The potential purchaser is an investor group led by Patrick E. Malloy, III and participated in by Sheldon Appel, both members of the Company's Board of Directors. In conjunction with the sale, the potential buyer will provide a two-year $5 million line of credit, subordinate to the Company's senior facility, which the Company can use for general corporate purposes. The potential purchaser retains the option, during the two-year period, to convert the amount outstanding under the credit line, and/or provide cash on any unused credit to a maximum of $5 million, into working interests in any acquisition(s) the Company may make during the two-year period. The conversion of the credit facility would be on a pro-rata basis with the Company and may not exceed $5 million or thirty percent (30%) of any potential acquisition(s).
As a condition to the proposal, the Company retains the right to further market the interests to companies or investors and to accept any competing proposal the Company deems more favorable. Upon execution of definitive agreements with the investor group, if the Company accepts a competing offer from a third party, the Company has agreed to pay a breakup fee to the investor group in return for the binding commitment to purchase the interests. The breakup fee shall be equal to 9% of the value received by the Company, but cannot exceed $1.2 million.
The Company will open a data room in its Houston office from January 25th through February 15th for parties interested in reviewing the data in expectation of submitting an offer to the Company for the interests. Closing will occur on or before March 15, 2002. Qualified interested parties may contact Robert C. Turnham at (713) 780-9494 to receive information and inquire as to the data room process.
Commenting on the potential sale and bid process, the Company's Chief Executive Officer Gil Goodrich stated, "The sale of the interests at a minimum $12 million will allow the Company to monetize a portion of its reserves at an attractive price. This contemplated transaction demonstrates the value we have created since we acquired the properties in February 2000 through our development activities and the recently completed 3-D seismic survey. Upon closing of the sale, the Company will recognize a gain of approximately $2.3 million. Although we will initially use the sale proceeds to pay down debt on our senior credit facility, the additional capital available under our senior facility, as well as the $5 million line of credit and anticipated cash flow from operations, will allow us to take advantage of the numerous opportunities identified with the new 3-D survey and to continue to aggressively develop the Burrwood and West Delta 83 fields. The transaction will also provide capital for other development opportunities and allow us to take advantage of additional acquisition opportunities available under current market conditions. The transaction will further enhance our balance sheet, reducing our debt to capitalization ratio to approximately twenty percent (20%). In addition to the added benefits the capital provides, the reduction in the Company's net working interest in the Burrwood and West Delta 83 fields from ninety-five percent (95%) to sixty-five percent (65%) will allow us to significantly diversify our capital expenditures into more wells and projects currently in inventory."
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