connection with such exercise
other than the surrender of the Warrant itself, and no commission or other
remuneration will be paid or given by the Warrantholder or the Company in
connection with such exercise.
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Section 3. RESERVATION OF SHARES.
All Warrant Shares issued upon the exercise of the rights represented by
this Warrant, upon issuance and payment of the Exercise Price in accordance with
the terms of this Warrant, shall be validly issued, fully paid and
non-assessable and free from all taxes, liens, security interests, charges and
other encumbrances with respect to the issuance thereof other than taxes in
respect of any transfer occurring contemporaneously with such issuance. The
issuance of the Warrant Shares pursuant hereto will not be subject to, and will
not violate, any preemptive or similar rights. During the period within which
this Warrant may be exercised, the Company shall at all times have authorized
and reserved, and keep available and free from preemptive or similar rights, a
sufficient number of shares of Common Stock to provide for the exercise of this
Warrant and of all other options or rights to purchase or subscribe for Common
Stock and the conversion or exchange of all convertible or exchangeable
securities of the Company.
SECTION 4. EXCHANGE, LOSS OR DESTRUCTION OF WARRANT.
If permitted by Subsection 2.4 or 2.5, upon surrender of this Warrant to
the Company with a duly executed instrument of assignment and funds sufficient
to pay any transfer tax, the Company shall, without charge, execute and deliver
a new Warrant of like tenor in the name of the assignee named in such instrument
of assignment and this Warrant shall promptly be canceled. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor.
Section 5. OWNERSHIP OF WARRANT.
The Company may deem and treat the person or entity in whose name this
Warrant is registered as the holder and owner hereof (notwithstanding any
notations of ownership or writing hereon made by anyone other than the Company)
for all purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer as provided in
Subsections 2.1 and 2.5 or in Section 4.
Section 6. CERTAIN ADJUSTMENTS.
The Exercise Price at which Warrant Shares may be purchased hereunder and
the number of Warrant Shares to be purchased upon exercise hereof are subject to
change or adjustment as follows:
6.1. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
the Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly send by first class mail, postage prepaid, to the
Warrantholder, notice of such adjustment.
6.2. PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION. In case
of any consolidation of the Company with or merger of the Company with or into
4
another entity or in case of any sale, transfer or lease to another entity of
all or substantially all the assets or stock of the Company, the Warrantholder
shall have the right thereafter upon payment of the Exercise Price in effect
immediately prior to such action to receive upon exercise of this Warrant the
kind and amount of shares and other securities and property which such holder
would have been entitled to receive after the happening of such consolidation,
merger, sale, transfer or lease had this Warrant been exercised immediately
prior to such action, and the Company or such successor or purchasing entity, as
the case may be, shall execute with the Warrantholder an agreement to that
effect. Such agreement shall provide for adjustments, which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 6. The
provisions of this Subsection 6.2 shall apply similarly to successive
consolidations, mergers, sales, transfers or leases.
6.3. ADJUSTMENTS.
(a) Stock Dividends, Distributions or Subdivisions. In the event the
Company at any time or from time after the date hereof shall
issue additional shares of Common Stock pursuant to a stock
dividend, stock distribution, subdivision, share split or
reclassification, then, and in each such case, concurrently with
the effectiveness of such event, the Exercise Price in effect
immediately prior to such event shall be proportionately
decreased with the number of Warrant Shares purchasable upon
exercise of this Warrant immediately prior to such event shall be
proportionately increased.
(b) Combinations or Consolidations. In the event the outstanding
shares of Common Stock shall be combined or consolidated, by
reclassification, reverse split or otherwise, into a lesser
number of shares of Common Stock, concurrently with the
effectiveness of such event, the Exercise Price in effect
immediately prior to such event shall be proportionately
increased and the number of Warrant Shares purchasable upon
exercise of this Warrant immediately prior to such event shall be
proportionately decreased.
(c) Issuance of Additional Shares of Common Stock.
(i) In the event the Company at any time or from time to time
after the date hereof shall issue or sell Additional Shares
(as defined below) without consideration or for a
consideration per share less than the Exercise Price in
effect immediately prior to the issuance, then the Exercise
Price shall be reduced to the price at which such Additional
Shares are issued. The total number of shares of Common
Stock to be purchased under the Warrant shall be increased
by dividing the new Exercise Price into the aggregate
exercise amount of the Warrant prior to the lowering of the
Exercise Price.
5
(ii) In the event the Company shall issue Additional Shares for a
consideration per share less than the Fair Market Value of
the Common Stock as of the date of such issuance, but
greater than the Exercise Price in effect immediately prior
to the issuance, then the Exercise Price shall be reduced
(but in no event increased) to the amount determined by
multiplying such Exercise Price by a fraction:
(A) the numerator of which is the number of shares of
Common Stock outstanding immediately prior to the
issuance of such Additional Shares plus the number of
shares of Common Stock that the aggregate
consideration, if any, received by the Company for the
Additional Shares so issued would purchase at a
price equal to the Fair Market Value of the Common
Stock as of the date of issuance; and
6
(B) the denominator of which is the number of shares of
Common Stock outstanding immediately prior to the
issuance of such Additional Shares plus the number of
Additional Shares so issued. The total number of shares
of Common Stock to be purchased under the Warrant shall
be increased by dividing the new Exercise Price into
the aggregate exercise amount of the Warrant prior to
the lowering of the Exercise Price.
(iii) If the Company issues Common Stock for a consideration in
whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as
determined by mutual agreement of the Warrantholder and
the Company.
(iv) If the Company issues options or rights to purchase or
subscribe for Common Stock, securities convertible into or
exchangeable for Common Stock or options or rights to
purchase or subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all
purposes of calculating the number of shares of Common
Stock outstanding under this Subsection 6.3 upon the
Exercise of the Warrants:
(A) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of
any conditions to exercisability including, without
limitation, the passage of time, but without taking
into account potential antidilution adjustments) of
such options or rights to purchase or subscribe for
Common Stock shall be deemed to have been issued at
the time such options or rights were issued and for a
6
consideration equal to the consideration, if any,
received by the Company upon the issuance of such
options or rights plus the exercise price provided in
such options or rights (without taking into account
potential antidilution adjustments) for the Common
Stock covered thereby.
(B) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming
the satisfaction of any conditions to convertibility or
exchangeability, including, without limitation, the
passage of time, but without taking into account
potential antidilution adjustments) for any such
convertible or exchangeable securities, or options or
rights to purchase or subscribe therefore, shall be
deemed to have been issued at the time such securities
were issued or such options or rights were issued and
for consideration equal to the consideration, if any,
received by the Company for any such securities and
related options or rights (excluding any cash received
on account of accrued interest or accrued dividends),
plus the additional consideration, if any, to be
received by the Company (without taking into account
potential antidilution adjustments) upon the conversion
or exchange of such securities or the exercise of any
related options or rights.
(C) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration
payable to the Company upon exercise of such options or
rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but
not limited to, a change resulting from the
antidilution provisions thereof, the Exercise Price, to
the extent previously adjusted upon the issuance of
such options, rights or securities, shall be readjusted
to reflect such change, but no further adjustment shall
be made for the actual issuance of Common Stock or any
payment of such consideration upon the exercise of any
such options or rights or the conversion or exchange of
such securities.
(D) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange
or the expiration of any options or rights related to
such convertible or exchangeable securities, the
Exercise Price, to the extent previously adjusted upon
the issuance of such options, rights or securities or
options or rights related to such securities, shall be
readjusted to reflect the issuance of only the number
7
of shares of Common Stock (and convertible or
exchangeable securities which remain in effect)
actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such
securities or upon the exercise of the options or
rights related to such securities.
(E) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefore pursuant to
Subsections 6.3(c)(iv)(A) and (B) shall be
appropriately adjusted to reflect any change,
termination or expiration of the type described in
either Subsection 6.3(c)(iv)(C) or (D).
(F) Notwithstanding the foregoing provisions of this
Subsection 6.3(c)(iv), the adjustments required by this
Subsection 6.3 with respect to the issuance of options
under employee benefit plans of the Company shall be
made, in the aggregate, only after the Warrantholder
has notified the Company that it intends to exercise
this Warrant, in whole or in part, at which time the
required adjustments shall be made with respect to all
such options that shall have been issued on or prior to
the date of such notice and remain outstanding (it
being understood that if any such options are actually
exercised prior thereto, the appropriate adjustments,
if any, shall be made pursuant to the applicable
provision of this subsection 6.3(c) at the time of
exercise).
(v) "Additional Shares" shall mean any shares of Common Stock
issued (or deemed to have been issued as contemplated by
Subsection 6.3(c)(iv)) by the Company on or after the date
of this Warrant other than (i) the Common Stock issued upon
exercise of the Warrants, (ii) the issuance and sale of, or
the grant of options to purchase up to 100,000 shares
(subject to adjustment in accordance with Section 6.3(a) or
(b)) of Common Stock, after the date of this Warrant, to
employees, directors or officers of, or bona fide by the
Company's Board of Directors, and (iii) Common Stock issued
pursuant to the exercise of any stock option, warrant or
other right to purchase Common Stock outstanding on the date
of this Warrant.
(vi) "Warrants" shall mean the warrants to purchase shares of
Common Stock issued by the Company pursuant to the
Securities Purchase Agreement (as defined below).
8
Section 7. MISCELLANEOUS.
7.1. ENTIRE AGREEMENT. This Warrant was issued pursuant to the terms
and conditions of a certain Securities Purchase Agreement, dated as of March 31,
2001, by and among the Company and, among others, the Warrantholder (the
"Securities Purchase Agreement"). This Warrant and the Securities Purchase
Agreement constitute the entire agreement between the Company and the
Warrantholder with respect to this Warrant and the Warrant Shares.
7.2. BINDING EFFECTS; BENEFITS. This Warrant shall inure to the
benefit of and shall be binding upon the Company, the Warrantholder, and each of
their respective heirs, legal representatives, successors and assigns. Nothing
in this Warrant, expressed or implied, is intended to or shall confer on any
person entity other than the Company, the Warrantholder, and each of their
respective heirs, legal representatives, successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
7.3 TRANSFER RESTRICTIONS; ASSIGNMENT. This Warrant may not be transferred,
in whole or in part, without the prior written consent of the Company, which may
be given or withheld in the Company's sole discretion.
7.4. AMENDMENTS. This Warrant may not be modified or amended except by a
written instrument signed by the Company and the Warrantholder.
7.3. SECTION AND OTHER HEADINGS. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
7.4. FURTHER ASSURANCES. Each of the Company and the Warrantholder
shall do and perform all such further acts and things and execute and deliver
all such other certificates, instruments and/or documents as any party hereto
may reasonably request in connection with the performance of the provisions of
this Warrant.
7.5. NOTICES. All demands, requests, notices, and other communications
required or permitted to be given under this Warrant shall be in writing and
shall be deemed to have been duly given if delivered personally, sent by
confirmed facsimile or sent by United States certified or registered first class
mail, postage prepaid, to the parties hereto at the following addresses or at
such other address as any party hereto shall hereafter specify by notice to the
other party hereto:
(a) if to the Company, addressed to:
Gulfport Energy Corporation
6307 Waterford Blvd., Suite 100
Oklahoma City, Oklahoma 73118
Attention: Lisa Holbrook, Esq.
Telephone No.: (405) 848-8807
Facsimile No.: (405) 848-8816
9
(b) If to the Warrantholder or any other holder, addressed to the
address of such person appearing on the books of the Company.
Except as otherwise provided herein, all such demands, requests, notices and
other communications shall be deemed to have been received on the date of
personal delivery thereof, the sending of confirmed facsimile thereof or on the
third Business Day after the mailing thereof.
7.6. SEPARABILITY. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall be ineffective in such
jurisdiction to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable any other term or provision of this Warrant
or affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
7.7. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Fair Market Value of a share of Common Stock as of the date of
such exercise.
7.8. GOVERNING LAW; CONSENT TO JURISDICTION. This Warrant shall be
governed by, and construed in accordance with, the laws of the State of New York
(without giving effect to any choice or conflict of law provisions). Each of
the parties hereby irrevocably and unconditionally submits to the jurisdiction
of the courts of the State of New York and of the federal courts sitting in the
State of New York in all actions or proceedings arising out of or relating to
this Warrant. Each of the parties agrees that all actions or proceedings
arising out of or relating to this Warrant must be litigated exclusively in any
state or federal court in the City of New York, and accordingly, each party
irrevocably waives any objection which it may now or hereafter have to the
laying of the venue of any such litigation in any such court. Each of the
parties hereby irrevocably and unconditionally waives its right to a jury trial
in any action arising out of or relating to this Warrant.
7.9. EQUITABLE RELIEF. The Company recognizes that, in the event the
Company fails to perform, observe or discharge any of its obligations or
liabilities under this Warrant, any remedy of law may prove to be inadequate
relief to the Warrantholder or any other holder, and therefore, the Company
agrees that the Warrantholder or any other holder, if it so requests, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages, in addition to any other remedies that
may be available to it at law or in equity.
7.10. EXPENSES AND ATTORNEYS' FEES. If, at any time or times, whether
prior or subsequent to the date hereof, the Warrantholder employs counsel for
advice or other representation or incurs reasonable legal and/or other costs and
expenses in connection with:
10
(a) the amendment, waiver or modification of any provision of this
Warrant;
(b) any litigation, contest, dispute, suite, proceeding or action (whether
instituted by the Warrantholder, the Company or any other person)
in any way relating to this Warrant, unless a court of competent
jurisdiction finds in favor of the Company as the prevailing party,
and awards court costs and attorneys' fees to the Company as such
prevailing party; or
(c) any attempt to enforce any rights of the Warrantholder against the
Company or any other person that may be obligated to the Warrantholder
by virtue of this Warrant in accordance with the terms of this
Warrant;
then, in any such event, the reasonable attorneys' fees arising from such
services and all reasonable expenses, costs, charges, and fees of counsel or of
the Warrantholder in any way or respect arising in connection with or relating
to any of the events or actions described in this subsection shall be payable on
demand by the Company, to the Warrantholder.
7.11. COUNTERPARTS. This Warrant may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company and the initial Warrantholder have caused
this Warrant to be signed by their duly authorized officers as of the _____ day
of ________, 2002.
GULFPORT ENERGY CORPORATION
By:
--------------------------------------
Mike Liddell, Chief Executive Officer
WARRANTHOLDER
By:
--------------------------------------
12
GULFPORT ENERGY CORPORATION
WARRANT EXERCISE FORM
(To be executed upon exercise Warrant)
The undersigned, the record holder of this Warrant, hereby irrevocably
elects to exercise the right, represented by this Warrant, to purchase _________
of the Warrant Shares and herewith pays the Exercise Price in accordance with
the terms of this Warrant by (check applicable boxes):
[ ] tendering payment for such Warrant Shares to the order of GULFPORT
ENERGY CORPORATION in the amount of $______________.
[ ] delivering to the Company such shares of Cumulative Preferred Stock,
Series A, par value $0.01 per share, having a Liquidation Preference (as defined
in the Certificate of Designations for the Company's Cumulative Preferred Stock
Series A) together with accrued and unpaid dividends of $_______.
[ ] surrendering the undersigned's purchase rights with respect to ______
Warrant Shares, having an aggregate Fair Market Value as of the date of this
exercise of $________________, which equals or exceeds the aggregate Exercise
Price of the Warrant Shares being purchased, as permitted by subsection 2.6 of
the Warrant. (The Company shall refund to the Warrantholder in cash any such
excess value, not to exceed 99.9% of the Fair Market Value of one share of
Common Stock).
The undersigned requests that a certificate for the Warrant Shares being
purchased be registered in the name of ________________ and that such
certificate be delivered to _____________.
Date _____________ Signature ________________________
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
all of the rights of the undersigned under the within Warrant, with respect to
the number of shares of Common Stock covered thereby set forth below, to:
Name of Assignee Address No. of Shares
----------------------------------------------------------------
and hereby irrevocable constitutes and appoints ________________ as agent and
attorney-in-fact to transfer said Warrant on the books of Gulfport Energy
Corporation, with full power of substitution in the premises.
Dated ____________________
In the presence of
_________________________
Name: _________________________
Signature: _______________________
Title of Signing Offer or Agent (if any):
Address: _________________________
_________________________
Note: The above signature should correspond with the name on the face of the
within Warrant.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL
AND OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
GULFPORT ENERGY CORPORATION
CUMULATIVE PREFERRED STOCK, SERIES A
------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-------------------------
The following resolution has been duly adopted by the Board of Directors
(such Board, including any committee thereof duly authorized to act on behalf of
such Board, herein referred to as the "Board") of Gulfport Energy Corporation, a
Delaware corporation (the "Corporation"), pursuant to the provisions of Section
151 of the General Corporation Law of the State of Delaware, which resolution
remains in full force and effect as of the date hereof:
RESOLVED that, pursuant to the authority expressly granted to and vested in
the Board by the provisions of the Certificate of Incorporation of the
Corporation, as amended (collectively, the "Certificate of Incorporation") to
fix by resolution or resolutions the designation, number and voting powers, if
any, of each series of Preferred Stock, par value $0.01 per share (the
"Preferred Stock") of the Corporation and the preferences and relative,
participating, optional and other special rights and qualifications, limitations
and restrictions thereof, the Board hereby authorizes and creates a series of
Preferred Stock on the terms and with the provisions (in addition to those set
forth in the Certificate of Incorporation of the Corporation that are applicable
to all Preferred Stock) as follows:
SECTION 1. Designation, Number of Shares and Liquidation Preference. The
series of Preferred Stock created by this resolution shall be designated the
"Cumulative Preferred Stock, Series A" (the "Series A Preferred Stock"). The
number of authorized shares of Series A Preferred Stock shall be 15,000. The
liquidation preference of each share of Series A Preferred Stock (the
"Liquidation Preference") shall be $1,000.00.
SECTION 2. Rank. The Series A Preferred Stock shall, as to the payment of
dividends and the distribution of assets upon the liquidation, dissolution or
winding up of the Corporation, rank (i) prior to the Common Stock, par value
$.01 per share (the "Common Stock"), and any other capital stock, of the
Corporation (other than any other class or series of a class of capital stock of
the Corporation the terms of which expressly provide that the shares thereof
rank senior or on a parity as to the payment of dividends and the distribution
of assets upon the liquidation, dissolution or winding up of the Corporation
with the shares of the Series A Preferred Stock) (such securities, other than
those described in the immediately preceding parenthetical clause, collectively
referred to herein as the "Junior Securities") and (ii) on a parity with any
other class or series of a class of capital stock of the Corporation the terms
of which expressly provide that the shares thereof rank on a parity as to the
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up of the Corporation with the shares of the Series A
Preferred Stock (the "Parity Securities").
SECTION 3. Dividends. (a) (i) The holders of outstanding shares of Series
A Preferred Stock shall be entitled to receive, in preference to the holders of
shares of Junior Securities, out of funds of the Corporation legally available
for the payment of dividends, a cumulative dividend at the rate per annum of
$120 per share of Series A Preferred Stock, subject to the provisions of
Subsection (ii) below (the "Series A Preferred Dividend"). Dividends shall
accrue and be payable quarterly, in arrears on each June 30, September 30,
December 31, and March 31 (each a "Dividend Payment Date"), commencing on June
30, 2002. Each quarter, to the extent the Corporation has funds legally
available, the Board of Directors of the Corporation shall declare and the
Corporation shall pay the Series A Preferred Dividend to the holders of the
Series A Preferred Stock. Each such quarterly dividend shall be cumulative and
shall accumulate, whether or not earned or declared and whether or not there are
funds of the Corporation legally available for payment of dividends, for the
period (each, a "Dividend Period") commencing on and including the most recent
Dividend Payment Date to which dividends have been paid or accumulated to but
excluding the next succeeding Dividend Payment Date, except (x) that the
Dividend Period terminating on June 30, 2002 (the "Initial Dividend Period")
shall commence on and include the date of original issuance of the Series A
Preferred Stock and (y) as otherwise provided in Sections 4 and 6 with respect
to shares of Series A Preferred Stock that are redeemed or with respect to which
distributions are made upon a Liquidation Transaction (as defined in Section 6).
(ii) Dividends shall be payable, net of any amounts required to be
withheld for or with respect to taxes, to holders of record as they appear on
the stock books of the Corporation at the close of business on such record
dates, not more than 60 days nor less than 10 days prior to the respective
Dividend Payment Date, as shall be fixed by the Board. If any Dividend Payment
Date is not a Business Day (as defined below), the quarterly dividend to be paid
on such Dividend Payment Date shall be paid on the next following Business Day.
A "Business Day" means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City are required or authorized by law to be
closed. Dividends shall be payable in cash; provided, however, the Board may,
at its option, with respect to any Dividend Period ending on or prior to March
31, 2004, in lieu of declaring a cash dividend for such Dividend Period, declare
a dividend payable in whole or in part in shares of Series A Preferred Stock,
provided, further, that if the Board elects to pay such a dividend, the sum of
(1) the aggregate Liquidation Preference of the shares of Series A Preferred
2
Stock declared as a dividend, and (2) any cash so paid as a dividend shall equal
125% of the cash dividend accruing for such Dividend Period without regard to
this and the preceding proviso. Accumulated and unpaid dividends for any past
Dividend Periods shall be declared and paid at such time as the Corporation has
funds legally available therefor, without reference to any 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.
(iii) Payments of dividends in cash shall be made in coin or currency of
the United States that as of the date of payment shall be legal tender for
payment of public and private debts by mailing a check to each holder of shares
of Series A Preferred Stock at the address of such holder as shown on the stock
books of the Corporation.
(iv) Payments of dividends in Series A Preferred Stock shall be made by
mailing within five (5) days of the relevant Dividend Payment Date to each
holder of shares of Series A Preferred Stock at the address of such holder as
shown on the stock books of the Corporation (a) a certificate or certificates
representing the shares of Series A Preferred Stock to which such holder is
entitled and (b) a check made payable for an amount corresponding to any
fractional interest in a share of Series A Preferred Stock as provided in this
clause (iv). All shares of Series A Preferred Stock issued and delivered
pursuant to Subsection 3(a)(ii) will upon issuance by the Corporation and
delivery be duly and validly issued, fully paid and nonassessable. If any
shares of Series A Preferred Stock are listed on any national securities
exchange, the Corporation shall, if permitted by the rules of such exchange,
list the shares of Series A Preferred Stock to be delivered pursuant to
Subsection 3(a)(ii), prior to such payment, on such exchange. The Corporation
shall have the option of issuing fractional shares of Series A Preferred Stock
or scrip representing fractional shares of Series A Preferred Stock upon payment
of dividends or, in lieu thereof, paying a cash adjustment in respect of such
fractional interest in an amount equal to that fraction of the Liquidation
Preference. The Corporation shall pay all documentary, stamp, transfer or other
transactional taxes attributable to the issuance or delivery of shares of Common
Stock pursuant to this Section 3; provided that the Corporation shall not be
required to pay any taxes payable in respect of any transfer involved in the
issuance or delivery of any certificates representing such shares of Series A
Preferred Stock in a name other than that of the holder of the shares of Series
A Preferred Stock in respect of which such certificates are being issued and no
such issuance or delivery shall be made unless and until the holder requesting
such issuance has paid to the Corporation the amount of any such tax or has
established to the reasonable satisfaction of the Corporation that such tax is
not required to be paid.
(b) Subject to the provisions of Subsection 3(a)(ii) above, the amount of
dividends payable for each full Dividend Period for the Series A Preferred Stock
shall be computed by dividing the annual cash dividend rate by four. The
amount of dividends payable for the Initial Dividend Period, or any other period
shorter or longer than a full Dividend Period, on the Series A Preferred Stock
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months. Holders of shares of Series A Preferred Stock shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess of
cumulative dividends, as herein provided, on the Series A Preferred Stock.
(c) All dividends paid with respect to shares of Series A Preferred Stock
shall be paid pro rata to the holders entitled thereto.
3
(d) When dividends are not paid in full upon the Series A Preferred Stock,
any dividends declared or paid upon shares of Series A Preferred Stock and any
Parity Securities shall be declared or paid, as the case may be, pro rata so
that the amounts of dividends declared or paid, as the case may be, per share
on the Series A Preferred and such other Parity Securities in all cases bear to
each other the same ratio that accumulated and unpaid dividends per share on the
shares of Series A Preferred Stock and such other Parity Securities bear to each
other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series A Preferred Stock, or
any Parity Security, which may be in arrears.
(e) Unless full cumulative dividends on the Series A Preferred Stock have
been or contemporaneously are declared by the Board and paid or declared and an
amount of cash or, to the extent permitted under Subsection 3(a)(ii), shares of
Series A Preferred Stock, as the case may be, sufficient for the payment thereof
set apart by the Corporation for all Dividend Periods terminating on or prior to
the date of payment of dividends on any Junior Securities, no dividends shall be
declared or paid or any sum set apart for such payment or any other distribution
made on or with respect to such Junior Securities for any period, other than
dividends payable or distributions made in shares of Junior Securities.
(f) Unless full cumulative dividends on the Series A Preferred Stock have
been or contemporaneously are declared by the board and paid or declared and an
amount of cash or, to the extent permitted under Subsection 3(a)(ii), shares of
Series A Preferred Stock, as the case may be, sufficient for the payment thereof
set apart by the Corporation for all Dividend Periods terminating on or prior to
the date of any event described in clause (x) or (y) of this Subsection 3(f),
the Corporation shall not, and shall not permit its Subsidiaries to (x) redeem,
purchase, retire or otherwise acquire for any consideration any shares of Series
A Preferred Stock, unless (A) all shares of Series A Preferred Stock outstanding
shall be redeemed or (B) the shares of Series A Preferred Stock are redeemed,
purchased, retired or otherwise acquired pro rata from among the holders of the
shares then outstanding or (y) redeem, purchase, retire or otherwise acquire for
any consideration, or make any payment on account of a sinking fund or other
similar fund for redemption, purchase, retirement or acquisition of, any Junior
Securities or any Parity Securities, or any warrant, right or option to purchase
any thereof, or make any distribution in respect thereof, directly or
indirectly, whether in cash, obligations or securities of the Corporation or
other property, except (i) in the case of Junior Securities, redemptions,
purchases, retirements, acquisitions or distributions made in shares of Junior
Securities or redemptions, purchases or acquisitions of shares of Common Stock
for purposes of any employee benefit plan or program of the Corporation or any
Subsidiary and (ii) in the case of Parity Securities, redemptions, purchases,
retirements, acquisitions or distributions made pro rata so that the amounts
redeemed, purchased, retired or otherwise acquired or paid or distributed in
respect thereof, as the case may be, per share on the Series A Preferred Stock
and such other Parity Securities in all cases bear to each other the same ratio
that accumulated and unpaid dividends on the Series A Preferred Stock and such
other Parity Securities bear to each other. A "Subsidiary" means any
corporation, association or other business entity more than 50% of the shares of
stock of any class or classes (or equivalent interests) of which is at the time
owned by the Corporation or by one or more Subsidiaries of the Corporation or by
the Corporation and one or more Subsidiaries of the Corporation, if the holders
of the stock of such class or classes (or equivalent interests) are ordinarily,
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in the absence of contingencies, entitled to vote for the election of a majority
of the directors (or Persons performing similar functions) of such business
entity. A "Person" means any individual, corporation, limited liability
company, partnership, firm, joint venture, association, joint stock company,
trust, unincorporated organization, governmental or regulatory authority or
other entity.
SECTION 4. Redemption. (a) (i) To the extent the Corporation shall have
funds legally available therefor, the Series A Preferred Stock shall be subject
to redemption in cash, at the option of the Corporation, at any time, in part
from time to time or in whole, at a price per share (the "Optional Redemption
Price") equal to (x) 100% of the Liquidation Preference per share plus (y) an
amount per share equal to all accrued and unpaid cash dividends thereon, whether
or not declared or payable, to the date fixed by the Corporation for such
redemption (an "Optional Redemption Date").
(ii) On March 29, 2007 (the "Mandatory Redemption Date"), the Corporation
shall redeem out of the assets of the Corporation legally available therefor,
all of the shares of Series A Preferred Stock then outstanding at a price per
share (the "Mandatory Redemption Price") payable in cash equal to (x) 100% of
the Liquidation Preference per share plus (y) an amount per share equal to all
accrued and unpaid dividends thereon, whether or not declared or payable, to the
Mandatory Redemption Date.
(b) (i) Notice of any redemption pursuant to Subsection 4(a) shall be given
not less than 30 nor more than 60 days prior to the Optional Redemption Date or
Mandatory Redemption Date, as the case may be, to each holder of record of the
shares to be redeemed, by first class mail, postage prepaid, at such holder's
address as the same appears on the stock records of the Corporation. Neither
the failure to mail any such notice, nor any defect therein or in the mailing
thereof, to any particular holder, shall affect the sufficiency of the notice or
the validity of the proceedings for redemption with respect to the other
holders. Any notice mailed in the manner herein provided shall be conclusively
presumed to have been duly given on the date mailed, whether or not the holder
receives the notice. Each such notice shall state, in addition to any
information the Corporation deems appropriate: (i) the Optional Redemption Date
or Mandatory Redemption Date, as the case may be; (ii) the number of shares of
Series A Preferred Stock of such holder to be redeemed; (iii) the applicable
redemption price; and (iv) the place or places where certificates for shares of
Series A Preferred Stock are to be surrendered for redemption.
(ii) In order to facilitate the redemption of the Series A Preferred
Stock, the Board may cause the transfer books of the Corporation for the Series
A Preferred Stock to be closed, not more than 60 days or less than 30 days prior
to the Optional Redemption Date or Mandatory Redemption Date, as the case may
be.
(c) (i) From and after the Optional Redemption Date or Mandatory
Redemption Date, as the case may be (unless the Corporation shall fail to set
apart the cash necessary to effect such redemption), (x) except as otherwise
provided herein, dividends on the shares of the Series A Preferred Stock so
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called for redemption shall cease to accrue, (y) such shares of Series A
Preferred Stock shall no longer be deemed to be outstanding and (z) all rights
of the holders thereof as holders of Series A Preferred Stock shall cease except
as provided in clause (iii) of this Subsection 4(c).
(ii) The Corporation's obligation to pay the Optional Redemption Price or
the Mandatory Redemption Price in accordance with clause (i) of this Subsection
4(c) shall be deemed fulfilled if, on or before the Optional Redemption Date or
Mandatory Redemption Date, as the case may be, the Corporation shall deposit
with a bank or trust company that has an office in the borough of Manhattan,
City of New York, and that has a capital and surplus of at least $50,000,000,
cash in the amount of the Optional Redemption Price or Mandatory Redemption
Price, as the case may be, in trust, with irrevocable instructions that such
cash be applied to the redemption of the shares of Series A Preferred Stock
called for redemption.
(iii) Unless the Corporation defaults in the payment of the Optional
Redemption Price or Mandatory Redemption Price, as the case may be, the shares
of Series A Preferred Stock to be redeemed shall from and after the close of
business on the Optional Redemption Date or the Mandatory Redemption Date, as
the case may be, cease to accumulate dividends and the only right of the holders
of such shares shall be to receive payment of the Optional Redemption Price or
the Mandatory Redemption Price, as the case may be. No interest shall accrue
for the benefit of the holders of Series A Preferred Stock to be redeemed on any
sum set aside by the Corporation in connection with a redemption pursuant to
this Section 4. Subject to applicable escheat laws, any cash unclaimed at the
end of two years from the Optional Redemption Date or the Mandatory Redemption
Date, as the case may be, shall revert to the general funds of the Corporation
and, upon demand, such bank or trust company shall pay over to the Corporation
such unclaimed cash, and thereupon such bank or trust company shall be relieved
of all responsibility in respect thereof and any holder of Series A Preferred
Stock shall look only to the general funds of the Corporation for the payment of
such cash. Any interest accrued on cash deposited pursuant to this Subsection
4(c) shall be paid from time to time to the Corporation for its own account.
(iv) As promptly as possible after the surrender of the certificates for
any shares of Series A Preferred Stock redeemed pursuant to this Section 4 (with
appropriate endorsements and any transfer documents reasonably requested by the
corporation or any transfer agent designated by the Corporation), such
certificates shall be exchanged for the Optional Redemption Price or Mandatory
Redemption Price, as the case may be, for such shares.
(d) In the event that the Corporation shall default in the payment of the
Optional Redemption Price or Mandatory Redemption Price, as the case may be, the
shares of Series A Preferred Stock so called for redemption shall thereafter be
deemed to be outstanding and the holders thereof shall have all of the rights of
a holder of Series A Preferred Stock; provided, however, that the Corporation
shall pay such Optional Redemption Price or Mandatory Redemption Price, in whole
or in part, as soon as it has funds legally available therefor.
(e) Any fraction of a share of Series A Preferred Stock may be redeemed in
the same manner in which a whole share of Series A Preferred Stock may be
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redeemed pursuant to this Section 4, provided that the cash payable upon the
redemption of such fractional interest shall be determined by multiplying the
cash payment upon the redemption of one share of Series A Preferred Stock by
that fraction.
(f) Upon any redemption of Series A Preferred Stock, the Corporation shall
pay all accumulated and unpaid dividends (whether or not earned or declared) to
but excluding the Optional Redemption Date or the Mandatory Redemption Date, as
the case may be. If the Optional Redemption Date or the Mandatory Redemption
Date, as the case may be, falls after a dividend payment record date and prior
to the corresponding Dividend Payment Date, then each holder of Series A
Preferred Stock at the close of business on such dividend payment record date
shall be entitled to the dividend payable on such shares on the corresponding
Dividend Payment Date (but without duplication of any amounts payable pursuant
to the preceding sentence in respect of accumulated and unpaid dividends),
notwithstanding the redemption of such shares before such Dividend Payment Date.
(g) Payment of the Optional Redemption Price or the Mandatory Redemption
Price, as the case may be, to a holder of shares of Series A Preferred Stock
shall be made in coin or currency of the United States that as of the date of
payment shall be legal tender for payment of public and private debts by mailing
a check to such holder at the address of such holder as shown on the stock books
of the Corporation.
SECTION 5. Shares to be Retired. All shares of Series A Preferred Stock
purchased or redeemed by the Corporation shall be retired and cancelled and
shall be restored to the status of authorized but unissued shares of Preferred
Stock, without designation as to series.
SECTION 6. Liquidation. (a) The shares of Series A Preferred Stock shall
rank prior to the shares of Junior Securities upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary (a "Liquidation
Transaction"), so that in the event of any Liquidation Transaction, the holders
of shares of Series A Preferred Stock then outstanding shall be entitled to
receive out of the assets or surplus funds of the Corporation available for
distribution to its stockholders, or proceeds thereof, whether from capital,
surplus or earnings, before any distribution is made to holders of any Junior
Securities, a liquidation preference in an amount per share of Series A
Preferred Stock equal to the Liquidation Preference, plus an amount equal to all
dividends (whether or not earned or declared) accumulated and unpaid on the
shares of Series A Preferred Stock to the date of final distribution.
(b) If, upon any Liquidation Transaction, the assets or surplus funds of
the Corporation, or proceeds thereof, whether from capital, surplus or earnings,
distributable among the holders of shares of Series A Preferred Stock and any
Parity Securities then outstanding are insufficient to pay in full the
preferential liquidation payments due to such holders, such assets, surplus
funds or proceeds shall be distributable among such holders ratably in
accordance with the amounts that would be payable on such shares of Series A
Preferred Stock and Parity Securities if all amounts payable thereon were
payable in full.
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(c) Neither the consolidation, merger or other business combination of the
Corporation with or into any other Person or Persons nor the sale or transfer of
all or substantially all the assets of the Corporation shall be deemed to be a
Liquidation Transaction.
SECTION 7. Voting Rights. (a) The holders of shares of Series A Preferred
Stock shall not be entitled to any voting rights except as provided in this
Section 7, the Certificate of Incorporation of the Corporation or as otherwise
required by law.
(b) So long as any shares of Series A Preferred Stock are outstanding,
unless the vote or consent of the holders of a greater number of shares shall be
required by law or by the Certificate of Incorporation, the affirmative vote of
at least 66 2/3% of the votes entitled to be cast by the holders of the shares
of Series A Preferred Stock given in person or by proxy, either in writing
without a meeting or by vote at any meeting called for the purpose, shall be
necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the provisions of the
Certificate of Incorporation that adversely affects the voting powers,
rights or preferences of the holders of the Series A Preferred Stock;
provided, that the amendment of the provisions of the Certificate of
Incorporation so as to authorize or create, or to increase the authorized
amount of, any shares of any Junior Securities or any shares of any class
of Parity Securities shall not be deemed to have a material adverse effect
on the voting powers, rights or preferences of the holders of Series A
Preferred Stock; or
(ii) the authorization or creation of, or the increase in the authorized
amount of, any shares of (x) any class or series of a class of capital
stock of the Corporation the terms of which expressly provide that the
shares thereof rank senior as to the payment of dividends or the
distribution of assets upon the liquidation, dissolution or winding up of
the Corporation to the shares of the Series A Preferred Stock (the "Senior
Securities") or (y) any security convertible into, or exchangeable or
exercisable for, shares of any Senior Securities;
provided, however, that no such vote of the holders of Series A Preferred Stock
shall be required if the time when such amendment, alteration or repeal is to
take effect, or when the issuance of any such Senior Securities or security
convertible into, or exchangeable or exercisable for, Senior Securities is to be
made, as the case may be, is after the Mandatory Redemption Date or an Optional
Redemption Date for all outstanding shares of Series A Preferred Stock and the
Mandatory Redemption Price or Optional Redemption Price of the Series A
Preferred Stock, as the case may be, shall have been irrevocably deposited as
provided in clause (ii) of Subsection 4(c).
For purposes of the foregoing provisions of this Section 7, each share of
Series A Preferred Stock shall have one vote per share. Except as otherwise
required by applicable law or as set forth herein, the shares of Series A
Preferred Stock shall not have any relative, participating, optional or other
special voting rights and powers and the consent of the holders thereof shall
not be required for the taking of any corporate action.
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* * *
9
IN WITNESS WHEREOF, Gulfport Energy Corporation has caused this Certificate
of Designations, Preferences and Relative, Participating, Optional and other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions thereof of its Cumulative Preferred Stock, Series A, to be duly
executed by its ___________________________ and attested to by its Secretary and
has caused its corporate seal to be affixed hereto, as of this _____ day of
__________, 2002.
-----------------------------------------
Name:
Title:
[Corporate Seal]
ATTEST:
- -------------------------------------
Name:
Title:
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