<PAGE> 1
THIS PROSPECTUS SUPPLEMENT RELATES TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, BUT IS NOT COMPLETE AND MAY BE CHANGED.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-42315
SUBJECT TO COMPLETION, DATED APRIL 6, 2000
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MARCH 23, 2000
$400,000,000
LOGO
PIONEER NATURAL
RESOURCES COMPANY
% SENIOR NOTES DUE 2010
PAYMENT OF PRINCIPAL AND INTEREST GUARANTEED BY
PIONEER NATURAL RESOURCES USA, INC.
---------------------
We will pay interest on the notes each April 15 and October 15. The first
interest payment will be made on October 15, 2000. The notes will be unsecured
senior obligations of Pioneer Natural Resources Company and will rank equally
with all of our other unsecured senior indebtedness. We may redeem the notes at
any time. Upon the occurrence of a change of control, each holder of the notes
may require us to purchase all or a portion of such holder's notes at 101% of
the principal amount thereof together with accrued and unpaid interest, if any,
to the date of purchase. There is no sinking fund for the notes.
Pioneer Natural Resources USA, Inc., our wholly-owned subsidiary which owns
substantially all of our United States onshore and offshore properties, will
unconditionally guarantee the notes on an unsecured basis. The note guarantee
will be subject to release and discharge as provided in the indenture governing
the notes and described in this prospectus supplement.
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE S-14.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS PIONEER(1)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per note............................... % % %
Total.................................. $ $ $
</TABLE>
(1) Plus accrued interest, if any, from April , 2000.
Delivery of the notes will be made on or about April , 2000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE RELATED PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
JOINT BOOK-RUNNING MANAGERS
CREDIT SUISSE FIRST BOSTON BANC OF AMERICA SECURITIES LLC CHASE SECURITIES
INC.
---------------------
FIRST UNION SECURITIES, INC.
BANC ONE CAPITAL MARKETS, INC.
FLEETBOSTON ROBERTSON STEPHENS
SCOTIA CAPITAL
TD SECURITIES
The date of this prospectus supplement is April , 2000
<PAGE> 2
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FORWARD-LOOKING STATEMENTS......... S-3
PROSPECTUS SUPPLEMENT SUMMARY...... S-4
RISK FACTORS....................... S-14
USE OF PROCEEDS.................... S-19
CAPITALIZATION..................... S-19
SELECTED CONSOLIDATED HISTORICAL
FINANCIAL DATA................... S-20
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........ S-22
MANAGEMENT......................... S-32
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF EXISTING BANK
INDEBTEDNESS AND REFINANCING
COMMITMENTS...................... S-35
DESCRIPTION OF NOTES............... S-37
UNDERWRITING....................... S-68
LEGAL OPINIONS..................... S-69
EXPERTS............................ S-69
GLOSSARY OF COMMONLY USED TERMS.... S-71
CONSOLIDATED FINANCIAL
STATEMENTS....................... F-1
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE........................... 2
THE ISSUERS........................... 3
USE OF PROCEEDS....................... 3
RATIOS OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS........... 3
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF DEBT SECURITIES........ 4
DESCRIPTION OF CAPITAL STOCK.......... 17
DESCRIPTION OF DEPOSITARY SHARES...... 23
DESCRIPTION OF WARRANTS............... 26
DESCRIPTION OF GUARANTEES............. 27
PLAN OF DISTRIBUTION.................. 27
LEGAL OPINIONS........................ 28
EXPERTS............................... 28
</TABLE>
See the "Glossary of Terms" on page S-71 for explanations of abbreviations
and terms used in this prospectus supplement.
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION WE HAVE INCLUDED IN THIS DOCUMENT
OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT.
This document is in two parts. The first part is the prospectus supplement,
which describes the terms of the notes. The second part is the accompanying
prospectus, which gives more general information, some of which may not apply to
the notes. Except when referring to the notes, which are obligations solely of
Pioneer Natural Resources Company, in this prospectus supplement, "Pioneer,"
"Company," "we," "us" and "our" refer to Pioneer Natural Resources Company and
its consolidated subsidiaries.
IF THE DESCRIPTION OF THE NOTES VARIES BETWEEN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS
PROSPECTUS SUPPLEMENT.
S-2
<PAGE> 3
FORWARD-LOOKING STATEMENTS
Certain statements contained in or incorporated by reference into this
prospectus supplement and the accompanying prospectus, including, but not
limited to, those regarding our financial position, business strategy and other
plans and objectives for future operations and any other statements which are
not historical facts constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause our actual results, performance or achievements, or
industry results, to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Although
we believe that the expectations reflected in these forward-looking statements
are reasonable, we cannot assure you that the actual results or developments we
anticipate will be realized or, even if substantially realized, that they will
have the expected effects on our business or operations. Among the factors that
could cause actual results to differ materially from our expectations are
inherent uncertainties in interpreting engineering and reserve data, operating
hazards, delays or cancellations of drilling operations for a variety of
reasons, competition, fluctuations and volatility in oil and gas prices, our
ability to successfully integrate the business and operations of acquired
companies, compliance with government and environmental regulations, increases
in our cost of borrowing or inability or unavailability of capital resources to
fund capital expenditures, dependence on key personnel, changes in general
economic conditions and/or in the markets in which we compete or may, from time
to time, compete and other factors, including, but not limited to, those set
forth under "Risk Factors" in this prospectus supplement. These factors
expressly qualify all subsequent oral and written forward-looking statements
attributable to us or persons acting on our behalf. We assume no obligation to
update any of these statements.
S-3
<PAGE> 4
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this prospectus
supplement and the accompanying prospectus, but may not contain all of the
information that is important to you. This prospectus supplement and the
accompanying prospectus include specific terms of the notes, information about
our business and financial data. We encourage you to read this prospectus
supplement, including the "Risk Factors" section, the accompanying prospectus
and the documents we incorporate by reference before making an investment
decision.
PIONEER NATURAL RESOURCES COMPANY
GENERAL
We are an independent oil and gas exploration and development company. Our
purpose is to competitively and profitably explore for, develop and produce
proved oil, natural gas liquids and natural gas reserves. Our drilling and
production operations are principally located domestically in Texas, Kansas,
Oklahoma, Louisiana, New Mexico and offshore Gulf of Mexico and internationally
in Argentina, Canada and South Africa. Pioneer Natural Resources USA is our
direct, wholly-owned subsidiary and owns substantially all of our United States
onshore and offshore properties.
Our proved reserves at December 31, 1999 totaled 605.5 million BOE of which
52% was natural gas and 48% was oil and NGLs. Domestic reserves represent 79% of
our total BOE and 80% of the PV 10 Value. For the year ended 1999, after giving
effect to pro forma adjustments for certain 1999 non-core asset dispositions, we
had revenues of $655.4 million and EBITDAX of $437.9 million. We produced 21.3
million barrels of oil and NGLs and 139 Bcf of gas in 1999. Average daily pro
forma production for the year was 58.3 MBbls of oil and NGLs and 380.8 MMcf of
gas, respectively.
Our reserves are characterized by long-lived, relatively stable oil and gas
production, with an average reserve life of 13.2 years at December 31, 1999.
These reserves serve to reduce the volatility in our short-term production
volumes and cash flows. We also own hundreds of low-risk development drilling
opportunities that we believe can support internally generated production
growth.
PROVED OIL AND GAS RESERVES
<TABLE>
<CAPTION>
1999 AVERAGE
PROVED RESERVES AS OF DECEMBER 31, 1999 DAILY PRODUCTION(A)
------------------------------------------ --------------------------
OIL NATURAL PV 10 OIL NATURAL
& NGLS GAS VALUE & NGLS GAS
(MBBLS) (MMCF) MBOE (MILLIONS) (BBLS) (MCF) BOE
------- --------- ------- ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
United States............. 259,066 1,314,842 478,206 $2,337.8 55,241 290,670 103,686
Argentina................. 29,797 415,620 99,067 469.1 7,037 94,457 22,780
Canada.................... 3,970 145,251 28,179 130.4 5,369 49,003 13,536
------- --------- ------- -------- ------ ------- -------
Total..................... 292,833 1,875,713 605,452 $2,937.3 67,647 434,130 140,002
======= ========= ======= ======== ====== ======= =======
</TABLE>
- -------------------------
(a) The 1999 average daily production is calculated using a 365-day year and
without making pro forma adjustments for any acquisitions, divestitures or
drilling activity that occurred during the year.
Since 1998, we have undertaken a strategic review of our properties. As a
result, we have divested certain non-core assets and centralized our operations
in Dallas, Texas. These efforts have allowed us to reduce our outstanding
indebtedness and reduce our operating and general and administrative expenses.
In addition, we believe we are better positioned to focus on our core domestic
onshore properties and on our Gulf of Mexico and international opportunities.
S-4
<PAGE> 5
CORE PROPERTIES
Our principal oil and gas properties are the Hugoton gas field in Southwest
Kansas, the West Panhandle gas field in the Texas Panhandle and the Spraberry
oil field in West Texas. Approximately 70% of our proved oil and gas reserves
underlie these properties, which provide consistent and dependable production,
cash flow and ongoing development opportunities for us. Complementing these
areas are the exploration and development opportunities and oil and gas
production contributed by our assets in the United States Gulf Coast area,
Argentina and Canada.
Hugoton field. The Hugoton field in Southwest Kansas is one of the largest
producing gas fields in the continental United States. The gas is a relatively
dry gas produced from the Chase and Council Grove formations at depths ranging
from 2,700 feet to 3,000 feet. Our Hugoton properties represent approximately
13% of the proved reserves in the field and are located on approximately 257,000
gross acres (237,000 net acres), covering approximately 400 square miles. We
have working interests in approximately 1,200 wells in the Hugoton field. We
operate approximately 1,000 of these wells, and we have partial royalty
interests in approximately 500 wells. We own substantially all of the gathering
and processing facilities, which serve our production from the Hugoton field.
Our facility ownership allows us to control the production, gathering,
processing and sale of our gas and associated NGLs.
Allowables set by state regulators restrict production in the Hugoton
field, but our Hugoton operated properties are capable of producing
approximately 150 MMcf of wet gas per day (i.e., gas production at the wellhead
before processing and before reduction for royalties). We estimate that we,
along with the other major producers in the Hugoton field, produced at or near
capacity in 1999 in this field. During 1999, we completed eight development
wells in the Hugoton field and, at December 31, 1999, had two development wells
in progress. We plan to drill approximately 35 additional development wells in
the Hugoton field in 2000.
West Panhandle field. The West Panhandle properties are located in the
panhandle region of Texas where initial production commenced in 1918. These
stable, long-lived reserves are attributable to the Red Cave, Brown Dolomite,
Granite Wash and fractured Granite formations at depths no greater than 3,500
feet. Our natural gas in the West Panhandle field has an average Btu content of
1,300 Btu per Mcf and is produced from approximately 600 wells on more than
241,000 gross (185,000 net) acres covering over 375 square miles. Our wellhead
gas produced from the West Panhandle field contains a high quantity of NGLs,
yielding relatively greater NGL volumes than realized from many other natural
gas fields. We operate the wells and production equipment, and Colorado
Interstate Gas Company (a subsidiary of Coastal Corporation) owns and operates
the gathering system.
Our Fain natural gas processing plant processes our production from the
West Panhandle field. In February 1997, we initiated a project to add nitrogen
rejection capabilities at the Fain plant. This project, completed in mid-1998,
allows us to recover a greater percentage of the helium in the processed gas,
increase NGL recoveries, and upgrade residue quality improving marketing
flexibility. During 1999, we placed 35 new wells on production, and we had
another 17 wells in progress at December 31, 1999. We plan to drill
approximately 45 additional wells in the West Panhandle in 2000.
Spraberry field. The Spraberry field was discovered in 1949 and
encompasses eight counties in West Texas. The field is approximately 150 miles
long and 75 miles wide at its widest point. The oil produced is West Texas
Intermediate Sweet, and the gas produced is casing head gas with an average Btu
content of 1,400 Btu per Mcf. The field produces oil and gas from three
formations, the upper and lower Spraberry and the Dean, at depths ranging from
6,700 feet to 9,200 feet. Since 1989, we have focused acquisition and
development drilling activities in the unitized portion of the Spraberry field,
due to the dormant condition of the properties and the high net revenue
interests available. We believe the area offers excellent opportunities to
enhance oil and gas reserves because of the hundreds of undeveloped infill
drilling locations and the ability to reduce operating expenses through
economies of scale. We initiated an aggressive optimization and automation cost
cutting program in 1998 that continues to date, which has reduced operating
expenses by 15% on a per BOE basis. Average lifting costs for 1997, 1998 and
1999 were $2.01, $1.95 and $1.70 per BOE, respectively. We plan to continue this
cost reduction program.
S-5
<PAGE> 6
During 1999, we placed on production 137 wells, drilled one developmental
dry hole and, at December 31, 1999, had 23 wells in progress. In addition, we
plan to drill approximately 75 wells in the Spraberry field in 2000.
Gulf Coast. In the Gulf Coast area, we are focused on reserve and
production growth through a balanced portfolio of development and exploration
activities. To accomplish this, we have devoted most of our domestic exploration
efforts to this area, as well as our investment in and utilization of 3-D
seismic technology. During 1999, we expended $39.2 million to drill nine
development and 10 exploratory wells in the Gulf Coast area. The most
significant of these wells was our first deep-water Gulf of Mexico venture at
Mississippi Canyon Block 305, the Aconcagua prospect, which was drilled to a
depth of 14,000 feet. We have a 25% working interest in the block. During the
fourth quarter of 1999, we commenced our third deep-water exploratory well on
the Devil's Tower prospect in Mississippi Canyon Block 773. In February 2000, we
announced a discovery on the Devil's Tower prospect. The well was drilled to a
total depth of 15,625 feet and encountered a number of hydrocarbon-bearing
sands. We have a 15.8 percent working interest in the discovery. In addition to
the appraisal wells on our Aconcagua and Devil's Tower prospects, we plan to
drill four to six Gulf Coast area exploratory wells during 2000.
Argentina. Our Argentine properties are primarily located in the Austral
and Neuquen basins. Our share of Argentine production during 1999 averaged 22.8
MBOE's per day, or approximately 16% of our equivalent production. The
production concession in the Austral basin is located in Tierra del Fuego, which
is the extreme southern portion of Argentina, approximately 1,500 miles south of
Buenos Aires. Crude oil, natural gas and NGLs are produced from six separate
fields in Tierra del Fuego in which we have a 35% non-operated working interest.
Production increases are anticipated from the area through exploitation and
exploration and improvement of the oil and gas processing facilities and
infrastructure on Tierra del Fuego. Currently, production is transported through
oil tankers and gas pipelines and exported to Chile through pipelines. Our
operated production in Argentina is concentrated in the Neuquen Basin, which is
located about 925 miles southwest of Buenos Aires and just to the east of the
Andes Mountains. Crude oil and natural gas are produced from the Loma Negra/NI
Block, the Dadin Block, the Al Norte de la Dorsal Block and the Neuquen del
Medio Block in which we have 100% working interests. During the fourth quarter
of 1999, we acquired 100% working interests in certain producing properties
located in the core areas of Al Sur de la Dorsal and Estacion Fernandez Oro. We
believe both properties have significant exploitation and exploration potential
and complement our current operations.
Canada. Our Canadian producing properties are located primarily in Alberta
and British Columbia, Canada. Production during 1999 averaged 13.5 MBOE's per
day, or approximately 10% of our equivalent production. In the third quarter of
1999, we completed the process of divesting 68 non-core Canadian oil and gas
properties to focus efforts on our core assets, primarily in northeast British
Columbia and also in northwest Alberta. Following the property divestitures,
fourth quarter production averaged 7.6 MBOE's per day from the core properties.
Africa. We have entered into agreements to explore for oil and gas in the
African nations of South Africa and Gabon. The South African agreements cover
over 13 million acres along the southern coast of South Africa. During 1998, we
drilled five wells in South Africa, of which two discovered reserves. During
2000, we plan to spend approximately $25 million on exploration opportunities in
South Africa and Gabon. We expect to commence an appraisal well in the Sable
field of South Africa during March 2000.
PRINCIPAL STRATEGIES
The reserves, production and cash flow from our long-lived Hugoton and West
Panhandle gas fields and Spraberry oil field form the foundation for our
strategies to increase our net asset value and sustain long-term profitability.
These fields comprise approximately 70% of our proved reserves, which we
estimate have a remaining productive life in excess of 40 years. The stable base
of oil and gas production from
S-6
<PAGE> 7
these fields generates operating cash flows that allow us to selectively
reinvest capital in order to attempt to:
- maintain production from our existing fields in the United States through
lower risk development drilling,
- grow production through expanded exploitation activities on our existing
acreage base in the United States, Argentina and Canada,
- appraise and develop our existing discoveries in the deepwater Gulf of
Mexico and South Africa,
- explore for new reserves that can add future production and
profitability, and
- selectively acquire reserves and production that we believe complement
our existing asset base and expertise and provide future growth
opportunities.
We will attempt to pursue our reinvestment strategy and focus on net asset
value by:
- the application of strict economic guidelines for our projects,
- the streamlining of our operations and cost containment to achieve
operating and technical efficiencies,
- active portfolio management of our property base and divestment of
non-core assets, and
- investment in the personnel and technology necessary to support our
growth plans.
In order to implement this reinvestment strategy, we plan to enhance our
financial flexibility by further attempting to reduce indebtedness and expand
liquidity. In 2000, we intend to pursue additional non-core asset sales and
apply cash flow in excess of capital requirements to reduce debt.
1999 DIVESTITURES AND ACQUISITIONS
Asset Divestitures. During 1999 our divestitures primarily consisted of
the sale of oil and gas properties for net proceeds of $420.5 million ($390.5
million of which was cash). Our 1999 divested assets consisted of non-core
United States and Canadian oil and gas properties, gas plants and other assets.
United States asset divestitures comprised 86%, or $361.2 million, of the total
1999 proceeds from the divestiture of oil and gas properties. Canadian asset
divestitures comprised the balance of the total 1999 proceeds from the
divestiture of oil and gas properties. We used the net cash proceeds from our
1999 asset dispositions to reduce our outstanding bank indebtedness.
We regularly review our property base to identify opportunities to dispose
of non-core assets in a manner that will increase capital resources available
for other activities, create organizational and operational efficiencies and
improve profitability. Dispositions can have the result of furthering our
objective of financial flexibility through reduced debt levels.
Acquisition Activities. We regularly seek to acquire properties that
complement our operations, provide exploitation and development opportunities
and provide attractive returns on investment. During 1999, we acquired Argentine
proved and unproved oil and gas properties that complement our existing
operations in Argentina. We paid $38.8 million in cash for the Argentine assets
during the fourth quarter of 1999, of which amount $2.5 million was cash
consideration paid for unproved Argentine oil and gas properties. These
acquisitions added to our exploratory and development drilling opportunities and
helped balance our reserve mix between oil and natural gas. In addition, we may
selectively pursue acquisitions that allow us to expand into new geographical
areas that feature producing properties and provide exploration/exploitation
opportunities.
S-7
<PAGE> 8
REFINANCING COMMITMENTS
We currently have a senior credit facility with a syndicate of banks with
commitments aggregating $939.6 million and outstanding borrowings as of December
31, 1999 of approximately $825 million. Advances under the existing credit
facility are required to be repaid no later than August 7, 2002. We will use the
net proceeds from this offering of notes to repay debt outstanding under the
existing credit facility. In addition, we have obtained commitments for a new
five-year $600 million senior credit facility to replace the existing credit
facility. The commitments require that our obligations under the proposed credit
facility will be guaranteed by Pioneer Natural Resources USA, Inc. and certain
other subsidiaries. The commitments for the proposed credit facility are subject
to various conditions precedent. See "Description of Existing Bank Indebtedness
and Refinancing Commitments."
If consummated, the proposed credit facility, together with the net
proceeds from this offering, will extend the maturity of our debt, enhance our
liquidity and provide flexibility in support of our business strategies.
------------------------
Our executive offices are located at 1400 Williams Square West, 5205 N.
O'Connor Blvd., Irving, Texas 75039, and our telephone number is (972) 444-9001.
S-8
<PAGE> 9
THE OFFERING
Issuer..................... Pioneer Natural Resources Company.
Securities Offered......... $400 million aggregate principal amount of %
Senior Notes Due 2010.
Maturity................... April 15, 2010.
Interest Payment Dates..... April 15 and October 15 of each year, commencing
October 15, 2000.
Guarantees................. Pioneer Natural Resources USA will unconditionally
guarantee the notes on an unsecured basis. None of
our other subsidiaries will be a guarantor. The
guarantee will terminate if the guarantor is
released from its guarantee of our indebtedness
under our existing bank credit facility or any
refinancing thereof and is required to be
reinstated if its guarantee under our existing bank
credit facility or any refinancing thereof is
subsequently reinstated. Pioneer Natural Resources
USA is our direct, wholly-owned subsidiary and
directly owns substantially all of our United
States onshore and offshore properties. Pioneer
Natural Resources USA has no borrowed money
obligations other than for certain capitalized
lease obligations and has no guarantees of other
borrowed money obligations except as guarantor for
the notes, our existing $939.6 million bank credit
facility and $900 million of our other senior
notes.
Ranking.................... The notes:
- are general unsecured senior obligations of
Pioneer Natural Resources Company,
- rank equally in right of payment with all our
existing and future unsecured senior debt, and
- are senior in right of payment to all our
existing and future subordinated debt.
The notes will be effectively subordinated in right
of payment to all our existing and future secured
debt, to the extent of the value of the assets
securing such debt. Our existing $939.6 million
bank credit facility is secured by a pledge of 65%
of the outstanding stock of certain non-United
States subsidiaries. Thus, the notes will be
effectively subordinated to the existing bank
credit facility to the extent of the value of such
stock. At December 31, 1999, after giving effect to
this offering and application of its estimated net
proceeds, we would have had approximately $435
million of debt ranking senior in right of payment
with the notes. Because Pioneer Natural Resources
Company is a holding company that conducts all its
operations through subsidiaries, the notes will be
effectively subordinated to all obligations of our
subsidiaries that are not guarantors of the notes.
At December 31, 1999, our subsidiaries that are not
guarantors of the notes did not have any
indebtedness, other than guarantees by some of
those subsidiaries of the existing bank credit
facility. The indenture governing the notes
restricts the ability of certain of our
subsidiaries to incur future additional
liabilities. Such restriction is subject to a
number of significant qualifications which permit,
among other things, the incurrence of debt under
and guarantees of bank credit facilities. These
restrictions on the incurrence of indebtedness may
be terminated under certain circumstances, as
described below. Our subsidiaries may also have
other liabilities, including contingent
liabilities.
S-9
<PAGE> 10
The guarantee of the notes:
- will be a general unsecured obligation of Pioneer
Natural Resources USA,
- will rank equally in right of payment with all of
that subsidiary's other senior unsecured debt,
and
- will be senior in right of payment to any
subordinated indebtedness of the guarantor.
The guarantee could be effectively subordinated to
all the obligations of the guarantor under certain
circumstances. See "Description of Notes --
Guarantee" and "Description of Notes -- Ranking."
Redemption................. We may redeem the notes at a price equal to 100% of
the principal amount thereof plus accrued and
unpaid interest, if any, to the date of redemption
and a make-whole premium as described elsewhere in
this prospectus supplement. See "Description of
Notes -- Optional Redemption."
Principal Covenants........ The Indenture governing the notes contains certain
covenants that, among other things, restrict our
ability under certain circumstances to create
liens, to enter into sale and leaseback
transactions, to incur additional indebtedness, to
make certain restricted payments and to effect
certain asset sales. These limitations will be
subject to a number of significant exceptions and
qualifications. See "Description of Notes --
Certain Covenants."
For the period during which the notes receive an
investment grade rating by either S&P or Moody's
and no default or event of default has occurred and
is continuing under the indenture governing the
notes, we and our subsidiaries will not be required
to comply with the covenants restricting the
incurrence of additional indebtedness, the making
of restricted payments and the sale of assets. See
"Description of Notes -- Certain Covenants."
Repurchase Obligation upon
Change of Control........ Upon the occurrence of a change of control, each
holder of the notes may require us to purchase all
or a portion of such holder's notes at 101% of the
principal amount thereof together with accrued and
unpaid interest to the date of purchase. See "Risk
Factors -- A change of control may adversely affect
our liquidity and require refinancing of our Credit
Facilities" and "Description of Notes -- Change of
Control."
Use of Proceeds............ We plan to use all of our estimated $390 million of
net proceeds from the sale of the notes to repay
revolving debt under our existing bank credit
facility.
RISK FACTORS
You should carefully consider all of the information in this prospectus
supplement and the accompanying prospectus and, in particular, should evaluate
the specific risk factors under "Risk Factors" in this prospectus supplement for
risks involved with an investment in the notes.
S-10
<PAGE> 11
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables set forth certain of our consolidated historical and
pro forma financial data. You should read the historical data in conjunction
with our historical consolidated financial statements and notes included
elsewhere in the prospectus supplement. The 1999 pro forma data has been
prepared to give effect to the 1999 divestitures discussed above, as if they had
occurred on January 1, 1999. The historical and pro forma results are not
necessarily indicative of our future results.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
---------------------------------------------------- DECEMBER 31,
1995 1996 1997(A) 1998 1999 1999
-------- -------- -------- -------- -------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas............................................. $ 375.7 $ 396.9 $ 536.8 $ 711.5 $ 644.6 $ 565.7
Natural gas processing.................................. 33.2 23.8 -- -- -- --
Gas marketing........................................... 76.8 -- -- -- -- --
Interest and other(b)................................... 11.4 17.5 4.3 10.4 89.7 89.7
Gain (loss) on disposition of assets, net............... 16.6 97.1 4.9 (.4) (24.2) --
-------- -------- -------- -------- -------- --------
513.7 535.3 546.0 721.5 710.1 655.4
-------- -------- -------- -------- -------- --------
Costs and expenses:
Oil and gas production.................................. 130.9 110.3 144.2 223.5 159.5 134.2
Natural gas processing.................................. 25.9 12.5 -- -- -- --
Gas marketing........................................... 75.7 -- -- -- -- --
Depletion, depreciation and amortization................ 159.1 112.1 212.4 337.3 236.1 204.0
Impairment of properties and facilities................. 130.5 -- 1,356.4 459.5 17.9 17.9
Exploration and abandonments............................ 27.5 23.0 77.2 121.9 66.0 65.7
General and administrative.............................. 37.4 28.4 48.8 73.0 40.2 40.2
Reorganization.......................................... -- -- -- 33.2 8.5 8.5
Interest................................................ 65.4 46.2 77.5 164.3 170.3 155.2
Other(c)................................................ 11.3 2.5 7.1 39.6 34.7 34.6
-------- -------- -------- -------- -------- --------
Total expenses...................................... 663.7 335.0 1,923.6 1,452.3 733.2 660.3
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes and extraordinary
item.................................................. (150.0) 200.3 (1,377.6) (730.8) (23.1) (4.9)
Income tax benefit (provision).......................... 45.9 (60.1) 500.3 (15.6) .6 .6
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary item................. (104.1) 140.2 (877.3) (746.4) (22.5) (4.3)
Extraordinary item...................................... 4.3 -- (13.4) -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)....................................... $ (99.8) $ 140.2 $ (890.7) $ (746.4) $ (22.5) $ (4.3)
======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDAX(d).............................................. $ 232.5 $ 381.6 $ 345.9 $ 352.2 $ 467.2 $ 437.9
EBITDAX to interest expense............................. 3.6x 8.3x 4.4x 2.1x 2.7x 2.8x
Ratio of earnings to fixed charges(e)................... -- 5.3x -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit)(f)............................ $ 31.5 $ 26.1 $ 46.6 $ (324.8) $ (13.7) $ (13.7)
Property, plant and equipment, net...................... 1,121.7 1,040.4 3,515.8 3,034.1 2,503.0 2,503.0
Total assets............................................ 1,319.2 1,199.9 4,153.0 3,481.3 2,929.5 2,929.5
Long-term debt.......................................... 586.5 320.9 1,943.7 1,868.7 1,745.1 1,745.1
Preferred stock of subsidiary........................... 188.8 188.8 -- -- -- --
Stockholders' equity.................................... 411.0 530.3 1,548.8 789.1 774.6 774.6
</TABLE>
- ---------------
(a) Includes amounts relating to the acquisition of Mesa and Chauvco in August
and December 1997, respectively.
(b) 1999 includes $41.3 million of option fees and $30.2 million of income
associated with an excise tax refund (see note J of notes to consolidated
financial statements included elsewhere in this prospectus supplement).
(c) 1998 and 1999 include non-cash mark-to-market charges for changes in the
fair values of non-hedge financial instruments of $21.2 million and $27.0
million, respectively (see notes C and H of notes to consolidated financial
statements included elsewhere in this prospectus supplement).
(d) EBITDAX (as used herein) is calculated by adding interest, income taxes,
depletion, depreciation and amortization, impairment of properties and
facilities, and exploration and abandonment costs to income (loss) before
extraordinary item. EBITDAX is not intended to represent cash flow or any
other measure of performance in accordance with generally accepted
accounting principles. EBITDAX is included herein because we believe that
you may find it to be a useful analytical tool. Other companies may
calculate EBITDAX differently, and we cannot assure you that our figures are
comparable with similarly-titled figures for other companies.
(e) The Company's earnings were insufficient to cover its fixed charges during
the years ended December 31, 1995, 1997, 1998, 1999 and the pro forma 1999
results by $150.0 million, $1,377.6 million, $730.8 million, $23.1 million
and $4.9 million, respectively.
(f) The 1998 working capital deficit includes $306.5 million of current
maturities of long-term debt (see note D of notes to consolidated financial
statements included elsewhere in this prospectus supplement).
S-11
<PAGE> 12
SUMMARY RESERVE AND PRODUCTION DATA
The following tables set forth certain of our consolidated historical and
pro forma reserve and operating data. You should read the historical data in
conjunction with our historical consolidated financial statements and notes
included elsewhere in this prospectus supplement. The 1999 pro forma data has
been prepared to give effect to the 1999 divestitures discussed above, as if
they had occurred on January 1, 1999. The historical and pro forma results are
not necessarily indicative of our future results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1998 1999
-------------- -------------- --------------
(DOLLARS IN MILLIONS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
ESTIMATED PROVED RESERVES (AT END OF PERIOD)(A):
Oil and NGLs (MBbls)................................. 383,724 306,304 292,833
Gas (MMcf)........................................... 2,267,390 2,223,208 1,875,713
Oil equivalents (MBOE)............................... 761,623 676,839 605,452
Percent natural gas.................................... 50% 55% 52%
Percent proved developed............................... 86% 90% 81%
PRODUCT PRICES (AT END OF PERIOD):
Oil (per Bbl)........................................ $ 16.89 $ 10.09 $ 24.33
NGLs (per Bbl)....................................... $ 12.79 $ 6.81 $ 17.59
Natural gas (per Mcf)................................ $ 2.06 $ 1.64 $ 1.83
FUTURE NET CASH FLOWS (AT END OF PERIOD)(A):
Undiscounted......................................... $ 5,423.3 $ 3,269.3 $ 5,091.0
Discounted........................................... $ 3,051.8 $ 1,648.8 $ 2,937.3
RESERVE ADDITIONS (MBOE):
Acquisitions......................................... 457,693 2 7,320
Extensions, discoveries and revisions................ 55,212 (19,388) 83,756
---------- ---------- ----------
Total additions................................... 512,905 (19,386) 91,076
========== ========== ==========
COSTS INCURRED:
Acquisitions......................................... $ 3,880.5 $ 33.0 $ 35.9
Exploration and development costs.................... 343.0 429.8 165.2
---------- ---------- ----------
Total costs incurred.............................. $ 4,223.5 $ 462.8 $ 201.1
========== ========== ==========
UNIT FINDING COST (PER BOE)(B)......................... $ 8.23 N/A $ 2.21
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
-------------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
------- ------- -------- -------- -------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
PRODUCTION:
Oil (MBbls)................... 12,902 11,275 13,618 21,554 15,454 12,406
NGLs (MBbls).................. -- -- 4,267 10,669 9,237 8,880
Gas (MMcf).................... 85,295 75,851 104,868 183,913 158,457 138,979
Total (MBOE)............... 27,118 23,916 35,363 62,875 51,101 44,449
AVERAGE SALES PRICE PER UNIT(C):
Oil (per Bbl)................. $ 16.96 $ 19.96 $ 18.51 $ 13.08 $ 15.36 $ 15.90
NGL (per Bbl)................. $ -- $ -- $ 12.59 $ 8.90 $ 11.64 $ 11.76
Gas (per Mcf)................. $ 1.84 $ 2.27 $ 2.20 $ 1.82 $ 1.90 $ 1.90
BOE........................... $ 13.86 $ 16.60 $ 15.18 $ 11.32 $ 12.62 $ 12.73
EXPENSES PER BOE:
Production costs, excluding
production taxes........... $ 4.21 $ 3.70 $ 3.27 $ 3.16 $ 2.73 $ 2.62
Production taxes.............. $ .62 $ .91 $ .81 $ .40 $ .39 $ .39
General and administrative.... $ 1.38 $ 1.19 $ 1.38 $ 1.16 $ .79 $ .91
Depletion..................... $ 5.36 $ 4.30 $ 5.78 $ 5.13 $ 4.27 $ 4.19
AVERAGE RESERVE LIFE
(YEARS)(D).................... 11.4 12.1 11.3 11.0 13.2 13.2
</TABLE>
- ---------------
(a) The reserve and present value data has been prepared by us.
S-12
<PAGE> 13
(b) Finding cost is calculated by dividing each year's costs incurred by the
same year's reserve additions. Finding costs are not provided for 1998,
since reserve additions were negative due to downward reserve revisions
resulting from lower commodity prices at the end of 1998.
(c) Reflects results of hedging activities.
(d) Average reserve life is calculated by dividing each year's total reserves by
such year's reserve reports' estimated production for the following year.
S-13
<PAGE> 14
RISK FACTORS
REGARDING OUR BUSINESS IN GENERAL
Our business activities subject us to certain hazards and risks. The
following is a summary of some of the material risks relating to our business
activities.
Oil and gas prices and general market risks affect our financial performance.
Our revenues, profitability, cash flow and future rate of growth are highly
dependent on prices of oil and gas, which are affected by numerous factors
beyond our control. Oil and gas prices historically have been very volatile. A
decline in the prices of oil or gas, such as the significantly lower oil and gas
prices experienced in 1998 as compared to prior years, could have a material
adverse effect on our revenues, profitability and cash flow. Under certain
circumstances, lower oil and gas prices could result in a reduction in the
carrying value of our oil and gas properties, and a valuation adjustment to our
deferred tax assets.
Our drilling activities involve unpredictable costs and results.
Drilling for oil and gas involves numerous risks, including the risk that
we will not encounter any commercially productive natural gas or oil reservoirs.
The cost of drilling, completing and operating wells is often uncertain and a
variety of factors including unexpected drilling conditions, pressure or
irregularities in formations, equipment failures or accidents, adverse weather
conditions and shortages or delays in the delivery of equipment, could curtail,
delay or cancel our drilling operations. Our future drilling activities may not
be successful and, if unsuccessful, this failure could have an adverse effect on
our results of operations and financial condition. While all drilling, whether
developmental or exploratory, involves these risks, exploratory drilling
involves greater risks of dry holes or failure to find commercial quantities of
hydrocarbons. Because a high percentage of our capital budget is devoted to
exploratory projects, it is likely that we will continue to experience
exploration and abandonment expense.
Our level of leverage and certain restrictions under our credit facilities could
affect our ability to conduct our business as planned.
As of December 31, 1999, as adjusted for this offering and the application
of our expected net proceeds from the sale of the notes, our long-term debt
would have been approximately $1.8 billion. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The indenture governing the notes and the terms of our other
indebtedness will allow us, subject to certain limitations, to incur additional
debt. See "Description of Notes" and "Description of Existing Bank Indebtedness
and Refinancing Commitments."
Our level of indebtedness may have several important effects on our
operations, including, but not limited to:
- a substantial portion of our cash flow from operations will be dedicated
to the payment of interest on our debt and will not be available for
other purposes,
- certain covenants under our debt that limit our ability to borrow
additional funds or to dispose of assets could affect our flexibility in
planning for and reacting to changes in business conditions; these
restrictions could limit our ability to compete, expand our business, or
make capital improvements and acquisitions, and
- our level of indebtedness could make us more vulnerable to economic
downturns.
The terms of our existing bank credit facility require that as of the end
of each quarter, beginning with the quarter ended June 30, 2000, our ratio of
outstanding senior debt to such quarter's annualized EBITDAX (as defined under
the existing bank credit facility) must be no greater than 3.5 to one. For the
quarter ended December 31, 1999, our annualized ratio of outstanding senior debt
to EBITDAX was
S-14
<PAGE> 15
3.51 to one. Based on the outlook for current commodity prices, we believe that
our ratio of outstanding senior debt to EBITDAX will comply with the terms of
our bank credit facility during 2000; however, compliance is subject to
uncertainties, including oil and gas price fluctuations, and cannot be
guaranteed. If we fail to meet this ratio requirement due to oil and gas price
fluctuations or other circumstances, then we will be in default under our
existing bank credit facility and might be forced to negotiate with our lenders
to obtain an amendment and/or waiver of the default or else seek additional
financing from public or private sources and/or from asset sales. Under these
circumstances we might not be able to complete any such financing or asset sale
at all or, if so, on terms favorable to us.
In the event of a default under our existing credit facility, the lenders
thereunder would be permitted to declare all amounts outstanding thereunder to
be immediately due and payable, together with accrued and unpaid interest, and
there would be a cross-default under the notes. If we were unable to repay all
amounts accelerated the lenders could proceed against our assets. If the
indebtedness under our existing credit facility were accelerated, we cannot
assure you that our assets would be sufficient to repay such indebtedness and
our other indebtedness, including the notes.
We have obtained commitments for the full amount of a proposed $600 million
credit facility to replace the existing bank credit facility. The proposed
credit facility would require us, among other things, to maintain a ratio of our
outstanding total debt to EBITDAX not to exceed 4.00 to one as of the end of
each quarter, beginning with the quarter ended March 31, 2000 and through
September 30, 2002, and 3.75 to one as of the end of each quarter thereafter,
with EBITDAX being calculated on an annualized basis beginning with the quarter
ended December 31, 1999 until September 29, 2000, at which time the calculation
will be on a rolling four quarter basis. The commitments for the proposed credit
facility are subject to various conditions precedent to the satisfaction of the
lenders, and we cannot assure you that these conditions will be satisfied and
that we will successfully put in place the proposed credit facility. See
"Description of Existing Bank Indebtedness and Refinancing Commitments" for a
more detailed description of the proposed credit facility and the conditions to
such facility.
Our existing credit facility and other indebtedness contain additional
financial covenants and restrictions with which we must comply. Our ability to
meet our debt service obligations and to comply with the related covenants and
to reduce our total indebtedness will be dependent upon our future performance.
Our future performance will be subject to many matters that are beyond our
control, including general economic conditions, and to financial, business and
other factors affecting our operations. There can be no assurance that our
future performance will not be adversely affected by such economic conditions
and financial, business and other factors. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Costs of unproved properties might be greater than their value.
United States generally accepted accounting principles require periodic
evaluation of our unproved property costs on a project-by-project basis in
comparison to their estimated value. Results of exploration activities,
commodity price outlooks, planned future sales or the expiration of all or a
portion of these projects will affect their evaluations. If the quantity of a
project's proved reserves determined by those evaluations are not sufficient to
fully recover the cost invested in the project, we may be required to recognize
significant non-cash charges in the earnings of future periods. You have no
assurance that economic reserves will be determined to exist for those projects.
Unsuccessful acquisitions could hinder our growth and performance.
Acquisitions of producing oil and gas properties have been a key element of
our growth. Our growth following the full development of our existing property
base could be impeded if we are unable to acquire additional oil and gas
properties on a profitable basis. The success of any acquisition will depend on
a number of factors, including our ability to estimate accurately the
recoverable volumes of reserves, rates of future production and future net
revenues attributable to reserves and to assess possible environmental
liabilities. All of these factors will affect whether an acquisition will
ultimately generate cash flows sufficient to provide a suitable return on our
investment. Even when we perform a property review in a
S-15
<PAGE> 16
manner we believe is consistent with industry practices, these reviews are often
limited in scope and may not provide an adequate basis for us to make a sound
acquisition decision.
We may not be able to make efficient divestitures.
We regularly review our property base to identify non-strategic assets
whose disposition would increase capital resources and create organizational and
operational efficiencies. Various factors could materially affect our ability to
dispose of non-strategic assets, including the availability of purchasers
willing to purchase the non-strategic assets at prices acceptable to us.
Our operation of natural gas processing plants exposes us to potential damages.
We own interests in eight natural gas processing plants and three treating
facilities, and we operate five of those plants and all three treating
facilities. Although our net revenues derived from natural gas processing during
1999 represented only one percent of our total net revenues from oil and gas
activities, there are significant risks associated with the operation of our
natural gas processing plants. Natural gas and natural gas liquids are volatile
and explosive and may include carcinogens. Damage to or misoperation of a
natural gas processing plant could result in an explosion or the discharge of
toxic gases, which in turn could result in significant damage claims against us
in addition to interrupting a revenue source. A successful claim for which we
are not fully insured could have an adverse effect on our results of operations
and our financial condition.
We have operating hazards and uninsured risks.
Our operations are subject to all the risks normally incident to the oil
and gas exploration and production business. These risks include blowouts,
cratering, explosions and pollution and other environmental damage, any of which
could result in substantial losses from injury or loss of life, damage to or
destruction of wells, production facilities or other property, clean-up
responsibilities, regulatory investigations and penalties and suspension of
operations. Although we currently maintain insurance coverage that we consider
reasonable and that is similar to that maintained by comparable companies in the
oil and gas industry, we are not fully insured against certain of these risks,
either because such insurance is not available or because of high premium costs.
Environmental liabilities could adversely affect our financial condition.
The oil and gas business is subject to environmental hazards, such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases.
These environmental hazards could expose us to material liabilities for property
damages, personal injuries or other environmental harm, including costs of
investigating and remediating contaminated properties. A variety of stringent
federal, state and foreign laws and regulations govern the environmental aspects
of our business. Such laws and regulations impose strict requirements for, among
other things, well creation, operation and abandonment, waste management, land
reclamation, financial assurance under the Oil Pollution Act of 1990, and
controlling air and water emissions from our production operations and gas
treatment and processing plants. Any noncompliance with these laws and
regulations could subject us to material civil or criminal penalties or other
liabilities. Our compliance with these laws may, from time to time, result in
increased costs to our operations, a decrease in production and have an affect
on our costs of acquisitions.
We do not believe that our environmental risks are materially different
from those of comparable companies in the oil and gas industry. We cannot
provide you any assurance however, that environmental laws will not, in the
future, cause a decrease in our production or processing or cause an increase in
our costs of production, development, exploration or processing. Pollution and
similar environmental risks generally are not fully insurable.
S-16
<PAGE> 17
Our international operations are subject to risks such as political instability
and exchange rates.
At December 31, 1999, approximately 16% of our proved reserves of oil and
gas were located in Argentina and 5% of our proved reserves of oil and gas were
located in Canada. International risks such as uncertain economic and labor
conditions, political instability, changes in tax laws, including United States
taxes on foreign subsidiaries, and changes in the value of the United States
dollar versus the local currency in which oil and gas are sold may adversely
affect the success and profitability of our international operations.
Estimates of our reserves and future net revenues may be unreliable.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues from those reserves. The estimates of proved reserves
and related future net revenues provided in this prospectus supplement and the
accompanying prospectus are based on various assumptions, which may be
inaccurate. Actual future production, oil and gas prices, revenues, taxes,
capital expenditures, operating expenses, geologic success and quantities of
recoverable oil and gas reserves may vary substantially from those assumed in
the estimates and could materially affect the estimated quantities and future
net revenues of proved reserves set forth in this prospectus supplement and the
accompanying prospectus. In addition, we may be subject to downward or upward
revisions based on production performance, purchases or sales of properties,
results of future development, prevailing oil and gas prices and other factors.
Therefore, you should not construe these estimates as estimates of the current
market value of our proved reserves.
REGARDING THE NOTES
In addition to the risks associated with our business, there are risks
relating specifically to the notes that you should consider before making an
investment decision. As described in more detail in this prospectus supplement,
such as above in "The Offering" and below under "Description of Notes":
The notes will be effectively subordinated to certain of our debt.
The notes and their guarantee will be senior unsecured obligations of
Pioneer Natural Resources Company and Pioneer Natural Resources USA,
respectively, and will rank equally with all of their other existing and future
senior unsecured debt. However, the notes will be effectively subordinated to
the secured indebtedness of Pioneer Natural Resources Company to the extent of
the assets securing that indebtedness. See "Description of Existing Bank
Indebtedness and Refinancing Commitments." At December 31, 1999, on a pro forma
basis after giving effect to this offering and the application of our net
proceeds from the sale of the notes, the notes and the guarantees would have
been effectively subordinated to approximately $435 million of obligations that
are secured by the stock of certain of our foreign subsidiaries. Any future
borrowing under our existing bank credit facility will be permitted, subject to
the applicable terms, conditions and limitations and to the provisions of the
indenture governing the notes. Subject to certain limitations, we may incur
additional secured debt.
Because Pioneer Natural Resources Company is a holding company that
conducts all its operations through subsidiaries, the notes will be effectively
subordinated to all obligations of our subsidiaries that are not guarantors of
the notes. At December 31, 1999, our subsidiaries that are not guarantors of the
notes did not have any indebtedness, other than guarantees by some of those
subsidiaries of the existing bank credit facility. In addition, the guarantee of
the notes will terminate if the guarantor is released from its guarantees of our
indebtedness under our existing bank credit facility but is not required to be
reinstated if the guarantees under our existing bank credit facility are
subsequently reinstated. In the event of any such termination, the notes would
be effectively subordinated to all obligations of the guarantor.
Any right of ours to receive assets of any of our subsidiaries upon their
liquidation or reorganization and the consequent right of the holders of the
notes to participate in those assets will be subject to the claims of that
subsidiary's creditors, including trade creditors, except to the extent that we
are recognized as a creditor of that subsidiary, in which case our claims would
still be subordinate to any security interests in the assets of that subsidiary
and any indebtedness of that subsidiary senior to that held by us.
S-17
<PAGE> 18
Our holding company structure creates a dependence on the earnings of our
subsidiaries and may impair our ability to repay the notes.
Pioneer Natural Resources Company is a holding company whose assets consist
of direct and indirect ownership interests in, and whose business is conducted
substantially through, its subsidiaries. Consequently, our ability to repay our
debt, including the notes, depends on the earnings of our subsidiaries, as well
as our ability to receive funds from such subsidiaries through dividends,
repayment of intercompany notes or other payments. The ability of our
subsidiaries to pay dividends, repay intercompany notes or make other advances
to us is subject to restrictions imposed by applicable laws, tax considerations
and the terms of agreements governing our subsidiaries.
A change of control may adversely affect our liquidity and require refinancing
of our Credit Facilities.
Upon a Change of Control (as defined below in "Description of Notes"), each
holder of the notes will have the right to require us to repurchase all of such
holder's notes at a price in cash equal to 101% of the aggregate principal
amount, plus accrued and unpaid interest, to the date of repurchase. See
"Description of Notes -- Change of Control." A Change of Control would be a
default under the Credit Facilities. If we could not obtain a waiver of such
default, we would be required to repay the indebtedness under the Credit
Facilities in full. See "Description of Existing Bank Indebtedness and
Refinancing Commitments." Currently, after giving effect to the consummation of
this offering and the application of our net proceeds, we would not have
sufficient funds available to purchase all of the outstanding notes pursuant to
a Change of Control offer or to repay all of our indebtedness under the Credit
Facilities. In the event that a Change of Control occurs, we would likely be
required to refinance our indebtedness under the Credit Facilities and the
notes. There can be no assurance that we would be able to refinance such
indebtedness or, if such refinancing were to occur, that such refinancing would
be on terms favorable to us.
The guarantees by our subsidiary raise certain fraudulent conveyance
considerations.
Our obligations under the notes will be fully and unconditionally
guaranteed by Pioneer Natural Resources USA. Various fraudulent conveyance laws
could be utilized by a court to subordinate or avoid the guarantee. It is also
possible that under certain circumstances a court could hold that the direct
obligations of the guarantor could be superior to the obligations under the
guarantee of the notes.
To the extent that a court were to find that, at the time Pioneer Natural
Resources USA entered into the guarantee, either:
- the guarantee was incurred by the subsidiary guarantor with the intent to
hinder, delay or defraud any present or future creditor or that the
subsidiary guarantor contemplated insolvency with a design to favor one
or more creditors to the exclusion in whole or in part of others, or
- the subsidiary guarantor did not receive fair consideration or reasonably
equivalent value for issuing the guarantee and, at the time it issued the
guarantee, the subsidiary guarantor:
- was insolvent or rendered insolvent by reason of the issuance of the
guarantee,
- was engaged or about to engage in a business or transaction for
which the remaining assets of the subsidiary guarantor constituted
unreasonably small capital, or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured,
then the court could, among other things, void all or a portion of the guarantee
of the notes, or subordinate the guarantee to other existing and future debt of
the subsidiary guarantor. The result would be to entitle other creditors to be
paid in full before any payment could be made on the guarantee of the notes.
Among other things, a legal challenge to the guarantee might focus on the
benefits, if any, realized by the subsidiary guarantor as a result of the
issuance by us of the notes. To the extent the guarantee is
S-18
<PAGE> 19
avoided as a fraudulent conveyance or held unenforceable for any other reason,
you would cease to have any claim against the guarantor and would be a creditor
solely of Pioneer Natural Resources Company.
The notes currently have no established trading or other public market.
We do not intend to apply for the listing of the notes on any national
exchange or for quotation of the notes on any public market. We cannot assure
you that any market for the notes will develop, or if one does develop, that it
will be maintained. If an active market for the notes fails to develop or be
sustained, the price and liquidity of the notes could be adversely affected.
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$390.0 million after deducting underwriting discounts and expenses. We plan to
use all of our net proceeds to repay revolving debt under our existing bank
credit facility. Our repayment of revolving debt with the net proceeds from this
offering will increase our proportion of fixed rate debt to total debt. We may
enter into derivative interest rate swaps to effectively eliminate all, or a
portion of, the increase in fixed rate debt. As of December 31, 1999, we had
$825.0 million of borrowings outstanding under this revolving credit facility,
bearing interest at a rate of 7.65% per year and having a final maturity of
August 7, 2002. See "Description of Existing Bank Indebtedness and Refinancing
Commitments."
CAPITALIZATION
The following table sets forth, as of December 31, 1999, our consolidated
historical capitalization and consolidated as adjusted capitalization reflecting
the issuance of the notes and our application of the net proceeds from the
notes. You should read this table in conjunction with our consolidated financial
statements and notes included elsewhere in this prospectus supplement.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Long-term debt:
Current maturities of long-term debt...................... $ .8 $ .8
Bank credit facility borrowings........................... 825.0 435.0
8 7/8% senior notes due 2005.............................. 150.0 150.0
8 1/4% senior notes due 2007 (net of discount)............ 149.5 149.5
6 1/2% senior notes due 2008 (net of discount)............ 348.5 348.5
7 1/5% senior notes due 2028 (net of discount)............ 249.9 249.9
% senior notes due 2010................................. -- 400.0
Other..................................................... 22.2 22.2
--------- ---------
Total long-term debt, including current
maturities...................................... 1,745.9 1,755.9
Stockholders' equity:
Preferred stock, $.01 par value........................... -- --
Common stock, $.01 par value.............................. 1.0 1.0
Additional paid-in-capital................................ 2,348.5 2,348.5
Treasury stock............................................ (10.4) (10.4)
Accumulated deficit....................................... (1,574.9) (1,574.9)
Accumulated other comprehensive income:
Cumulative translation adjustment...................... 10.4 10.4
--------- ---------
Total stockholders' equity........................ 774.6 774.6
--------- ---------
Total capitalization.................... $ 2,520.5 $ 2,530.5
========= =========
</TABLE>
S-19
<PAGE> 20
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements, related
notes and other financial information included elsewhere in this prospectus
supplement.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1995 1996 1997(A) 1998 1999
-------- -------- --------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas............................ $ 375.7 $ 396.9 $ 536.8 $ 711.5 $ 644.6
Natural gas processing................. 33.2 23.8 -- -- --
Gas marketing.......................... 76.8 -- -- -- --
Interest and other(b).................. 11.4 17.5 4.3 10.4 89.7
Gain (loss) on disposition of assets,
net.................................. 16.6 97.1 4.9 (.4) (24.2)
-------- -------- --------- -------- --------
513.7 535.3 546.0 721.5 710.1
-------- -------- --------- -------- --------
Costs and expenses:
Oil and gas production................. 130.9 110.3 144.2 223.5 159.5
Natural gas processing................. 25.9 12.5 -- -- --
Gas marketing.......................... 75.7 -- -- -- --
Depletion, depreciation and
amortization......................... 159.1 112.1 212.4 337.3 236.1
Impairment of properties and
facilities........................... 130.5 -- 1,356.4 459.5 17.9
Exploration and abandonments........... 27.5 23.0 77.2 121.9 66.0
General and administrative............. 37.4 28.4 48.8 73.0 40.2
Reorganization......................... -- -- -- 33.2 8.5
Interest............................... 65.4 46.2 77.5 164.3 170.3
Other(c)............................... 11.3 2.5 7.1 39.6 34.7
-------- -------- --------- -------- --------
663.7 335.0 1,923.6 1,452.3 733.2
-------- -------- --------- -------- --------
Income (loss) before income taxes and
extraordinary item..................... (150.0) 200.3 (1,377.6) (730.8) (23.1)
Income tax benefit (provision)............ 45.9 (60.1) 500.3 (15.6) .6
-------- -------- --------- -------- --------
Income (loss) before extraordinary item... (104.1) 140.2 (877.3) (746.4) (22.5)
Extraordinary item........................ 4.3 -- (13.4) -- --
-------- -------- --------- -------- --------
Net income (loss)......................... $ (99.8) $ 140.2 $ (890.7) $ (746.4) $ (22.5)
======== ======== ========= ======== ========
Income (loss) before extraordinary item per share:
Basic.................................. $ (2.96) $ 3.95 $ (16.88) $ (7.46) $ (.22)
======== ======== ========= ======== ========
Diluted................................ $ (2.96) $ 3.47 $ (16.88) $ (7.46) $ (.22)
======== ======== ========= ======== ========
Net income (loss) per share:
Basic.................................. $ (2.84) $ 3.95 $ (17.14) $ (7.46) $ (.22)
======== ======== ========= ======== ========
Diluted................................ $ (2.84) $ 3.47 $ (17.14) $ (7.46) $ (.22)
======== ======== ========= ======== ========
Dividends per share....................... $ .10 $ .10 $ .10 $ .10 $ --
======== ======== ========= ======== ========
Weighted average shares outstanding....... 35.1 35.5 52.0 100.1 100.3
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities...... $ 156.6 $ 230.1 $ 228.2 $ 314.1 $ 255.2
Cash flows from investing activities...... $ (52.6) $ 13.7 $ (341.2) $ (517.0) $ 199.0
Cash flows from financing activities...... $ (107.9) $ (245.4) $ 166.0 $ 190.9 $ (479.1)
</TABLE>
S-20
<PAGE> 21
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1995 1996 1997(A) 1998 1999
-------- -------- --------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)(d).............. $ 31.5 $ 26.1 $ 46.6 $ (324.8) $ (13.7)
Property, plant and equipment, net........ $1,121.7 $1,040.4 $ 3,515.8 $3,034.1 $2,503.0
Total assets.............................. $1,319.2 $1,199.9 $ 4,153.0 $3,481.3 $2,929.5
Long-term debt............................ $ 586.5 $ 320.9 $ 1,943.7 $1,868.7 $1,745.1
Preferred stock of subsidiary............. $ 188.8 $ 188.8 $ -- $ -- $ --
Total stockholders' equity................ $ 411.0 $ 530.3 $ 1,548.8 $ 789.1 $ 774.6
</TABLE>
- ---------------
(a) Includes amounts relating to the acquisition of Mesa and Chauvco in August
and December 1997, respectively.
(b) 1999 includes $41.3 million of option fees and $30.2 million of income
associated with an excise tax refund (see note J of notes to consolidated
financial statements included elsewhere in this prospectus supplement).
(c) 1998 and 1999 include non-cash mark-to-market charges for changes in the
fair values of non-hedge financial instruments of $21.2 million and $27.0
million, respectively (see notes C and H of notes to consolidated financial
statements included elsewhere in this prospectus supplement).
(d) The 1998 working capital deficit includes $306.5 million of current
maturities of long-term debt (see note D of notes to consolidated financial
statements included elsewhere in this prospectus supplement).
S-21
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our financial information and our consolidated financial statements and notes to
those statements included or incorporated by reference in this prospectus
supplement. The following information contains forward-looking statements. For a
discussion of limitations inherent in forward-looking statements, see
"Forward-Looking Statements" in this prospectus supplement on page S-3.
1999 PERFORMANCE
Our performance during 1999 was highlighted by:
- significant improvements in oil, NGL and natural gas commodity prices,
- our successful execution of operating measures focused on the enhancement
of core assets and the divestiture of non-core assets,
- continuation of cost containment measures implemented during 1998,
- the reduction of outstanding indebtedness, and
- favorable test results from our deep-water Gulf of Mexico exploration
drilling program.
During 1999, we reduced our capital expended on oil and gas property
additions to $179.7 million, as compared to 1998 and 1997 oil and gas property
expenditures of $507.3 million and $428.6 million, respectively. We also
realized $420.5 million of proceeds from the divestiture of non-core United
States and Canadian oil and gas properties, gas plants and other assets during
1999. We used the net cash proceeds of $390.5 million from the asset
divestitures, together with net cash provided from operating activities, to
reduce outstanding indebtedness by $429.3 million during 1999.
We reported a net loss of $22.5 million ($.22 per share) for the year ended
December 31, 1999, as compared to net losses of $746.4 million ($7.46 per share)
and $890.7 million ($17.14 per share) for the years ended December 31, 1998 and
1997, respectively. In comparison to 1998, our 1999 results were positively
impacted by improved commodity prices, a $79.2 million increase in interest and
other income, the results of cost containment measures, reductions in
outstanding indebtedness and significant reductions in provisions for the
impairment of oil and gas properties and were negatively impacted by declines in
production volumes due to asset divestitures, net losses recognized on asset
divestitures and non-cash mark-to-market charges recognized on non-hedge
derivative contracts.
Commodity prices and production volumes. During 1999, crude oil, NGL and
natural gas prices increased substantially from their depressed 1998 levels. Our
average realized prices during 1999, including the effects of oil and gas price
hedges, were $15.36 per Bbl of oil, $11.64 per Bbl of NGLs and $1.90 per Mcf of
natural gas; as compared to average realized prices for oil, NGLs and natural
gas of $13.08 per Bbl, $8.90 per Bbl and $1.82 per Mcf, respectively, during
1998; and, $18.51 per Bbl, $12.59 per Bbl and $2.20 per Mcf, respectively,
during 1997. The effects of price volatility on our results of operations and
net cash generated by operating activities during 1999 and 1998 were mitigated
by the results of oil and gas price hedges and changes in production volumes.
Primarily as a result of asset divestitures, our 1999 total production of oil,
NGL and natural gas declined to 51,101 MBOE, as compared to total production of
62,875 MBOE and 35,363 MBOE, during 1998 and 1997, respectively.
Asset divestitures. During 1999, 1998 and 1997, our divestitures generated
net proceeds of $420.5 million, $21.9 million and $115.7 million, respectively,
which resulted in 1999 and 1998 net losses of $24.2 million and $445 thousand,
respectively, and a 1997 net gain of $5.0 million. Our 1999 asset divestitures
were comprised of non-core United States and Canadian oil and gas properties,
gas plants and other assets. We used the net cash proceeds from the 1999 asset
divestitures to reduce our outstanding indebtedness, while the net cash proceeds
from the 1998 and 1997 asset divestitures were used to provide funding for a
portion of our capital expenditures.
S-22
<PAGE> 23
Cost containment. During 1999 and 1998, we executed a number of cost
containment measures. These measures included the centralization of certain
operating and administrative functions in Irving, Texas that were previously
based in Midland, Texas; the closings of our regional offices in Oklahoma City,
Oklahoma, Corpus Christi, Texas and Houston, Texas; the termination of 350
employees, including several officer positions; and reductions in salaries among
senior officers. Those initiatives increased operational and administrative
efficiencies by reducing production costs and general and administrative costs
per BOE during 1999 to $3.12 and $.79, respectively, from $3.56 and $1.16,
respectively, during 1998. We intend to sustain these initiatives during 2000
and the foreseeable future.
Net cash provided by operating activities. Our net cash provided by
operating activities was $255.2 million for the year ended December 31, 1999, as
compared to $314.1 million for the year ended December 31, 1998 and $228.2
million for the year ended December 31, 1997. The decrease in net cash provided
by operating activities during 1999 as compared to 1998 is primarily
attributable to declines in production volumes, increases in operating
receivables and repayments of operating payables, partially offset by increases
in oil, NGL and natural gas commodity prices and reductions in operating costs.
During 1998, we generated additional cash flow from increased production
realized from previously acquired properties, offset partially by declining
commodity prices and increased costs and expenses.
Total debt and book capitalization. We reduced our total debt to $1.7
billion as of December 31, 1999, as compared to total debt of $2.2 billion and
$1.9 billion, respectively, at December 31, 1998 and 1997. We strive to maintain
our outstanding indebtedness at a moderate level in order to provide sufficient
financial flexibility to react to future opportunities. Our total book
capitalization at December 31, 1999 was $2.5 billion, consisting of total debt
of $1.7 billion and stockholders' equity of $.8 billion. Consequently, our debt
to total capitalization decreased to 69% at December 31, 1999 from 73% at
December 31, 1998.
Exploration and drilling results. During 1999, we completed drilling 304
gross wells (209 net wells), of which 284 gross wells (195 net wells) were
successfully placed on production, representing a 93% success rate.
We focused our 1999 exploratory drilling in the United States Gulf of
Mexico, Argentina and Canada. We completed drilling 48 gross exploratory wells
(38 net wells) during 1999, of which 32 gross exploratory wells (29 net wells)
successfully discovered proved oil, NGL and gas reserves, representing a 67%
success rate. Our most significant discovery during 1999 was our first
deep-water Gulf of Mexico venture at Mississippi Canyon Block 305, the Aconcagua
prospect, that we drilled to a total depth of 14,000 feet, encountering a
hydrocarbon-bearing section of over 200 gross feet. We have a 25% working
interest in the block. An appraisal well on the Aconcagua prospect was commenced
during February 2000. We commenced our second deep-water Gulf of Mexico well
during the second quarter of 1999, which was unsuccessful. During the fourth
quarter of 1999, we commenced our third deep-water exploratory well on the
Devil's Tower prospect in Mississippi Canyon block 773. We announced a discovery
on the Devil's Tower prospect during February 2000. The well was drilled to a
total depth of 15,625 feet and encountered a significant number of
hydrocarbon-bearing sands. We have a 15.8% working interest in the discovery. An
appraisal well is scheduled to commence on the Devil's Tower prospect during the
second quarter of 2000. In addition to the appraisal wells on the Aconcagua and
Devil's Tower prospects, we plan to drill four to six Gulf Coast area
exploratory wells during 2000.
We also plan to drill exploratory wells in Argentina, Canada and South
Africa during 2000. During 1999, we drilled 33 gross exploratory wells (31 net
wells) in Argentina, with a 76% success rate. In South Africa, we have scheduled
three exploratory wells to be commenced during 2000, of which one is an
appraisal well on our Sable oil discovery.
2000 OUTLOOK
We expect our results of operations and financial condition in 2000 to be
significantly affected by the rising trend in commodity prices that has occurred
as a result of decreases in oil and gas supplies relative to demand for those
commodities. The most significant of those factors has been the decrease in
crude oil exports during 1999 by members of the Organization of Petroleum
Exporting Countries ("OPEC") and
S-23
<PAGE> 24
other crude oil exporting nations. During 2000, the favorable commodity price
environment presently impacting the oil and gas industry may continue; however
we are continuing our debt reduction and cost containment measures to protect
our net asset values from a commodity price down-turn. If OPEC and the other
crude oil exporting nations were to increase crude oil supplies relative to
demand, crude oil prices could again begin to decline, which could have a
significant negative impact on our results of operations and net cash provided
or used by operating activities, and could result in additional impairment of
the carrying values of our oil and gas properties and deferred tax assets.
During 2000, we plan to limit capital expended for oil and gas property
additions to approximately $250 million, of which approximately $50 million has
been budgeted for exploration expenditures and $200 million has been budgeted
for exploitation projects. Our long-lived reserves and dependable production in
the Hugoton and West Panhandle gas fields and Spraberry oil field allow us the
flexibility necessary to make significant changes in our capital allocation
plans without significantly impacting near term production volumes. Our 2000
exploitation budget is allocated approximately 55% to the United States, 25% to
Argentina and 20% to Canada. We plan to concentrate our exploration drilling in
the Gulf of Mexico, the onshore Gulf Coast area, Argentina and South Africa. We
have budgeted exploratory expenditures of approximately $25 million each for the
United States Gulf Coast area and international areas during 2000. During 2000,
we will continue to use excess of cash provided by operating activities over
capital expenditures for oil and gas producing activities to reduce outstanding
indebtedness.
RESULTS OF OPERATIONS
Oil and gas revenues. Revenues from oil and gas operations totaled $644.6
million in 1999, $711.5 million in 1998 and $536.8 million in 1997, representing
a 9% decrease from 1998 to 1999 and a 33% increase from 1997 to 1998. The
revenue decrease from 1998 to 1999 is reflective of a 19% decrease in BOE
production, partially offset by price increases of 17%, 31% and 4%,
respectively, for oil, NGL and natural gas. The revenue increase from 1997 to
1998 is reflective of a 78% increase in BOE production, offset by a 29%, 29% and
17% decline in prices for oil, NGLs and gas, respectively, from 1997 to 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Total production:
Oil (MBbls)............................................... 13,618 21,554 15,454
NGLs (MBbls).............................................. 4,267 10,669 9,237
Gas (MMcf)................................................ 104,868 183,913 158,457
Total (MBOE).............................................. 35,363 62,875 51,101
Average daily production:
Oil (Bbls)................................................ 37,309 59,052 42,339
NGLs (Bbls)............................................... 11,691 29,231 25,308
Gas (Mcf)................................................. 287,309 503,872 434,130
Average prices:
Oil (per Bbl)............................................. $ 18.51 $ 13.08 $ 15.36
NGL (per Bbl)............................................. $ 12.59 $ 8.90 $ 11.64
Gas (per Mcf)............................................. $ 2.20 $ 1.82 $ 1.90
Percentage annual price increase (decrease):
Oil....................................................... (7) (29) 17
NGL....................................................... N/A (29) 31
Gas....................................................... (3) (17) 4
</TABLE>
On a BOE basis, production declined by 19% for the year ended December 31,
1999, as compared to the same period in 1998. The decline in production was
primarily attributable to asset divestitures, but also reflects the deferral of
oil well completions at the end of 1998 and beginning of 1999 until oil prices
recovered, and normal well production declines. Excluding the production
associated with 1999 and 1998
S-24
<PAGE> 25
asset divestitures, production declined by 9% during the year ended December 31,
1999, as compared to the same period in 1998.
Production volumes for 1998 increased by 78% from 35,363 MBOE to 62,875
MBOE. This increase was primarily reflective of a full year of production
realized from certain previously acquired properties, but also was impacted
favorably by our exploration and exploitation projects. The acquired properties
contributed 97% of the production growth from 1997 to 1998. Excluding the
production associated with these properties and other properties sold during
1998 and 1997, production increased 9% during 1998, as compared to 1997, on a
BOE basis.
Hedging activities
The oil and gas prices that we report are based on the market price
received for the commodities adjusted by the results of our hedging activities.
We utilize commodity derivative contracts such as swaps, futures and options in
order to reduce the effect of the volatility of price changes on the commodities
we produce and sell, support our annual capital budgeting and expenditure plans,
and lock in prices to protect the economics related to certain capital projects.
Crude oil. All material purchase contracts governing our oil production are
tied directly or indirectly to NYMEX prices. The average oil price per Bbl that
we report includes the effects of oil quality, gathering and transportation
costs and the net effect of the oil hedges. Our average realized prices for
physical oil sales, excluding hedge results, for the years ended December 31,
1999, 1998 and 1997 were $16.23 per Bbl, $11.93 per Bbl and $19.09 per Bbl,
respectively. During the year ended December 31, 1999, we recorded a $13.4
million net decrease to oil revenues as a result of our oil price hedges. We
recorded a net increase to oil revenues of $24.8 million and a net decrease to
oil revenues of $7.9 million for the years ended December 31, 1998 and 1997,
respectively, as a result of our oil price hedges.
Natural gas liquids. During 1999 and 1998, we did not enter into natural
gas liquids price hedge contracts. During 1997, we employed a policy of hedging
natural gas liquids based on actual product prices in order to mitigate some of
the volatility associated with NYMEX pricing. Our average realized prices for
physical natural gas liquids sales (excluding hedge results) for the years ended
December 31, 1999, 1998 and 1997 were $11.64 per Bbl, $8.90 per Bbl and $12.61
per Bbl, respectively. During 1997, we recorded a net decrease to natural gas
liquids revenue of $77,600 as a result of natural gas liquids hedges.
Natural gas. We employ a policy of hedging gas production based on the
index price upon which the gas is actually sold in order to mitigate the basis
risk between NYMEX prices and actual index prices. The average gas price per Mcf
that we report includes the effects of Btu content, gathering and transportation
costs, gas processing and shrinkage and the net effect of the gas hedges. Our
average realized prices for physical gas sales (excluding hedge results) for the
years ended December 31, 1999, 1998 and 1997 were $1.84 per Mcf, $1.80 per Mcf
and $2.41 per Mcf, respectively. For the year ended December 31, 1999, we
recorded a net increase to gas revenues of $9.4 million as a result of our gas
price hedges. We recorded a net increase to gas revenues of $3.6 million and a
net decrease of $21.9 million for the years ended December 31, 1998 and 1997,
respectively, as a result of our gas price hedges.
Interest and other revenue. We recorded interest and other income totaling
$89.7 million, $10.5 million and $4.3 million during 1999, 1998 and 1997,
respectively. The significant increase in interest and other income during 1999
is primarily attributable to non-recurring option fees and excise tax refunds
recognized during 1999. In December 1998, we announced the sale of an exclusive
and irrevocable option to a third party to purchase certain oil and gas
properties and other assets. In consideration for the option, the third party
paid an option fee of $41.3 million to us, consisting of $29.3 million of cash
and the third party's common stock that was then valued at $12.0 million. The
third party's option lapsed by its terms during the first quarter of 1999.
During the second quarter of 1999, we entered into a purchase and sale agreement
with the third party that was not completed as specified by the terms of the
agreement and, as a result thereof, we received liquidated damages of additional
shares of the third party's common stock valued at $.5 million. During 1999, we
recognized other revenue of $41.8 million as a result of the transactions with
the third party. We also received a $30.2 million refund of excise taxes during
1999. Due
S-25
<PAGE> 26
to the uncertainty surrounding the collectability of this refund, we were not
carrying it as an asset. Accordingly, we recognized the tax refund as other
revenue during 1999.
Gain (loss) on disposition of assets. During 1998, we announced measures
to increase our financial flexibility and to safeguard net asset values. Those
measures included the enactment of an operating strategy focused on the
enhancement of core assets and the divestiture of non-core assets, continuation
of cost containment measures and the reduction of outstanding indebtedness.
During 1999, we completed the asset divestiture phase of the measures referred
to above. As a result, we realized net divestment proceeds from asset
divestitures of $420.5 million during 1999 and recorded an associated net loss
on disposition of assets of $24.2 million. We used the net cash proceeds from
the 1999 asset divestitures to reduce outstanding indebtedness.
Production costs. Total production costs per BOE decreased in 1999 and
1998 by approximately 12% and 13%, respectively. The primary component of
production costs, lease operating expense, declined by 13% in 1999 and remained
constant in 1998. Workover costs declined by 20% and 52%, respectively, in 1999
and 1998. These costs represent the majority of the oil and gas property
operating expenses over which we have control and the costs on which we have
focused our reduction efforts. Production taxes, which are correlated with
volumes and prices, declined 3% in 1999 and 51% in 1998, reflecting the declines
in volumes during 1999 and commodity prices during 1998. The operating margins
from our gas plants (i.e., third party processing revenues less processing costs
and expenses) are included in oil and gas production costs, specifically lease
operating expense, which resulted in decreases in lease operating expense per
BOE during 1999 and 1997 of $.11 and $.07, respectively, and an increase in
lease operating expense per BOE of $.05 during 1998. The reductions in lease
operating expense during the years ended December 31, 1999 and 1998 are
primarily due to the cost containment we initiated measures during 1998, and to
the divestment of high operating cost properties during 1999 (see "1999
Performance" above and note K of notes to consolidated financial statements
included elsewhere in this prospectus supplement).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998 1999
------ ------ ------
(PER BOE)
<S> <C> <C> <C>
Lease operating expense..................................... $3.02 $3.04 $2.63
Production taxes............................................ .81 .40 .39
Workover costs.............................................. .25 .12 .10
----- ----- -----
Total production costs................................. $4.08 $3.56 $3.12
===== ===== =====
</TABLE>
Depletion expense. Depletion expense per BOE decreased 17% during 1999 to
$4.27 in 1999 from $5.13 in 1998 and 11% in 1998 from $5.78 in 1997. The
decrease in 1999 depletion expense per BOE is primarily attributable to the
impact on proved reserves of improving commodity price outlooks and to the
impairment of the per BOE carrying values of our proved oil and gas properties
during the years ended December 31, 1998 and 1997. The decrease in 1998
depletion expense per BOE was primarily due to the 1997 impairment of the per
BOE carrying values of our proved oil and gas properties.
Impairment of oil and gas properties. We review our oil and gas producing
properties for impairment whenever events or circumstances indicate a decline in
the recoverability of the carrying value of our assets may have occurred. A
combination of declining commodity prices in 1998 and 1997, our outlook for
future commodity prices, and 1998 performance issues relative to certain oil and
gas properties, prompted impairment reviews. As a result of these reviews, we
recognized non-cash charges of $312.2 million and $1.4 billion in 1998 and 1997,
respectively, related to our proved oil and gas properties.
We periodically assess our unproved properties to determine whether they
have been impaired. An unproved property may be impaired if we do not intend to
drill the prospect as a result of downward revisions to potential reserves, if
the results of exploration or our outlook for future commodity prices indicate
that the potential reserves are not sufficient to generate net cash flows to
recover the investment required by the project, or if we intend to sell the
property for less than its carrying value. We have assessed our unproved oil and
gas properties for impairment and, during the years ended December 31,
S-26
<PAGE> 27
1999 and 1998, recognized non-cash impairment charges of $17.9 million and
$147.3 million, respectively, to reduce the carrying value of our unproved oil
and gas properties.
Neither the longevity nor the extent of the current trend of increasing
commodity prices can be assessed with any degree of certainty. A resumption of
the 1998 trend towards declining commodity prices, or other relevant factors,
could result in further impairment provisions to the carrying value of our
proved and unproved properties, which could have a material adverse effect on
our financial condition and results of operations.
Exploration and abandonments/geological and geophysical costs. Exploration
and abandonments/ geological and geophysical costs totaled $66.0 million, $121.9
million and $77.2 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The following table sets forth the components of our 1999, 1998
and 1997 exploration and abandonments/geological and geophysical costs:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Exploratory dry holes:
United States............................................. $27,183 $ 15,737 $15,591
Argentina................................................. 252 4,426 3,441
Canada.................................................... -- 1,949 978
Other foreign............................................. 5,442 9,486 (275)
Geological and geophysical costs:
United States............................................. 37,987 42,755 17,207
Argentina................................................. 1,570 9,999 3,399
Canada.................................................... -- 14,244 315
Other foreign............................................. -- 3,851 7,498
Leasehold abandonments and other............................ 4,726 19,411 17,820
------- -------- -------
$77,160 $121,858 $65,974
======= ======== =======
</TABLE>
We spent approximately 31% of our 1999 exploration/exploitation capital on
exploratory projects as compared to 30% in 1998 and 28% in 1997. The decrease in
1999 exploratory costs is primarily attributable to our curtailed 1999 capital
program, as evidenced by reductions in all categories of exploration,
abandonments, geological and geophysical costs as compared to 1998. The increase
in 1998 exploratory costs was primarily due to the initial expenditures made to
explore certain acquired Argentine and Canadian properties and our exploration
program in South Africa. We currently anticipate that our 2000 exploration
efforts will be concentrated in the Gulf of Mexico, onshore Gulf Coast area,
Argentina and South Africa.
Interest and administrative expenses. Interest and general and
administrative expenses were $170.3 million and $40.2 million, respectively,
during 1999, as compared to $164.3 million and $73.0 million, respectively,
during 1998, and $77.5 million and $48.8 million, respectively, during 1997. On
a per BOE basis, interest and general and administrative expenses were $3.33 and
$.79, respectively, during 1999, as compared to $2.61 and $1.16, respectively,
during 1998, and $2.19 and $1.38, respectively, during 1997. The increase in
interest expense during 1999 is due to the higher debt levels carried over from
1998. We expect our interest expense to decline in 2000 from the expense levels
incurred during 1999 and 1998. The decline in administrative expense during
1999, and the anticipated decline in interest expense during 2000, are a direct
result of the financial measures enacted to contain costs and reduce outstanding
indebtedness. The increases in total interest and administrative expenses during
1998 were due to our having incurred a full year of interest on the debt
incurred as a result of the Mesa and Chauvco acquisitions and to fund the
capital expenditures of 1998, and to administer our larger infrastructure and
before the effects of our reorganization measures enacted in 1998 could be
realized. On a per BOE basis, interest expense increased in 1999, after having
declined in 1998, primarily due to production variances associated with the 1999
asset divestitures and to the postponement of oil well completions at the end of
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1998 due to low oil commodity prices. The decline in per BOE administrative
expense is due to the reorganization measures we initiated during 1998. Those
reorganization measures included the centralization in Irving, Texas of certain
operational and administrative functions previously based in Midland, Texas; the
closings of our regional offices in Oklahoma City, Oklahoma, Corpus Christi,
Texas, and Houston, Texas; the elimination of approximately 350 employee
positions; and other initiatives. As a direct result of those measures, we
recognized reorganization charges of $8.5 million and $33.2 million,
respectively, during 1999 and 1998.
Other expenses. Other expenses were $34.7 million during 1999, as compared
to $39.6 million during 1998 and $7.1 million during 1997. Other expenses
recognized during 1999 were primarily attributable to fluctuations in
mark-to-market provisions on derivative financial instruments. Mark-to-market
provisions in 1999 included $21.2 million associated with non-hedge commodity
derivatives and $11.9 million associated with four million shares of common
stock of a closely held, non-affiliated, public entity, the investment in which
we divested during the second quarter of 1999; partially offset by $5.9 million
of mark-to-market income recognized on a series of forward foreign exchange swap
agreements and income of $.2 million associated with our Btu swap agreements.
Other expense for 1998 included, and increased primarily as a result of, $20.5
million of mark-to-market adjustments of non-hedge foreign currency and Btu swap
agreements; a $9.6 million write-off of deferred compensation arising from
change of control features in our incentive plans; $4.4 million of other
expenses associated with our operations in Argentina and Canada; and a $2.3
million increase in bad debt expense. Other expense for 1997 included a $5.2
million mark-to-market charge associated with the Btu swap agreements.
Income tax provisions (benefits). Due to uncertainties regarding our
ability to realize net operating loss carryovers and tax credit carryovers prior
to their scheduled expirations, we did not recognize deferred income tax
benefits associated with our operating results for 1999 and 1998. Additionally,
during 1998, our net loss was impacted by a $271.1 million valuation allowance
recognized to reduce the carrying value of our deferred tax assets. Although
realization is not assured for the remaining deferred tax asset, we believe it
is more likely than not that they will be realized through future taxable
earnings or alternative tax planning strategies. However, the net deferred tax
assets could be reduced further if our estimate of taxable income in future
periods is significantly reduced or alternative tax planning strategies are no
longer viable. As a result of this situation, it is likely that our effective
tax rate in 2000 will be minimal. If we recognize income before income taxes in
2000, our effective tax rate will be reduced to the extent that taxable earnings
are recognized in those tax jurisdictions relative to which we have established
our valuation allowance.
Extraordinary items. On December 18, 1997, we completed a cash tender
offer for a significant portion of our 11 5/8% senior subordinated discount
notes due 2006 and the 10 5/8% senior subordinated notes due 2006 (the "10 5/8%
Notes") (collectively, the "Subordinated Notes") for a redemption price of
$829.90 and $1,171.40, respectively, per $1,000 tendered plus any interest
accrued on the 10 5/8% Notes (the "Tender Offer"). As a result of the Tender
Offer, we recognized an extraordinary loss on early extinguishment of debt of
$11.9 million, net of a related tax benefit of $6.4 million, during the fourth
quarter of 1997. We financed the purchase price of the Subordinated Notes
tendered in the offer with borrowings under our existing bank credit facility.
CAPITAL COMMITMENTS, CAPITAL RESOURCES AND LIQUIDITY
Capital commitments. Our primary needs for cash are for exploration,
development and acquisitions of oil and gas properties, repayment of principal
and interest on outstanding indebtedness and working capital obligations.
Our cash expenditures for additions to oil and gas properties, including
individual property acquisitions, but not including company acquisitions, during
1999, 1998 and 1997 totaled $179.7 million, $507.3 million and $428.6 million,
respectively. The $327.6 million, or 65%, decline in 1999 capital expenditures
as compared to the expenditures of 1998 resulted from the 1999 capital
expenditures budget curtailments we announced at the end of 1998. The 1999
expenditures include $142.0 million of
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development and exploratory drilling and seismic costs, of which $98.6 million,
or 69%, were development expenditures. During 1999, $77.6 million, or 55%, of
our drilling and seismic expenditures occurred in the United States, of which
amount $39.2 million, or 51%, were expended in the Gulf Coast area; $33.3
million, or 43%, were expended in the Permian Basin area; and, $4.9 million, or
6%, were expended in the Mid Continent area. Also during 1999, we expended $64.4
million, or 45%, of our drilling and seismic capital internationally in
Argentina ($34.6 million, or 54% of international drilling and seismic
expenditures), Canada ($26.1 million, or 41% of international drilling and
seismic expenditures) and other international areas ($3.7 million, or 5% of
international drilling and seismic expenditures), including South Africa and
Gabon. The 1998 amount includes $450.3 million of development and exploratory
drilling and seismic costs, of which $332.0 million, or 74%, were development
expenditures. During 1998, $308.2 million, or 68%, of our drilling and seismic
expenditures occurred in the United States, of which $167.4 million, or 54%,
were expended in the Gulf Coast area and $112.6 million, or 37%, was expended in
the Permian Basin area. Also, during 1998, we expended $142.1 million, or 32%,
of our drilling and seismic capital in our international regions, located in
Argentina ($57.5 million, or 13% of worldwide drilling and seismic
expenditures), Canada ($65.8 million, or 15% of worldwide drilling and seismic
expenditures) and other international areas ($18.8 million, or 4% of worldwide
drilling and seismic expenditures), including South Africa and Gabon. The 1997
amount includes $292.6 million for development and exploratory drilling when our
drilling activities were focused primarily in the Spraberry field of the Permian
Basin. Significant drilling expenditures in 1997 included $99.0 million in the
unitized portion of the Spraberry field of the Permian Basin (including $47.6
million in the Driver unit, $12.7 million in the Preston unit, $12.6 million in
the Shackelford unit, $12.2 million in the North Pembrook unit and $10.5 million
in the Merchant unit), $14.9 million in other portions of the Spraberry field,
$46.5 million in other areas of the Permian Basin, $91.3 million in the onshore
and offshore Gulf Coast region, $29.9 million in the Mid Continent region and
$11.0 million in Argentina and Guatemala.
We have set our 2000 capital expenditure budget at $250 million. We expect
capital expenditures for 2000 to include $200 million for exploitation
activities and $50 million for exploration activities. We expect that cash
provided by operating activities during 2000 will exceed the 2000 capital
expenditure budget. To the extent that cash provided by operating activities
exceed capital expenditures during 2000, we intend to further reduce our
outstanding debt. We budget our capital expenditures based on projected
internally-generated cash flows and routinely adjust the level of our capital
expenditures in response to anticipated changes in cash flows.
Funding for our working capital obligations is provided by
internally-generated cash flow. Funding for the repayment of principal and
interest on outstanding debt and our capital expenditure program may be provided
by any combination of internally-generated cash flow, proceeds from the
disposition of non-strategic assets or alternative financing sources as
discussed in "Capital Resources" below.
Capital Resources
Our primary capital resources are net cash provided by operating
activities, proceeds from financing activities and proceeds from sales of
non-strategic assets. We expect that these resources will be sufficient to fund
our capital commitments and allow further reductions in debt in 2000.
Operating activities. Net cash provided by operating activities during
1999, 1998 and 1997 were $255.2 million, $314.1 million and $228.2 million,
respectively. Net cash provided by operating activities during 1999 decreased
19% from that of 1998 primarily as a result of declines in production volumes
due to oil and gas property divestitures, partially offset by increases in
commodity prices and decreases in production and administrative costs. Net cash
provided by operating activities during 1999, as compared to that of 1998, also
declined as a result of increases in working capital associated with operating
activities. Net cash provided by operating activities in 1998 increased 38% over
that of 1997 as a result of the increased production realized from certain
acquired properties, partially offset by declining commodity prices and
increased general and administrative expenses, reorganization expenditures, and
interest expense. Net cash provided by operating activities in 1997 was
comparable to that of 1996. Increased production in 1997 was offset by increased
general and administrative expenses and interest expenses and the payment of
certain assumed liabilities, including severance payments made to former
employees.
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Financing activities. We were a borrower under three bank credit
facilities which provided for total credit of $1.4 billion as of December 31,
1998. One of the credit facilities expired by its terms in the third quarter of
1999 and was not extended. During the first quarter of 1999, we and the
participating banks amended the other two credit facilities by consolidating
them into the existing bank credit facility. Under the terms of the existing
bank credit facility, we agreed to reduce the total loan commitments by $410
million by December 31, 1999, increase the interest rate margin on LIBOR Rate
advances to 250 basis points, and certain other amendments. The existing credit
facility contains various debt covenants, the most restrictive being the
maintenance of a ratio of outstanding senior debt to quarterly annualized
earnings before interest, depletion, depreciation, amortization, income tax,
exploration and abandonment and other non-cash expenses ("EBITDAX") not to
exceed 4.25 to one through March 31, 2000, and 3.5 to one as of the end of each
quarter thereafter. Other restrictive compliance requirements include limits on
the incurrence of additional indebtedness and certain types of liens and
restrictions as to merger, sale or transfer of assets and transactions without
the lenders' consent. During 1999, we reduced our loan commitments under the
existing bank credit facility to $939.6 million in early compliance with the
loan commitment reduction requirement. As a result of the loan commitment
reduction and our compliance with other existing bank credit facility covenants
as of December 31, 1999, the interest rate margin on LIBOR Rate advances had
been reduced to 187.5 basis points. We have obtained commitments, subject to
various conditions, for the full amount of a $600 million proposed credit
facility to replace the existing credit facility. See "Description of Existing
Bank Indebtedness and Refinancing Commitments" for a more detailed description
of the proposed credit facility and the conditions to such facility.
At December 31, 1999, our principal additional senior debt issuances
consisted of (i) $150 million aggregate principal amount of 8 7/8% senior notes
due in 2005; (ii) $150 million aggregate principal amount of 8 1/4% senior notes
due in 2007; (iii) $350 million aggregate principal amount of 6 1/2% senior
notes due in 2008; and, (iv) $250 million aggregate principal amount of 7 1/5%
senior notes due in 2028. The weighted average interest rate for the year ended
December 31, 1999 on this indebtedness was 7.81% as compared to 7.16% for the
year ended December 31, 1998 and 7.04% for the year ended December 31, 1997,
taking into account the effect of interest rate swaps.
As we continue to pursue our strategy, we may utilize alternative financing
sources, including the issuance for cash of fixed rate long-term public debt,
convertible securities or preferred stock. We may also issue securities in
exchange for oil and gas properties, stock or other interests in other oil and
gas companies or related assets. Additional securities may be of a class
preferred to common stock with respect to such matters as dividends and
liquidation rights and may also have other rights and preferences as determined
by our Board of Directors.
Sales of non-strategic assets. During 1999, 1998 and 1997, proceeds from
the sale of non-strategic assets totaled $420.5 million, $21.9 million and
$115.7 million, respectively. Our 1999 asset divestitures were comprised of
non-strategic United States and Canadian oil and gas properties, gas plants and
other assets. The net cash proceeds from the 1999 asset divestitures were used
to reduce our outstanding indebtedness. The proceeds from the 1998 and 1997
asset divestitures were primarily utilized to provide funding for a portion of
our capital expenditures during those years.
Liquidity. At December 31, 1999, we had $34.8 million of cash and cash
equivalents on hand, compared to $59.2 million at December 31, 1998. Our ratio
of current assets to current liabilities was 0.93 at December 31, 1999 and 0.38
at December 31, 1998.
OTHER ITEMS
Year 2000 project readiness. As the year 2000 was approaching, the
inability of some computer programs and embedded technologies to distinguish
between "1900" and "2000" gave rise to the "Year 2000" problem. Such computer
programs and related technology were at risk to fail outright or communicate
inaccurate data, if not remediated or replaced. With the proliferation of
electronic data interchange, the Year 2000 problem represented a significant
exposure to the entire global community, the full extent of which could not be
accurately assessed prior to the year 2000.
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In proactive response to the Year 2000 problem, we established a "Year
2000" project that assessed, to the extent possible, our internal Year 2000
problem; took remedial actions necessary to minimize the Year 2000 risk exposure
to us and significant third parties with whom we have data interchange; and
tested our systems and processes once remedial actions were taken. We contracted
with IBM Global Services to perform the assessment and remedial phases of our
Year 2000 project. Our total costs related to the Year 2000 problem were $2.5
million, which was funded from working capital.
We have closely monitored our information and non-information technology
systems since the beginning of 2000 and have identified no significant Year 2000
failures or problems. We will continue to monitor Year 2000 risks and issues.
There can be no assurances that unforeseen problems will not be encountered in
the future.
Proposal to acquire partnerships. On September 8, 1999, Pioneer Natural
Resources USA filed a preliminary proxy statement with the SEC proposing an
agreement and plan of merger to the limited partners of 25 publicly-held Parker
& Parsley limited partnerships. Pioneer Natural Resources USA is the managing
partner of the Parker & Parsley limited partnerships. The preliminary proxy
statement is non-binding and is subject to, among other things, consideration of
offers from third parties to purchase any partnership or its assets, the
majority approval of the limited partners in each partnership and the resolution
of SEC review comments. We are continuing to evaluate the feasibility of the
proposed agreement and plan of merger; however, the current commodity price
outlook has diminished the likelihood that the proposed agreement and plan of
merger will be consummated.
Accounting for derivatives. In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
In June 1999, the FASB issued Statement of Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133 -- and amendment of FASB Statement 133"
("SFAS 137"). SFAS 137 defers the effective date for SFAS 133 to fiscal years
beginning after June 15, 2000. We have not determined what effect, if any, SFAS
133 will have on our consolidated financial statements.
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MANAGEMENT
The following table sets forth information about our directors and
executive officers as of the date of this prospectus supplement.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Scott D. Sheffield........................ 47 Chairman of the Board, President and Chief
Executive Officer
Timothy L. Dove........................... 43 Executive Vice President and Chief
Financial Officer
Dennis E. Fagerstone...................... 51 Executive Vice President
Mark L. Withrow........................... 52 Executive Vice President, General Counsel
and Secretary
Danny L. Kellum........................... 45 Vice President -- Domestic Operations
James R. Baroffio......................... 68 Director
R. Hartwell Gardner....................... 65 Director
James L. Houghton......................... 69 Director
Jerry P. Jones............................ 68 Director
Richard E. Rainwater...................... 55 Director
Charles E. Ramsey, Jr. ................... 63 Director
Robert L. Stillwell....................... 63 Director
</TABLE>
Scott D. Sheffield. Mr. Sheffield, a graduate of the University of Texas
with a Bachelor of Science degree in Petroleum Engineering, has been the
President and Chief Executive Officer of the Company since August 1997, and
assumed the position of Chairman of the Board in August 1999. He was the
President and a director of Parker & Parsley since May 1990 and was the Chairman
of the Board and Chief Executive Officer of Parker & Parsley since October 1990.
Mr. Sheffield was the sole director of Parker & Parsley from May 1990 until
October 1990. Mr. Sheffield joined Parker & Parsley Development Company
("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979.
Mr. Sheffield served as Vice President -- Engineering of PPDC from September
1981 until April 1985, when he was elected President and a director. In March
1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed
as a production and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Chief
Financial Officer of the Company in February 2000. Prior to that time, Mr. Dove
had served as the Company's Executive Vice President -- Business Development
since August 1997. Mr. Dove joined Parker & Parsley in May 1994 as Vice
President -- International and was promoted to Senior Vice President -- Business
Development in October 1996, in which position he served until August 1997.
Before joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock
Corp., and its successor, Maxus Energy Corp, in various capacities in
international exploration and production, marketing, refining, and planning and
development. Mr. Dove earned a Bachelor of Science degree in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of the Company in August 1997. Mr. Fagerstone served as Executive Vice President
and Chief Operating Officer of Mesa from March 1997, until August 1997. Mr.
Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa
from October 1996 to February 1997, and served as Vice President -- Exploration
and Production of Mesa from May 1991 to October 1996. Mr. Fagerstone served as
Vice President -- Operations of Mesa from June 1988 until May 1991.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a Bachelor of Science degree in Accounting and Texas Tech University with a
Juris Doctorate degree, has been the Executive Vice President, General Counsel
and Secretary of the Company since August 1997. He served as Vice
President -- General Counsel of Parker & Parsley from February 1991 until
January 1995, and
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served as Senior Vice President, General Counsel of Parker & Parsley from
January 1995 until August 1997. He was Parker & Parsley's Secretary from August
1992 until August 1997. Mr. Withrow joined PPDC in January 1991. Before joining
PPDC, Mr. Withrow was the managing partner of the law firm of Turpin, Smith,
Dyer, Saxe & MacDonald, Midland, Texas.
Danny L. Kellum. Mr. Kellum received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979. After a brief career
with Mobil Oil Corporation he joined Parker & Parsley in 1981 in the capacity of
Operations Engineer. He served as the Spraberry District Manager from 1989 until
1994 and as Vice President of the Spraberry and Permian Divisions for Parker &
Parsley until August of 1997. He served Pioneer as Vice President of the
Company's Permian Division until November 1998, Vice President of U.S. Domestic
Operations for the Company and currently serves as Vice President -- Domestic
Operations.
James R. Baroffio. Dr. Baroffio received a B.A. in Geology at the College
of Wooster, Ohio, an M.S. in Geology at Ohio State University, and a Ph.D. in
Geology at the University of Illinois. Before becoming a director of the Company
in December 1997, Dr. Baroffio enjoyed a long career with Standard Oil Company
of California, the predecessor of Chevron Corporation, eventually retiring as
President of Chevron Canada Resources in 1994. Dr. Baroffio was President-elect
of the Colorado Petroleum Association, a member of the Board of Directors of the
Rocky Mountain Oil & Gas Association, and Chairman of the U.S. National
Committee of the World Petroleum Congress. His community leadership positions
included membership on the Board of Directors of Glenbow Museum and the Nature
Conservancy of Canada, as well as serving as President of the Alberta Nature
Conservancy.
R. Hartwell Gardner. Mr. Gardner became a director of the Company in August
1997. He served as a director of Parker & Parsley from November 1995 until
August 1997. Mr. Gardner graduated from Colgate University with a Bachelor of
Arts degree in Economics and then earned an M.B.A. from Harvard University.
Until October 1, 1995, Mr. Gardner was the Treasurer of Mobil Oil Corporation
and Mobil Corporation from 1974 and 1976, respectively. Mr. Gardner is a member
of the Financial Executives Institute of which he served as Chairman in 1986 and
1987 and is a Director of Oil Investment Corporation Ltd. and Oil Casualty
Investment Corporation Ltd., Pembroke, Bermuda.
James L. Houghton. Mr. Houghton is a certified public accountant and a
graduate of Kansas University with a Bachelor of Science degree in Accounting,
as well as a Bachelor of Laws degree. Mr. Houghton has served as a director of
the Company since August 1997, and as a director of Parker & Parsley from
October 1991 until August 1997. Until October 1, 1991, Mr. Houghton was the lead
oil and gas tax specialist for the accounting firm of Ernst & Young, was a
member of Ernst & Young's National Energy Group and had served as its Southwest
Regional Director of Tax. Mr. Houghton is a member of the American Institute of
Certified Public Accountants, a member of the Oklahoma Society of Certified
Public Accountants and a former Chairman of its Federal and Oklahoma Taxation
Committee and past President of the Oklahoma Institute on Taxation. He has also
served as a Director for the Independent Petroleum Association of America and as
a member of its Tax Committee.
Jerry P. Jones. Mr. Jones earned a Bachelor of Science degree from West
Texas State College in 1953 and a Bachelor of Law degree from the University of
Texas School of Law in 1959. Mr. Jones has served as a director of the Company
since August 1997, and as a director of Parker & Parsley from May 1991 until
August 1997. Mr. Jones has been an attorney with the law firm of Thompson &
Knight L.L.P., Dallas, Texas, since September 1959 and was a shareholder in that
firm until January 1998, when he retired and became of counsel to the firm. Mr.
Jones specialized in civil litigation, especially in the area of energy
disputes.
Richard E. Rainwater. Mr. Rainwater, a graduate of the University of Texas
with a B.A. and the Stanford University Graduate School of Business with an
M.B.A., became a director of the Company in August 1997. He served as a director
of Mesa from July 1996 until August 1997. Since 1986, Mr. Rainwater has been an
independent investor and the sole shareholder and Chairman of Rainwater, Inc.
Mr. Rainwater was the founder of Crescent Real Estate Equities, Inc. in 1994,
and since that time he has served as its Chairman of the Board. He was the
co-founder of Mid Ocean Limited in
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1991, the founder of Columbia Hospital Corporation (predecessor to Columbia/HCA
Healthcare Corporation) in 1987 and the founder of ENSCO International, Inc. in
1986. From 1970 until 1986, Mr. Rainwater served as the Chief Investment Advisor
to the Bass Family of Texas.
Charles E. Ramsey, Jr. Mr. Ramsey is a graduate of the Colorado School of
Mines with a Petroleum Engineering degree and a graduate of the Smaller Company
Management program at the Harvard Graduate School of Business Administration.
Mr. Ramsey has served as a director of the Company since August 1997. Mr. Ramsey
served as a director of Parker & Parsley from October 1991 until August 1997.
Since October 1991, he has operated an independent management and financial
consulting firm. From June 1958 until June 1986, Mr. Ramsey held various
engineering and management positions in the oil and gas industry and, for six
years before October 1991, was a Senior Vice President in the Corporate Finance
Department of Dean Witter Reynolds Inc. (Dallas, Texas office). His industry
experience includes 12 years of senior management experience in the positions of
President, Chief Executive Officer and Executive Vice President of May Petroleum
Inc. Mr. Ramsey is also a former director of MBank Dallas, the Dallas Petroleum
Club and Lear Petroleum Corporation.
Robert L. Stillwell. Mr. Stillwell, a graduate of the University of Texas
with a B.B.A. and the University of Texas School of Law with a J.D., has served
as a director of the Company since August 1997. He served as a director of Mesa
from January 1992 until August 1997, as a member of the Advisory Committee of
Mesa, L.P., a predecessor of Mesa, from December 1985 until December 1991, and
as a director of Mesa in its original corporate form from 1968 until January
1987. Mr. Stillwell has been a partner in the law firm of Baker & Botts, L.L.P.,
for more than five years.
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DESCRIPTION OF EXISTING BANK INDEBTEDNESS AND REFINANCING COMMITMENTS
Existing Credit Facility. We currently have a credit facility with a
syndicate of banks with commitments aggregating $939.6 million and outstanding
borrowings as of December 31, 1999 of $825 million. Advances under our existing
credit facility are required to be paid no later than August 7, 2002.
Advances on our existing credit facility bear interest at our option based
on (a) the prime rate of Bank of America, N.A. (9.0% at March 31, 2000) (the
"Prime Rate"), (b) a Eurodollar rate (substantially equal to the London
Interbank Offered Rate ("LIBOR")) adjusted for the reserve requirement as
determined by the Board of Governors of the Federal Reserve System with respect
to transactions in Eurocurrency liabilities ("LIBOR Rate"), or (c) a competitive
bid rate as quoted by the lending banks electing to participate pursuant to a
request by us. The interest rate on LIBOR Rate advances includes an interest
rate margin component that is determined by a grid that is based on our senior
unsecured long-term public debt rating and the ratio of our total debt to our
earnings before interest, depletion, depreciation, amortization, income tax,
exploration and abandonment and other non-cash expenses ("EBITDAX"). As of
December 31, 1999, the interest rate margin on LIBOR Rate advances was 187.5
basis points.
Our existing credit facility contains various financial covenants,
including the maintenance, as of the end of each quarter, of a ratio of our
outstanding senior debt to the quarter's annualized EBITDAX not to exceed 4.25
to one through March 31, 2000, and 3.5 to one thereafter, the maintenance of a
ratio of our outstanding total debt to our EBITDAX not to exceed 5.75 to one
through March 31, 2000, and 4.25 to one thereafter, the maintenance of a minimum
consolidated tangible net worth of $600 million plus 50% of consolidated net
income, if positive, for any fiscal quarter ending on or after March 31, 1999
plus 85% of any net cash proceeds of issuance of equity by us after December 31,
1998, and the maintenance of a minimum ratio of the net present value of our
proved reserves to our outstanding total debt at the end of each June or
December of 1.25 to one. Other restrictive compliance requirements include
limits on the incurrence of additional indebtedness and certain types of liens
and restrictions as to merger, sale or transfer of assets and transactions
without the lenders' consent. Our obligations under our existing credit facility
are also guaranteed by Pioneer Natural Resources USA, Inc. and certain other
subsidiaries and are secured by a pledge of a portion of the capital stock of
certain non United States subsidiaries.
As discussed in "Risk Factors" above, we may be unable to comply with the
required ratio of our outstanding senior debt to EBITDAX that reduces to 3.5 to
one on and after June 30, 2000. As a result, we intend to replace the existing
credit facility and have obtained commitments for a proposed credit facility as
described below. In the event that we do not enter into the proposed credit
facility, we would consider various alternatives, including seeking an amendment
to the existing credit facility or pursuing alternative financing.
Commitments for Refinancing. We have obtained commitments for the full
amount of a proposed credit facility to replace the existing credit facility.
The commitments provide that the proposed credit facility will be in the amount
of $600 million and for a term of five years. Advances under the proposed credit
facility would bear interest at our option based on (a) the Prime Rate or (b)
the LIBOR Rate. The interest rate on LIBOR Rate advances includes an interest
rate margin component that is determined by a grid that is based on our senior
unsecured long-term public debt rating and the ratio of our total debt to
EBITDAX. Under the proposed credit facility, the interest rate margin on LIBOR
Rate advances under the proposed credit facility will be 162.5 basis points
during the initial six months of the term and thereafter will be based on our
credit rating and ratio of total debt to EBITDAX.
The commitments provide that the proposed credit facility will contain
representations, warranties, and events of default customary for transactions of
this type and similar to the existing credit facility. The commitments further
provide that the proposed credit facility will contain covenants customary for
transactions of this type and similar to the existing credit facility, with
certain specified changes, including a limited provision for dividends and stock
repurchases and revised financial covenants described below.
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The terms, other than the $600 million amount available, under the proposed
credit facility are subject to change by mutual agreement of the lenders and us
during syndication.
The commitments provide that the proposed credit facility will require us
to maintain a ratio of our outstanding total debt to EBITDAX not to exceed 4.00
to one as of the end of each quarter, beginning with the quarter ended March 31,
2000 and through September 30, 2002, and 3.75 to one as of the end of each
quarter thereafter, with EBITDAX being calculated on an annualized basis
beginning with the quarter ended December 31, 1999 until September 29, 2000, at
which time the calculation will be on a rolling four quarter basis, to maintain
a minimum consolidated tangible net worth equal to the sum of $658 million plus
50% of our net income, if positive, for each fiscal quarter ending on or after
March 31, 2000, plus 50% of net cash proceeds of the issuance of equity by us
after December 31, 1999, minus write downs resulting from impairments of the
value of our oil and gas assets and to maintain a minimum ratio of the net
present value of our proved reserves to our outstanding total debt at the end of
each December of 1.25 to one. The commitments require that our obligations under
the proposed credit facility will be guaranteed by Pioneer Natural Resources
USA, Inc. and certain other subsidiaries.
The commitments for the proposed credit facility are subject to various
conditions precedent to the satisfaction of the lenders, including:
- the negotiation, execution and delivery of definitive credit documents on
or before May 31, 2000,
- the receipt by the lenders of opinions of counsel, certificates of
officers and government officials, and other documents,
- the absence of a material adverse change in our business, assets,
operations, condition (financial or otherwise), or prospects since
December 31, 1999, or in the facts and information represented by us,
- the absence of any material pending or threatened legal proceeding
affecting us, the transactions contemplated by the commitment letter, or
our ability to perform under the final credit documents,
- our compliance with existing financial obligations,
- the absence of disruption or adverse change in the financial, banking or
capital markets material in connection with the syndication of the
proposed credit facility,
- our compliance with representations, warranties and covenants of the
commitments and of the definitive credit documents,
- the absence of a default under the definitive credit documents, and
- the completion of this offering.
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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the words
"Company" and "we" refer only to Pioneer Natural Resources Company and not to
any of its subsidiaries. In this description, "Notes" refers to the offered
notes.
The terms of the Notes are described below. The Notes are described in the
prospectus that follows this prospectus supplement. The provisions described
below supplement, and to the extent they conflict they supersede, the
information in the prospectus with respect to the Notes.
We will issue the Notes under the Indenture dated as of January 13, 1998
between the Company and The Bank of New York, as Trustee. The Indenture is
governed by the Trust Indenture Act of 1939. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act. We urge you to read the Indenture because it, and
not this description, defines your rights as a holder of these Notes. A copy of
the proposed form of Indenture has been filed as an exhibit to the registration
statement of which this prospectus supplement forms a part.
We will issue Notes only in fully registered form without coupons, in
denominations of $1,000 and integral multiples of $1,000.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be unsecured senior obligations of the Company, limited to
$400 million aggregate principal amount, and will mature on April 15, 2010. The
Notes will bear interest at the rate per annum shown on the cover page of this
prospectus supplement from the date of original issuance, or from the most
recent date to which interest has been paid or provided for, commencing October
15, 2000. Interest will be payable semiannually to those persons who were
holders of record at the close of business on the April 1 and October 1
immediately preceding each interest payment date. We will pay interest on
overdue principal at 1% per annum in excess of the stated rate of interest, and
we will pay interest on overdue installments of interest at that higher rate to
the extent lawful. Interest will be paid on the basis of a 360-day year
comprised of twelve 30-day months.
GUARANTEE
Our obligations under the Indenture, including the repurchase obligation
resulting from a Change of Control, will be unconditionally guaranteed on an
unsecured basis by Pioneer Natural Resources USA, as the Guarantor. This
guarantee will terminate if the Guarantor is released from its guarantee of our
Credit Facilities. The guarantee is required to be reinstated if the Guarantor's
guarantee of our Credit Facilities is subsequently reinstated.
Subject to the prior paragraph, the Guarantor may not consolidate or merge
with or into any person, or sell all or substantially all its assets, unless
either:
(1) the Guarantor shall be the continuing person in the case of a
merger, or
(2) the resulting, surviving or transferee person, if other than the
Guarantor, shall be a corporation organized and existing under the laws of
the United States, any State, or the District of Columbia, and shall
expressly assume all of the obligations of the Guarantor under the
guarantee.
Violation of this covenant will constitute an Event of Default with respect to
the Notes.
The Guarantor is our direct, wholly-owned subsidiary and owns substantially
all of our United States onshore and offshore properties. The Guarantor has no
borrowed money obligations other than certain capitalized lease obligations and
has no guarantees of other borrowed money obligations except as guarantor of the
Notes, our Credit Facilities and the Existing Notes.
Although Holders of the Notes will be direct creditors of the Guarantor by
virtue of this guarantee, existing or future creditors of the Guarantor, a
trustee in bankruptcy, or the Guarantor as debtor-in-
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possession could avoid or subordinate the guarantee under fraudulent conveyance
laws if it were successful in establishing that:
(1) the guarantee was incurred with intent to hinder, delay or defraud
any present or future creditor, or
(2) the Guarantor did not receive fair consideration or reasonably
equivalent value for issuing the guarantee and that it
(A) was insolvent at the time of the issuance,
(B) was rendered insolvent by reason of the issuance,
(C) was engaged in a business or transaction for which its assets
constituted unreasonably small capital to carry on its business, or
(D) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they matured.
Among other things, a legal challenge of the guarantee on fraudulent conveyance
grounds may focus on the benefits, if any, realized by the Guarantor as a result
of our issuance of the Notes. To the extent the guarantee was voided as a
fraudulent conveyance or held unenforceable for any other reason, the Holders of
the Notes would cease to have any claim in respect of the Guarantor, would be
creditors solely of the Company, and may be required to return all amounts
received pursuant to the voided guarantee.
The measure of insolvency for purposes of the preceding paragraph will
vary, depending upon the law of the jurisdiction that is being applied.
Generally, however, a company would be considered insolvent if the sum of its
debts is greater than all of its property at a fair valuation, or if the present
fair saleable value of its assets is less than the amount that will be required
to pay its probable liability on its existing debts as they become absolute and
matured.
None of our other direct or indirect subsidiaries will be a guarantor of
the Notes.
RANKING
The Notes will be:
- general unsecured senior obligations of the Company;
- equal ("pari passu") in ranking with all of our existing and future
senior unsecured indebtedness;
- senior in right of payment to all of our existing and future subordinated
indebtedness; and
- guaranteed on a senior unsecured basis by the Guarantor.
At December 31, 1999, after giving effect to this offering and the
application of our estimated net proceeds from this offering, we would have had
approximately $900 million of indebtedness for borrowed money ranking pari passu
in right of payment with the Notes.
The Notes will be effectively subordinated in right of payment to all
existing and future secured indebtedness of the Company and the Guarantor to the
extent of the value of the assets securing such indebtedness.
At December 31, 1999, after giving effect to this offering and the
application of our estimated net proceeds from this offering, we would have had
approximately $435 million of indebtedness for borrowed money ranking senior in
right of payment to the Notes (to the extent of the value of the assets securing
such indebtedness).
We are a holding company that conducts all of our operations through
subsidiaries, and the Notes will be effectively subordinated to all obligations
of our subsidiaries that are not guarantors of the Notes, including the claims
of the lenders against guarantors of our Credit Facilities.
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At December 31, 1999, after giving effect to this offering and the
application of our estimated net proceeds from this offering, our subsidiaries
that are not guarantors of the Notes, including Pioneer Natural Resources Canada
Inc. and Pioneer Natural Resources (Argentina) S.A., would not have any
indebtedness for borrowed money (excluding guarantees by some of those
subsidiaries with respect to our existing credit facility).
Our Credit Facilities are or will be guaranteed by certain other
subsidiaries of the Company that are not guaranteeing the Notes, and the Notes
will be effectively subordinated to our Credit Facilities to the extent of the
value of such guarantees. The Indenture restricts the ability of the Company and
our Restricted Subsidiaries to incur additional liabilities in the future. Such
restriction, however, is subject to a number of significant qualifications.
Moreover, the Indenture does not impose any limitation on the incurrence by such
subsidiaries of liabilities that are not considered Indebtedness under the
Indenture. See "-- Certain Covenants -- Limitation on Indebtedness."
Moreover, if the Guarantor's guarantee of our Credit Facilities is
terminated, its guarantee of the Notes will also terminate. The Indenture
requires the guarantee to be reinstated if the Guarantor's guarantee of our
Credit Facilities is subsequently reinstated. If the Guarantor subsequently
guarantees or incurs other debt, the Notes would be effectively subordinated to
such debt or guarantees to the extent of the value of such debt or guarantees of
the Guarantor unless the Guarantor voluntarily provides a new guarantee of the
Notes.
Substantially all of our operating income and cash flow is generated by our
subsidiaries. As a result, funds necessary to meet our debt service obligations
are provided in part by distributions or advances from our subsidiaries. Under
certain circumstances, contractual and legal restrictions, as well as the
financial condition and operating requirements of our subsidiaries, could limit
our ability to obtain cash from our subsidiaries for the purpose of meeting our
debt service obligations, including the payment of principal and interest on the
Notes.
The guarantee of the Notes will be a general unsecured obligation of the
Guarantor ranking pari passu in right of payment with all other senior unsecured
indebtedness of the Guarantor and will be senior in right of payment to any
subordinated indebtedness of the Guarantor. The Guarantor has guaranteed the
Existing Notes, which guarantees will be pari passu with the guarantee of the
Notes. The guarantee will be effectively subordinated in right of payment to any
secured indebtedness of the Guarantor, including under the Credit Facilities, to
the extent of the value of the assets securing such indebtedness. The guarantee
could also be effectively subordinated to all the obligations of the Guarantor
under certain circumstances. See "Description of Notes -- Guarantee."
OPTIONAL REDEMPTION
The Notes will be redeemable at any time, at our option, in whole or from
time to time in part, upon not less than 30 and not more than 60 days' notice as
provided in the Indenture, on any date prior to their maturity at a redemption
price equal to the sum of 100% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of redemption (subject to the right of
Holders of record on the relevant record date to receive interest due on an
interest payment date that is on or prior to the date of redemption) plus a
make-whole premium described below, if any. In no event will a redemption price
ever be less than 100% of the principal amount of the Notes plus accrued and
unpaid interest, if any, to the date of redemption.
The amount of the make-whole premium with respect to any Note (or portion
thereof) to be redeemed will be equal to the excess, if any, of:
(1) the sum of the present values, calculated as of the date of
redemption, of:
(A) each interest payment that, but for such redemption, would have
been payable on the Note (or portion thereof) being redeemed on each
interest payment date occurring after the date of redemption (excluding
any accrued interest for the period prior to the date of redemption);
and
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(B) the principal amount that, but for such redemption, would have
been payable at the final maturity of the Note (or portion thereof)
being redeemed; over
(2) the principal amount of the Note (or portion thereof) being
redeemed.
The present values of interest and principal payments referred to in clause
(1) above will be determined in accordance with generally accepted principles of
financial analysis. Such present values will be calculated by discounting the
amount of each payment of interest or principal from the date that each such
payment would have been payable, but for the redemption, to the date of
redemption at a discount rate equal to the treasury yield described below plus
50 basis points.
The make-whole premium will be calculated by an independent investment
banking institution of national standing appointed by us; provided that if we
fail to make the appointment at least 45 business days prior to the date of
redemption, or if the institution so appointed is unwilling or unable to make
the calculation, the calculation will be made by Credit Suisse First Boston
Corporation or, if such firm is unwilling or unable to make the calculation, by
an independent investment banking institution of national standing appointed by
the Trustee.
For purposes of determining the make-whole premium, the treasury yield
shall be a rate of interest per annum equal to the weekly average yield to
maturity of United States Treasury Notes that have a constant maturity that
corresponds to the remaining term to maturity of the Notes, calculated to the
nearest 1/12th of a year. The treasury yield will be determined as of the third
business day immediately preceding the applicable date of redemption.
The weekly average yields of United States Treasury Notes will be
determined by reference to the most recent statistical release published by the
Federal Reserve Bank of New York and designated "H.15 (519) Selected Interest
Rates" or any successor release (the "H.15 Statistical Release"). If the H.15
Statistical Release sets forth a weekly average yield for United States Treasury
Notes having a constant maturity that is the same as the remaining term of the
Notes, then the treasury yield will be equal to such weekly average yield. In
all other cases, the treasury yield will be calculated by interpolation, on a
straight-line basis, between the weekly average yields on the United States
Treasury Notes that have a constant maturity closest to and greater than the
remaining term of the Notes and the United States Treasury Notes that have a
constant maturity closest to and less than the remaining term of the Notes (in
each case as set forth in the H.15 Statistical Release). Any weekly average
yields so calculated by interpolation will be rounded to the nearest 1/100th of
1%, with any figure of 1/200th of 1% or above being rounded upward. If weekly
average yields for United States Treasury Notes are not available in the H.15
Statistical Release or otherwise, then the treasury yield will be calculated by
interpolation of comparable rates selected by the independent investment banking
institution.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof on the date of purchase plus accrued and unpaid
interest, if
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any, to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (1) such person shall
be deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 50%
of the total voting power of the Voting Stock of the Company; provided,
however, that the Permitted Holders do not have the right or ability by
contract or otherwise to elect or designate for election a majority of the
Board of Directors (for the purposes of this clause (1), such other person
shall be deemed to beneficially own any Voting Stock of a Person (the
"specified person") held by any other Person (the "parent entity"), if such
other person is the beneficial owner (as defined above in this clause (1)),
directly or indirectly, of more than 50% of the voting power of the Voting
Stock of such parent entity and the Permitted Holders do not have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent entity);
(2) individuals who on the date the Notes are issued constituted the
Board of Directors (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of
the Company was approved by a vote of 66 2/3% of the directors of the
Company then still in office who were either directors on the date the
Notes are issued or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the Board of Directors then in office;
(3) the adoption of a plan relating to the liquidation or dissolution
of the Company; or
(4) the sale of all or substantially all the assets of the Company
(determined on a consolidated basis) to another Person (other than, in all
such cases, a Person that is controlled by the Permitted Holders), other
than a transaction following which the transferee Person becomes the
obligor in respect of the Notes and a Subsidiary of the transferor of such
assets.
Within 30 days following any Change of Control, we will mail a notice to
each Holder with a copy to the Trustee (the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require us to purchase such Holder's Notes at a purchase price in
cash equal to 101% of the principal amount thereof on the date of purchase,
plus accrued and unpaid interest, if any, to the date of purchase (subject
to the right of holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income
and capitalization after giving effect to such Change of Control);
(3) the purchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions, as determined by us, consistent with the
covenant described hereunder, that a Holder must follow in order to have
its Notes purchased.
We will not be required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by us and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
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We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of the covenant described hereunder, we will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached our obligations under the covenant described hereunder by virtue of its
compliance with such securities laws or regulations.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent management. The Change of Control
purchase feature is a result of negotiations between the Company and the
underwriters. We have no present intention to engage in a transaction involving
a Change of Control, although it is possible that we could decide to do so in
the future. Subject to the limitations discussed below, we could, in the future,
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect our capital structure or credit ratings.
Restrictions on our ability to Incur additional Indebtedness are contained in
the covenants described under "-- Certain Covenants -- Limitation on
Indebtedness," "-- Limitation on Liens" and "-- Limitation on Sale and Leaseback
Transactions." Such restrictions can only be waived with the consent of the
holders of a majority in principal amount of the Notes then outstanding. Except
for the limitations contained in such covenants, however, the Indenture will not
contain any covenants or provisions that may afford holders of the Notes
protection in the event of a highly leveraged transaction.
Our existing credit facility provides that certain change of control events
with respect to the Company constitute a default thereunder. Any future credit
agreements (including the credit agreement for the proposed credit facility) may
also provide that the occurrence of certain change of control events with
respect to the Company would constitute a default thereunder and may further
contain restrictions and provisions prohibiting us from purchasing any Notes
prior to a certain time. In the event a Change of Control occurs at a time when
we are prohibited from purchasing Notes, we may seek the consent of our lenders
to the purchase of Notes or may attempt to refinance the borrowings that contain
such prohibition. If we do not obtain such a consent or repay such borrowings,
we will remain prohibited from purchasing Notes. In such case, our failure to
offer to purchase Notes would constitute a Default under the Indenture, which
would, in turn, constitute a default under such credit agreements.
Future indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of Control. Moreover,
the exercise by the holders of their right to require us to repurchase the Notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on us. Finally,
our ability to pay cash to the holders of Notes following the occurrence of a
Change of Control may be limited by our then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases.
The provisions under the Indenture relative to our obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with the written consent of the Holders of a majority in principal
amount of the Notes.
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
BOOK-ENTRY, DELIVERY AND FORM
Except as described below, the Notes sold will initially be issued in the
form of one or more Global Notes. The Global Notes will be deposited with, or on
behalf of, The Depository Trust Company (the "Depositary") and registered in the
name of the Depositary or its nominee. Except as set forth below, the Global
Notes may be transferred, in whole and not in part, only to the Depositary or
another nominee of the Depositary. Investors may hold their beneficial interests
in the Global Notes directly through the
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Depositary if they have an account with the Depositary or indirectly through
organizations which have accounts with the Depositary.
The Depositary has advised us as follows: The Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers, including the
Underwriters, banks, trust companies, clearing corporations and certain other
organizations, some of which (and/or their representatives) own the Depositary.
Access to the Depositary's book-entry system is also available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Upon the issuance by the Company of Notes represented by the Global Notes,
the Depositary or its nominee will credit, on its book-entry registration and
transfer system, the principal amount of the Notes represented by such Global
Notes to the accounts of participants. The accounts to be credited shall be
designated by the Underwriters. Ownership of beneficial interests in the Notes
represented by Global Notes will be limited to participants or persons that hold
interests through participants. Ownership of such beneficial interests in Notes
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by the Depositary (with respect to participants'
interest) and such participants (with respect to the owners of beneficial
interests in the Global Notes other than participants). The laws of some
jurisdictions may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
to transfer or pledge beneficial interests in Notes represented by Global Notes.
So long as the Depositary, or its nominee, is the registered holder and
owner of the Global Notes, the Depositary or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for all
purposes of such Notes and the Indenture. Except as set forth below, owners of
beneficial interests in the Global Notes will not be entitled to have the Notes
represented by the Global Notes registered in their names, will not receive or
be entitled to receive physical delivery or certificated Notes in definitive
form and will not be considered to be the owners or holders of any Notes under
the Indenture. We understand that under existing industry practice, in the event
an owner of a beneficial interest in the Global Notes desires to take any action
that the Depositary, as the holder of the Global Notes, is entitled to take, the
Depositary would authorize the participants to take such action, and that the
participants would authorize beneficial owners owning through such participants
to take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Payment of principal of and interest on Notes represented by Global Notes
registered in the name of and held by the Depositary or its nominee will be made
by the Company through the Paying Agent (as defined in the Indenture) to the
Depositary or its nominee, as the case may be, as the registered owner and
Holder of such Global Notes. We expect that the Depositary or its nominee, upon
receipt of any payment of principal of or interest on the Notes represented by
Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of the Depositary or its nominee. We
also expect that payments by participants to owners of beneficial interests in
the Notes represented by Global Notes held through such participants will be
governed by standing instructions and customary practices and will be the
responsibility of such participants. We will not have any responsibility or
liability for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the Notes represented by Global Notes or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for any other aspect of the relationship
between the Depositary and its participants or the relationship between such
participants and the owners of beneficial interests in the Notes represented by
Global Notes owned through such participants.
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Unless and until they are exchanged in whole or in part for certificated
Notes in definitive form, the Global Notes may not be transferred except as a
whole by the Depositary to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
Although the Depositary has agreed to the above described procedures in
order to facilitate transfers of interests in the Notes represented by Global
Notes among participants of the Depositary, it is under no obligation to perform
or continue to perform such procedures, and such procedures may be discontinued
at any time. None of the Trustee, the Company or the Underwriters will have any
responsibility for the performance by the Depositary or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
CERTIFICATED NOTES
The Notes represented by the Global Notes are exchangeable for certificated
Notes in definitive form of like tenor as such Notes in denominations of
U.S.$1,000 and integral multiples thereof only if:
(1) the Depositary notifies us that it is unwilling or unable to
continue as Depositary for the Global Notes or if at any time the
Depositary ceases to be a clearing agency registered under the Exchange Act
and a successor Depositary is not appointed by the Company within 90 days,
(2) the Company in its discretion at any time determines not to have
all of the Notes represented by the Global Notes,
(3) an Event of Default has occurred and is continuing, or
(4) upon the occurrence of certain other events.
Any Note that is exchangeable pursuant to the preceding sentence is
exchangeable for certificated Notes issuable in authorized denominations and
registered in such names as the Depositary shall direct. Subject to the
foregoing, the Global Notes are not exchangeable, except for a Global Note of
the same aggregate denomination to be registered in the name of the Depositary
or its nominee.
SAME-DAY PAYMENT
The Indenture will require that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address.
CERTAIN COVENANTS
Set forth below are summaries of certain covenants contained in the
Indenture. During any period of time that:
(a) the Notes have an Investment Grade Rating from either of the
Rating Agencies and
(b) no Default or Event of Default has occurred and is continuing
under the Indenture,
the Company and the Restricted Subsidiaries will not be subject to the following
provisions of the Indenture:
- "-- Limitation on Indebtedness,"
- "-- Limitation on Restricted Payments," and
- "-- Limitation on Sale of Assets and Subsidiary Stock"
(collectively, the "Suspended Covenants"). In the event that the Company and the
Restricted Subsidiaries are not subject to the Suspended Covenants for any
period of time as a result of the preceding sentence and, subsequently, one or
both of the Rating Agencies withdraws its ratings or downgrades the ratings
assigned to the Notes below the required Investment Grade Ratings so that the
Notes do not have an
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Investment Grade Rating from either Rating Agency, or a Default or Event of
Default occurs and is continuing, then the Company and the Restricted
Subsidiaries will thereafter again be subject to the Suspended Covenants and
compliance with the Suspended Covenants with respect to Restricted Payments made
after the time of such withdrawal, downgrade, Default or Event of Default will
be calculated in accordance with the terms of the covenant described below under
"-- Limitation on Restricted Payments" as though such covenant had been in
effect during the entire period of time from the date the Notes are issued.
Limitation on Indebtedness
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; provided, however, that the
Company and its Restricted Subsidiaries will be entitled to Incur Indebtedness
if, on the date of such Incurrence and after giving effect thereto on a pro
forma basis no Default has occurred and is continuing and, the Consolidated
Coverage Ratio exceeds 2.0 to 1.
(b) Notwithstanding the foregoing paragraph (a), so long as no Default has
occurred and is continuing, the Company and the Restricted Subsidiaries will be
entitled to Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Facilities, including
any amendment, modification, supplement, extension, restatement,
replacement (including replacement after the termination of such Credit
Facilities), restructuring, increase, renewal, or Refinancing thereof from
time to time in one or more agreements or instruments; provided, however,
that, after giving effect to any such Incurrence, the aggregate principal
amount of such Indebtedness then outstanding does not exceed the greater of
(i) $750.0 million less the sum of all principal payments with respect to
such Indebtedness pursuant to paragraph (a)(3)(A) of the covenant described
under "-- Limitation on Sales of Assets and Subsidiary Stock" and (ii) an
amount equal to the sum of (a) $150.0 million and (b) 20% of Adjusted
Consolidated Net Tangible Assets determined as of the date of the
Incurrence of such Indebtedness;
(2) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that any subsequent issuance or transfer of
any Capital Stock which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Restricted Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such Indebtedness
by the obligor thereon;
(3) the Notes;
(4) Indebtedness outstanding on the date the Notes are issued (other
than Indebtedness described in clause (1), (2) or (3) of this covenant);
(5) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Subsidiary was acquired by the
Company (other than Indebtedness Incurred in connection with, or to provide
all or any portion of the funds or credit support utilized to consummate,
the transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Company);
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3), (4), (5) or this
clause (6); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness of a Subsidiary
Incurred pursuant to clause (5), such Refinancing Indebtedness shall be
Incurred only by such Subsidiary;
(7) Hedging Obligations consisting of Interest Rate Protection
Agreements directly related to Indebtedness permitted to be Incurred
pursuant to the Indenture;
(8) Non-Recourse Indebtedness;
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(9) Indebtedness in respect of bid, performance, reimbursement or
surety obligations issued by or for the account of the Company or any
Restricted Subsidiary in the ordinary course of business, including
Guarantees and letters of credit functioning as or supporting such bid,
performance, reimbursement or surety obligations (in each case other than
for an obligation for money borrowed);
(10) Indebtedness consisting of obligations in respect of purchase
price adjustments, indemnities or Guarantees of the same or similar matters
in connection with the acquisition or disposition of Property;
(11) Indebtedness under Commodity Price Protection Agreements and
Currency Exchange Protection Agreements entered into in the ordinary course
of business for the purpose of limiting risks that arise in the ordinary
course of business of the Company and its Restricted Subsidiaries;
(12) Indebtedness consisting of the Guarantee of the Guarantor
(including any reinstatement of such Guarantee) and any Guarantee by the
Company or a subsidiary of the Company of Indebtedness Incurred pursuant to
paragraph (a) or pursuant to clause (1), (2), (3), (4), (7), (11) or (13)
or pursuant to clause (6) to the extent the Refinancing Indebtedness
Incurred thereunder directly or indirectly Refinances Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clauses (3) or (4); and
(13) Indebtedness in an aggregate principal amount which, when taken
together with all other Indebtedness of the Company outstanding on the date
of such Incurrence (other than Indebtedness permitted by clauses (1)
through (12) above or paragraph (a)) does not exceed $50 million.
(c) Notwithstanding the foregoing, neither the Company nor any subsidiary
guarantor will Incur any Indebtedness pursuant to the foregoing paragraph (b) if
the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations of the Company or any subsidiary guarantor unless such
Indebtedness shall be subordinated to the Notes or the applicable subsidiary
Guarantee to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with this covenant, (1) in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described above, the Company, in its sole discretion, will
classify such item of Indebtedness at the time of Incurrence and only be
required to include the amount and type of such Indebtedness in one of the above
clauses and (2) the Company will be entitled to divide and classify an item of
Indebtedness in more than one of the types of Indebtedness described above.
(e) For purposes of determining compliance with any U.S. dollar denominated
restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is
denominated in a different currency, the amount of such Indebtedness will be the
U.S. Dollar Equivalent determined on the date of the Incurrence of such
Indebtedness; provided, however, that if any such Indebtedness denominated in a
different currency is subject to a Currency Exchange Protection Agreement with
respect to U.S. dollars covering all principal, premium, if any, and interest
payable on such Indebtedness, the amount of such Indebtedness expressed in U.S.
dollars will be as provided in such Currency Exchange Protection Agreement. The
principal amount of any Refinancing Indebtedness Incurred in the same currency
as the Indebtedness being Refinanced will be the U.S. Dollar Equivalent of the
Indebtedness Refinanced, except to the extent that (i) such U.S. Dollar
Equivalent was determined based on a Currency Exchange Protection Agreement, in
which case the Refinancing Indebtedness will be determined in accordance with
the preceding sentence, and (ii) the principal amount of the Refinancing
Indebtedness exceeds the principal amount of the Indebtedness being Refinanced,
in which case the U.S. Dollar Equivalent of such excess will be determined on
the date such Refinancing Indebtedness is Incurred.
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Limitation on Restricted Payments
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not entitled to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the date the Notes are issued would exceed the
sum of (without duplication):
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the date
the Notes are issued occurs to the end of the most recent fiscal quarter
ending at least 45 days prior to the date of such Restricted Payment
(or, in case such Consolidated Net Income shall be a deficit, minus 100%
of such deficit); plus
(B) 100% of the aggregate Net Cash Proceeds received by the Company
from the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the date the Notes are issued (other than an
issuance or sale to a Subsidiary of the Company and other than an
issuance or sale to an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit of
their employees) and 100% of any cash capital contribution received by
the Company from its shareholders subsequent to the date the Notes are
issued; plus
(C) the amount by which Indebtedness of the Company is reduced on
the Company's balance sheet upon the conversion or exchange (other than
by a Subsidiary of the Company) subsequent to the date the Notes are
issued of any Indebtedness of the Company convertible or exchangeable
for Capital Stock (other than Disqualified Stock) of the Company (less
the amount of any cash, or the fair value of any other Property,
distributed by the Company upon such conversion or exchange); plus
(D) an amount equal to the sum of (x) the net reduction in the
Investments (other than Permitted Investments) made by the Company or
any Restricted Subsidiary in any Person resulting from repurchases,
repayments or redemptions of such Investments by such Person, proceeds
realized on the sale of such Investment, proceeds representing the
return of capital (excluding dividends and distributions), in each case
received by the Company or any Restricted Subsidiary, and (y) to the
extent such Person is an Unrestricted Subsidiary, the portion
(proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Unrestricted Subsidiary
at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not exceed,
in the case of any such Person or Unrestricted Subsidiary, the amount of
Investments (excluding Permitted Investments) previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary; plus
(E) $25 million.
(b) The preceding provisions will not prohibit:
(1) any Restricted Payment (other than a Restricted Payment described
in clause (1) of the definition of "Restricted Payment") made out of the
Net Cash Proceeds of the substantially concurrent sale of, or made by
exchange for, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary of the Company
or an employee stock ownership plan or to a trust established by the
Company or any of its Subsidiaries for the benefit of their employees) or a
substantially concurrent cash capital contribution received by the
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Company from its shareholders; provided, however, that (A) such Restricted
Payment shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale or such cash capital
contribution (to the extent so used for such Restricted Payment) shall be
excluded from the calculation of amounts under clause (3)(B) of paragraph
(a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness which is permitted to be Incurred pursuant to the covenant
described under "-- Limitation on Indebtedness"; provided, however, that
such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments;
(3) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments; or
(4) so long as no Default has occurred and is continuing, the
repurchase or other acquisition of shares of Capital Stock of the Company
or any of its Subsidiaries from employees, former employees, directors or
former directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former
directors), pursuant to the terms of the agreements (including employment
agreements) or plans (or amendments thereto) approved by the Board of
Directors under which such individuals purchase or sell or are granted the
option to purchase or sell, shares of such Capital Stock; provided,
however, that the aggregate amount of such repurchases and other
acquisitions shall not exceed $3 million in any calendar year; provided
further, however, that such repurchases and other acquisitions shall be
excluded in the calculation of the amount of Restricted Payments.
Limitation on Sales of Assets and Subsidiary Stock
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration
at the time of such Asset Disposition at least equal to the fair market
value (including as to the value of all non-cash consideration), as
determined in good faith by the Board of Directors, of the shares and
assets subject to such Asset Disposition;
(2) at least 75% of the consideration thereof received by the Company
or such Restricted Subsidiary is in the form of cash, cash equivalents,
Additional Assets or any combination thereof ("Permitted Consideration");
provided, however, that the Company and its Restricted Subsidiaries shall
be permitted to receive Property other than Permitted Consideration, so
long as the aggregate fair market value, as determined in the good faith of
the Board of Directors, of all such Property other than Permitted
Consideration received from Asset Dispositions and held by the Company and
the Restricted Subsidiaries at any one time shall not exceed 10% of
Adjusted Consolidated Net Tangible Assets; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be)
(A) first, to the extent the Company elects (or is required by the
terms of any Indebtedness), to prepay, repay, redeem or purchase Senior
Indebtedness of the Company or Indebtedness (other than any Disqualified
Stock) of a Restricted Subsidiary (in each case other than Indebtedness
owed to the Company or an Affiliate of the Company) within one year from
the later of the date of such Asset Disposition or the receipt of such
Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to the extent the
Company elects, to acquire Additional Assets
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within one year from the later of the date of such Asset Disposition or
the receipt of such Net Available Cash; and
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to make an
offer to the holders of the Notes (and to holders of other Senior
Indebtedness of the Company designated by the Company) to purchase Notes
(and such other Senior Indebtedness of the Company) pursuant to and
subject to the conditions contained in the Indenture;
provided, however, that in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A) or (C)
above, the Company or such Restricted Subsidiary shall permanently
retire such Indebtedness and shall cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the principal
amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with this covenant exceeds $20.0 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash shall be invested in
Temporary Cash Investments or applied to temporarily reduce revolving credit
indebtedness.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents:
(1) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary
from all liability on such Indebtedness in connection with such Asset
Disposition; and
(2) securities received by the Company or any Restricted Subsidiary
from the transferee that are promptly converted by the Company or such
Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Indebtedness of the Company) pursuant to clause
(a)(3)(C) above, the Company will purchase Notes tendered pursuant to an offer
by the Company for the Notes (and such other Senior Indebtedness) at a purchase
price of 100% of their principal amount (or, in the event such other Senior
Indebtedness of the Company was issued with significant original issue discount,
100% of the accreted value thereof) without premium, plus accrued but unpaid
interest (or, in respect of such other Senior Indebtedness of the Company, such
lesser price, if any, as may be provided for by the terms of such Senior
Indebtedness) in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Indenture. If the aggregate purchase
price of the securities tendered exceeds the Net Available Cash allotted to
their purchase, the Company will select the securities to be purchased on a pro
rata basis but in round denominations, which in the case of the Notes will be
denominations of $1,000 principal amount or multiples thereof. The Company shall
not be required to make such an offer to purchase Notes (and other Senior
Indebtedness of the Company) pursuant to this covenant if the Net Available Cash
available therefor is less than $20.0 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to the Net Available Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this clause by virtue of its compliance with
such securities laws or regulations.
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Limitation on Liens. The Company will not, and will not permit any of its
Subsidiaries to, create or permit to exist any Liens upon any Principal Property
or any shares of stock or Indebtedness of any Subsidiary that owns or leases any
Principal Property (whether such Principal Property, shares of stock or
Indebtedness are now owned or hereafter acquired) unless all payments due under
the Indenture with respect to the Notes are secured on an equal and ratable
basis with the obligations so secured until such time as such obligations are no
longer secured by a Lien. The preceding sentence will not require the Company to
secure the Notes if the Liens consist of either (a) Permitted Liens or (b) Liens
securing excepted indebtedness as described below.
Limitation on Sale and Leaseback Transactions. Neither the Company nor any
of its Subsidiaries will enter into any Sale and Leaseback Transaction with
respect to any Principal Property unless either (a) the Company or such
Subsidiary would be entitled, pursuant to the provisions of the Indenture, to
incur Indebtedness secured by a Lien on the property to be leased without
equally and ratably securing the Notes pursuant to the covenant described above
in "Limitation on Liens," or (b) the Company, within six months after the
effective date of such transaction, applies to the voluntary defeasance or
retirement of its funded debt an amount equal to the Attributable Indebtedness
of such transaction.
Excepted Indebtedness. Notwithstanding the foregoing limitations on Liens
and Sale and Leaseback Transactions, the Company and its Subsidiaries may issue,
assume, or guarantee Indebtedness secured by a Lien without securing the Notes,
or may enter into Sale and Leaseback Transactions without defeasing or retiring
funded debt, or enter into a combination of such transactions, if the sum of the
principal amount of all such Indebtedness and the Attributable Indebtedness of
all such Sale and Leaseback Transactions does not at any time exceed 15% of
Adjusted Consolidated Net Tangible Assets.
The covenants described above will be subject to defeasance by the Company
under certain circumstances. See "Description of Debt Securities -- Satisfaction
and Discharge of the Indenture; Defeasance" in the Prospectus.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges.
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has been
appointed by us as Registrar and Paying Agent with regard to the Notes. We may
have banking relationships in the ordinary course of business with The Bank of
New York.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided. Unless the context otherwise requires, an accounting
term not otherwise defined has the meaning assigned to it in accordance with
GAAP.
"Additional Assets" means any:
(1) Property (other than Indebtedness or Capital Stock) used in the
Oil and Gas Business;
(2) Capital Stock of a Person that becomes a Restricted Subsidiary as
a result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that
at such time is a Restricted Subsidiary;
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provided, however, that any such Restricted Subsidiary described in clauses
(2) or (3) above is primarily engaged in the Oil and Gas Business.
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination, the remainder of:
(a) the sum of:
(i) discounted future net revenues from proved oil and gas reserves of
the Company and its Subsidiaries calculated in accordance with SEC
guidelines before any provincial, territorial, state, Federal or foreign
income taxes, as estimated by the Company in a reserve report prepared as
of the end of the Company's most recently completed fiscal year for which
audited financial statements are available, as increased by, as of the date
of determination, the estimated discounted future net revenues from
(A) estimated proved oil and gas reserves acquired since such year
end, which reserves were not reflected in such year end reserve report,
and
(B) estimated oil and gas reserves attributable to upward revisions
of estimates of proved oil and gas reserves since such year end due to
exploration, development or exploitation activities, in each case
calculated in accordance with SEC guidelines (utilizing the prices
utilized in such year end reserve report), and decreased by, as of the
date of determination, the estimated discounted future net revenues from
(C) estimated proved oil and gas reserves produced or disposed of
since such year end, and
(D) estimated oil and gas reserves attributable to downward
revisions of estimates of proved oil and gas reserves since such year
end due to changes in geological conditions or other factors which
would, in accordance with standard industry practice, cause such
revisions, in each case calculated on a pre-tax basis and substantially
in accordance with SEC guidelines (utilizing the prices utilized in such
year end reserve report), in each case as estimated by the Company's
petroleum engineers or any independent petroleum engineers engaged by
the Company for that purpose;
(ii) the capitalized costs that are attributable to oil and gas
properties of the Company and its Subsidiaries to which no proved oil and
gas reserves are attributable, based on the Company's books and records as
of a date no earlier than the date of the Company's latest available annual
or quarterly financial statements;
(iii) the Net Working Capital on a date no earlier than the date of
the Company's latest annual or quarterly financial statements; and
(iv) the greater of
(A) the net book value on a date no earlier than the date of the
Company's latest annual or quarterly financial statement, and
(B) the appraised value, as estimated by independent appraisers, of
other tangible assets of the Company and its Subsidiaries, as of a date
no earlier than the date of the Company's latest audited financial
statements; minus
(b) the sum of:
(i) Minority Interests;
(ii) any net gas balancing liabilities of the Company and its
Subsidiaries reflected in the Company's latest audited financial
statements;
(iii) to the extent included in (a) (i) above, the discounted future
net revenues, calculated in accordance with SEC guidelines (utilizing the
prices utilized in the Company's year end reserve report), attributable to
reserves which are required to be delivered to third parties to fully
satisfy the
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obligations of the Company and its Subsidiaries with respect to Volumetric
Production Payments (determined, if applicable, using the schedules
specified with respect thereto); and
(iv) the discounted future net revenues, calculated in accordance with
SEC guidelines, attributable to reserves subject to Dollar-Denominated
Production Payments which, based on the estimates of production and price
assumptions included in determining the discounted future net revenues
specified (a) (i) above, would be necessary to fully satisfy the payment
obligations of the Company and its Subsidiaries with respect to
Dollar-Denominated Production Payments (determined, if applicable, using
the schedules specified with respect thereto).
If the Company changes its method of accounting from the successful efforts
method to the full cost or a similar method of accounting, "Adjusted
Consolidated Net Tangible Assets" will continue to be calculated as if the
Company were still using the successful efforts method of accounting.
"Affiliate" of any specified Person means:
(1) any other Person, directly or indirectly, controlling or
controlled by; or
(2) under direct or indirect common control with such specified
Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For purposes of the covenants described
under "-- Certain Covenants -- Limitation on Restricted Payments" and
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock"
only, "Affiliate" shall also mean any beneficial owner of Capital Stock
representing 5% or more of the total voting power of the Voting Stock (on a
fully diluted basis) of the Company or of rights or warrants to purchase such
Capital Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such
Restricted Subsidiary
(other than, in the case of clauses (1), (2) and (3)
(A) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Restricted Subsidiary;
(B) for purposes of the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition that constitutes a Restricted Payment permitted by the
covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments" or a Permitted Investment (including transfers of
assets to an oil and gas royalty trust);
(C) a disposition of assets with a fair market value of less than
$5,000,000;
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(D) the sale or transfer (whether or not in the ordinary course of
business) of crude oil and natural gas properties or direct or indirect
interests in real property; provided, however, that at the time of such
sale or transfer such properties do not have associated with them any
proved reserves;
(E) the abandonment, farm-out, lease or sublease of developed or
undeveloped crude oil and natural gas properties in the ordinary course
of business;
(F) the trade or exchange by the Company or any Restricted
Subsidiary of any crude oil and natural gas Property owned or held by
the Company or such Restricted Subsidiary for any crude oil and natural
gas Property owned or held by another Person;
(G) the sale or transfer of mineral products or surplus or obsolete
equipment, in each case in the ordinary course of business; and
(H) any disposition that constitutes a Change of Control.
"Attributable Indebtedness" with respect to a Sale and Leaseback
Transaction means, as of the time of determination, (i) if the obligation with
respect to such Sale and Leaseback Transaction is a Capitalized Lease
Obligation, the amount equal to the capitalized amount of such obligation
determined in accordance with GAAP and included in the financial statements of
the lessee or (ii) if the obligation with respect to such Sale and Leaseback
Transaction is not a Capitalized Lease Obligation, the amount equal to the total
Net Amount of Rent required to be paid by the lessee under such lease during the
remaining term thereof (including any period for which the lease has been
extended), discounted from the respective due dates thereof to such
determination date at the rate per annum borne by the Notes compounded
semiannually.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing:
(1) the sum of the products of numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of or redemption or similar payment with respect to such Indebtedness
multiplied by the amount of such payment by
(2) the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP.
"Commodity Price Protection Agreement" means, in respect of any Person, any
forward contract, commodity swap agreement, commodity option agreement or other
similar agreement or arrangement designed to protect such Person against
fluctuations in commodity prices.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (y) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period;
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(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for
such period shall be calculated on a pro forma basis as if such discharge
had occurred on the first day of such period and as if the Company or such
Restricted Subsidiary has not earned the interest income actually earned
during such period in respect of cash or Temporary Cash Investments used to
repay, repurchase, defease or otherwise discharge such Indebtedness;
(3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, EBITDA for
such period shall be reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to EBITDA (if
negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and
its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale);
(4) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring
a calculation to be made hereunder, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period; and
(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition, any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such
period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest of such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Protection Agreement
applicable to such Indebtedness if such Interest Rate Protection Agreement has a
remaining term in excess of 12 months).
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"Consolidated Current Liabilities" as of the date of determination means
the aggregate amount of liabilities of the Company and its consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), on a consolidated basis, after
eliminating:
(1) all intercompany items between the Company and any Restricted
Subsidiary; and
(2) all current maturities of long-term Indebtedness, all as
determined in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication:
(1) interest expense attributable to capital leases and the interest
expense attributable to leases constituting part of a Sale and Leaseback
Transaction;
(2) amortization of debt discount or premium and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest expenses;
(5) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
(6) net payments or receipts pursuant to Interest Rate Protection
Agreements;
(7) Disqualified Stock dividends in respect of all Disqualified Stock
held by Persons other than the Company or a Wholly Owned Subsidiary (other
than dividends payable solely in Capital Stock (other than Disqualified
Stock) of the issuer of such Disqualified Stock);
(8) interest incurred in connection with Investments in discontinued
operations;
(9) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by (or secured by the assets of) the
Company or any Restricted Subsidiary; and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust;
provided, however, "Consolidated Interest Expense" shall not include (a) any
Consolidated Interest Expense with respect to any Production Payments and
Reserve Sales, (b) to the extent included in total interest expense,
amortization or write-off of deferred financing costs of such Person or (c)
accretion of interest charges on future plugging and abandonment obligations,
future retirement benefits and other obligations that do not constitute
Indebtedness.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that, subject to the
exclusion contained in clause (4) below, the Company's equity in the net
income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to a Restricted Subsidiary,
to the limitations contained in clause (3) below);
(2) any net income (or loss) of any Person acquired by the Company or
a Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
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(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of
a dividend or other distribution paid to another Restricted Subsidiary,
to the limitation contained in this clause); and
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(4) any gain or loss net of taxes realized upon the sale or other
disposition of any assets of the Company, its consolidated Subsidiaries or
any other Person (including pursuant to any sale-and-leaseback arrangement)
which is not sold or otherwise disposed of in the ordinary course of
business and any gain or loss realized upon the sale or other disposition
of any Capital Stock of any Person;
(5) extraordinary gains or losses net of taxes;
(6) any write-downs of non-current assets net of taxes, provided,
however, that any ceiling limitation write-downs in accordance with GAAP
shall be treated as capitalized costs, as if such write-downs had not
occurred; and
(7) the cumulative effect of a change in accounting principles net of
taxes.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants -- Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any repurchases, repayments or redemptions
of Investments, proceeds realized on the sale of the Investments or return of
capital to the Company or a Restricted Subsidiary to the extent such
repurchases, repayments, redemptions, proceeds or returns increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D)
thereof.
"Consolidated Net Worth" of any Person means the stockholders' equity of
such Person and its Subsidiaries, as determined on a consolidated basis in
accordance with GAAP, less (to the extent included in stockholders' equity)
amounts attributable to Redeemable Stock of such Person or its Subsidiaries.
"Credit Facilities" means, with respect to the Company, the existing credit
facility made available to the Company pursuant to the Second Amended and
Restated Credit Facility Agreement dated March 19, 1999 among the Company and
the lenders named therein and the credit facility to be made available to the
Company pursuant to the Commitment Letter dated March 22, 2000, among the
Company, Bank of America, N.A., Banc of America Securities LLC, Credit Suisse
First Boston, The Chase Manhattan Bank, and Chase Securities Inc., in each case,
together with any Refinancings thereof by a lender or syndicate of lenders. It
is understood and agreed that a Refinancing in respect of the Credit Facilities
may be Incurred from time to time after termination of the Credit Facilities.
"Currency Exchange Protection Agreement" means, in respect of any Person,
any foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
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"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable at the option of the holder) or upon the
happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence
of certain events or otherwise, in whole or in part;
in each case on or prior to the first anniversary of the Stated Maturity of the
Notes; provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to purchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if:
(1) the "asset sale" or "change of control" provisions applicable to
such Capital Stock are not more favorable to the holders of such Capital
Stock than the terms applicable to the Notes and described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary
Stock" and "-- Certain Covenants -- Change of Control"; and
(2) any such requirement only becomes operative after compliance with
such terms applicable to the Notes, including the purchase of any Notes
tendered pursuant thereto.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated
Restricted Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation and amortization expense of the Company and its
consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid operating activity item that was paid in cash in
a prior period);
(4) exploration and abandonment expense (if applicable); and
(5) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash expenditures in any
future period); and
in each case for such period, and less, to the extent included in calculating
such Consolidated Net Income and in excess of any costs or expenses attributable
thereto and deducted in calculating such Consolidated Net Income, the sum of (x)
the amount of deferred revenues that are amortized during such period and are
attributable to reserves that are subject to Volumetric Production Payments, and
(y) amounts recorded in accordance with GAAP as repayments of principal and
interest pursuant to Dollar-Denominated Production Payments. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization and non-cash charges of, a Restricted Subsidiary
shall be added to Consolidated Net Income to compute EBITDA only to the extent
(and in the same proportion) that the net income of such Restricted Subsidiary
was included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be paid as a dividend
to the Company by such Restricted Subsidiary without prior approval (that has
not been
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obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Restricted Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934.
"Existing Notes" means the Company's (i) 6.50% Senior Notes Due 2008, (ii)
7.20% Senior Notes Due 2028, (iii) 8 1/4% Senior Notes Due 2007 and (iv) 8 7/8%
Senior Notes Due 2005.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Government Contract Lien" means any Lien required by any contract,
statute, regulation or order in order to permit the Company or any of its
Subsidiaries to perform any contract or subcontract made by it with or at the
request of the United States or any State thereof or any department, agency or
instrumentality of either or to secure partial, progress, advance or other
payments by the Company or any of its Subsidiaries to the United States or any
State thereof or any department, agency or instrumentality of either pursuant to
the provisions of any contract, statute, regulation or order.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business.
"Guarantor" means Pioneer Natural Resources USA, Inc.
"Hedging Obligation" of any Person means an obligation of such Person
pursuant to any Interest Rate Protection Agreement, Currency Exchange Protection
Agreement, Commodity Price Protection Agreement or other similar agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Person at the time it becomes a Restricted Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning. The accretion
of principal of a non-interest bearing or other discount security shall not be
deemed the Incurrence of Indebtedness.
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"Indebtedness" means, with respect to any Person, at any date, any of the
following, without duplication:
(i) any liability, contingent or otherwise, of such Person
(A) for borrowed money (whether or not the recourse of the lender
is to the whole of the assets of such Person or only to a portion
thereof),
(B) evidenced by a note, bond, debenture or similar instrument, or
(C) for the payment of money relating to a Capitalized Lease
Obligation or other obligation (whether issued or assumed) relating to
the deferred purchase price of property;
(ii) all conditional sale obligations and all obligations under any
title retention agreement (even if the rights and remedies of the seller
under such agreement in the event of default are limited to repossession or
sale of such property);
(iii) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction other
than as entered into in the ordinary course of business;
(iv) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock of such
Person or, with respect to any Preferred Stock of any Subsidiary of such
Person, the principal amount of such Preferred Stock to be determined in
accordance with the Indenture (but excluding, in each case, any accrued
dividends);
(v) all indebtedness of others of the type referred to in clauses (i)
through (iv) hereof secured by (or for which the holder of such
indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on any asset or property (including, without limitation,
leasehold interests and any other tangible or intangible property) of such
Person, whether or not such indebtedness is assumed by such Person or is
not otherwise such Person's legal liability; provided that if the
obligations so secured have not been assumed in full by such Person or are
otherwise not such Person's legal liability in full, the amount of such
indebtedness for the purposes of this definition shall be limited to the
lesser of the amount of such indebtedness secured by such Lien or the fair
market value of the assets or the property securing such lien;
(vi) all indebtedness of others of the type referred to in clauses (i)
through (v) hereof (including all interest and dividends on any
Indebtedness or Preferred Stock of any other Person the payment of which
is) guaranteed, directly or indirectly, by such Person or that is otherwise
its legal liability or which such Person has agreed to purchase or
repurchase or in respect of which such Person has agreed contingently to
supply or advance funds; and
(vii) to the extent not otherwise included in this definition,
obligations in respect of Hedging Obligations.
Notwithstanding the preceding, Indebtedness shall not include (a) accounts
payable arising in the ordinary course of business, (b) any obligations in
respect of prepayments for gas or oil production or gas or oil imbalances, and
(c) Production Payments and Reserve Sales.
"Interest Rate Protection Agreement" means, in respect of any Person, any
interest rate swap agreement, interest rate option agreement, interest rate cap
agreement, interest rate collar agreement, interest rate floor agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person.
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For purposes of the definition of "Unrestricted Subsidiary," the definition
of "Restricted Payment" and the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
the Company shall be deemed to continue to have a permanent "Investment" in
an Unrestricted Subsidiary equal to an amount (if positive) equal to (A)
the Company's "Investment" in such Subsidiary at the time of such
redesignation less (B) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of
such Subsidiary at the time of such redesignation; and
(2) any Property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the Board of Directors.
"Investment Grade Rating" means a rating equal to or higher than Baa3 (or
the equivalent) by Moody's or BBB- (or the equivalent) by S&P.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien,
charge or adverse claim affecting title or resulting in an encumbrance against
real or personal property or a security interest of any kind (including, without
limitation, any conditional sale or other title retention agreement or lease in
the nature thereof or any filing or agreement to file a financing statement as
debtor under the Uniform Commercial Code or any similar statute other than to
reflect ownership by a third party of property leased to the Company or any of
its Subsidiaries under a lease that is not in the nature of a conditional sale
or title retention agreement).
"Minority Interest" means the percentage interest represented by any shares
of stock of any class of a Subsidiary of the Company that are not owned by the
Company or a Subsidiary of the Company.
"Net Amount of Rent" as to any lease for any period means the aggregate
amount of rent payable by the lessee with respect to such period after excluding
amounts required to be paid on account of maintenance and repairs, insurance,
taxes, assessments, water rates and similar charges. In the case of any lease
that is terminable by the lessee upon the payment of a penalty, such net amount
shall also include the amount of such penalty, but no rent shall be considered
as payable under such lease subsequent to the first date upon which it may be so
terminated.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a
consequence of such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of
the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries as a result of such
Asset Disposition; and
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(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the Property or other assets disposed in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Working Capital" means (a) all current assets of the Company and its
Subsidiaries, less (b) all current liabilities of the Company and its
Subsidiaries, except current liabilities included in Indebtedness, in each case
as set forth in consolidated financial statements of the Company prepared in
accordance with GAAP.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of the Company or a Restricted Subsidiary incurred in connection
with the acquisition by the Company or a Restricted Subsidiary of any Property
and as to which:
(1) the holders of such Indebtedness agree in writing that they will
look solely to the Property so acquired and securing such Indebtedness for
payment on or in respect of such Indebtedness and
(2) no default with respect to such Indebtedness would permit (after
notice or passage of time or both), according to the terms of any other
Indebtedness of the Company or a Restricted Subsidiary, any holder of such
other Indebtedness to declare a default under such other Indebtedness or
cause the payment of such other Indebtedness to be accelerated or payable
prior to its stated maturity.
"Oil and Gas Business" means (a) the acquisition, exploration,
exploitation, development, production, operation and disposition of interests in
oil, gas and other hydrocarbon properties, (b) the gathering, marketing,
treating, processing, storage, refining, selling and transporting of any
production from such interests or properties and products produced in
association therewith, (c) any power generation and electrical transmission
business and (d) any business or activity relating to, arising from, or
necessary, appropriate or incidental to the activities described in the
foregoing clauses (a) through (c) of this definition.
"Permitted Business Investment" means any investment made in the ordinary
course of, and of a nature that is or shall have become customary in, the Oil
and Gas Business including investments or expenditures for actively exploiting,
exploring for, acquiring, developing, producing, processing, gathering,
marketing or transporting oil and gas through agreements, transactions,
interests or arrangements which permit one to share risks or costs, comply with
regulatory requirements regarding local ownership or satisfy other objectives
customarily achieved through the conduct of Oil and Gas Business jointly with
third parties, including (i) ownership interests in oil and gas properties,
processing facilities, gathering systems, pipelines or ancillary real property
interests and (ii) Investments in the form of or pursuant to operating
agreements, processing agreements, farm-in agreements, farm-out agreements,
development agreements, area of mutual interest agreements, unitization
agreements, pooling agreements, joint bidding agreements, service contracts,
joint venture agreements, partnership agreements (whether general or limited),
subscription agreements, stock purchase agreements and other similar agreements
(including for limited liability companies) with third parties, excluding,
however, Investments in corporations other than Restricted Subsidiaries.
"Permitted Holders" means Southeastern Asset Management Inc. and its
Affiliates; provided, however, that a Person shall cease to be a Permitted
Holder upon making a filing with the Securities and Exchange Commission that
indicates such Person has acquired or holds the Company's Voting Stock with a
purpose or effect of changing or influencing control of the Company or in
connection with or as a participant in any transaction having that purpose or
effect.
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"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
(3) cash and Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
(8) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock";
(9) Permitted Business Investments;
(10) Investments intended to promote the Company's strategic
objectives in the Oil and Gas Business in an aggregate amount not to exceed
$50 million at any one time outstanding, measured as of the date such
Investments are made without giving effect to any subsequent changes in
value (which Investments shall be deemed no longer outstanding only upon
the return of capital thereof);
(11) Investments in any units of any oil and gas royalty trust; and
(12) Investments made pursuant to Hedging Obligations of the Company
and the Restricted Subsidiaries.
"Permitted Liens" means, with respect to any Person,
(a) pledges or deposits by such Person under worker's compensation
laws, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which such Person is a party, or
deposits to secure public or statutory obligations of such Person or
deposits of cash or United States government bonds to secure performance,
surety or appeal bonds to which such Person is a party or which are
otherwise required of such Person, or deposits as security for contested
taxes or import duties or for the payment of rent or other obligations of
like nature, in each case incurred in the ordinary course of business;
(b) Liens imposed by law, such as carriers', warehousemen's,
laborers', materialmen's, landlords', vendors', workmen's, operators',
producers' (including those arising pursuant to Article 9.319 of the Texas
Uniform Commercial Code or other similar statutory provisions of other
states with respect to production purchased from others) and mechanics'
Liens, in each case for sums not yet due or being contested in good faith
by appropriate proceedings;
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(c) Liens for property taxes, assessments and other governmental
charges or levies not yet delinquent or subject to penalties for nonpayment
or which are being contested in good faith by appropriate proceedings;
(d) minor survey exceptions, minor encumbrances, easements or
reservations of or with respect to, or rights of others for or with respect
to, licenses, rights-of-way, sewers, electric and other utility lines and
usages, telegraph and telephone lines, pipelines, surface use, operation of
equipment, permits, servitudes and other similar matters or zoning or other
restrictions as to the use of real property or Liens incidental to the
conduct of the business of such Person or to the ownership of its
properties which were not incurred in connection with Indebtedness and
which do not in the aggregate materially adversely affect the value of such
properties or materially impair their use in the operation of the business
of such Person;
(e) Liens existing or provided for under the terms of agreements
existing on the date the 6.50% Senior Notes due 2008 and the 7.20% Senior
Notes due 2028 were originally issued;
(f) Liens on property or assets of, or any shares of stock of or
secured debt of, any Person at the time the Company or any of its
Subsidiaries acquired the property or the Person owning such property,
including any acquisition by means of a merger or consolidation with or
into the Company or any of its Subsidiaries;
(g) Liens securing a Hedging Obligation so long as such Hedging
Obligation is of the type customarily entered into in connection with, and
is entered into for the purpose of, limiting risk;
(h) Liens upon specific properties of the Company or any of its
Subsidiaries securing Indebtedness incurred in the ordinary course of
business to provide all or part of the funds for the exploration, drilling
or development of those properties;
(i) Purchase Money Liens and Liens securing Non-Recourse Indebtedness;
provided, however, that the related Non-Recourse Indebtedness shall not be
secured by any Property or assets of the Company or any Restricted
Subsidiary other than the Property acquired by the Company with the
proceeds of such Non-Recourse Indebtedness;
(j) Liens securing only Indebtedness of a wholly-owned Subsidiary of
the Company to the Company or to one or more wholly-owned Subsidiaries of
the Company;
(k) Liens on any property to secure bonds for the construction,
installation or financing of pollution control or abatement facilities or
other forms of industrial revenue bond financing or Indebtedness issued or
guaranteed by the United States, any state or any department, agency or
instrumentality thereof;
(l) Government Contract Liens;
(m) Liens in respect of Production Payments and Reserve Sales;
(n) Liens resulting from the deposit of funds or evidences of
Indebtedness in trust for the purpose of defeasing Indebtedness of the
Company or any of its Subsidiaries;
(o) legal or equitable encumbrances deemed to exist by reason of
negative pledges or the existence of any litigation or other legal
proceeding and any related lis pendens filing (excluding any attachment
prior to judgment, judgment lien or attachment lien in aid of execution on
a judgment);
(p) rights of a common owner of any interest in property held by such
Person;
(q) farmout, carried working interest, joint operating, unitization,
royalty, overriding royalty, sales and similar agreements relating to the
exploration or development of, or production from, oil and gas properties
entered into in the ordinary course of business;
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(r) any defects, irregularities or deficiencies in title to easements,
rights-of-way or other properties that do not in the aggregate materially
adversely affect the value of such properties or materially impair their
use in the operation of the business of such Person; and
(s) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions, renewals
or replacements), as a whole or in part, of any Indebtedness secured by any
Lien referred to in the foregoing clauses (e) through (m); provided,
however, that (i) such new Lien shall be limited to all or part of the same
property that secured the original Lien, plus improvements on such
property, and (ii) the Indebtedness secured by such Lien at such time is
not increased to any amount greater than the sum of (A) the outstanding
principal amount or, if greater, committed amount of the Indebtedness
described under clauses (e) through (m) at the time the original Lien
became a Permitted Lien and (B) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"Principal Property" means any property owned or leased by the Company or
any Subsidiary of the Company, the gross book value of which exceeds one percent
of Consolidated Net Worth.
"Production Payments and Reserve Sales" means the grant or transfer by the
Company or a Subsidiary of the Company to any Person of a royalty, overriding
royalty, net profits interest, production payment (whether volumetric or dollar
denominated), partnership or other interest in oil and gas properties, reserves
or the right to receive all or a portion of the production or the proceeds from
the sale of production attributable to such properties, including any such
grants or transfers pursuant to incentive compensation programs on terms that
are reasonably customary in the oil and gas business for geologists,
geophysicists and other providers of technical services to the Company or a
Subsidiary of the Company.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock and other securities issued by any other
Person (but excluding Capital Stock or other securities issued by such first
mentioned Person).
"Purchase Money Lien" means a Lien on property securing Indebtedness
incurred by the Company or any of its Subsidiaries to provide funds for all or
any portion of the cost of (i) acquiring such property incurred before, at the
time of, or within six months after the acquisition of such property or (ii)
constructing, developing, altering, expanding, improving or repairing such
property or assets used in connection with such property.
"Rating Agency" means Standard & Poor's Ratings Group, Inc. and Moody's
Investors Service, Inc. or if Standard & Poor's Ratings Group, Inc. or Moody's
Investors Service, Inc. or both shall not make a rating on the Notes publicly
available, a nationally recognized statistical rating agency or agencies, as the
case may be, selected by the Company (as certified by a resolution of the Board
of Directors) which shall be substituted for Standard & Poor's Ratings Group,
Inc. or Moody's Investors Service, Inc. or both, as the case may be.
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or otherwise (including on the happening of an
event), is or could become required to be redeemed for cash or other property or
is or could become redeemable for cash or other property at the option of the
holder thereof,
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in whole or in part, on or prior to the first anniversary of the stated maturity
of the Notes; or is or could become exchangeable at the option of the holder
thereof for Indebtedness at any time in whole or in part, on or prior to the
first anniversary of the stated maturity of the Notes; provided, however, that
Redeemable Stock shall not include any security that may be exchanged or
converted at the option of the holder for Capital Stock of the Company having no
preference as to dividends or liquidation over any other Capital Stock of the
Company.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced; and
(3) such Refinancing Indebtedness has an aggregate principal amount
(or if Incurred with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include
(A) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or
(B) Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving such
Person) or similar payment to the direct or indirect holders of its Capital
Stock (other than dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and dividends or distributions
payable solely to the Company or a Restricted Subsidiary, and other than
pro rata dividends or other distributions made by a Subsidiary that is not
a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other
than a corporation));
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock); provided, however, that the
Company may purchase, redeem or otherwise acquire or retire for value
common stock of the Company in an amount not to exceed $10.0 million in the
aggregate in any fiscal year for all such transactions after the date the
Notes are issued made pursuant to this proviso and the amount of such
purchase, redemption or other acquisition or retirement for value shall be
excluded in the calculation of the amount of Restricted Payments;
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
of such Person (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking
fund obligation, principal
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installment or final maturity, in each case due within one year of the date
of such purchase, repurchase or other acquisition); or
(4) the making of any Investment (other than a Permitted Investment)
in any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any arrangement with any Person
pursuant to which the Company or any Subsidiary of the Company leases any
Principal Property that has been or is to be sold or transferred by the Company
or the Subsidiary to such Person, other than (i) temporary leases for a term,
including renewals at the option of the lessee, of not more than five years,
(ii) leases between the Company and a Subsidiary of the Company or between
Subsidiaries of the Company, (iii) leases of Principal Property executed by the
time of, or within 12 months after the latest of, the acquisition, the
completion of construction or improvement, or the commencement of commercial
operation of the Principal Property, and (iv) arrangements pursuant to any
provision of law with an effect similar to the former Section 168(f)(8) of the
Internal Revenue Code of 1954.
"Senior Indebtedness" means with respect to any Person:
(1) Indebtedness of such Person, whether outstanding on the Issue Date
or thereafter Incurred; and
(2) accrued and unpaid interest (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization
relating to such Person to the extent post-filing interest is allowed in
such proceeding) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable
unless, in the case of clauses (1) and (2), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Notes;
provided, however, that Senior Indebtedness shall not include:
(1) any obligation of such Person to any Subsidiary;
(2) any liability for federal, state, local or other taxes owed or
owing by such Person;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness of such Person (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect
to any other Indebtedness or other obligation of such Person; or
(5) that portion of any Indebtedness which at the time of Incurrence
is Incurred in violation of the Indenture.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means, with respect to a Person, any Indebtedness
of such Person (whether outstanding on the date the Notes are issued or
thereafter Incurred) which is subordinate or junior in right of payment to the
Notes or a Subsidiary Guaranty of such Person, as the case may be, pursuant to a
written agreement to that effect.
"Subsidiary" of any Person means (i) any Person of which more than 50% of
the total voting power of shares of Capital Stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly,
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by any Person or one or more of the Subsidiaries of that Person or a combination
thereof, and (ii) any partnership, joint venture or other Person in which such
Person or one or more of the Subsidiaries of that Person or a combination
thereof has the power to control by contract or otherwise the board of directors
or equivalent governing body or otherwise controls such entity.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of
America or any agency thereof or obligations Guaranteed by the United
States of America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000
(or the foreign currency equivalent thereof) and has outstanding debt which
is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Group; and
(5) investments in securities with maturities of six months or less
from the date of acquisition issued or fully Guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (A) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" and (B) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
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"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares or shares required by
applicable law to be held by a Person other than the Company or a Restricted
Subsidiary) is owned by the Company or one or more Wholly Owned Subsidiaries.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Banc of America
Securities LLC and Chase Securities Inc. are acting as representatives, the
following respective principal amounts of the notes:
<TABLE>
<CAPTION>
UNDERWRITERS PRINCIPAL AMOUNT
------------ ----------------
<S> <C>
Credit Suisse First Boston Corporation...................... $
Banc of America Securities LLC..............................
Chase Securities Inc........................................
First Union Securities, Inc.................................
Banc One Capital Markets, Inc...............................
FleetBoston Robertson Stephens Inc..........................
Scotia Capital Markets (USA), Inc...........................
TD Securities (USA) Inc.....................................
------------
Total............................................. $400,000,000
============
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the notes if any are purchased. The underwriting agreement
provides that if an underwriter defaults the purchase commitments of
non-defaulting underwriters may be increased or the offering of the notes may be
terminated.
The underwriters propose to offer the notes initially at the public
offering price on the cover page of this prospectus supplement and to selling
group members at that price less a concession of % of the principal amount per
note. The underwriters and selling group members may allow a discount of %
of such principal amount per note on sales to other broker/dealers. After the
initial public offering, the public offering price and concession and discount
to broker/dealers may be changed by the representatives.
We estimate that our out-of-pocket expenses for this offering will be
approximately $3,000,000.
The notes are a new issue of securities with no established trading market.
One or more of the underwriters intend to make a secondary market for the notes.
However, they are not obligated to do so and may discontinue making a secondary
market for the notes at any time without notice. No assurance can be given as to
how liquid the trading market for the notes will be.
We intend to use more than 10% of the net proceeds from the sale of the
notes to repay indebtedness owed by us to Bank of America, N.A. (an affiliate of
Banc of America Securities LLC), The Chase Manhattan Bank (an affiliate of Chase
Securities Inc.), First Union National Bank (an affiliate of First Union
Securities, Inc.), Bank One, Texas, N.A. (an affiliate of Banc One Capital
Markets, Inc.), The Bank of Nova Scotia (an affiliate of Scotia Capital Markets
(USA), Inc.), and Toronto Dominion (Texas), Inc. (an affiliate of TD Securities
(USA) Inc.) under our existing bank credit facility. Accordingly, the offering
is being made in compliance with the requirements of Rule 2710(c)(8) of the
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Conduct Rules of the National Association of Securities Dealers, Inc. This rule
provides generally that if more than 10% of the net proceeds from the sale of
debt securities, not including underwriting compensation, is paid to the
underwriters of such debt securities or their affiliates, the yield on the
securities may not be lower than that recommended by a "qualified independent
underwriter" meeting certain standards. Accordingly, Credit Suisse First Boston
Corporation is assuming the responsibilities of acting as the qualified
independent underwriter in pricing the offering and conducting due diligence.
The yield on the notes, when sold to the public at the public offering price set
forth on the cover page of this prospectus, is no lower than that recommended by
Credit Suisse First Boston Corporation.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
The representatives and their affiliates have performed investment banking
and advisory services as well as commercial banking services for us from time to
time for which they have received customary fees and expenses. The
representatives and their affiliates may, from time to time, engage in
transactions with and perform services for us in the ordinary course of their
business.
The representatives, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934 (the "Exchange Act").
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the notes in the
open market after the distribution has been completed in order to cover
syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the notes originally sold by such syndicate
member are purchased in a stabilizing transaction or a syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the notes to be higher than it would otherwise be in the
absence of such transactions. These transactions, if commenced, may be
discontinued at any time.
LEGAL OPINIONS
Thompson & Knight L.L.P., Dallas, Texas, will issue an opinion for us
regarding the legality of the notes we are offering, and Cravath, Swaine &
Moore, New York, New York, will pass upon certain matters for the underwriters.
Jerry P. Jones is a member of our board of directors and has been a member of
Thompson & Knight L.L.P. since 1959, presently serving in an of counsel
capacity.
EXPERTS
The consolidated financial statements of Pioneer Natural Resources Company
at December 31, 1999 and 1998, and for each of the two years in the period ended
December 31, 1999, appearing in this prospectus supplement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Pioneer Natural Resources Company
for the year ended December 31, 1997, appearing in this prospectus supplement
have been audited by KPMG LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
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Information included or incorporated by reference in this prospectus
supplement and the accompanying prospectus regarding our estimated quantities of
oil and gas reserves and the discounted present value of future net cash flows
therefrom is based upon estimates of such reserves and present values as
prepared by our petroleum engineers.
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GLOSSARY OF COMMONLY USED TERMS
The following abbreviations and terms have the indicated meanings when used
in this prospectus supplement:
Bbl -- Barrel or barrels of oil.
Bcf -- Billion cubic feet of gas.
Bcfe -- Billion cubic feet of gas equivalent (see Mcfe).
BOE -- Barrel of oil equivalent, which is determined using the ratio of 6
thousand cubic feet of gas to one barrel of oil.
Btu -- British Thermal Unit, which is a heating equivalent measure for gas
and is an alternate measure of gas reserves, as opposed to Mcf, which is
strictly a measure of gas volumes.
Development Well -- A well drilled within the presently proved productive
area of an oil or gas reservoir, as indicated by reasonable interpretation of
available data, with the objective of completing that reservoir.
Dry Well -- An exploratory or development well that is not a producing
well.
Exploratory Well -- A well drilled either in search of a new, as yet
undiscovered oil or gas reservoir or to extend the known limits of a previously
discovered reservoir.
Gross Acre -- An acre in which a working interest is owned. The number of
gross acres is the total number of acres in which a working interest is owned.
Gross Well -- A well in which a working interest is owned. The number of
gross wells is the total number of wells in which a working interest is owned.
MBbl -- Thousand barrels of oil.
MBOE -- Thousand BOE.
Mcf -- Thousand cubic feet of gas.
Mcfe -- Thousand cubic feet of gas equivalent, which is determined using
the ratio of one barrel of oil, condensate, or gas liquids to 6 Mcf of gas.
MMBbl -- Million barrels of oil.
MMBtu -- Million British thermal units. Typically, prices quoted for gas
are designated as price per MMBtu, the same basis on which gas is contracted for
sale.
MMcf -- Million cubic feet of gas.
MMcfe -- Million cubic feet of gas equivalent (see Mcfe).
Net Acre -- A net acre is deemed to exist when the sum of fractional
ownership working interests in gross acres equals one. The number of net acres
is the sum of fractional working interests owned in gross acres expressed as
whole numbers and fractions thereof.
Net Well -- A net well is deemed to exist when the sum of fractional
ownership working interests in gross wells equals one. The number of net wells
is the sum of fractional working interests owned in gross wells expressed as
whole numbers and fractions thereof.
NGL -- Natural gas liquid.
Producing Well -- An exploratory or development well found to be capable of
producing either oil or gas in sufficient quantities to justify completion as an
oil or gas well.
Proved Developed Oil and Gas Reserves -- Reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods.
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Proved Oil and Gas Reserves -- The estimated quantities of crude oil, gas
and gas liquids that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions, that is, prices and costs as of the date the
estimate is made.
Proved Undeveloped Oil and Gas Reserves -- Reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
PV 10 Value -- The estimated future net revenue to be generated from the
production of proved reserves discounted to present value using an annual
discount rate of 10%. These amounts are calculated net of estimated production
costs and future development costs, using prices and costs in effect as of a
certain date, without escalation and without giving effect to non-property
related expenses, such as general and administrative expenses, debt service,
future income tax expense, or depreciation, depletion, and amortization.
Working Interest -- The operating interest under an oil, gas and mineral
lease or other property interest covering a specific tract or tracts of land.
The owner of a Working Interest has the right to explore for, drill and produce
the oil, gas and other minerals covered by such lease or other property interest
and the obligation to bear the costs of exploration, development, operation or
maintenance applicable to that owner's interest.
S-72
<PAGE> 73
PIONEER NATURAL RESOURCES COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of Pioneer Natural
Resources Company:
Independent Auditors' Reports............................. F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-4
Consolidated Statements of Operations and Comprehensive
Loss for the Years Ended December 31, 1999, 1998 and
1997................................................... F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997........... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998, and 1997...................... F-7
Notes to Consolidated Financial Statements................ F-8
Unaudited Supplementary Information....................... F-42
</TABLE>
F-1
<PAGE> 74
INDEPENDENT AUDITORS' REPORTS
The Board of Directors and Shareholders
Pioneer Natural Resources Company:
We have audited the accompanying consolidated balance sheets of Pioneer
Natural Resources Company and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations and comprehensive loss,
stockholders' equity, and cash flows for the years ended December 31, 1999 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Pioneer Natural Resources Company and subsidiaries at December 31, 1999 and
1998, and the consolidated results of its operations and its cash flows for the
years ended December 31, 1999 and 1998 in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Dallas, Texas
January 24, 2000
F-2
<PAGE> 75
The Board of Directors and Stockholders
Pioneer Natural Resources Company:
We have audited the consolidated statements of operations and comprehensive
loss, stockholders' equity, and cash flows of Pioneer Natural Resources Company
and subsidiaries for the year ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provided a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Pioneer Natural Resources Company and subsidiaries for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
KPMG LLP
Midland, Texas
February 13, 1998
F-3
<PAGE> 76
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 34,788 $ 59,221
Accounts receivable:
Trade, net............................................. 116,456 106,863
Affiliates............................................. 2,119 3,657
Inventories............................................... 13,721 15,221
Deferred income taxes..................................... 5,800 7,100
Other current assets...................................... 10,252 9,926
----------- -----------
Total current assets.............................. 183,136 201,988
----------- -----------
Property, plant and equipment, at cost:
Oil and gas properties, using the successful efforts
method of accounting:
Proved properties...................................... 2,997,335 3,621,630
Unproved properties.................................... 257,583 342,589
Accumulated depletion, depreciation and amortization...... (751,956) (930,111)
----------- -----------
2,502,962 3,034,108
----------- -----------
Deferred income taxes....................................... 83,400 96,800
Other property and equipment, net........................... 43,006 55,010
Other assets, net........................................... 116,969 93,408
----------- -----------
$ 2,929,473 $ 3,481,314
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 828 $ 306,521
Accounts payable:
Trade.................................................. 86,442 94,937
Affiliates............................................. 426 4,492
Interest payable.......................................... 36,045 33,194
Other current liabilities................................. 73,072 87,688
----------- -----------
Total current liabilities......................... 196,813 526,832
----------- -----------
Long-term debt, less current maturities..................... 1,745,108 1,868,744
Other noncurrent liabilities................................ 169,438 232,461
Deferred income taxes....................................... 43,500 64,200
Stockholders' equity:
Preferred stock, $.01 par value; 100,000,000 shares
authorized; one share issued and outstanding........... -- --
Common stock, $.01 par value; 500,000,000 shares
authorized; 100,876,789 shares issued at December 31,
1999; and 100,833,615 shares issued at December 31,
1998................................................... 1,009 1,008
Additional paid-in capital................................ 2,348,448 2,347,996
Treasury stock, at cost; 537,206 shares at December 31,
1999 and 537,392 shares at December 31, 1998........... (10,384) (10,388)
Accumulated deficit....................................... (1,574,884) (1,552,442)
Accumulated other comprehensive income:
Cumulative translation adjustment...................... 10,425 2,903
----------- -----------
Total stockholders' equity........................ 774,614 789,077
Commitments and contingencies...............................
----------- -----------
$ 2,929,473 $ 3,481,314
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 77
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
-------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Oil and gas.......................................... $644,646 $ 711,492 $ 536,782
Interest and other................................... 89,657 10,452 4,278
Gain (loss) on disposition of assets, net............ (24,168) (445) 4,969
-------- ---------- -----------
710,135 721,499 546,029
-------- ---------- -----------
Costs and expenses:
Oil and gas production............................... 159,530 223,551 144,170
Depletion, depreciation and amortization............. 236,047 337,308 212,435
Impairment of oil and gas properties................. 17,894 459,519 1,356,390
Exploration and abandonments......................... 65,974 121,858 77,160
General and administrative........................... 40,241 73,000 48,763
Reorganization....................................... 8,534 33,199 --
Interest............................................. 170,344 164,285 77,550
Other................................................ 34,631 39,605 7,124
-------- ---------- -----------
733,195 1,452,325 1,923,592
-------- ---------- -----------
Loss before income taxes and extraordinary item........ (23,060) (730,826) (1,377,563)
Income tax benefit (provision)......................... 600 (15,600) 500,300
-------- ---------- -----------
Loss before extraordinary item......................... (22,460) (746,426) (877,263)
Extraordinary item -- loss on early extinguishment of
debt, net of tax..................................... -- -- (13,408)
-------- ---------- -----------
Net loss............................................... (22,460) (746,426) (890,671)
Other comprehensive income:
Currency translation adjustment...................... 8,358 2,903 --
-------- ---------- -----------
Comprehensive loss..................................... $(14,102) $ (743,523) $ (890,671)
======== ========== ===========
Loss per share:
Basic:
Loss before extraordinary item.................... $ (.22) $ (7.46) $ (16.88)
Extraordinary item................................ -- -- (.26)
-------- ---------- -----------
Net loss.......................................... $ (.22) $ (7.46) $ (17.14)
======== ========== ===========
Diluted:
Loss before extraordinary item.................... $ (.22) $ (7.46) $ (16.88)
Extraordinary item................................ -- -- (.26)
-------- ---------- -----------
Net loss.......................................... $ (.22) $ (7.46) $ (17.14)
======== ========== ===========
Dividends declared per share........................... $ -- $ .10 $ .10
======== ========== ===========
Weighted average shares outstanding.................... 100,307 100,055 51,973
======== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 78
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT DIVIDENDS PER SHARE)
<TABLE>
<CAPTION>
ADDITIONAL UNEARNED ACCUMULATED ACCUM. OTHER TOTAL
COMMON PAID-IN TREASURY COMPEN- EARNINGS COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL STOCK SATION (DEFICIT) INCOME EQUITY
------ ---------- -------- -------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997... $ 369 $ 462,873 $(31,528) $ (1,625) $ 100,207 $ -- $ 530,296
Common stock issued:
Acquisition of MESA,
Inc...................... 318 982,248 -- -- -- -- 982,566
Acquisition of Chauvco
Resources, Ltd........... 249 688,081 -- -- -- -- 688,330
Acquisition of
properties............... 16 44,857 -- -- -- -- 44,873
Exercise of stock options.... 5 11,591 -- -- -- -- 11,596
Cancellation of treasury
shares..................... (19) (34,441) 34,460 -- -- -- --
Exchange of preferred shares
for common shares.......... 67 182,909 -- -- -- -- 182,976
Restricted shares awarded.... 5 18,974 -- (18,079) -- -- 900
Tax benefits related to stock
options.................... -- 2,900 -- -- -- -- 2,900
Purchase of treasury stock... -- -- (2,953) -- -- -- (2,953)
Amortization of unearned
compensation............... -- -- -- 3,508 -- -- 3,508
Net loss..................... -- -- -- -- (890,671) -- (890,671)
Dividends ($.10 per share)... -- -- -- -- (5,476) -- (5,476)
------ ---------- -------- -------- ----------- ------- ----------
BALANCE AT DECEMBER 31,
1997....................... 1,010 2,359,992 (21) (16,196) (795,940) -- 1,548,845
------ ---------- -------- -------- ----------- ------- ----------
Common stock issued in
settlement of litigation... -- 342 -- -- -- -- 342
Reduction in common stock
issued for acquisition of
Chauvco Resources, Ltd..... (4) (11,094) -- -- -- -- (11,098)
Exercise of stock options.... -- 3 -- -- -- -- 3
Restricted shares awarded.... 2 3,053 -- (493) -- -- 2,562
Tax provision related to
stock and option awards.... -- (4,300) -- -- -- -- (4,300)
Purchase of treasury stock... -- -- (10,367) -- -- -- (10,367)
Amortization of unearned
compensation............... -- -- -- 16,689 -- -- 16,689
Net loss..................... -- -- -- -- (746,426) -- (746,426)
Dividends ($.10 per share)... -- -- -- -- (10,076) -- (10,076)
Other comprehensive income:
Currency translation
adjustment............... -- -- -- -- -- 2,903 2,903
------ ---------- -------- -------- ----------- ------- ----------
BALANCE AT DECEMBER 31,
1998....................... 1,008 2,347,996 (10,388) -- (1,552,442) 2,903 789,077
------ ---------- -------- -------- ----------- ------- ----------
Exercise of stock options and
employee stock purchases... 1 249 -- -- -- -- 250
Issuance of stock options
under long-term incentive
plan....................... -- 25 -- -- -- -- 25
Restricted shares awarded.... -- 178 4 -- -- -- 182
Adjustment to dividends...... -- -- -- -- 18 -- 18
Realized translation
adjustment................. -- -- -- -- -- (836) (836)
Net loss..................... -- -- -- -- (22,460) -- (22,460)
Other comprehensive income:
Currency translation
adjustment............... -- -- -- -- -- 8,358 8,358
------ ---------- -------- -------- ----------- ------- ----------
BALANCE AT DECEMBER 31,
1999....................... $1,009 $2,348,448 $(10,384) $ -- $(1,574,884) $10,425 $ 774,614
====== ========== ======== ======== =========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 79
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (22,460) $(746,426) $ (890,671)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depletion, depreciation and amortization........... 236,047 337,308 212,435
Impairment of oil and gas properties............... 17,894 459,519 1,356,390
Exploration expenses, including dry holes.......... 50,030 92,311 63,288
Deferred income taxes.............................. -- 18,600 (501,300)
(Gain) loss on disposition of assets, net.......... 24,168 445 (4,969)
Loss on early extinguishment of debt, net of tax... -- -- 13,408
Other noncash items................................ (866) 66,300 18,886
Change in operating assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable................................ (7,393) 85,413 (39,774)
Inventory.......................................... (952) 2,714 (5,941)
Other current assets............................... (2,335) 30 (1,913)
Accounts payable................................... (18,683) (29,800) 27,138
Interest payable................................... 2,851 15,545 3,285
Other current liabilities.......................... (23,067) 12,117 (22,053)
--------- --------- ----------
Net cash provided by operating activities........ 255,234 314,076 228,209
--------- --------- ----------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired........ -- -- (15,490)
Proceeds from disposition of assets................... 390,531 21,876 115,735
Additions to oil and gas properties................... (179,669) (507,337) (428,640)
Other property additions, net......................... (11,867) (31,546) (12,783)
--------- --------- ----------
Net cash provided by (used in) investing
activities.................................... 198,995 (517,007) (341,178)
--------- --------- ----------
Cash flows from financing activities:
Borrowings under long-term debt....................... 355,493 947,180 821,148
Principal payments on long-term debt.................. (793,919) (711,524) (648,208)
Payments of other noncurrent liabilities.............. (34,002) (17,091) (7,740)
Deferred loan fees/issuance costs..................... (6,891) (7,189) (2,396)
Dividends............................................. -- (10,076) (5,476)
Purchase of treasury stock............................ -- (10,367) (2,953)
Exercise of stock options and employee stock
purchases.......................................... 250 -- 11,596
--------- --------- ----------
Net cash provided by (used in) financing
activities.................................... (479,069) 190,933 165,971
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents.... (24,840) (11,998) 53,002
Effect of exchange rate changes on cash and cash
equivalents........................................... 407 (494) --
Cash and cash equivalents, beginning of year............ 59,221 71,713 18,711
--------- --------- ----------
Cash and cash equivalents, end of year.................. $ 34,788 $ 59,221 $ 71,713
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 80
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
NOTE A. ORGANIZATION AND NATURE OF OPERATIONS
Pioneer Natural Resources Company (the "Company") is a Delaware Corporation
whose common stock is listed and traded on the New York Stock Exchange and the
Toronto Stock Exchange. The Company was formed by the merger of Parker & Parsley
Petroleum Company ("Parker & Parsley") and MESA Inc. ("Mesa") in August 1997.
The Company subsequently acquired the Canadian and Argentine oil and gas
business of Chauvco Resources Ltd. ("Chauvco"), a publicly traded independent
oil and gas company based in Calgary, Canada, during December 1997. The Company
is an oil and gas exploration and production company with ownership interests in
oil and gas properties located principally in the Mid Continent, Southwestern
and onshore and offshore Gulf Coast regions of the United States and in
Argentina, Canada and South Africa.
In accordance with the provisions of Accounting Principles Board Opinion
No. 16, "Business Combinations" ("APB 16"), both the merger with Mesa and the
acquisition of Chauvco were accounted for as purchases by the Company (formerly
Parker & Parsley). As a result, the historical financial statements for the
Company are those of Parker & Parsley prior to August 1997.
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries since their
acquisition or formation, and the Company's interest in the affiliated oil and
gas partnerships for which it serves as general partner through certain of its
wholly-owned subsidiaries. Investments in less than majority-owned subsidiaries
where the Company has the ability to exercise significant influence over the
investee's operations are accounted for by the equity method. The Company
proportionately consolidates less than 100 percent-owned oil and gas
partnerships in accordance with industry practice. The Company owns less than a
20 percent interest in the oil and gas partnerships that it proportionately
consolidates. All material intercompany balances and transactions have been
eliminated.
The Company determines the appropriate classification of investments in
non-affiliated equity securities at the time of purchase and re-evaluates such
determinations at each balance sheet date.
Investments in non-affiliated equity securities that have a readily
determinable fair value are classified as "trading securities" if management's
current intent is to hold them for only a short period of time; otherwise, they
are accounted for as "available-for-sale" securities. The carrying value of
trading securities and available-for-sale securities are adjusted to fair value
as of each balance sheet date. Unrealized holding gains and losses are
recognized for trading securities in interest and other revenue, in the case of
unrealized holding gains, or other expense, in the case of unrealized holding
losses, during the periods in which changes in fair value occur. Unrealized
holding gains and losses would be recognized for available-for-sale securities
as credits or charges to stockholders' equity during the periods in which
changes in fair value occur, and would also be included as items of other
comprehensive income (loss). The Company did not have any investments in
available-for-sale securities during the years ended December 31, 1999, 1998 or
1997.
Investments in non-affiliated equity securities that do not have a readily
determinable fair value are measured in the accompanying Consolidated Balance
Sheet as of December 31, 1999 at the lower of their original cost less
associated cash dividends received, or the net realizable value of the
investment.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. Preparation
of the accompanying consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported
F-8
<PAGE> 81
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
CASH EQUIVALENTS. Cash and cash equivalents include cash on hand and
depository accounts held by banks.
INVENTORIES. Inventories consist of lease and well equipment which are
carried at the lower of cost or market, on a first-in first-out basis.
OIL AND GAS PROPERTIES. The Company utilizes the successful efforts method
of accounting for its oil and gas properties. Under this method, all costs
associated with productive wells and nonproductive development wells are
capitalized while nonproductive exploration costs are expensed. The Company
capitalizes interest on expenditures for significant development projects until
such time as operations commence.
The Company accounts for its natural gas processing facilities activities
as part of its oil and gas properties for financial reporting purposes. All
revenues and expenses derived from third party gas volumes processed through the
Company's natural gas processing facilities have been reported as components of
oil and gas production costs. The capitalized costs of natural gas processing
facilities are included in proved oil and gas properties and are depleted using
the unit-of-production method.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method based on proved reserves as determined by the
Company's engineers. Costs of significant nonproducing properties, wells in the
process of being drilled and development projects are excluded from depletion
until such time as the related project is developed and proved reserves are
established or impairment is determined.
Generally, capitalized costs of individual properties sold or abandoned are
charged to accumulated depletion, depreciation and amortization with the
proceeds from the sales of individual properties credited to property costs; no
gain or loss is recognized until the entire amortization base is sold. However,
gain or loss is recognized from the sale of less than an entire amortization
base if the property costs are significant enough to materially impact the
depletion rate of the remaining properties in the amortization base.
If significant, the Company accrues the estimated future costs to plug and
abandon wells under the unit-of-production method. The charge, if any, is
reflected in the accompanying Consolidated Statements of Operations and
Comprehensive Loss as abandonment expense while the liability is reflected in
the accompanying Consolidated Balance Sheets as other liabilities. Plugging and
abandonment liabilities assumed in a business combination accounted for as a
purchase are recorded at fair value. At December 31, 1999 and 1998, the Company
has recognized plugging and abandonment liabilities of $44.2 million and $44.5
million, respectively.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", the Company reviews its long-lived assets to be held and used,
including proved oil and gas properties accounted for under the successful
efforts method of accounting, whenever events or circumstances indicate that the
carrying value of those assets may not be recoverable. An impairment loss is
indicated if the sum of the expected future cash flows is less than the carrying
amount of the assets. In this circumstance, the Company recognizes an impairment
loss for the amount by which the carrying amount of the asset exceeds the
estimated fair value of the asset.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment by comparing their cost to their estimated
value on a project-by-project basis. The estimated value is affected by the
results of exploration activities, commodity price outlooks, planned future
sales or
F-9
<PAGE> 82
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
expiration of all or a portion of such projects. If the quantity of potential
reserves determined by such evaluations are not sufficient to fully recover the
cost invested in each project, the Company will recognize a loss at the time of
impairment by providing an impairment allowance. The remaining unproved oil and
gas properties are aggregated and an overall impairment allowance is provided
based on the Company's historical experience.
TREASURY STOCK. Treasury stock purchases are recorded at cost. Upon
reissuance, the cost of treasury shares held is reduced by the average purchase
price per share of the aggregate treasury shares held.
ENVIRONMENTAL. The Company's environmental expenditures are expensed or
capitalized depending on their future economic benefit. Expenditures that relate
to an existing condition caused by past operations and that have no future
economic benefits are expensed. Liabilities for expenditures of a noncapital
nature are recorded when environmental assessment and/or remediation is probable
and the costs can be reasonably estimated. Such liabilities are generally
undiscounted unless the timing of cash payments for the liability are fixed or
reliably determinable. The Company believes that the costs for compliance with
current environmental laws and regulations have not had and will not have a
material effect on the Company's financial position or results of operations.
REVENUE RECOGNITION. The Company uses the entitlements method of
accounting for crude oil, natural gas liquids ("NGL") and natural gas revenues.
Sales proceeds in excess of the Company's entitlement are included in other
liabilities and the Company's share of sales taken by others is included in
other assets in the accompanying Consolidated Balance Sheets. As of December 31,
1999 and 1998, entitlement liabilities totaled $15.5 million and $20.6 million,
respectively, and entitlement assets totaled $33.0 million and $38.2 million,
respectively.
STOCK-BASED COMPENSATION. The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Accordingly, the Company has only adopted the disclosure provisions
of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). See Note F for the pro forma disclosures
of compensation expense determined under the fair-value provisions of SFAS 123.
HEDGING. The following criteria must be met in order for the Company to
account for a financial instrument as a hedge of an existing asset, liability or
forecasted transaction: an asset, liability or forecasted transaction must exist
that exposes the Company to price, interest rate or foreign exchange rate risk
that is not offset in another asset or liability; the hedging contract must
reduce that price, interest rate or foreign exchange rate risk; and, the
instrument must be designated as a hedge at the inception of the contract and
throughout the hedge period. In order to qualify as a hedge, there must be clear
correlation between changes in the fair value of the financial instrument and
the fair value of the hedged asset, liability or forecasted transaction, such
that changes in the market value of the financial instrument will be offset by
the effect of price, interest rate or foreign exchange rate changes on the
exposed items.
Gains or losses realized from financial instruments that qualify as hedges
are deferred as assets or liabilities until the underlying hedged asset,
liability or transaction monetizes, matures or is otherwise recognized under
generally accepted accounting principles. When recognized, hedge gains and
losses are classified as components of the commodity prices, interest or foreign
exchange rates that the financial instruments hedge. Derivative financial
instruments that do not qualify as hedges are marked-to-market and recorded as
assets or liabilities. Changes in the fair values of such instruments are
recognized as other income or other expense during the periods in which their
fair values change. See Note H for a description of the specific types of
derivative transactions in which the Company participates.
F-10
<PAGE> 83
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
FOREIGN CURRENCY TRANSLATION. The financial statements of subsidiary
entities whose functional currency is not the United States dollar are
translated to United States dollars as follows: all assets and liabilities at
year-end exchange rates; revenues, costs and expenses at average exchange rates.
Gains and losses from translating non-United States dollar denominated balances
are recorded directly in stockholders' equity. Foreign currency transaction
gains and losses are included in net loss.
The exchange rates used in the preparation of these consolidated financial
statements appear below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
U.S. Dollar from Canadian Dollar -- Balance sheet........... .6915 .6534 .6997
U.S. Dollar from Canadian Dollar -- Statements of
operations................................................ .6700 .6740 N/A
</TABLE>
RECLASSIFICATIONS. Certain reclassifications have been made to the 1998
and 1997 amounts to conform to the 1999 presentation.
NOTE C. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.................... $ 34,788 $ 34,788 $ 59,221 $ 59,221
Investment in non-affiliated
entity -- trading securities.............. $ -- $ -- $ 12,000 $ 12,000
Investment in non-affiliated entity -- fair
value not readily determinable............ $ 30,000 $ -- $ -- $ --
Financial liabilities:
Long-term debt:
Practicable to estimate fair value:
Lines of credit......................... $825,000 $825,000 $1,239,032 $1,239,032
8 7/8% senior notes due 2005............ $150,000 $149,189 $ 150,000 $ 144,108
8 1/4% senior notes due 2007............ $149,482 $141,903 $ 149,414 $ 137,826
6 1/2% senior notes due 2008............ $348,550 $297,313 $ 348,418 $ 284,442
7 1/5% senior notes due 2028............ $249,909 $187,825 $ 249,908 $ 177,325
Not practicable to estimate fair value:
Other long-term debt.................... $ 22,995 $ -- $ 38,493 $ --
Derivative financial instruments, including
off-balance sheet instruments (see Note H):
Interest rate swaps.......................... $ -- $ -- $ (80) $ 966
Foreign currency agreements.................. $ (4,168) $ (4,168) $ (15,350) $ (15,350)
Commodity price hedges....................... $ 1,672 $(26,213) $ (41) $ 26,548
BTU swap agreements.......................... $(13,218) $(13,218) $ (15,172) $ (15,172)
Other non-hedge commodity derivatives........ $(13,259) $(13,259) $ -- $ --
</TABLE>
F-11
<PAGE> 84
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, OTHER CURRENT ASSETS,
ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES. The carrying amounts approximate
fair value due to the short maturity of these instruments.
INVESTMENTS IN NON-AFFILIATED ENTITIES. During 1999, the Company received
2,307,693 shares of Prize Energy Corp. ("Prize") six percent convertible
preferred stock ("Prize Preferred"), having a liquidation preference and
estimated fair value of $30.0 million on the date acquired, in partial
consideration for oil and gas properties, gas plants and other assets sold to
Prize (see Note K for information specific to the assets sold to, and the
investment in, Prize). As of December 31, 1999, Prize was a closely held, non-
public entity. As such, the fair value of the Prize Preferred was not readily
determinable. During 1999, the Company earned dividends of 69.23 additional
shares of Prize Preferred.
On February 9, 2000, Prize announced a merger with Vista Energy Resources
Inc., whereby the common stock of the merged Prize entity began to publicly
trade on the American Stock Exchange. Associated therewith, the Company's Prize
Preferred was exchanged for 3,984,197 shares of Prize Series A 6% Convertible
Preferred Stock ("Prize Senior A Preferred") having a liquidation preference and
stated value of $7.81 per share, plus cumulative dividends accrued and unpaid.
Each share of Prize Series A Preferred is convertible, at the option of the
holder, into one share of Prize common stock. Under certain circumstances, Prize
may redeem the Prize Series A Preferred at the stated value per share, unless
the Company exercises its conversion rights. The fair value of the Prize Series
A Preferred is not readily determinable.
As of December 31, 1998, the Company owned three million shares of common
stock of a closely held, non-affiliated, public entity having a fair value of
$12.0 million. The three million shares of common stock were received by the
Company as partial consideration for the sale of an exclusive and irrevocable
option to purchase certain oil and gas properties and other assets of the
Company. During 1999, the Company's investment in the entity was increased to
four million shares of common stock as a result of liquidation damages received
by the Company from the non-affiliated entity (see Note K for information
pertaining to the Company's transactions with the entity). This investment was
classified by the Company as an investment in trading securities. As a result of
declines in the fair value of this investment, other expenses in the
accompanying Consolidated Statements of Operations and Comprehensive Loss for
the years ended December 31, 1999 and 1998, include non-cash mark-to-market
charges of $11.9 million and $.8 million, respectively. The Company sold its
investment in the common stock during 1999.
LONG-TERM DEBT. The carrying amount of borrowings outstanding under the
Company's line of credit (see Note D for definitions and descriptions of each)
approximates fair value because these instruments bear interest at rates tied to
current market rates. The fair values of each of the senior note issuances were
based on quoted market prices for each of these issues.
It was not practicable to estimate the fair value of certain of the
long-term debt obligations because quoted market prices are not available and
the Company does not have a current borrowing rate which could be used as a
comparable rate for the stated maturities of the obligations.
INTEREST RATE SWAPS, INTEREST RATE CAP AGREEMENTS, FOREIGN CURRENCY SWAP
CONTRACTS AND COMMODITY PRICE SWAP AND OPTION CONTRACTS. The fair value of
interest rate swaps, interest rate cap agreements, foreign currency contracts
and commodity price swap and option contracts are estimated from quotes provided
by the counterparties to these instruments and represent the estimated amounts
that the Company would expect to receive or pay to terminate the agreements. See
Note H for a description of each of these instruments, including whether the
derivative contract qualifies for hedge accounting treatment or is considered a
speculative derivative instrument.
F-12
<PAGE> 85
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
NOTE D. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Lines of credit................................... $ 825,000 $1,249,984
8 7/8% senior notes due 2005...................... 150,000 150,000
8 1/4% senior notes due 2007 (net of discount).... 149,482 149,414
6 1/2% senior notes due 2008 (net of discount).... 348,550 348,418
7 1/5% senior notes due 2028 (net of discount).... 249,909 249,908
Other............................................. 22,995 27,541
---------- ----------
1,745,936 2,175,265
Less current maturities........................... 828 306,521
---------- ----------
$1,745,108 $1,868,744
========== ==========
</TABLE>
Maturities of long-term debt at December 31, 1999 are as follows (in
thousands):
<TABLE>
<S> <C>
2000............................................ $ 828
2001............................................ $ --
2002............................................ $825,000
2003............................................ $ 518
2004............................................ $ 571
Thereafter...................................... $919,019
</TABLE>
LINES OF CREDIT. As of December 31, 1999, the Company has a credit
facility (the "Credit Facility") with a syndicate of banks (the "Banks") with
commitments aggregating $939.6 million and outstanding borrowings of $825
million. Advances under the Credit Facility are required to be paid no later
than August 7, 2002.
Advances on the Credit Facility bear interest at the option of the Company,
based on (a) the prime rate of NationsBank of Texas, N.A. (8.50 percent at
December 31, 1999), (b) a Eurodollar rate (substantially equal to the London
Interbank Offered Rate ("LIBOR")) adjusted for the reserve requirement as
determined by the Board of Governors of the Federal Reserve System with respect
to transactions in Eurocurrency liabilities ("LIBOR Rate"), or (c) a competitive
bid rate as quoted by the lending banks electing to participate pursuant to a
request by the Company. The interest rate on LIBOR Rate advances includes an
interest rate margin component that is determined by a grid that is based on the
Company's senior unsecured long-term public debt rating and the ratio of
outstanding Company debt to earnings before interest, depletion, depreciation,
amortization, income tax, exploration and abandonment and other non-cash
expenses ("EBITDAX"). As of December 31, 1999, the interest rate margin on LIBOR
Rate advances was 187.5 basis points.
The Credit Facility contains various debt covenants, the most restrictive
being the maintenance of a ratio of outstanding Company senior debt to EBITDAX
not to exceed 4.25 to one through March 31, 2000, and 3.5 to one thereafter.
Other restrictive compliance requirements include limits on the incurrence of
additional indebtedness and certain types of liens and restrictions as to
merger, sale or transfer of assets and transactions without the Banks' consent.
The Company's obligations under the Credit Facility are also guaranteed by
Pioneer Natural Resources USA, Inc. ("Pioneer USA") and certain other
subsidiaries and are secured by a pledge of a portion of the capital stock of
certain non-United States subsidiaries.
F-13
<PAGE> 86
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
During the first quarter of 1999, the Company and the Banks executed
amendments to the Credit Facility that provided for the consolidation of the
Company's $276 million Canadian subsidiary term loan with and into the Credit
Facility. The amendments also provided for a $410 million reduction in loan
commitments by December 31, 1999, an increase in the interest rate margin on
LIBOR Rate advances to 250 basis points and the debt covenants outlined above.
The Company met each of the requirements of the amended Credit Facility during
1999.
SENIOR NOTES. The Company's senior notes are general unsecured obligations
ranking equally in right of payment with all other senior unsecured indebtedness
of the Company and are senior in right of payment to all existing and future
subordinated indebtedness of the Company. In addition, the Company is a holding
company that conducts all of its operations through subsidiaries; consequently,
the senior notes issuances are structurally subordinated to all obligations of
its subsidiaries. Pioneer USA has fully and unconditionally guaranteed the
senior note issuances. Interest on the Company's senior notes is payable
semi-annually.
EXTRAORDINARY ITEMS. On December 18, 1997, the Company completed a cash
tender offer for two senior subordinated note issuances (the "Subordinated
Notes") assumed as part of the merger with Mesa. During 1997, the Company
redeemed approximately 91 percent of the 11 5/8% senior subordinated discount
notes due 2006 and approximately 98 percent of the 10 5/8% senior subordinated
notes due 2006 (the "10 5/8% Notes") for a purchase price of $829.90 and
$1,171.40, respectively, per $1,000 tendered plus any interest accrued on the
10 5/8% Notes (the "Tender Offer"). As a result, the Company paid $574.5 million
for the principal amount tendered on the Subordinated Notes, including related
fees, and $15.7 million of accrued interest on the 10 5/8% Notes. As a result of
the Tender Offer, the Company recognized an extraordinary loss on early
extinguishment of debt of $11.9 million (net of a related tax benefit of $6.4
million) during the fourth quarter of 1997. The Company financed the purchase
price of the Subordinated Notes tendered in the offer with borrowings under its
Credit Facility Agreements.
In addition to the extraordinary loss resulting from the Tender Offer, the
accompanying Consolidated Statement of Operations and Comprehensive Loss for the
year ended December 31, 1997 includes a $1.5 million (net of a related tax
benefit of $800 thousand) non-cash charge for an extraordinary loss on the early
extinguishment of debt resulting from the merger of Parker & Parsley and Mesa.
This extraordinary loss relates to capitalized issuance fees associated with
Parker & Parsley's previously existing bank credit facility which was replaced
by the Credit Facility.
INTEREST EXPENSE. The following amounts have been charged to interest
expense for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash payments for interest.......................... $150,929 $135,811 $65,740
Accretion/amortization of discounts or premiums on
loans............................................. 8,401 10,688 7,348
Amortization of capitalized loan fees............... 2,686 1,142 1,177
Net change in accruals.............................. 8,328 16,644 3,285
-------- -------- -------
$170,344 $164,285 $77,550
======== ======== =======
</TABLE>
NOTE E. RELATED PARTY TRANSACTIONS
ACTIVITIES WITH AFFILIATED PARTNERSHIPS. The Company, through its
wholly-owned subsidiaries, has in the past sponsored certain affiliated
partnerships, including 35 public and nine private drilling partnerships and
three public income partnerships, all of which were formed primarily for the
purpose of drilling and
F-14
<PAGE> 87
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
completing wells or acquiring producing properties. In accordance with the terms
of the partnership agreements and the related tax partnership agreements of the
affiliated partnerships, the Company participated in the activities of the
sponsored partnerships on a promoted basis. In 1992, the Company discontinued
sponsoring public and private oil and gas development drilling and income
partnerships.
During each of 1994, 1993 and 1992, the Company formed a Direct Investment
Partnership for the purpose of permitting selected key employees to invest
directly, on an unpromoted basis, in wells that the Company drills. The partners
in the Direct Investment Partnerships formed in 1994, 1993 and 1992 pay and
receive approximately .337 percent, 1.5375 percent and 1.865 percent,
respectively, of the costs and revenues attributable to the Company's interest
in the wells that such Direct Investment Partnership participates. The Company
discontinued the formation of Direct Investment Partnerships in 1995.
The Company, through a wholly-owned subsidiary, serves as operator of
properties in which it and its affiliated partnerships have an interest.
Accordingly, the Company receives producing well overhead, drilling well
overhead and other fees related to the operation of the properties. The
affiliated partnerships also reimburse the Company for their allocated share of
general and administrative charges.
The activities with affiliated partnerships are summarized for the
following related party transactions for the years ended December 31, 1999, 1998
and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Receipt of lease operating and supervision charges in
accordance with standard industry operating
agreements............................................. $9,059 $9,021 $8,547
Reimbursement of general and administrative expenses..... $ 744 $ 739 $1,476
</TABLE>
PRIZE DIVESTITURE. As further disclosed in Note K, the Company sold
certain oil and gas properties, gas plants and other assets to Prize during
1999. Associated with these transactions, the Company received $245.0 million of
proceeds, including the 2,307.693 shares of Prize Preferred valued at $30.0
million. The board of directors of Prize is comprised of six directors, which
include Mr. Philip P. Smith, the Chief Executive Officer; Mr. Kenneth A. Hersh;
Mr. Lon C. Kile; two members of the Company's executive management committee;
and, a member who is unrelated to the Company. Messrs. Smith and Hersh were
members of the Board of Directors of the Company and resigned their positions
with the Company during the second quarter of 1999. Additionally, Mr. Lon C.
Kile resigned his position as Executive Vice President of the Company to accept
the position of President and Chief Operating Officer of Prize. The sale of the
assets to Prize was initiated through an auction process which, upon receipt of
Prize's initial offer, was placed under the supervision of a special independent
committee (comprised of outside directors unrelated to Prize) of the Company's
Board of Directors. The independent committee reviewed and considered all offers
presented to the Company for the purchase of the assets acquired by Prize. The
Prize offer was approved by the special independent committee as being the best
offer presented (see Notes C and K for information pertaining to the divestiture
of assets to Prize and the Company's investment in Prize).
CONSULTING FEE. Effective January 1, 1999, the Company entered into an
amended and restated agreement with Rainwater, Inc., whereby the Company will
pay Rainwater, Inc. $300,000 per year and reimburse Rainwater, Inc. for certain
expenses in consideration for certain consulting and financial analysis services
provided to the Company by Rainwater, Inc. and its representatives. The term of
this agreement expires on December 31, 2003. During 1999, 1998 and 1997,
consulting and financial analysis services provided to the Company totaled
$325,000, $400,000 and $100,000; respectively, plus expenses. Richard E.
Rainwater, who serves on the Company's Board of Directors, is the sole
shareholder of Rainwater, Inc.
F-15
<PAGE> 88
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
NOTE F. INCENTIVE PLANS
RETIREMENT PLANS
DEFERRED COMPENSATION RETIREMENT PLAN. Effective August 8, 1997, the
Compensation Committee of the Board of Directors approved a deferred
compensation retirement plan for the officers and certain key employees of the
Company. Each officer and key employee is allowed to contribute up to 25 percent
of their base salary. The Company will then provide a matching contribution of
100 percent of the officer's and key employee's contribution limited to the
first 10 percent of the officer's base salary and eight percent of the key
employee's base salary. The Company's matching contribution vests immediately. A
trust fund has been established by the Company to accumulate the contributions
made under this retirement plan.
In December 1998, the Company received notification that an investment fund
group had acquired beneficial ownership of greater than 20 percent of the
Company's common stock. Pursuant to the then existing provisions within the
Company's deferred compensation retirement plan, if a third party acquired 20
percent or more of the Company's common stock certain change of control
provisions contained within the plan were triggered. Accordingly, in December
1998, the Compensation Committee of the Board of Directors determined that a
change of control had occurred, effective September 30, 1998, under the deferred
compensation retirement plan. Consequently, all of the contributions to the
deferred compensation retirement plan from August 1997 to December 15, 1998 were
immediately vested and distributed.
401(K) PLAN. The Pioneer Natural Resources USA, Inc. 401(k) Plan (the
"401(k) Plan") is a defined contribution pension plan established under the
Internal Revenue Code Section 401. All regular full-time and part-time employees
of Pioneer USA are eligible to participate in the 401(k) Plan on the first day
of the month following their date of hire. Participants may contribute an amount
of not less than two percent nor more than 12 percent of their annual salary
into the 401(k) Plan. Each participant's account is credited with the
participant's contributions and an allocation of the 401(k) Plan's earnings.
Participants are immediately fully vested in their account balances.
MATCHING PLAN. The Pioneer Natural Resources USA, Inc. Matching Plan (the
"Matching Plan") is a money purchase pension plan which accumulates benefits to
participants. All regular full-time and part-time employees of Pioneer USA
become eligible to participate in the Matching Plan concurrent with their
eligibility to participate in the 401(k) Plan. All Matching Plan contributions
are made in cash by Pioneer USA in amounts equal to 200 percent of a
participant's contributions to the 401(k) Plan that are not in excess of five
percent of the participant's basic compensation (the "Matching Contribution").
Each participant's account is credited with their Matching Contribution and an
allocation of Matching Plan earnings. Participants proportionately vest in their
account balances over a four year period, at the end of which they are fully
vested in their account balances. During the years ended December 31, 1999, 1998
and 1997, the Company recognized compensation expense of $508 thousand, $742
thousand and $497 thousand, respectively, as a result of Matching Contributions.
LONG-TERM INCENTIVE PLAN. In August 1997, the Company's stockholders
approved a new long-term incentive plan (the "Long-Term Incentive Plan"), which
provides for the granting of incentive awards in the form of stock options,
stock appreciation rights, performance units and restricted stock to directors,
officers and employees of the Company. The Long-Term Incentive Plan provides for
the issuance of a maximum number of shares of common stock equal to 10 percent
of the total number of shares of common stock equivalents outstanding minus the
total number of shares of common stock subject to outstanding awards on the date
of calculation under any stock-based plan for the directors, officers or
employees of the Company.
F-16
<PAGE> 89
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
Pursuant to the provisions within the Company's Long-Term Incentive Plan,
if a third party acquires 40 percent or more of the Company's common stock,
certain change of control provisions contained within the plan are triggered. In
December 1998, the Compensation Committee of the Board of Directors determined
that a change of control had occurred, effective September 30, 1998, under the
Long-Term Incentive Plan. Consequently, all awards granted under the Long-Term
Incentive Plan since its inception in August 1997 through September 30, 1998
were immediately vested and any restrictions were canceled.
The following table calculates the number of shares or options available
for grant under the Company's Long-Term Incentive Plan as of December 31, 1999
and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Shares outstanding........................................ 100,339,583 100,296,223
Options outstanding....................................... 4,832,412 2,939,183
----------- -----------
105,171,995 103,235,406
=========== ===========
Maximum shares/options allowed under the Long-Term
Incentive Plan.......................................... 10,517,200 10,323,541
Less: Outstanding awards under Long-Term Incentive Plan... (4,832,412) (2,939,183)
Outstanding options under Mesa 1991 stock option
plan............................................ (149,547) (407,284)
Outstanding options under Mesa 1996 incentive
plan............................................ (372,855) (422,854)
Outstanding options under Parker & Parsley long-term
incentive plan.................................. (887,075) (810,709)
----------- -----------
Shares/options available for future grant................. 4,275,311 5,743,511
=========== ===========
</TABLE>
RESTRICTED STOCK AWARDS
NON-EMPLOYEE DIRECTORS. On May 20, 1999, the Company's Long-Term Incentive
Plan was amended to eliminate the automatic award of restricted stock to
non-employee directors in payment of their annual retainer fees. The effect of
the amendment was to provide the Compensation Committee of the Board of
Directors with the authority to determine what awards, if any, non-employee
directors will receive and what the terms of those awards will be and,
alternatively, to award stock options to non-employee directors in payment of
their annual retainer fees. During 1999, the Company awarded stock options to
the non-employee directors in payment of their annual retainer fees. The options
awarded were determined by dividing the annual retainer fees by the value of one
option on the last business day of the month in which the fee was paid. The
option values were determined using the Black-Scholes method (see "Stock Option
Awards", below). Prior to this amendment, on the last business day of the month
in which the annual meeting of the stockholders of the Company was held, each
non-employee director automatically received an award of common stock equal to
50 percent of their annual retainer fee. These awards were made in lieu of an
amount of cash equal to 50 percent of the annual retainer fee. In May 1998 and
August 1997, the Company issued an aggregate 17,306 shares and 5,939 shares,
respectively, to non-employee directors pursuant to this arrangement. The shares
of common stock awarded pursuant to the Long-Term Incentive Plan are subject to
transfer restrictions that lapse on the first anniversary of the date of the
award.
OFFICERS AND KEY EMPLOYEES. The Company, at its sole discretion, may pay
annual bonuses awarded to selected officers and key employees either 100 percent
in cash or partially in cash and partially in the form of restricted stock
awards under the Long-Term Incentive Plan. The Company has established target
bonus levels for each officer and key employee. Based upon Company and
individual performance during the year, each officer or key employee has the
potential to earn more or less than their target bonus level.
F-17
<PAGE> 90
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
The bonus awards are determined in the quarter following the Company's December
31 year-end. During 1997, the Company awarded restricted stock pursuant to this
program. The 1997 awards were limited to one-half of each officer's or key
employee's target bonus level, and the remainder of the officer's or key
employee's annual bonus was paid in cash. The number of shares of restricted
stock that were awarded pursuant to the annual bonus program were based on the
closing sales price of the Company's common stock on the day immediately
preceding the date of the award. Ownership of the restricted stock awarded
vested one year after the date it was issued, subject to transfer restrictions
that lapsed on one-third of the shares on each of the first, second and third
anniversaries of the date of grant. Each recipient of restricted stock also
received an amount of cash equal to the estimated federal income taxes payable
as a result of the receipt of such award. On February 9, 1998, the Company
awarded an aggregate of 81,300 shares of restricted stock at a price of $22.375
pursuant to the 1997 annual bonus program. The Company elected not to award any
restricted stock in conjunction with the 1999 or 1998 annual bonus programs.
During 1998 and 1997, the Company made other Long-Term Incentive Plan
awards of 38,480 and 470,975 shares, respectively, to certain officers and key
employees. The shares awarded are subject to vesting period and transfer
restrictions.
STOCK OPTION AWARDS
The Company has a program of awarding semi-annual stock options to its
officers and employees and annual stock options to its directors, as part of
their annual compensation. This program provides for annual awards at an
exercise price based upon the closing sales price of the Company's common stock
on the day prior to the date of grant. The awards vest over an 18 month or three
year schedule and provide a five year exercise period from each vesting date.
The Company granted 1,985,193; 2,146,553 and 1,716,625 options under the
Long-Term Incentive Plan during 1999, 1998 and 1997, respectively.
OTHER STOCK BASED PLANS. Prior to the merger with Mesa, both Parker &
Parsley and Mesa had long-term incentive plans (Parker & Parsley Long-Term
Incentive Plan, 1991 Stock Option Plan of Mesa and the 1996 Incentive Plan of
Mesa) in place that allowed Parker & Parsley and Mesa to grant incentive awards
similar to the provisions of the Long-Term Incentive Plan. Upon consummation of
the merger between Parker & Parsley and Mesa, all awards under these plans were
assumed by the Company with the provision that no additional awards be granted
under these plans.
The information presented in the remainder of this footnote represents the
awards granted under the Long-Term Incentive Plan since its approval in August
1997, the awards granted in 1997 under the Parker & Parsley Long-Term Incentive
Plan, and the assumption in August 1997 of the outstanding option awards granted
under the 1991 Stock Option Plan of Mesa and the 1996 Incentive Plan of Mesa.
F-18
<PAGE> 91
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
RESTRICTED STOCK AWARDS. The following table reflects the outstanding
restricted stock awards and activity related thereto for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Restricted stock awards:
Outstanding, beginning of year....... -- $ -- 476,914 $37.88 79,819 $23.35
Shares granted....................... 6,200 $29.56 137,086 $21.13 506,786 $37.43
Shares forfeited..................... -- $ -- (12,585) $35.67 -- $ --
Lapse of restrictions................ (6,200) $29.56 (601,415) $34.11 (109,691) $25.66
------ -------- --------
Outstanding, end of year............. -- $ -- -- $ -- 476,914 $37.88
====== ======== ========
</TABLE>
STOCK OPTION AWARDS. The Company applies APB 25 and related
interpretations in accounting for its stock option awards. Accordingly, no
compensation expense has been recognized for its stock option awards. If
compensation expense for the stock option awards had been determined consistent
with SFAS 123, the Company's net losses and net losses per share would have been
adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------------
1999 1998 1997
---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net loss......................................... $(25,269) $(775,349) $(893,729)
Basic and diluted net loss per share............. $ (.25) $ (7.75) $ (17.20)
</TABLE>
Under SFAS 123, the fair value of each stock option grant is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1999, 1998 and 1997:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate................................. 6.59% 5.45% 5.72%
Expected life........................................... 6 years 6 years 7 years
Expected volatility..................................... 48% 36% 36%
Expected dividend yield................................. -- .56% .30%
</TABLE>
F-19
<PAGE> 92
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
A summary of the Company's stock option plans as of December 31, 1999, 1998
and 1997, and changes during the years ended on those dates, are presented
below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Non-statutory stock options:
Outstanding, beginning of year... 4,580,030 $24.83 3,541,145 $31.63 1,362,629 $24.04
Options granted............... 1,945,135 $ 9.10 2,146,553 $19.22 1,744,704 $34.00
Options assumed............... -- $ -- -- $ -- 928,478 $33.97
Options forfeited............. (256,576) $38.29 (1,106,835) $35.75 (1,500) $21.33
Options exercised............. (26,700) $ 5.81 (833) $14.25 (493,166) $23.45
--------- ---------- ---------
Outstanding, end of year......... 6,241,889 $19.45 4,580,030 $24.83 3,541,145 $31.63
========= ========== =========
Exercisable at end of year....... 4,038,341 $24.62 3,937,113 $26.60 1,824,520 $29.37
========= ========== =========
Weighted average fair value of
options granted during the
year............................. $ 5.14 $ 8.21 $ 16.10
========= ========== =========
</TABLE>
The following table summarizes information about the Company's stock
options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- -------------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF OUTSTANDING AT REMAINING AVERAGE NUMBER EXERCISABLE AVERAGE
EXERCISE PRICES DECEMBER 31, 1999 CONTRACTUAL LIFE EXERCISE PRICE AT DECEMBER 31, 1999 EXERCISE PRICE
- --------------- ----------------- ---------------- -------------- -------------------- --------------
<S> <C> <C> <C> <C> <C>
$ 5-11 1,251,868 6.4 years $ 7.59 40,210 $10.82
$12-18 2,114,621 5.0 years $14.76 1,122,731 $16.28
$19-26 844,628 3.7 years $22.51 844,628 $22.51
$27-30 1,932,370 3.5 years $29.65 1,932,370 $29.65
$31-82 98,402 4.4 years $44.86 98,402 $44.86
--------- ---------
6,241,889 4,038,341
========= =========
</TABLE>
During 1999, the Company recognized $.2 million of costs related to its
incentive plans in other expense. The Company recognized $3.9 million and $3.3
million in general and administrative compensation expense related to its
Incentive Plans during 1998 and 1997, respectively. During 1998, the Company
also recognized $9.6 million in other expense related to restricted stock awards
that were immediately vested as a result of the Long-Term Incentive Plan change
in control provisions and $3.1 million of reorganization costs related to its
Incentive Plans.
NOTE G. COMMITMENTS AND CONTINGENCIES
SEVERANCE AGREEMENTS. The Company has entered into severance agreements
with its officers, subsidiary company officers and certain key employees.
Salaries and bonuses for the Company's officers are set independent of this
agreement by the Compensation Committee for the parent company officers and the
Management Committee for subsidiary company officers and key employees. These
committees can grant increases or reductions to base salary at their discretion.
The current annual salaries for the parent
F-20
<PAGE> 93
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
company officers, the subsidiary company officers and key employees covered
under such agreements total approximately $8.2 million.
Either the Company or the officer/key employee may terminate the officer's
or key employee's employment under the severance agreement at any time. The
Company must pay the officer or key employee an amount equal to one year's base
salary if employment is terminated because of death, disability, or normal
retirement. The Company must pay the officer or key employee an amount equal to
one year's base salary and continue health insurance for the officer or key
employee and his or her immediate family for one year if the Company terminates
employment without cause or if the officer or key employee terminates employment
with good reason, which occurs when reductions in the officer's or key
employee's base annual salary exceed specified limits or if, in the case of
officers, the officer is demoted to an officer position junior to their current
officer position or to a non-officer position. If within one year after a change
in control of the Company, the Company terminates the officer or key employee
without cause or if the officer or key employee terminates employment with good
reason, the Company must pay parent company officers an amount equal to 2.99
times the sum of the officer's base salary plus target bonus for the year and
subsidiary company officers and key employees an amount equal to two times the
officer's or key employee's base salary and continue health insurance for the
officer or key employee and his immediate family for one year. If the officer or
key employee terminates employment with the Company without good reason between
six months and one year after a change in control, or at any time within one
year after a change in control if the officer or key employee is required to
move, then the Company must pay the officer or key employee one year's base
salary and continue health insurance for the officer or key employee and his or
her immediate family for one year. Officers and key employees are also entitled
to additional payments for certain tax liabilities that may apply to severance
payments following a change in control.
INDEMNIFICATIONS. The Company has indemnified its directors and certain of
its officers, employees and agents with respect to claims and damages arising
from acts or omissions taken in such capacity, as well as with respect to
certain litigation.
LEGAL ACTIONS. The Company is party to various legal actions incidental to
its business, including, but not limited to, the proceedings described below.
The majority of these lawsuits primarily involve claims for damages arising from
oil and gas leases and ownership interest disputes. The Company believes that
the ultimate disposition of these legal actions will not have a material adverse
effect on the Company's consolidated financial position, liquidity, capital
resources or future results of operations. The Company will continue to evaluate
its litigation matters on a quarter-by-quarter basis and will adjust the
litigation reserve as appropriate to reflect the then current status of its
litigation.
Masterson. In February 1992, the current lessors of an oil and gas lease
(the "Gas Lease") dated April 30, 1955, between R.B. Masterson et al., as
lessor, and Colorado Interstate Gas Company ("CIG"), as lessee, sued CIG in
Federal District Court in Amarillo, Texas, claiming that CIG had underpaid
royalties due under the Gas Lease. Under the agreements with CIG, the Company,
as successor to Mesa, has an entitlement to gas produced from the Gas Lease. In
August 1992, CIG filed a third-party complaint against the Company for any such
royalty underpayment which may be allocable to the Company. Plaintiffs alleged
that the underpayment was the result of CIG's use of an improper gas sales price
upon which to calculate royalties and that the proper price should have been
determined pursuant to a "favored-nations" clause in a July 1, 1967, amendment
to the Gas Lease. The plaintiffs also sought a declaration by the court as to
the proper price to be used for calculating future royalties.
The plaintiffs alleged royalty underpayments of approximately $500 million
(including interest at 10 percent) dating from July 1, 1967. In March 1995, the
court made certain pretrial rulings that eliminated approximately $400 million
of the plaintiff's claims (which related to periods prior to
F-21
<PAGE> 94
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
October 1, 1989), but which also reduced a number of the Company's defenses. The
Company and CIG filed stipulations with the court whereby the Company would have
been liable for between 50 percent and 60 percent, depending on the time period
covered, of an adverse judgment against CIG or post-February 1988 underpayments
of royalties.
On March 22, 1995, a jury trial began and on May 4, 1995, the jury returned
its verdict. Among its findings, the jury determined that CIG had underpaid
royalties for the period after September 30, 1989, in the amount of
approximately $140,000. Although the plaintiffs argued that the
"favored-nations" clause entitled them to be paid for all of their gas at the
highest price voluntarily paid by CIG to any other lessor, the jury determined
that the plaintiffs were estopped from claiming that the "favored-nations"
clause provides for other than a pricing-scheme to pricing-scheme comparison. In
light of this determination, and the plaintiff's stipulation that a
pricing-scheme to pricing-scheme comparison would not result in any "trigger
prices" or damages, defendants asked the court for a judgment that plaintiffs
take nothing. The court, on June 7, 1995, entered final judgment that plaintiffs
recover no monetary damages. The plaintiffs filed a motion for new trial on June
22, 1995. The court, on July 18, 1997, denied plaintiffs' motion. The plaintiffs
have appealed to the Fifth Circuit Court of Appeals, where oral arguments were
heard in December 1998. The Court's decision regarding this litigation could be
announced at any time.
On June 7, 1996, the plaintiffs filed a separate suit against CIG and the
Company in state court in Amarillo, Texas, similarly claiming underpayment of
royalties under the "favored-nations" clause, but based upon the above-described
pricing-scheme to pricing-scheme comparison on a well-by-well monthly basis. The
plaintiffs also claim underpayment of royalties since June 7, 1995, under the
"favored-nations" clause based upon either the pricing-scheme to pricing-scheme
method or their previously alleged higher price method. The Company believes it
has several defenses to this action and intends to contest it vigorously. The
Company has not yet determined the amount of damages, if any, that would be
payable if such action was determined adversely to the Company.
The federal court in the above-referenced first suit issued an order on
July 29, 1996, which stayed the state suit pending the plaintiffs' resolution of
the first suit.
Based on the jury verdict and final judgment, the Company does not
currently expect the ultimate resolution of either of these lawsuits to have a
material adverse effect on its financial position or results of operations.
Kansas ad valorem tax. The Natural Gas Policy Act of 1978 ("NGPA") allows
a "severance, production or similar" tax to be included as an add-on, over and
above the maximum lawful price for natural gas. Based on a Federal Energy
Regulatory Commission ("FERC") ruling that Kansas ad valorem tax was such a tax,
Mesa collected the Kansas ad valorem tax in addition to the otherwise maximum
lawful price. The FERC's ruling was appealed to the United States Court of
Appeals for the District of Columbia ("D.C. Circuit"), which held in June 1988
that the FERC failed to provide a reasoned basis for its findings and remanded
the case to the FERC for further consideration.
On December 1, 1993, the FERC issued an order reversing its prior ruling,
but limiting the effect of its decision to Kansas ad valorem taxes for sales
made on or after June 28, 1988. The FERC clarified the effective date of its
decision by an order dated May 18, 1994. The order clarified that the effective
date applies to tax bills rendered after June 28, 1988, not sales made on or
after that date. Numerous parties filed appeals on the FERC's action in the D.C.
Circuit. Various natural gas producers challenged the FERC's orders on two
grounds: (1) that the Kansas ad valorem tax, properly understood, does qualify
for reimbursement under the NGPA; and (2) the FERC's ruling should, in any
event, have been applied prospectively. Other parties challenged the FERC's
orders on the grounds that the FERC's ruling should
F-22
<PAGE> 95
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
have been applied retroactively to December 1, 1978, the date of the enactment
of the NGPA and producers should have been required to pay refunds accordingly.
The D.C. Circuit issued its decision on August 2, 1996, which holds that
producers must make refunds of all Kansas ad valorem tax collected with respect
to production since October 4, 1983 as opposed to June 28, 1988. Petitions for
rehearing were denied on November 6, 1996. Various natural gas producers
subsequently filed a petition for writ of certiori with the United States
Supreme Court seeking to limit the scope of the potential refunds to tax bills
rendered on or after June 28, 1988 (the effective date originally selected by
the FERC). Williams Natural Gas Company filed a cross-petition for certiori
seeking to impose refund liability back to December 1, 1978. Both petitions were
denied on May 12, 1997.
The Company and other producers filed petitions for adjustment with the
FERC on June 24, 1997. The Company is seeking waiver or set-off from FERC with
respect to that portion of the refund associated with (i) non-recoupable
royalties, (ii) non-recoupable Kansas property taxes based, in part, upon the
higher prices collected, and (iii) interest for all periods. On September 10,
1997, FERC denied this request, and on October 10, 1997, the Company and other
producers filed a request for rehearing. Pipelines were given until November 10,
1997 to file claims on refunds sought from producers and refunds totaling
approximately $30 million were made against the Company. The Company is unable
at this time to predict the final outcome of this matter or the amount, if any,
that will ultimately be refunded. As of December 31, 1999 and 1998, the Company
had set aside $31.3 million and $29.7 million, respectively, including accrued
interest, in an escrow account and had corresponding obligations for this
litigation recorded in other current liabilities in the accompanying
Consolidated Balance Sheets. In addition, during 1998, the Company paid $1.4
million to a pipeline in settlement of the pipeline's share of the total initial
obligation.
LEASE AGREEMENTS. The Company leases equipment and office facilities under
noncancellable operating leases on which rental expense for the years ended
December 31, 1999, 1998 and 1997 was approximately $6.9 million, $8.9 million
and $3.7 million, respectively. Future minimum lease commitments under
noncancellable operating leases at December 31, 1999 are as follows (in
thousands):
<TABLE>
<S> <C>
2000................................................ $6,765
2001................................................ $5,684
2002................................................ $4,517
2003................................................ $4,070
2004................................................ $3,549
Thereafter.......................................... $3,388
</TABLE>
NOTE H. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to manage interest rate,
foreign exchange rate and commodity price risks. The Company is exposed to
credit losses in the event of nonperformance by the counterparties. The Company
anticipates, however, that such counterparties will be able to fully satisfy
their obligations under the contracts. The Company does not obtain collateral or
other security to support financial instruments subject to credit risk but
monitors the credit standing of the counterparties.
The Company is a party to certain derivative financial instruments that do
not qualify for hedge accounting treatment. Such instruments are
marked-to-market at the end of each reporting period during their respective
lives. The associated effects on the Company's results of operations in future
periods could be significant. Those instruments not qualifying for hedge
accounting are designated under the heading "Mark-to-Market Derivatives" below.
F-23
<PAGE> 96
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
HEDGE DERIVATIVES
INTEREST RATE SWAP AGREEMENTS. During 1996, the Company entered into a
series of interest rate swap agreements for an aggregate amount of $150 million
with four counterparties. These agreements, which had a term of three years,
effectively converted a portion of the Company's fixed-rate borrowings into
floating-rate obligations. The weighted average fixed rate received by the
Company over the term of these agreements was 6.62 percent, while the weighted
average variable rate paid by the Company for the years ended December 31, 1999,
1998 and 1997 was 5.16 percent, 5.75 percent and 5.78 percent, respectively. The
interest rate swap agreements expired in May and June, 1999. The Company was
also party to an interest rate swap agreement for an aggregate amount of $250
million with one counterparty. This agreement, which expired in August 1998,
effectively converted a portion of the Company's floating-rate borrowings into
fixed-rate obligations. The effect of this agreement was to provide the Company
with an interest rate of 6.23 percent on $250 million in nominal principal
amount for the term of the agreement. The accompanying Consolidated Statements
of Operations and Comprehensive Loss for the years ended December 31, 1999, 1998
and 1997 include a reduction in interest expense of $849 thousand, $356 thousand
and $847 thousand, respectively, associated with these rate swap agreements.
During 1997, the Company entered into two agreements with a counterparty
that obligated the Company to sell United States Treasury securities at a
designated point in the future. The face amount of the United States Treasury
securities was $300 million at interest rates ranging from 6.05 percent to 6.33
percent. These agreements effectively converted a portion of the Company's
floating-rate borrowings into fixed-rate obligations. In January 1998, the
Company terminated these agreements at a cost of $16.8 million. This amount is
being amortized over the life of the Company's Credit Facility.
COMMODITY HEDGES. The Company utilizes various swap and option contracts
to (i) reduce the effect of the volatility of price changes on the commodities
the Company produces and sells, (ii) support the Company's annual capital
budgeting and expenditure plans and (iii) lock in prices to protect the
economics related to certain capital projects.
Crude oil. All material sales contracts governing the Company's oil
production have been tied directly or indirectly to the New York Mercantile
Exchange ("NYMEX") prices.
F-24
<PAGE> 97
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
The following table sets forth the Company's outstanding oil hedge
contracts as of December 31, 1999. During the first quarter of 2000, the Company
terminated June 2000 through December 2000 swap contracts for notional volumes
of 9,000 Bbls per day and the 2001 collar contracts (and associated sold puts)
for notional volumes of 8,000 Bbls per day, at a total cost of $16.1 million.
Including these costs, the Company has deferred oil hedge losses of $14.3
million and $3.7 million that will be recognized during 2000 and 2001,
respectively.
<TABLE>
<CAPTION>
AVERAGE
FIRST SECOND THIRD FOURTH OUTSTANDING
QUARTER QUARTER QUARTER QUARTER YEARLY
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Daily oil production:
2000 -- Swap Contracts
Volume (Bbl)....... 9,626 9,538 9,478 9,435 9,519
Price per Bbl...... $ 16.50 $ 16.51 $ 16.51 $ 16.52 $ 16.51
2000 -- Collar
Contracts*
Volume (Bbl)....... 7,713 7,714 7,898 7,977 7,826
Price per Bbl...... $17.45-$20.66 $17.44-$20.66 $17.48-$20.71 $17.50-$20.74 $17.47-$20.69
2001 -- Collar
Contracts**
Volume (Bbl)....... 8,000 8,000 8,000 8,000 8,000
Price per Bbl...... $18.44-$21.57 $18.44-$21.57 $18.44-$21.57 $18.44-$21.57 $18.44-$21.57
</TABLE>
- ---------------
* Concurrent with the Company's purchase of the year 2000 collar contracts, the
Company sold year 2000 put contracts to the counterparties for average
notional contract volumes of 6,997 Bbls per day at a weighted average index
price of $14.29 per Bbl. Consequently, if the weighted average year 2000
index price falls below $14.29 per Bbl, the Company will receive the weighted
average index price for the notional contract volumes, plus $3.18 per Bbl.
The counterparties have the contractual right to extend contracts for
notional volumes of 5,000 Bbls per day through year 2001 at weighted average
per Bbl strike prices of $17.00 -- $20.09 for the collar contracts and $14.00
for the put contracts.
** Concurrent with the Company's purchase of the year 2001 collar contracts, the
Company sold 2001 put contracts to the counterparties for equal notional
contract volumes at a weighted average index price of $15.44 per Bbl.
Consequently, if the weighted average year 2001 index price falls below
$15.44 per Bbl, the Company will receive the weighted average index price for
the notional contract volumes, plus $3.00 per Bbl.
The Company reports average oil prices per Bbl including the effects of oil
quality, gathering and transportation costs and the net effect of the oil
hedges. The following table sets forth the Company's oil prices, both realized
(excluding hedge results) and reported, and the net effects of settlements of
oil price hedges to revenue:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Average price reported per Bbl.......................... $ 15.36 $13.08 $18.51
Average price realized per Bbl.......................... $ 16.23 $11.93 $19.09
Addition (reduction) to revenue (in millions)........... $ (13.4) $ 24.8 $ (7.9)
</TABLE>
F-25
<PAGE> 98
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
Natural Gas Liquids. During the years ended December 31, 1999 and 1998,
the Company did not enter into any natural gas liquids hedge contracts. The
Company reported and realized an average natural gas liquids price of $11.64 per
Bbl during the year ended December 31, 1999. During the year ended December 31,
1998, the Company reported an average natural gas liquids price of $8.90 per
Bbl. During the year ended December 31, 1997, the Company reported average
natural gas liquids prices of $12.59 per Bbl while realizing an average price
for physical sales (excluding hedging results) of $12.61 per Bbl and recorded a
net decrease to natural gas liquids revenue of $77,600.
Natural Gas. The Company employs a policy of hedging a portion of its gas
production based on the index price upon which the gas is actually sold in order
to mitigate the basis risk between NYMEX prices and actual index prices.
The following table sets forth the Company's outstanding gas hedge
contracts as of December 31, 1999. Prices included herein represent the
Company's weighted average index price per MMBtu. During the first quarter of
2000, the Company terminated Collar Contracts (and associated sold puts) for
notional volumes of 45,000 MMBtu per day for the nine months ended December 31,
2000, and 60,000 MMBtu per day for the year 2001, at a cost of $4.6 million.
Including this cost, the Company has deferred gas hedge losses of $4.1 million
and $2.5 million that will be recognized during 2000 and 2001, respectively. In
addition to the hedge contracts shown below, certain counterparties have the
contractual right to sell year 2001, 2002, and 2003 swap contracts to the
Company for notional contract volumes of 49,223; 12,500; and 10,000 Mcf per day,
respectively, at weighted average strike prices of $2.21; $2.52; and $2.58 per
MMBtu, respectively.
<TABLE>
<CAPTION>
YEARLY
FIRST SECOND THIRD FOURTH OUTSTANDING
QUARTER QUARTER QUARTER QUARTER AVERAGE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Daily gas production:
2000 -- Swap Contracts
Volume (Mcf)................. 1,318 -- -- -- 328
Index price per MMBtu........ $ 3.00 $ -- $ -- $ -- $ 3.00
2000 -- Collar Contracts*
Volume (Mcf)................. 68,059 103,223 103,223 100,571 93,814
Index price per MMBtu........ $2.07-$2.61 $2.07-$2.61 $2.07-$2.61 $2.07-$2.63 $2.07-$2.62
2001 -- Collar Contracts**
Volume (Mcf)................. 60,000 60,000 60,000 60,000 60,000
Index price per MMBtu........ $2.25-$2.74 $2.24-$2.58 $2.24-$2.58 $2.25-$2.68 $2.25-$2.64
2002 -- Swap Contracts
Volume (Mcf)................. 10,000 10,000 10,000 10,000 10,000
Index price per MMBtu........ $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42
</TABLE>
- ---------------
* Concurrent with the Company's purchase of the year 2000 collar contracts, the
Company sold year 2000 put contracts to the counterparties for an equal
volume at a weighted average index price of $1.78 per MMBtu. Consequently, if
the weighted average year 2000 index price falls below $1.78 per MMBtu, the
Company will receive the weighted average index price for the notional
contract volumes, plus approximately $.29 per MMBtu. 54,482 MMBtu per day of
the year 2000 collar contracts and associated put contracts are extendable
for one year at the option of the counterparties at weighted average per
MMBtu prices of $2.09-$2.71 for the collar contracts and $1.80 for the put
contracts.
** Concurrent with the Company's purchase of the year 2001 collar contracts, the
Company sold year 2001 put contracts to the counterparties for an equal
volume at a weighted average index price of
F-26
<PAGE> 99
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
$1.95 per MMBtu. Consequently, if the weighted average year 2001 index price
falls below $1.95 per MMBtu, the Company will receive the weighted average
index price for the notional contract volumes, plus approximately $.30 per
MMBtu. The year 2001 collar contracts and associated put contracts are
extendable for one year at the option of the counterparties for notional
contract volumes of 60,000 MMBtu per day at weighted average per MMBtu prices
of $2.25-$2.64 for the collar contracts and $1.95 for the put contracts.
The Company reports average gas prices per Mcf including the effects of Btu
content, gathering and transportation costs, gas processing and shrinkage and
the net effect of the gas hedges. The following table sets forth the Company's
gas prices, both realized (excluding hedge results) and reported, and the net
effects of settlements of gas price hedges to revenue:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
----- ----- ------
<S> <C> <C> <C>
Average price reported per Mcf............................. $1.90 $1.82 $ 2.20
Average price realized per Mcf............................. $1.84 $1.80 $ 2.41
Addition/(reduction) to revenue (in millions).............. $ 9.4 $ 3.6 $(21.9)
</TABLE>
MARK-TO-MARKET DERIVATIVES
As of December 31, 1999 and 1998, the Company has recognized other current
liabilities in the accompanying Consolidated Balance Sheets of $15.9 million and
$3.4 million, respectively, associated with non-hedge mark-to-market
derivatives. The following descriptions provide information pertaining to non-
hedge mark-to-market derivatives that the Company was a party to as of December
31, 1999 and 1998. See Note C. "Disclosures About Fair Value of Financial
Instruments" for information regarding the Company's determination of the fair
values of derivative financial instruments.
INTEREST RATE CAP. At December 31, 1998, the Company was party to an
interest rate cap agreement with a counterparty which capped the Canadian dollar
banker's acceptance rate at 8.00 percent on a notional amount of $80 million
Canadian dollars. The agreement expired in August 1999. Under the agreement, the
Company paid the counterparty a fixed amount in Canadian dollars on a quarterly
basis.
FOREIGN CURRENCY AGREEMENTS. The Company has a series of forward foreign
exchange swap agreements to exchange Canadian dollars for United States dollars
at future dates for a fixed amount of the first currency. As of December 31,
1999 and 1998, the United States dollar equivalent of foreign currency exchange
swap agreements approximated $72 million and $144 million, respectively. These
contracts originated with the Company's acquisition of Chauvco in December 1997.
As these contracts do not qualify as hedges, the Company recorded non-cash
mark-to-market adjustments to decrease the associated contract liabilities by
$5.9 million during 1999 and to increase the associated liabilities by $14.7
million during 1998. These contracts will continue to be marked-to-market until
they mature at various dates in the fourth quarter of 2000. The related effects
on the Company's results of operations in future periods could be significant.
BTU SWAP AGREEMENTS. During 1996, Mesa entered into BTU swap agreements
covering 13,036 MMBtu per day from January 1, 1997 through December 31, 2004.
Under the terms of these agreements, the Company received a premium of $.52 per
MMBtu over market natural gas prices from January 1, 1997 through December 31,
1998. Additionally, the Company receives 10 percent of the NYMEX oil price for
the volumes covered for a six-year period ending December 31, 2004. As these
derivative contracts do not qualify as hedges, the Company recorded non-cash
mark-to-market adjustments to reduce the carrying value of the BTU swap
liability by $.2 million during 1999 and, during 1998 and 1997, to
F-27
<PAGE> 100
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
increase the BTU swap liability by $5.8 million and $5.2 million, respectively.
These contracts will continue to be marked-to-market at the end of each
reporting period during their respective lives. The related effects on the
Company's results of operations in future periods could be significant.
OTHER NON-HEDGE COMMODITY DERIVATIVES. During 1999, the Company sold call
options that provide the counterparties an option to exercise call provisions on
10,000 barrels per day of oil, at a strike price of $20.00 per barrel, for a
twenty-one month period that began on April 1, 1999 and ends on December 31,
2000, or to exercise call provisions over that same time period on 100,000 MMBtu
per day of natural gas, at a weighted average strike price of $2.75 per MMBtu.
These contracts do not qualify for hedge accounting treatment. Other expenses in
the accompanying Consolidated Statement of Operations and Comprehensive Loss for
the year ended December 31, 1999 includes $21.2 million of non-cash mark-to-
market charges associated with these call options.
NOTE I. SALES TO MAJOR CUSTOMERS
The Company's share of oil and gas production is sold to various
purchasers. The Company is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Company to sell its oil
and gas production.
The following customers individually accounted for 10 percent or more of
the consolidated oil, NGL and gas revenues of the Company during the years ended
December 31, 1999, 1998 or 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF CONSOLIDATED
OIL, NGL AND GAS REVENUES
---------------------------
CUSTOMER 1999 1998 1997
- -------- ----- ----- -----
<S> <C> <C> <C>
Williams Energy Services.................................... 11 10 --
Genesis Crude Oil, L.P...................................... 2 10 23
Mobil Oil Corporation....................................... 7 7 16
Western Gas Resources....................................... 1 5 10
Producers Energy Marketing, LLC(a).......................... -- 3 11
</TABLE>
- ---------------
(a) Producers Energy Marketing, LLC ("ProEnergy") is a natural gas marketing
company in which the Company owned a noncontrolling member interest of
approximately 10 percent during 1997. Effective January 1, 1998, the Company
withdrew as a member of ProEnergy.
At December 31, 1999, the amounts receivable from Williams Energy Services,
Genesis Crude Oil, L.P., Mobil Oil Corporation and Western Gas Resources were
$15.4 million, $.1 million, $6.0 million and $.1 million, respectively, which
are included in the caption "Accounts receivable -- trade" in the accompanying
Consolidated Balance Sheet.
NOTE J. OTHER REVENUE
During December 1998, the Company announced the sale to a third party of an
exclusive and irrevocable option to purchase certain oil and gas properties and
other assets of the Company. In consideration for the option, the third party
paid a fee of $41.3 million to the Company, consisting of $29.3 million of cash
and the third party's common stock that was then valued at $12.0 million. The
third party's option lapsed by its terms during the first quarter of 1999.
During the second quarter of 1999, the Company entered into a purchase and sale
agreement with the third party that was not completed as specified by the terms
of the agreement and, as a result thereof, the Company received liquidated
damages of additional shares of the third party's common stock valued at $.5
million. During 1999, the Company recognized other revenue of $41.8 million
associated with the transactions described above.
F-28
<PAGE> 101
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
During 1999, the Company received an excise tax refund of $30.2 million.
Due to uncertainties surrounding the collectability of this refund, the Company
did not recognize it as an asset until it was realized. Accordingly, the Company
recognized the tax refund as other revenue during 1999.
NOTE K. ASSET DIVESTITURES
During 1999, the Company completed the divestiture of certain assets for
net divestment proceeds of $420.5 million (of which $390.5 million were cash
proceeds) and recorded an associated net loss on disposition of assets of $24.2
million. The net cash proceeds from the 1999 asset divestitures were used to
reduce outstanding indebtedness.
PRIZE DIVESTITURE. On June 29, 1999, the Company completed a sale of
certain United States oil and gas producing properties, gas plants and other
assets to Prize. The oil and gas producing assets sold to Prize include
properties located in the Gulf Coast, Mid Continent and Permian Basin areas of
the Company's United States region.
In accordance with the terms of the purchase and sale agreement (the "Prize
Divestiture"), the Company received net sales proceeds of $245.0 million,
comprised of $215.0 million of cash and 2,307.693 shares of six percent
convertible preferred stock having a liquidation preference and fair value of
$30.0 million. The convertible preferred stock provides for six percent annual
dividend payments, payable quarterly in additional equity shares of Prize
through 2001. Subsequent to 2001, Prize has the option of paying the quarterly
dividends on the convertible preferred stock in equity shares or cash. Each
share of the convertible preferred stock may, at the option of the Company, be
converted into one share of Prize common stock, subject to certain anti-dilution
adjustments. The Company recognized a loss of $46.4 million from the Prize
Divestiture during 1999.
OTHER UNITED STATES DIVESTITURES. In addition to the Prize Divestiture,
the Company completed the divestitures of non-strategic United States oil and
gas properties located in the South Texas Gulf Coast, West Texas Permian Basin
and North Dakota areas, an East Texas gas facility and certain other assets for
net cash proceeds of $116.2 million during 1999. Associated with these
divestitures, the Company recorded net gains on divestitures of assets of $31.0
million during 1999.
CANADIAN DIVESTITURES. During 1999, the Company completed the divestitures
of certain non-strategic Canadian oil and gas properties, gas plants and other
related assets. In accordance with the terms of the Canadian divestitures, the
Company received net cash proceeds of $59.3 million, and recognized a net loss
of $8.8 million.
NOTE L. IMPAIRMENT OF LONG-LIVED ASSETS
Based upon the decline in oil prices that began in the fourth quarter of
1997 and continued through the first quarter of 1999, the Company's outlook for
future commodity prices and the Company's assessment of performance issues
relative to certain of its oil and gas properties, the Company estimated the
expected future cash flows of its oil and gas properties as of December 31, 1998
and 1997, and compared such estimated future cash flows to the respective
carrying amounts of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Company adjusted the carrying
amount of those proved oil and gas properties to their fair value as determined
by discounting their expected future cash flows at a discount rate commensurate
with the risks involved in the industry. As a result, the Company recognized
non-cash impairment provisions of $312.2 million and $1.4 billion related to its
proved oil and gas properties during 1998 and 1997, respectively.
F-29
<PAGE> 102
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
Based on the Company's 1999 and 1998 assessments of its unproved
properties, the Company recognized non-cash unproved property impairment
provisions of $17.9 million and $147.3 million, respectively, during 1999 and
1998.
See Note O for disclosure of these impairment charges by geographic
operating segment.
NOTE M. REORGANIZATION
During 1998, the Company announced its plans to sell certain non-strategic
oil and gas fields, its intentions to reorganize its operations by combining its
six domestic operating regions, and other cost reduction initiatives intended to
allow the Company to realize greater operational and administrative
efficiencies. Specific cost reduction initiatives included the relocation of
most of the Company's administrative services from Midland, Texas to Irving,
Texas; the closings of the Company's regional offices in Oklahoma City,
Oklahoma, Corpus Christi, Texas and Houston, Texas; the termination of 350
employees, including several officer positions; and, further centralization of
the Company's organization structure. The consolidation of administrative
services to Irving and the closing of the Corpus Christi, Texas office were
completed in 1998. The Company completed the closings of the Houston, Texas and
Oklahoma City, Oklahoma offices during 1999 and further centralized certain
operational functions in Irving, Texas. The unpaid employee termination costs as
of December 31, 1998 related to employees who were notified of their pending
termination prior to December 31, 1998, but were still employed with the Company
as of December 31, 1998. The unpaid office closing amounts as of December 31,
1999 and 1998, primarily relate to lease commitments on the office buildings in
Oklahoma City, Oklahoma, Corpus Christi, Texas, and Houston, Texas. As a result
of the reorganization initiatives, the Company has recognized reorganization
charges of $8.5 million and $33.2 million during 1999 and 1998, respectively.
The following table provides a description of the components of the
reorganization charges and unpaid portions of the charges as of December 31,
1999 and 1998:
<TABLE>
<CAPTION>
UNPAID PORTION
TOTAL CHARGES PAYMENTS AS OF DECEMBER 31,
------------- -------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
1999:
Employee terminations..................... $ 3,125 $ 7,805 $ --
Relocation................................ 4,998 4,768 230
Office closings........................... 340 2,233 1,637
Other..................................... 71 71 --
------- ------- ------
$ 8,534 $14,877 $1,867
======= ======= ======
1998:
Employee terminations..................... $22,525 $17,845 $4,680
Relocation................................ 6,677 6,677 --
Office closings........................... 3,873 343 3,530
Other..................................... 124 124 --
------- ------- ------
$33,199 $24,989 $8,210
======= ======= ======
</TABLE>
NOTE N. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). The Company and its
F-30
<PAGE> 103
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
eligible subsidiaries file a consolidated United States federal income tax
return. Certain subsidiaries are not eligible to be included in the consolidated
United States federal income tax return and separate provisions for income taxes
have been determined for these entities or groups of entities. The tax returns
and the amount of taxable income or loss are subject to examination by United
States federal, state and foreign taxing authorities. Current and estimated tax
payments of $800,000; $300,000 and $2.7 million were made in 1999, 1998 and
1997, respectively. In addition, the Company received income tax refunds of $1.4
million and $3.3 million in 1999 and 1998, respectively. During 1999, 1998 and
1997, the Company's income tax provision (benefit) and amounts separately
allocated were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before extraordinary item.......... $ (600) $ 15,600 $(500,300)
Extraordinary loss............................... -- -- (7,200)
Stockholders' equity provision (benefit)......... -- 4,300 (2,900)
Change in cumulative translation adjustment...... 1,600 (6,000) --
-------- --------- ---------
$ 1,000 $ 13,900 $(510,400)
======== ========= =========
</TABLE>
Income tax provision (benefit) attributable to income (loss) before
extraordinary item consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
U.S. federal................................... $ -- $ (3,300) $ 900
State and local................................ 400 300 100
Foreign........................................ (1,000) -- --
-------- --------- ---------
(600) (3,000) 1,000
-------- --------- ---------
Deferred:
U.S. federal................................... 14,700 123,500 (470,000)
State and local................................ -- (300) (28,500)
Foreign........................................ (14,700) (104,600) (2,800)
-------- --------- ---------
-- 18,600 (501,300)
-------- --------- ---------
Total............................................ $ (600) $ 15,600 $(500,300)
======== ========= =========
</TABLE>
Income (loss) before income taxes and extraordinary item consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes and
extraordinary item:
U.S. federal.................................. $(23,594) $(393,602) $(1,369,582)
Foreign....................................... 534 (337,224) (7,981)
-------- --------- -----------
$(23,060) $(730,826) $(1,377,563)
======== ========= ===========
</TABLE>
F-31
<PAGE> 104
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
Reconciliations of the United States federal statutory rate to the
Company's effective rate for income (loss) before extraordinary item are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
U.S. federal statutory tax rate............................. (35.0) (35.0) (35.0)
Valuation allowance......................................... 102.0 37.1 --
Rate differential on foreign operations..................... (68.1) (.5) --
Other....................................................... (1.3) .5 (1.3)
----- ----- -----
Consolidated effective tax rate............................. (2.4) 2.1 (36.3)
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 334,173 $ 291,678
Alternative minimum tax credit carryforwards.............. 1,565 1,565
Other..................................................... 78,994 73,260
--------- ---------
Total deferred tax assets.............................. 414,732 366,503
Valuation allowance....................................... (319,900) (271,100)
--------- ---------
Net deferred tax assets................................ 94,832 95,403
--------- ---------
Deferred tax liabilities:
Oil and gas properties, principally due to differences in
basis and depletion and the deduction of intangible
drilling costs for tax purposes........................ 38,025 44,058
Other..................................................... 11,107 11,645
--------- ---------
Total deferred tax liabilities......................... 49,132 55,703
--------- ---------
Net deferred tax asset................................. $ 45,700 $ 39,700
========= =========
</TABLE>
Realization of deferred tax assets associated with net operating loss
carryforwards ("NOLs") and other credit carryforwards is dependent upon
generating sufficient taxable income prior to their expiration. The Company
believes that there is a risk that certain of these NOLs and other credit
carryforwards may expire unused and, accordingly, has established a valuation
allowance of $319.9 million against them. Although realization is not assured
for the remaining deferred tax asset, the Company believes it is more likely
than not that they will be realized through future taxable earnings or
alternative tax planning strategies. However, the net deferred tax assets could
be reduced further if the Company's estimate of taxable income in future periods
is significantly reduced or alternative tax planning strategies are no longer
viable.
Certain subsidiaries that are consolidated for financial reporting purposes
are not eligible to be included in the Company's consolidated United States
federal income tax return and separate provisions for income taxes have been
determined for these entities or groups of entities. At December 31, 1999, the
Company had NOLs for United States, Argentine, Canadian, and South African
income tax purposes of $831.4 million, $24.1 million, $69.6 million and $10.5
million, respectively, which are available to offset future regular taxable
income in each respective tax jurisdiction, if any. Additionally, at December
31,
F-32
<PAGE> 105
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
1999, the Company has alternative minimum tax net operating loss carryforwards
("AMT NOLs") in the United States of $748.1 million, which are available to
reduce future alternative minimum taxable income, if any. These carryforwards
expire as follows:
<TABLE>
<CAPTION>
U.S. ARGENTINA CANADA SOUTH AFRICA
-------------------- --------- ------- ------------
EXPIRATION DATE NOL AMT NOL NOL NOL NOL
- --------------- -------- -------- --------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 2001................... $ 689 $ 593 $ -- $ -- $ --
December 31, 2002................... 6,066 6,034 4,416 -- --
December 31, 2003................... 838 -- 19,703 -- --
December 31, 2005................... 11,049 10,762 -- 61,776 --
December 31, 2006................... 30,834 12,254 -- 7,779 --
December 31, 2007................... 104,107 101,151 -- -- --
December 31, 2008................... 112,508 106,558 -- -- --
December 31, 2009................... 129,227 102,727 -- -- --
December 31, 2010................... 124,859 110,961 -- -- --
December 31, 2011................... 6,521 4,045 -- -- --
December 31, 2012................... 68,542 58,890 -- -- --
December 31, 2018................... 127,925 126,780 -- -- --
December 31, 2019................... 108,282 107,369 -- -- --
Indefinite.......................... -- -- -- -- 10,541
-------- -------- ------- ------- -------
Total.......................... $831,447 $748,124 $24,119 $69,555 $10,541
======== ======== ======= ======= =======
</TABLE>
The NOLs and AMT NOLs from certain of the United States subsidiaries are
subject to various utilization limitations. In total, approximately $34.3
million of the NOLs and $14.8 million of the AMT NOLs are limited in use to
specific United States subsidiaries. Section 382 of the Internal Revenue Code
provides another limitation to $466.7 million of the Company's United States
NOLs and $379.5 million of its AMT NOLs. The Company believes the utilization of
$246.7 million of the NOLs and $159.5 million of the AMT NOLs subject to the
Section 382 limitation are limited in each taxable year to approximately $104.2
million and the remaining $220 million of the NOLs and AMT NOLs subject to the
Section 382 limitation are limited in each taxable year to approximately $20
million.
NOTE O. GEOGRAPHIC OPERATING SEGMENT INFORMATION
The Company has operations in only one industry segment, that being the oil
and gas exploration and production industry; however, the Company is
organizationally structured along geographic operating segments, or regions.
Since the merger with Mesa and the acquisition of Chauvco, the Company has had
reportable operations in the United States, Argentina and Canada. During 1997,
the Company had only minor operations outside the United States.
The following table provides the geographic operating segment data required
by Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS 131"), as well as
results of operations of oil and gas producing activities required by Statement
of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas
Producing Activities" ("SFAS 69"). Geographic operating segment income tax
benefits (provisions) have been determined based on statutory rates existing in
the various tax jurisdictions where the Company has oil and gas producing
activities. The "Headquarters and other" table column includes revenues,
expenses, additions to properties, plants and equipment, and assets that do not
represent revenues, expenses, additions to properties, plants and equipment, or
assets of oil and gas producing activities, and that are not routinely included
in the earnings measures or attributes internally reported to management on a
geographic operating segment basis.
F-33
<PAGE> 106
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
UNITED OTHER HEADQUARTERS CONSOLIDATED
STATES ARGENTINA CANADA FOREIGN AND OTHER TOTAL
----------- --------- --------- -------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Oil and gas revenues............................ $ 502,585 $ 83,697 $ 58,364 $ -- $ -- $ 644,646
Interest and other.............................. -- -- -- -- 89,657 89,657
Loss on disposition of assets................... (14,736) -- (8,836) -- (596) (24,168)
----------- --------- --------- -------- --------- -----------
487,849 83,697 49,528 -- 89,061 710,135
----------- --------- --------- -------- --------- -----------
Production costs................................ 124,654 18,268 16,608 -- -- 159,530
Depletion, depreciation and amortization........ 153,775 38,874 25,601 -- 17,797 236,047
Impairment of oil and gas properties............ 17,894 -- -- -- -- 17,894
Exploration and abandonments.................... 41,225 14,009 3,509 7,231 -- 65,974
General and administrative...................... -- -- -- -- 40,241 40,241
Reorganization.................................. -- -- -- -- 8,534 8,534
Interest........................................ -- -- -- -- 170,344 170,344
Other........................................... -- -- -- -- 34,631 34,631
----------- --------- --------- -------- --------- -----------
337,548 71,151 45,718 7,231 271,547 733,195
----------- --------- --------- -------- --------- -----------
Loss before income taxes........................ 150,301 12,546 3,810 (7,231) (182,486) (23,060)
Income tax benefit (provision).................. (52,605) (4,140) (1,699) 2,531 56,513 600
----------- --------- --------- -------- --------- -----------
Net loss........................................ $ 97,696 $ 8,406 $ 2,111 $ (4,700) $(125,973) $ (22,460)
=========== ========= ========= ======== ========= ===========
Additions to properties, plant and equipment.... $ 81,739 $ 75,137 $ 18,893 $ 3,899 $ 7,756 $ 187,424
=========== ========= ========= ======== ========= ===========
Segment assets (as of December 31).............. $ 1,865,441 $ 734,382 $ 218,526 $ 8,289 $ 102,835 $ 2,929,473
=========== ========= ========= ======== ========= ===========
YEAR ENDED DECEMBER 31, 1998:
Oil and gas revenues............................ $ 579,156 $ 65,256 $ 67,080 $ -- $ -- $ 711,492
Interest and other.............................. -- -- -- -- 10,452 10,452
Loss on disposition of assets................... (52) -- -- -- (393) (445)
----------- --------- --------- -------- --------- -----------
579,104 65,256 67,080 -- 10,059 721,499
----------- --------- --------- -------- --------- -----------
Production costs................................ 177,371 21,158 25,022 -- -- 223,551
Depletion, depreciation and amortization........ 239,561 42,115 40,617 -- 15,015 337,308
Impairment of oil and gas properties............ 237,528 136,751 85,240 -- -- 459,519
Exploration and abandonments.................... 69,263 18,245 20,613 13,737 -- 121,858
General and administrative...................... -- -- -- -- 73,000 73,000
Reorganization.................................. -- -- -- -- 33,199 33,199
Interest........................................ -- -- -- -- 164,285 164,285
Other........................................... -- -- -- -- 39,605 39,605
----------- --------- --------- -------- --------- -----------
723,723 218,269 171,492 13,737 325,104 1,452,325
----------- --------- --------- -------- --------- -----------
Loss before income taxes........................ (144,619) (153,013) (104,412) (13,737) (315,045) (730,826)
Income tax benefit (provision).................. 53,075 50,494 45,628 4,808 (169,605) (15,600)
----------- --------- --------- -------- --------- -----------
Net loss........................................ $ (91,544) $(102,519) $ (58,784) $ (8,929) $(484,650) $ (746,426)
=========== ========= ========= ======== ========= ===========
Additions to properties, plant and equipment.... $ 346,368 $ 69,082 $ 73,096 $ 18,791 $ 31,546 $ 538,883
=========== ========= ========= ======== ========= ===========
Segment assets (as of December 31).............. $ 2,259,746 $ 692,271 $ 308,025 $103,702 $ 117,570 $ 3,481,314
=========== ========= ========= ======== ========= ===========
YEAR ENDED DECEMBER 31, 1997:
Oil and gas revenues............................ $ 533,865 $ 2,917 $ -- $ -- $ -- $ 536,782
Interest and other.............................. -- -- -- -- 4,278 4,278
Gain on disposition of assets................... 3,305 -- -- -- 1,664 4,969
----------- --------- --------- -------- --------- -----------
537,170 2,917 -- -- 5,942 546,029
----------- --------- --------- -------- --------- -----------
Production costs................................ 143,332 838 -- -- -- 144,170
Depletion, depreciation and amortization........ 203,160 1,290 -- -- 7,985 212,435
Impairment of oil and gas properties............ 1,356,390 -- -- -- -- 1,356,390
Exploration and abandonments.................... 69,896 1,822 -- 5,442 -- 77,160
General and administrative...................... -- -- -- -- 48,763 48,763
Interest........................................ -- -- -- -- 77,550 77,550
Other........................................... -- -- -- -- 7,124 7,124
----------- --------- --------- -------- --------- -----------
1,772,778 3,950 -- 5,442 141,422 1,923,592
----------- --------- --------- -------- --------- -----------
Loss before income taxes and extraordinary
item.......................................... (1,235,608) (1,033) -- (5,442) (135,480) (1,377,563)
Income tax benefit.............................. 453,468 341 -- 1,905 44,586 500,300
----------- --------- --------- -------- --------- -----------
Loss before extraordinary items................. $ (782,140) $ (692) $ -- $ (3,537) $ (90,894) $ (877,263)
=========== ========= ========= ======== ========= ===========
Additions to properties, plant and equipment.... $ 417,269 $ 4,446 $ -- $ 6,925 $ 12,783 $ 441,423
=========== ========= ========= ======== ========= ===========
Segment assets (as of December 31).............. $ 2,684,091 $ 734,569 $ 505,483 $ 1,085 $ 227,762 $ 4,152,990
=========== ========= ========= ======== ========= ===========
</TABLE>
F-34
<PAGE> 107
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
NOTE P. LOSS PER SHARE
Basic net income (loss) per share is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. The computation of diluted net income (loss) per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that would then share in the earnings
of the entity. For 1999, 1998 and 1997, the computation of diluted net loss per
share was antidilutive; therefore, the amounts reported for basic and diluted
net loss per share were the same.
NOTE Q. PIONEER USA
Pioneer USA is a wholly-owned subsidiary of the Company that has fully and
unconditionally guaranteed certain debt securities of the Company (see Note D
above). The Company has not prepared financial statements and related
disclosures for Pioneer USA under separate cover because management of the
Company has determined that such information is not material to investors. In
accordance with practices accepted by the United States Securities and Exchange
Commission (the "SEC"), the Company has prepared Consolidating Condensed
Financial Statements in order to quantify the assets of Pioneer USA as a
subsidiary guarantor. The following Consolidating Condensed Balance Sheets as of
December 31, 1999 and 1998, and Consolidating Statements of Operations and
Comprehensive Loss and Consolidating Condensed Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997 present financial information for
Pioneer Natural Resources Company as the Parent on a stand-alone basis (carrying
any investments in subsidiaries under the equity method), financial information
for Pioneer USA on a stand-alone basis (carrying any investment in non-guarantor
subsidiaries under the equity method), financial information for the
non-guarantor subsidiaries of the Company on a consolidated basis, the
consolidation and elimination entries necessary to arrive at the information for
the Company on a consolidated basis, and the financial information for the
Company on a consolidated basis. Pioneer USA is not restricted from making
distributions to the Company.
F-35
<PAGE> 108
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
CONSOLIDATING CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
PIONEER NATURAL NON-
RESOURCES COMPANY PIONEER GUARANTOR THE
(PARENT) USA SUBSIDIARIES ELIMINATIONS COMPANY
----------------- ----------- ------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 5 $ 22,699 $ 12,084 $ $ 34,788
Other current assets................................ 2,160,134 (1,455,442) (556,344) 148,348
---------- ----------- --------- ----------
Total current assets.............................. 2,160,139 (1,432,743) (544,260) 183,136
---------- ----------- --------- ----------
Property, plant and equipment, at cost:
Oil and gas properties, using the successful efforts
method of accounting:
Proved properties................................. -- 2,200,173 797,162 2,997,335
Unproved properties............................... -- 24,267 233,316 257,583
Accumulated depletion, depreciation and
amortization...................................... -- (614,402) (137,554) (751,956)
---------- ----------- --------- ----------
-- 1,610,038 892,924 2,502,962
---------- ----------- --------- ----------
Deferred income taxes................................ 83,400 -- -- 83,400
Other property and equipment, net.................... -- 28,144 14,862 43,006
Other assets, net.................................... 13,293 58,117 45,559 116,969
Investment in subsidiaries........................... 190,293 161,061 -- (351,354) --
---------- ----------- --------- ----------
$2,447,125 $ 424,617 $ 409,085 $2,929,473
========== =========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................ $ -- $ 828 $ -- $ $ 828
Other current liabilities........................... 36,115 120,857 39,013 195,985
---------- ----------- --------- ----------
Total current liabilities......................... 36,115 121,685 39,013 196,813
---------- ----------- --------- ----------
Long-term debt, less current maturities.............. 1,745,108 -- -- 1,745,108
Other noncurrent liabilities......................... -- 137,848 31,590 169,438
Deferred income taxes................................ -- -- 43,500 43,500
Stockholders' equity................................. 665,902 165,084 294,982 (351,354) 774,614
Commitments and contingencies........................
---------- ----------- --------- ----------
$2,447,125 $ 424,617 $ 409,085 $2,929,473
========== =========== ========= ==========
</TABLE>
CONSOLIDATING CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIONEER NATURAL NON-
RESOURCES COMPANY PIONEER GUARANTOR THE
(PARENT) USA SUBSIDIARIES ELIMINATIONS COMPANY
----------------- ----------- ------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 3,161 $ 37,932 $ 18,128 $ $ 59,221
Other current assets................................ 2,248,244 (1,735,638) (369,839) 142,767
---------- ----------- --------- ----------
Total current assets.............................. 2,251,405 (1,697,706) (351,711) 201,988
---------- ----------- --------- ----------
Property, plant and equipment, at cost:
Oil and gas properties, using the successful efforts
method of accounting:
Proved properties................................. -- 2,678,637 942,993 3,621,630
Unproved properties............................... -- 58,989 283,600 342,589
Accumulated depletion, depreciation and
amortization...................................... -- (753,570) (176,541) (930,111)
---------- ----------- --------- ----------
-- 1,984,056 1,050,052 3,034,108
---------- ----------- --------- ----------
Deferred income taxes................................ 96,800 -- -- 96,800
Other property and equipment, net.................... -- 38,229 16,781 55,010
Other assets, net.................................... 9,787 43,557 40,064 93,408
Investment in subsidiaries........................... 135,204 148,257 -- (283,461) --
---------- ----------- --------- ----------
$2,493,196 $ 516,393 $ 755,186 $3,481,314
========== =========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................ $ 212,302 $ 1,189 $ 93,030 $ $ 306,521
Other current liabilities........................... 21,727 145,945 52,639 220,311
---------- ----------- --------- ----------
Total current liabilities......................... 234,029 147,134 145,669 526,832
---------- ----------- --------- ----------
Long-term debt, less current maturities.............. 1,676,933 830 190,981 1,868,744
Other noncurrent liabilities......................... -- 189,325 43,136 232,461
Deferred income taxes................................ -- -- 64,200 64,200
Stockholders' equity................................. 582,234 179,104 311,200 (283,461) 789,077
Commitments and contingencies........................
---------- ----------- --------- ----------
$2,493,196 $ 516,393 $ 755,186 $3,481,314
========== =========== ========= ==========
</TABLE>
F-36
<PAGE> 109
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PIONEER
NATURAL
RESOURCES NON- CONSOLIDATED
COMPANY PIONEER GUARANTOR INCOME THE
(PARENT) USA SUBSIDIARIES TAX PROVISION ELIMINATIONS COMPANY
--------- -------- ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas................................. $ -- $470,059 $174,587 $ -- $ $644,646
Interest and other.......................... 406 52,232 37,019 -- 89,657
Gain (loss) on disposition of assets, net... -- 19,379 (43,547) -- (24,168)
-------- -------- -------- -------- --------
406 541,670 168,059 -- 710,135
-------- -------- -------- -------- --------
Costs and expenses:
Oil and gas production...................... -- 120,074 39,456 -- 159,530
Depletion, depreciation and amortization.... -- 157,294 78,753 -- 236,047
Impairment of oil and gas properties........ -- 17,894 -- -- 17,894
Exploration and abandonments................ -- 43,133 22,841 -- 65,974
General and administrative.................. 1,051 27,260 11,930 -- 40,241
Reorganization.............................. -- 8,534 -- -- 8,534
Interest.................................... (33,404) 145,184 58,564 -- 170,344
Equity income (loss) from subsidiary........ 39,672 (5,179) -- -- (34,493) --
Other....................................... 799 38,166 (4,334) -- 34,631
-------- -------- -------- -------- --------
8,118 552,360 207,210 -- 733,195
-------- -------- -------- -------- --------
Loss before income taxes...................... (7,712) (10,690) (39,151) -- (23,060)
Income tax benefit (provision)................ -- (444) 15,792 (14,748) 600
-------- -------- -------- -------- --------
Net loss...................................... (7,712) (11,134) (23,359) (14,748) (22,460)
Other comprehensive income:
Translation adjustment...................... -- -- 8,358 -- 8,358
-------- -------- -------- -------- --------
Comprehensive loss............................ $ (7,712) $(11,134) $(15,001) $(14,748) $(14,102)
======== ======== ======== ======== ========
</TABLE>
F-37
<PAGE> 110
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PIONEER
NATURAL
RESOURCES NON- CONSOLIDATED
COMPANY PIONEER GUARANTOR INCOME THE
(PARENT) USA SUBSIDIARIES TAX PROVISION ELIMINATIONS COMPANY
--------- --------- ------------ ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas............................. $ -- $ 523,736 $ 187,756 $ -- $ $ 711,492
Interest and other...................... 38 7,937 2,477 -- 10,452
Loss on disposition of assets, net...... -- (477) 32 -- (445)
--------- --------- --------- --------- ----------
38 531,196 190,265 -- 721,499
--------- --------- --------- --------- ----------
Costs and expenses:
Oil and gas production.................. -- 164,964 58,587 -- 223,551
Depletion, depreciation and
amortization.......................... -- 225,127 112,181 -- 337,308
Impairment of oil and gas properties.... -- 237,529 221,990 -- 459,519
Exploration and abandonments............ -- 71,851 50,007 -- 121,858
General and administrative.............. 2,042 57,158 13,800 -- 73,000
Reorganization.......................... -- 31,756 1,443 -- 33,199
Interest................................ (54,237) 159,863 58,659 -- 164,285
Equity loss from subsidiary............. 675,142 4,358 -- -- (679,500) --
Other................................... 722 22,732 16,151 -- 39,605
--------- --------- --------- --------- ----------
623,669 975,338 532,818 -- 1,452,325
--------- --------- --------- --------- ----------
Loss before income taxes.................. (623,631) (444,142) (342,553) -- (730,826)
Income tax provision...................... -- (174) 107,369 (122,795) (15,600)
--------- --------- --------- --------- ----------
Net loss.................................. (623,631) (444,316) (235,184) (122,795) (746,426)
Other comprehensive income:
Translation adjustment.................. -- -- 2,903 -- 2,903
--------- --------- --------- --------- ----------
Comprehensive loss........................ $(623,631) $(444,316) $(232,281) $(122,795) $ (743,523)
========= ========= ========= ========= ==========
</TABLE>
F-38
<PAGE> 111
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PIONEER
NATURAL
RESOURCES NON- CONSOLIDATED
COMPANY PIONEER GUARANTOR INCOME THE
(PARENT) USA SUBSIDIARIES TAX PROVISION ELIMINATIONS COMPANY
----------- ----------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas......................... $ -- $ 453,771 $ 83,011 $ -- $ $ 536,782
Interest and other.................. -- 5,357 873 -- (1,952) 4,278
Gain (loss) on disposition of
assets,
net............................... -- 6,062 (402) -- (691) 4,969
----------- ----------- --------- -------- -----------
-- 465,190 83,482 -- 546,029
----------- ----------- --------- -------- -----------
Costs and expenses:
Oil and gas production.............. -- 128,644 15,526 -- 144,170
Depletion, depreciation and
amortization...................... -- 166,495 45,940 -- 212,435
Impairment of oil and gas
properties........................ -- 1,220,920 135,470 -- 1,356,390
Exploration and abandonments........ -- 67,679 9,481 -- 77,160
General and administrative.......... 613 44,766 3,384 -- 48,763
Interest............................ 5,910 67,969 5,623 -- (1,952) 77,550
Equity loss from subsidiary......... 1,407,844 124,874 -- -- (1,532,718) --
Other............................... -- 7,065 59 -- 7,124
----------- ----------- --------- -------- -----------
1,414,367 1,828,412 215,483 -- 1,923,592
----------- ----------- --------- -------- -----------
Loss before income taxes and
extraordinary item.................. (1,414,367) (1,363,222) (132,001) -- (1,377,563)
Income tax benefit.................... -- -- -- 500,300 500,300
----------- ----------- --------- -------- -----------
Loss before extraordinary item........ (1,414,367) (1,363,222) (132,001) 500,300 (877,263)
Extraordinary item -- loss on early
extinguishment of debt, net of
tax................................. -- (13,408) -- -- (13,408)
Net loss.............................. (1,414,367) (1,376,630) (132,001) 500,300 (890,671)
Other comprehensive income:
Translation adjustment.............. -- -- -- -- --
----------- ----------- --------- -------- -----------
Comprehensive loss.................... $(1,414,367) $(1,376,630) $(132,001) $500,300 $ (890,671)
=========== =========== ========= ======== ===========
</TABLE>
F-39
<PAGE> 112
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PIONEER
NATURAL
RESOURCES NON-
COMPANY PIONEER GUARANTOR THE
(PARENT) USA SUBSIDIARIES COMPANY
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net cash provided by (used in) operating activities... $ 152,485 $(230,625) $ 333,374 $ 255,234
--------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from disposition of assets................... -- 328,182 62,349 390,531
Additions to oil and gas properties................... -- (74,257) (105,412) (179,669)
Other property additions, net......................... -- (8,335) (3,532) (11,867)
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities....................................... -- 245,590 (46,595) 198,995
--------- --------- --------- ---------
Cash flows from financing activities:
Borrowings under long-term debt....................... 355,493 -- -- 355,493
Principal payments on long-term debt.................. (504,493) (1,192) (288,234) (793,919)
Payment of noncurrent liabilities..................... -- (29,006) (4,996) (34,002)
Deferred loan fees/issuance costs..................... (6,891) -- -- (6,891)
Exercise of stock options and employee stock
purchases.......................................... 250 -- -- 250
--------- --------- --------- ---------
Net cash used in financing activities.............. (155,641) (30,198) (293,230) (479,069)
--------- --------- --------- ---------
Net decrease in cash and cash equivalents............... (3,156) (15,233) (6,451) (24,840)
Effect of exchange rate changes on cash and cash
equivalents........................................... -- -- 407 407
Cash and cash equivalents, beginning of period.......... 3,161 37,932 18,128 59,221
--------- --------- --------- ---------
Cash and cash equivalents, end of period.............. $ 5 $ 22,699 $ 12,084 $ 34,788
========= ========= ========= =========
</TABLE>
F-40
<PAGE> 113
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PIONEER
NATURAL
RESOURCES NON-
COMPANY PIONEER GUARANTOR THE
(PARENT) USA SUBSIDIARIES COMPANY
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net cash provided by (used in) operating activities... $(151,315) $ 313,359 $ 152,032 $ 314,076
--------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from disposition of assets................... -- 13,791 8,085 21,876
Additions to oil and gas properties................... -- (309,639) (197,698) (507,337)
Other property additions, net......................... -- (15,862) (15,684) (31,546)
--------- --------- --------- ---------
Net cash used in investing activities.............. -- (311,710) (205,297) (517,007)
--------- --------- --------- ---------
Cash flows from financing activities:
Borrowings under long-term debt....................... 886,008 -- 61,172 947,180
Principal payments on long-term debt.................. (704,857) (1,326) (5,341) (711,524)
Payment of noncurrent liabilities..................... -- (11,424) (5,667) (17,091)
Dividends............................................. (9,160) -- (916) (10,076)
Purchase of treasury stock............................ (10,367) -- -- (10,367)
Deferred loan fees/issuance costs..................... (7,189) -- -- (7,189)
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities....................................... 154,435 (12,750) 49,248 190,933
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... 3,120 (11,101) (4,017) (11,998)
Effect of exchange rate changes on cash and cash
equivalents........................................... -- -- (494) (494)
Cash and cash equivalents, beginning of period.......... 41 49,033 22,639 71,713
--------- --------- --------- ---------
Cash and cash equivalents, end of period.............. $ 3,161 $ 37,932 $ 18,128 $ 59,221
========= ========= ========= =========
</TABLE>
F-41
<PAGE> 114
PIONEER NATURAL RESOURCES COMPANY
UNAUDITED SUPPLEMENTARY INFORMATION
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
CAPITALIZED COSTS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Oil and Gas Properties:
Proved.................................................... $2,997,335 $3,621,630
Unproved.................................................. 257,583 342,589
---------- ----------
3,254,918 3,964,219
Less accumulated depletion................................ (751,956) (930,111)
---------- ----------
Net capitalized costs for oil and gas properties.......... $2,502,962 $3,034,108
========== ==========
</TABLE>
COSTS INCURRED FOR OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
PROPERTY
ACQUISITION COSTS TOTAL
------------------------- EXPLORATION DEVELOPMENT COSTS
PROVED UNPROVED(A) COSTS COSTS INCURRED
---------- ----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
United States............... $ 937 $ 3,185 $ 42,337 $ 59,204 $ 105,663
Argentina................... 36,312 2,517 12,597 25,228 76,654
Canada...................... 174 (7,375) 1,431 17,322 11,552
Other foreign(b)............ 151 -- 7,106 -- 7,257
---------- -------- -------- -------- ----------
Total costs incurred..... $ 37,574 $ (1,673) $ 63,471 $101,754 $ 201,126
========== ======== ======== ======== ==========
Year Ended December 31, 1998:
United States............... $ 19,658 $ 34,092 $ 62,747 $213,943 $ 330,440
Argentina................... 4,504 67,010 22,521 39,049 133,084
Canada...................... 1,185 (93,349) 21,871 47,550 (22,743)
Other foreign(c)............ (136) -- 21,706 412 21,982
---------- -------- -------- -------- ----------
Total costs incurred..... $ 25,211 $ 7,753 $128,845 $300,954 $ 462,763
========== ======== ======== ======== ==========
Year Ended December 31, 1997:
United States............... $2,623,993 $ 91,373 $ 88,710 $243,119 $3,047,195
Argentina................... 430,607 252,343 1,822 3,927 688,699
Canada...................... 287,787 194,067 -- -- 481,854
Other foreign(d)............ -- 332 5,442 -- 5,774
---------- -------- -------- -------- ----------
Total costs incurred..... $3,342,387 $538,115 $ 95,974 $247,046 $4,223,522
========== ======== ======== ======== ==========
</TABLE>
- ---------------
(a) Includes 1998 Chauvco purchase price adjustments of $59.9 million for
Argentina and $(99.4) million for Canada.
(b) Primarily comprised of South Africa and Gabon geological and geophysical
costs.
(c) Primarily relates to the drilling of five wells in South Africa.
(d) Primarily relates to an unsuccessful well in Guatemala.
F-42
<PAGE> 115
PIONEER NATURAL RESOURCES COMPANY
UNAUDITED SUPPLEMENTARY INFORMATION -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
RESULTS OF OPERATIONS
Information about the Company's results of operations for oil and gas
producing activities is presented in Note O to the accompanying Notes to
Consolidated Financial Statements.
RESERVE QUANTITY INFORMATION
The estimates of the Company's proved oil and gas reserves, which are
located principally in the United States, Argentina and Canada are prepared by
the Company's engineers. Reserves were estimated in accordance with guidelines
established by the SEC and the Financial Accounting Standards Board, which
require that reserve estimates be prepared under existing economic and operating
conditions with no provision for price and cost escalations except by
contractual arrangements. The reserve estimates for 1999, 1998 and 1997 utilize
respective oil prices of $24.33, $10.09 and $16.89 per Bbl (reflecting
adjustments for oil quality and gathering and transportation costs); respective
NGL prices of $17.59, $6.81 and $12.79 per Bbl; and, respective gas prices of
$1.83, $1.64 and $2.06 per Mcf (reflecting adjustments for Btu content,
gathering and transportation costs and gas processing and shrinkage).
Oil and gas reserve quantity estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves and in
the projection of future rates of production and the timing of development
expenditures. The accuracy of such estimates is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing and production may cause either upward
or downward revision of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of currently
producing oil and gas properties. Accordingly, these estimates are expected to
change as additional information becomes available in the future.
F-43
<PAGE> 116
PIONEER NATURAL RESOURCES COMPANY
UNAUDITED SUPPLEMENTARY INFORMATION -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
OIL AND GAS PRODUCING ACTIVITIES:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ ------------------------------- ------------------------------
OIL OIL OIL
& NGLS GAS & NGLS GAS & NGLS GAS
(MBBLS) (MMCF) MBOE (MBBLS) (MMCF) MBOE (MBBLS) (MMCF) MBOE
------- --------- -------- -------- --------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL PROVED RESERVES:
UNITED STATES
Balance, January 1..... 269,638 1,545,644 527,246 329,316 1,719,130 615,838 162,836 828,268 300,881
Revisions of previous
estimates............ 51,649 196,833 84,455 (34,211) (32,113) (39,563) 70,063 (100,755) 53,271
Purchases of
minerals-in-place.... -- -- -- -- -- -- 121,286 1,147,921 312,606
New discoveries and
extensions........... 149 1,351 374 183 3,438 756 1,109 7,659 2,385
Production............. (20,163) (106,095) (37,845) (25,327) (137,741) (48,284) (17,737) (104,868) (35,215)
Sales of
minerals-in-place.... (42,207) (322,891) (96,024) (323) (7,070) (1,501) (8,241) (59,095) (18,090)
------- --------- -------- -------- --------- -------- -------- --------- -------
Balance, December 31... 259,066 1,314,842 478,206 269,638 1,545,644 527,246 329,316 1,719,130 615,838
ARGENTINA
Balance, January 1..... 24,219 428,334 95,608 31,612 340,392 88,344 1,105 1,108 1,290
Revisions of previous
estimates............ (2,441) (12,470) (4,520) (7,615) 76,843 5,192 (259) (1,108) (444)
Purchases of
minerals-in-place.... 4,406 17,483 7,320 -- -- -- 30,914 340,392 87,646
New discoveries and
extensions........... 6,182 16,750 8,974 3,522 37,900 9,839 -- -- --
Production............. (2,569) (34,477) (8,315) (3,300) (26,801) (7,767) (148) -- (148)
Sales of
minerals-in-place.... -- -- -- -- -- -- -- -- --
------- --------- -------- -------- --------- -------- -------- --------- -------
Balance, December 31... 29,797 415,620 99,067 24,219 428,334 95,608 31,612 340,392 88,344
CANADA
Balance, January 1..... 12,447 249,230 53,985 22,796 207,868 57,441 -- -- --
Revisions of previous
estimates............ 4,865 (62,356) (5,527) (6,905) 60,247 3,135 -- -- --
Purchases of
minerals-in-place.... -- -- -- 2 -- 2 22,796 207,868 57,441
New discoveries and
extensions........... -- -- -- 261 5,951 1,253 -- -- --
Production............. (1,960) (17,886) (4,941) (3,596) (19,371) (6,824) -- -- --
Sales of
minerals-in-place.... (11,382) (23,737) (15,338) (111) (5,465) (1,022) -- -- --
------- --------- -------- -------- --------- -------- -------- --------- -------
Balance, December 31... 3,970 145,251 28,179 12,447 249,230 53,985 22,796 207,868 57,441
TOTAL
Balance, January 1..... 306,304 2,223,208 676,839 383,724 2,267,390 761,623 163,941 829,376 302,171
Revisions of previous
estimates............ 54,073 122,007 74,408 (48,731) 104,977 (31,236) 69,804 (101,863) 52,827
Purchases of
minerals-in-place.... 4,406 17,483 7,320 2 -- 2 174,996 1,696,181 457,693
New discoveries and
extensions........... 6,331 18,101 9,348 3,966 47,289 11,848 1,109 7,659 2,385
Production............. (24,692) (158,458) (51,101) (32,223) (183,913) (62,875) (17,885) (104,868) (35,363)
Sales of
minerals-in-place.... (53,589) (346,628) (111,362) (434) (12,535) (2,523) (8,241) (59,095) (18,090)
------- --------- -------- -------- --------- -------- -------- --------- -------
Balance, December 31... 292,833 1,875,713 605,452 306,304 2,223,208 676,839 383,724 2,267,390 761,623
======= ========= ======== ======== ========= ======== ======== ========= =======
PROVED DEVELOPED
RESERVES:
January 1............ 274,953 2,001,775 608,582 329,920 1,956,658 656,030 126,370 660,174 236,399
======= ========= ======== ======== ========= ======== ======== ========= =======
December 31.......... 235,165 1,538,310 491,551 274,953 2,001,775 608,582 329,920 1,956,658 656,030
======= ========= ======== ======== ========= ======== ======== ========= =======
</TABLE>
F-44
<PAGE> 117
PIONEER NATURAL RESOURCES COMPANY
UNAUDITED SUPPLEMENTARY INFORMATION -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10 percent per year to reflect the
estimated timing of the future cash flows. Future income taxes are calculated by
comparing discounted future cash flows to the tax basis of oil and gas
properties plus available carryforwards and credits and applying the current tax
rates to the difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
UNITED STATES
Oil and gas producing activities:
Future cash inflows....................................... $ 8,143,587 $ 5,050,473 $ 8,936,044
Future production costs................................... (2,823,316) (2,281,406) (3,185,357)
Future development costs.................................. (288,801) (227,727) (325,659)
Future income tax expense................................. (855,875) -- (860,632)
----------- ----------- -----------
4,175,595 2,541,340 4,564,396
10% annual discount factor.................................. (1,837,826) (1,314,471) (2,067,371)
----------- ----------- -----------
Standardized measure of discounted future cash flows........ $ 2,337,769 $ 1,226,869 $ 2,497,025
=========== =========== ===========
ARGENTINA
Oil and gas producing activities:
Future cash inflows....................................... $ 1,075,904 $ 686,911 $ 912,688
Future production costs................................... (199,513) (196,446) (168,105)
Future development costs.................................. (79,336) (45,710) (137,060)
Future income tax expense................................. (87,274) -- (60,069)
----------- ----------- -----------
709,781 444,755 547,454
10% annual discount factor.................................. (240,681) (211,956) (201,732)
----------- ----------- -----------
Standardized measure of discounted future cash flows........ $ 469,100 $ 232,799 $ 345,722
=========== =========== ===========
CANADA
Oil and gas producing activities:
Future cash inflows....................................... $ 354,662 $ 526,844 $ 662,104
Future production costs................................... (91,913) (163,414) (223,325)
Future development costs.................................. (54,571) (49,380) (48,323)
Future income tax expense................................. (2,522) (30,797) (79,044)
----------- ----------- -----------
205,656 283,253 311,412
10% annual discount factor.................................. (75,266) (94,113) (102,395)
----------- ----------- -----------
Standardized measure of discounted future cash flows........ $ 130,390 $ 189,140 $ 209,017
=========== =========== ===========
TOTAL
Oil and gas producing activities:
Future cash inflows....................................... $ 9,574,153 $ 6,264,228 $10,510,836
Future production costs................................... (3,114,742) (2,641,266) (3,576,787)
Future development costs.................................. (422,708) (322,817) (511,042)
Future income tax expense................................. (945,671) (30,797) (999,745)
----------- ----------- -----------
5,091,032 3,269,348 5,423,262
10% annual discount factor.................................. (2,153,773) (1,620,540) (2,371,498)
----------- ----------- -----------
Standardized measure of discounted future cash flows........ $ 2,937,259 $ 1,648,808 $ 3,051,764
=========== =========== ===========
</TABLE>
F-45
<PAGE> 118
PIONEER NATURAL RESOURCES COMPANY
UNAUDITED SUPPLEMENTARY INFORMATION -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas sales, net of production costs........... $ (485,116) $ (487,942) $ (392,612)
Net changes in prices and production costs........... 1,571,584 (1,281,944) (1,034,678)
Extensions and discoveries........................... 60,695 44,018 19,993
Sales of minerals-in-place........................... (468,376) (12,748) (126,879)
Purchases of minerals-in-place....................... 56,309 3 1,880,570
Revisions of estimated future development costs...... (115,043) (2,777) (15,158)
Revisions of previous quantity estimates............. 387,616 (68,086) 240,375
Accretion of discount................................ 164,881 307,567 234,537
Changes in production rates, timing and other........ 115,901 75,045 (99,753)
---------- ----------- -----------
Change in present value of future net revenues....... 1,288,451 (1,426,864) 706,395
Net change in present value of future income taxes... -- 23,908 537,804
---------- ----------- -----------
1,288,451 (1,402,956) 1,244,199
Balance, beginning of year........................... 1,648,808 3,051,764 1,807,565
---------- ----------- -----------
Balance, end of year................................. $2,937,259 $ 1,648,808 $ 3,051,764
========== =========== ===========
</TABLE>
SELECTED QUARTERLY FINANCIAL RESULTS
<TABLE>
<CAPTION>
QUARTER
---------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999
Operating revenues........................... $147,151 $174,231 $159,855 $ 163,409
Total revenues............................... $193,191 $134,744 $213,165 $ 169,035
Costs and expenses........................... $195,292 $209,860 $166,137 $ 161,906
Net income (loss)............................ $ (2,501) $(74,616) $ 46,428 $ 8,229
Net income (loss) per share.................. $ (.02) $ (.74) $ .46 $ .08
1998
Operating revenues........................... $197,369 $183,647 $173,462 $ 157,014
Total revenues............................... $198,557 $185,107 $178,869 $ 158,966
Costs and expenses........................... $238,801 $235,616 $247,071 $ 730,837
Net loss..................................... $(26,844) $(32,809) $(43,902) $(642,871)
Net loss per share........................... $ (.27) $ (.33) $ (.44) $ (6.41)
</TABLE>
F-46
<PAGE> 119
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-42315
PROSPECTUS
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC., AS GUARANTOR
DEBT SECURITIES
PREFERRED STOCK
DEPOSITARY SHARES
COMMON STOCK
WARRANTS
GUARANTEES OF DEBT SECURITIES
LOGO
Pioneer Natural Resources Company (the "Company"), a Delaware corporation,
may offer from time to time (a) debt securities ("Debt Securities"), which may
be subordinated to other indebtedness of the Company, (b) warrants to purchase
Debt Securities ("Debt Warrants"), (c) shares of preferred stock, par value $.01
per share ("Preferred Stock"), (d) warrants to purchase shares of Preferred
Stock ("Preferred Stock Warrants"), (e) depositary shares representing
entitlement to all rights and preferences of a fraction of a share of Preferred
Stock of a specified series ("Depositary Shares"), (f) shares of common stock,
par value $.01 per share ("Common Stock"), and (g) warrants to purchase shares
of Common Stock ("Common Stock Warrants"), and Pioneer Natural Resources USA,
Inc. ("Pioneer USA"), a Delaware corporation and direct, wholly-owned subsidiary
of the Company, may offer from time to time guarantees of Debt Securities
("Guarantees"), all having an aggregate initial public offering price not to
exceed $1,400,000,000 or the equivalent thereof in one or more foreign
currencies, foreign currency units or composite currencies, including European
Currency Units. The Debt Warrants, Preferred Stock Warrants and Common Stock
Warrants are referred to herein collectively as "Warrants," and the Debt
Securities, Preferred Stock, Depositary Shares, Common Stock, Warrants and
Guarantees are referred to herein collectively as the "Offered Securities." The
Offered Securities may be offered, separately or as units with other Offered
Securities, in separate series in amounts, at prices and on terms to be
determined at or prior to the time of sale.
The specific terms of the Offered Securities with respect to which this
Prospectus is being delivered will be set forth in an accompanying supplement to
this Prospectus (a "Prospectus Supplement"), together with the terms of the
offering of the Offered Securities and the initial price and the net proceeds to
the Company or Pioneer USA from the sale thereof. The Prospectus Supplement will
include, with regard to the particular Offered Securities, the following
information: (a) in the case of Debt Securities, the specific designation,
aggregate principal amount, ranking, authorized denomination, maturity, rate or
method of calculation of interest and dates for payment thereof, any
exchangeability, conversion, redemption, prepayment, or sinking fund provisions,
the currency or currency unit in which principal, premium, or interest is
payable, the designation of the trustee acting under the applicable indenture,
and the initial offering price; (b) in the case of Preferred Stock, the
designation, number of shares, liquidation preference per share, initial public
offering price, dividend rate (or method of calculation thereof), dates on which
dividends shall be payable and dates from which dividends shall accrue, any
redemption or sinking fund provisions, any conversion or exchange rights, and
whether the Company has elected to offer the Preferred Stock in the form of
Depositary Shares; (c) in the case of Common Stock, the number of shares and the
terms of the offering and sale thereof; (d) in the case of Warrants, the number
and terms thereof, the designation and the number of securities issuable upon
exercise, the exercise price, the terms of the offering and sale thereof, and
where applicable, the duration and detachability thereof; (e) in the case of
Guarantees, the series of Debt Securities to which the Guarantees apply, whether
the Guarantees are secured or unsecured, conditional or unconditional, senior or
subordinate to other guarantees or indebtedness, and any other material terms;
and (f) in the case of all Offered Securities, whether the Offered Securities
will be offered separately or as a unit with other Offered Securities. The
Prospectus Supplement will also contain information, where applicable, about
material United States federal income tax considerations relating to, and any
listing on a securities exchange of, the Offered Securities covered by the
Prospectus Supplement.
The Company may sell the Offered Securities directly, through agents
designated from time to time, or through underwriters or dealers. If any agents,
underwriters or dealers are involved in the sale of the Offered Securities, the
names of the agents, underwriters or dealers and any applicable commissions or
discounts and the net proceeds to the Company from the sale will be set forth in
the applicable Prospectus Supplement.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF OFFERED SECURITIES
UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
March 23, 2000
<PAGE> 120
CERTAIN PERSONS PARTICIPATING IN AN OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED
SECURITIES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH OFFERED SECURITIES, AND THE IMPOSITION OF A PENALTY BID,
DURING AND AFTER AN OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN
OF DISTRIBUTION."
AVAILABLE INFORMATION
The Company and Pioneer USA are subject to the informational requirements
of the Securities Exchange Act of 1934 (the "Exchange Act"). Each of the Company
and Pioneer USA files reports and other information, and the Company files proxy
statements, with the Securities and Exchange Commission (the "SEC"). Those
reports, proxy statements, and other information can be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC at
7 World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60611. Copies of these materials can be
obtained at prescribed rates from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. These reports, proxy statements and
other information may also be obtained without charge from the web site that the
SEC maintains at http://www.sec.gov. These reports, proxy statements, and other
information about the Company also may be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company and Pioneer USA have filed with the SEC a Registration
Statement on Form S-3 (the "Registration Statement") under the Securities Act of
1933 (the "Securities Act") with respect to the Offered Securities. This
Prospectus and any accompanying Prospectus Supplement do not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. For further
information with respect to the Company, Pioneer USA and the Offered Securities,
reference is made to the Registration Statement and to the exhibits thereto.
Statements contained herein concerning the provisions of certain documents are
not necessarily complete, and in each instance, reference is made to the copy of
the document filed as an exhibit to the Registration Statement or otherwise
filed with the SEC. Each such statement is qualified in its entirety by that
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the SEC, are
incorporated by reference into this Prospectus, and are deemed to be a part of
this Prospectus:
1. Annual Report on Forms 10-K and 10-K/A for the year ended December 31,
1999;
2. Current Report on Form 8-K, filed with the SEC on March 14, 2000; and
3. The description of the Company's Common Stock contained in the
Company's Registration Statement on Forms 8-A and 8-A/A (File No.
001-13245), declared effective by the SEC on August 8, 1997.
All documents filed by the Company and Pioneer USA pursuant to Section
13(a), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering made hereby shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
that also is or is deemed to be incorporated by reference herein or in any
Prospectus Supplement modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part of this
Prospectus, except as so modified or superseded.
2
<PAGE> 121
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, on the written or oral request of any
person, a copy of any or all of the documents referred to above that have been
or may be incorporated by reference into this Prospectus, other than exhibits to
the documents (unless the exhibits are specifically incorporated by reference
into the documents). Written or telephone request for the copies should be
directed to Corporate Secretary, Pioneer Natural Resources Company, 1400
Williams Square West, 5205 North O'Connor Boulevard, Irving, Texas 75039
(Telephone: (972) 444-9001).
THE ISSUERS
The Company is one of the largest public independent oil and gas companies
in the United States, engaged principally in the acquisition, development and
production of, and exploration for, oil and gas reserves and related activities.
Pioneer USA is a direct, wholly-owned subsidiary of the Company and owns
substantially all of the United States onshore and offshore properties of the
Company. The executive offices and operating headquarters of the Company and
Pioneer USA are located at 1400 Williams Square West, 5205 North O'Connor Blvd.,
Irving, Texas 75039, and their telephone number at those offices is (972)
444-9001.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the net
proceeds from the sale of Offered Securities will be used for general corporate
purposes, which may include repayment of indebtedness, redemption or repurchase
of securities of the Company or any subsidiary, additions to working capital,
and capital expenditures, including exploration, development and acquisitions.
RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges and earnings to fixed charges and preferred stock
dividends for each of 1995, 1996, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(a)....................... (b) 5.3 (b) (b) (b)
Ratio of earnings to fixed charges and preferred stock
dividends(c).............................................. (b) 5.3 (b) (b) (b)
</TABLE>
- ---------------
(a) For purposes of computing the ratio, earnings consist of income before
income taxes and cumulative effect of accounting change plus fixed charges,
net of preferred stock dividends of subsidiary and interest capitalized, and
fixed charges consist of interest expense, interest capitalized, the portion
of rental expense attributable to interest, and preferred stock dividends of
subsidiary.
(b) The ratio indicates a less than one-to-one coverage because the earnings are
inadequate to cover the fixed charges during the years ended December 31,
1995, 1997, 1998, and 1999 by $150 million, $1,378 million, $731 million,
and $23 million, respectively.
(c) For purposes of computing the ratio, adjusted earnings consist of income
before income taxes and cumulative effect of accounting change plus fixed
charges and preferred stock dividends, net of preferred stock dividends of
subsidiary and interest capitalized, and fixed charges and preferred stock
dividends consist of interest expense, interest capitalized, the portion of
rental expense attributable to interest, preferred stock dividends of
subsidiary, and preferred stock dividends. The dividends on the 6 1/4%
Cumulative Guaranteed Monthly Income Convertible Preferred Shares of Parker
& Parsley Capital LLC, a subsidiary of Company predecessor Parker & Parsley,
were recorded as interest expense for financial reporting purposes until
those shares were converted into common stock of Parker & Parsley on July
28, 1997.
3
<PAGE> 122
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which the
general provisions may apply to the Debt Securities so offered will be described
in the Prospectus Supplement relating to the Debt Securities. Accordingly, for a
description of the terms of a particular issue of Debt Securities, reference
must be made to both the Prospectus Supplement relating thereto and to the
following description.
The Debt Securities will be general obligations of the Company and may be
subordinated to Senior Indebtedness (as defined below) of the Company to the
extent set forth in the Prospectus Supplement relating thereto. See "Description
of Debt Securities -- Subordination." Debt Securities will be issued under an
indenture (the "Indenture"), between the Company and one or more commercial
banks to be selected as trustees (the trustee or trustees selected are referred
to collectively as the "Trustee"). The Indenture is subject to and governed by
the Trust Indenture Act of 1939 (the "TIA"), and the terms of the Debt
Securities will include those made part of the Indenture by reference to the TIA
as in effect on the date of the Indenture. A copy of the Indenture is filed as
an exhibit to the Registration Statement of which this Prospectus is a part. The
Indenture will also be available for inspection at the corporate trust office of
the Trustee. The following discussion of certain provisions of the Indenture is
a summary only and does not purport to be a complete description of the terms
and provisions of the Indenture. Accordingly, the following discussion is
qualified in its entirety by reference to the provisions of the Indenture and
the TIA, including the definition in the Indenture of terms used below with
their initial letters capitalized.
GENERAL
The Indenture does not limit the aggregate principal amount of Debt
Securities that can be issued thereunder. The Debt Securities may be issued in
one or more series as may be authorized from time to time by the Company.
Reference is made to the applicable Prospectus Supplement for the following
terms of the Debt Securities of the series with respect to which the Prospectus
Supplement is being delivered:
(a) The title of the Debt Securities of the series;
(b) Any limit on the aggregate principal amount of the Debt Securities
of the series that may be authenticated and delivered under the Indenture;
(c) The date or dates on which the principal and premium with respect
to the Debt Securities of the series are payable;
(d) The rate or rates (which may be fixed or variable) at which the
Debt Securities of the series shall bear interest (if any) or the method of
determining the rate or rates, the date or dates from which the interest
shall accrue, the interest payment dates on which the interest shall be
payable or the method by which the dates will be determined, the record
dates for the determination of holders thereof to whom the interest is
payable (in the case of Registered Securities), and the basis upon which
interest will be calculated if other than that of a 360-day year of twelve
30-day months;
(e) The place or places, if any, in addition to or instead of the
corporate trust office of the Trustee (in the case of Registered
Securities) or the principal London office of the Trustee (in the case of
Bearer Securities), where the principal, premium, and interest with respect
to Debt Securities of the series shall be payable;
(f) The price or prices at which, the period or periods within which,
and the terms and conditions upon which, Debt Securities of the series may
be redeemed, in whole or in part, at the option of the Company or
otherwise;
(g) Whether Debt Securities of the series are to be issued as
Registered Securities or Bearer Securities or both and, if Bearer
Securities are to be issued, whether coupons will be attached thereto,
whether Bearer Securities of the series may be exchanged for Registered
Securities of the series, and the circumstances under which and the places
at which any such exchanges, if permitted, may be made;
4
<PAGE> 123
(h) If any Debt Securities of the series are to be issued as Bearer
Securities or as one or more Global Securities (as defined below)
representing individual Bearer Securities of the series, whether certain
provisions for the payment of additional interest or tax redemptions shall
apply; whether interest with respect to any portion of a temporary Bearer
Security of the series payable with respect to any interest payment date
prior to the exchange of the temporary Bearer Security for definitive
Bearer Securities of the series shall be paid to any clearing organization
with respect to the portion of the temporary Bearer Security held for its
account and, in such event, the terms and conditions (including any
certification requirements) upon which any such interest payment received
by a clearing organization will be credited to the persons entitled to
interest payable on the interest payment date; and the terms upon which a
temporary Bearer Security may be exchanged for one or more definitive
Bearer Securities of the series;
(i) The obligation, if any, of the Company to redeem, purchase or
repay Debt Securities of the series pursuant to any sinking fund or
analogous provisions or at the option of a holder thereof and the price or
prices at which, the period or periods within which, and the terms and
conditions upon which, Debt Securities of the series shall be redeemed,
purchased or repaid, in whole or in part, pursuant to such obligations;
(j) The terms, if any, upon which the Debt Securities of the series
may be convertible into or exchanged for Common Stock, Preferred Stock
(which may be represented by Depositary Shares), other Debt Securities, or
warrants for Common Stock, Preferred Stock, or indebtedness or other
securities of any kind of the Company or any other issuer or obligor and
the terms and conditions upon which the conversion or exchange shall be
effected, including the initial conversion or exchange price or rate, the
conversion or exchange period, and any other additional provisions;
(k) If other than denominations of $1,000 or any integral multiple
thereof, the denominations in which Debt Securities of the series shall be
issuable;
(l) If the amount of principal, premium or interest with respect to
the Debt Securities of the series may be determined with reference to an
index or pursuant to a formula, the manner in which the amounts will be
determined;
(m) If the principal amount payable at the stated maturity of Debt
Securities of the series will not be determinable as of any one or more
dates prior to the stated maturity, the amount that will be deemed to be
the principal amount as of any date for any purpose, including the
principal amount thereof which will be due and payable upon any maturity
other than the stated maturity or which will be deemed to be outstanding as
of any date (or, in any such case, the manner in which the deemed principal
amount is to be determined), and if necessary, the manner of determining
the equivalent thereof in United States currency;
(n) Any changes or additions to the provisions of the Indenture
dealing with defeasance, including the addition of additional covenants
that may be subject to the Company's covenant defeasance option;
(o) If other than the coin or currency of the United States as at the
time of payment is legal tender for payment of public and private debts,
the coin or currency or currencies or units of two or more currencies in
which payment of the principal, premium, and interest with respect to Debt
Securities of the series shall be payable;
(p) If other than the principal amount thereof, the portion of the
principal amount of Debt Securities of the series that shall be payable
upon declaration of acceleration of the maturity thereof or provable in
bankruptcy;
(q) The terms, if any, of the transfer, mortgage, pledge or assignment
as security for the Debt Securities of the series of any properties,
assets, moneys, proceeds, securities, or other collateral, including
whether certain provisions of the Trust Indenture Act are applicable and
any corresponding changes to provisions of the Indenture as then in effect;
5
<PAGE> 124
(r) Any addition to or change in the Events of Default with respect to
the Debt Securities of the series and any change in the right of the
Trustee or the holders to declare the principal, premium and interest with
respect to the Debt Securities due and payable;
(s) If the Debt Securities of the series shall be issued in whole or
in part in the form of a Global Security, the terms and conditions, if any,
upon which the Global Security may be exchanged in whole or in part for
other individual Debt Securities in definitive registered form, the
Depositary for the Global Security, and the form of any legend or legends
to be borne by the Global Security in addition to or in lieu of the legend
referred to in the Indenture;
(t) Any Trustee, authenticating or paying agents, transfer agents or
registrars;
(u) The applicability of, and any addition to or change in, the
covenants and definitions then set forth in the Indenture or in the terms
then set forth in the Indenture relating to permitted consolidations,
mergers or sales of assets, including conditioning any merger, conveyance,
transfer or lease permitted by the Indenture upon the satisfaction of an
indebtedness coverage standard by the Company and any successor to the
Company;
(v) The terms, if any, of any guarantee of the payment of principal,
premium and interest with respect to Debt Securities of the series and any
corresponding changes to the provisions of the Indenture as then in effect;
(w) The subordination, if any, of the Debt Securities of the series
pursuant to the Indenture and any changes or additions to the provisions of
the Indenture relating to subordination;
(x) With regard to Debt Securities of the series that do not bear
interest, the dates for certain required reports to the Trustee; and
(y) Any other terms of the Debt Securities of the series (which terms
shall not be prohibited by the provisions of the Indenture).
The Prospectus Supplement will also describe any material United States
federal income tax consequences or other special considerations applicable to
the series of Debt Securities to which the Prospectus Supplement relates,
including those applicable to (a) Bearer Securities, (b) Debt Securities with
respect to which payments of principal, premium or interest are determined with
reference to an index or formula (including changes in prices of particular
securities, currencies or commodities), (c) Debt Securities with respect to
which principal, premium or interest is payable in a foreign or composite
currency, (d) Debt Securities that are issued at a discount below their stated
principal amount, bearing no interest or interest at a rate that at the time of
issuance is below market rates ("Original Issue Discount Debt Securities"), and
(e) variable rate Debt Securities that are exchangeable for fixed rate Debt
Securities.
Payments of interest on Registered Securities may be made at the option of
the Company by check mailed to the registered holders thereof or, if so provided
in the applicable Prospectus Supplement, at the option of a holder by wire
transfer to an account designated by the holder. Except as otherwise provided in
the applicable Prospectus Supplement, no payment on a Bearer Security will be
made by mail to an address in the United States or by wire transfer to an
account in the United States.
Unless otherwise provided in the applicable Prospectus Supplement,
Registered Securities may be transferred or exchanged at the office of the
Trustee at which its corporate trust business is principally administered in the
United States or at the office of the Trustee or the Trustee's agent in the
Borough of Manhattan, the City and State of New York, at which its corporate
agency business is conducted, subject to the limitations provided in the
Indenture, without the payment of any service charge, other than any tax or
governmental charge payable in connection therewith. Bearer Securities will be
transferable only by delivery. Provisions with respect to the exchange of Bearer
Securities will be described in the Prospectus Supplement relating to the Bearer
Securities.
All funds paid by the Company to a paying agent for the payment of
principal, premium, or interest with respect to any Debt Securities that remain
unclaimed at the end of two years after the principal, premium, or
6
<PAGE> 125
interest shall have become due and payable will be repaid to the Company, and
the holders of the Debt Securities or any coupons appertaining thereto will
thereafter look only to the Company for payment thereof.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities. A Global Security is a Debt Security that
represents, and is denominated in an amount equal to, the aggregate principal
amount of all outstanding Debt Securities of a series, or any portion thereof,
in either case having the same terms, including the same original issue date,
date or dates on which principal and interest are due, and interest rate or
method of determining interest. A Global Security will be deposited with, or on
behalf of, a Depositary, which will be identified in the Prospectus Supplement
relating to the Debt Securities. Global Securities may be issued in either
registered or bearer form and in either temporary or definitive form. Unless and
until it is exchanged in whole or in part for the individual Debt Securities
represented thereby, a Global Security may not be transferred except as a whole
by the Depositary to a nominee of the Depositary, by a nominee of the Depositary
to the Depositary or another nominee of the Depositary, or by the Depositary or
any nominee of the Depositary to a successor Depositary or any nominee of the
successor.
The specific terms of the depositary arrangement with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
the Debt Securities. The Company anticipates that the following provisions will
generally apply to depositary arrangements.
Upon the issuance of a Global Security, the Depositary for the Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the individual Debt Securities represented by
the Global Security to the accounts of persons that have accounts with the
Depositary ("participants"). The accounts shall be designated by the dealers or
underwriters with respect to the Debt Securities or, if the Debt Securities are
offered and sold directly by the Company or through one or more agents, by the
Company or the agents. Ownership of beneficial interests in a Global Security
will be limited to participants or persons that hold beneficial interests
through participants. Ownership of beneficial interests in the Global Security
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by the Depositary (with respect to interests of
participants) or records maintained by participants (with respect to interests
of persons other than participants). The laws of some states require that
certain purchasers of securities take physical delivery of the securities in
definitive form. Such limitations and laws may impair the ability to transfer
beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner or holder of the Global Security, the Depositary or nominee, as
the case may be, will be considered the sole owner or holder of the individual
Debt Securities represented by the Global Security for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Security will not be entitled to have any of the individual Debt Securities
represented by the Global Security registered in their names, will not receive
or be entitled to receive physical delivery of any of the Debt Securities in
definitive form, and will not be considered the owners or holders thereof under
the Indenture.
Subject to the restrictions described under "Description of Debt
Securities -- Limitations on Issuance of Bearer Securities," payments of
principal, premium and interest with respect to individual Debt Securities
represented by a Global Security will be made to the Depositary or its nominee,
as the case may be, as the registered owner or holder of the Global Security.
Neither the Company, the Trustee, any paying agent or registrar for the Debt
Securities, or any agent of the Company or the Trustee will have any
responsibility or liability for (a) any aspect of the records relating to or
payments made by the Depositary, its nominee, or any participants on account of
beneficial interests in the Global Security or for maintaining, supervising or
reviewing any records relating to the beneficial interests, (b) the payment to
the owners of beneficial interests in the Global Security of amounts paid to the
Depositary or its nominee, or (c) any other matter relating to the actions and
practices of the Depositary, its nominee or its participants. Neither the
Company, the Trustee, any paying agent or registrar for the Debt Securities, nor
any agent of the Company or the Trustee will be liable for any delay by the
Depositary, its nominee or any of its participants in identifying the owners of
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beneficial interests in the Global Security, and the Company and the Trustee may
conclusively rely on, and will be protected in relying on, instructions from the
Depositary or its nominee for all purposes.
The Company expects that the Depositary for a series of Debt Securities or
its nominee, upon receipt of any payment of principal, premium or interest with
respect to a definitive Global Security representing any of the Debt Securities,
will immediately credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Security, as shown on the records of the Depositary or its
nominee. The Company also expects that payments by participants to owners of
beneficial interests in the Global Security held through the participants will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers and registered in street
name. The payments will be the responsibility of the participants. Receipt by
owners of beneficial interests in a temporary Global Security of payments of
principal, premium or interest with respect thereto will be subject to the
restrictions described under "Description of Debt Securities -- Limitations on
Issuance of Bearer Securities."
If the Depositary for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depositary, the Company shall appoint a
successor depositary. If a successor depositary is not appointed by the Company
within 90 days, the Company will issue individual Debt Securities of the series
in exchange for the Global Security representing the series of Debt Securities.
In addition, the Company may at any time and in its sole discretion, subject to
any limitations described in the Prospectus Supplement relating to the Debt
Securities, determine no longer to have Debt Securities of a series represented
by a Global Security and, in that event, will issue individual Debt Securities
of the series in exchange for the Global Security representing the series of
Debt Securities. Furthermore, if the Company so specifies with respect to the
Debt Securities of a series, an owner of a beneficial interest in a Global
Security representing Debt Securities of the series may, on terms acceptable to
the Company, the Trustee, and the Depositary for the Global Security, receive
individual Debt Securities of the series in exchange for the beneficial
interests, subject to any limitations described in the Prospectus Supplement
relating to the Debt Securities. In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery of
individual Debt Securities of the series represented by the Global Security
equal in principal amount to the beneficial interest and to have the Debt
Securities registered in its name (if the Debt Securities are issuable as
Registered Securities). Individual Debt Securities of the series so issued will
be issued (a) as Registered Securities in denominations, unless otherwise
specified by the Company, of $1,000 and integral multiples thereof if the Debt
Securities are issuable as Registered Securities, (b) as Bearer Securities in
the denomination or denominations specified by the Company if the Debt
Securities are issuable as Bearer Securities, or (c) as either Registered
Securities or Bearer Securities as described above if the Debt Securities are
issuable in either form. See, however, "Description of Debt
Securities -- Limitations on Issuance of Bearer Securities" for a description of
certain restrictions on the issuance of individual Bearer Securities in exchange
for beneficial interests in a bearer Global Security.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
The Debt Securities of a series may be issued as Registered Securities
(which will be registered as to principal and interest in the register
maintained by the registrar for the Debt Securities) or Bearer Securities (which
will be transferable only by delivery). If the Debt Securities are issuable as
Bearer Securities, certain special limitations and considerations will apply.
In compliance with United States federal income tax laws and regulations,
the Company and any underwriter, agent or dealer participating in an offering of
Bearer Securities will agree that, in connection with the original issuance of
the Bearer Securities and during the period ending 40 days after the issue date,
they will not offer, sell or deliver any such Bearer Security, directly or
indirectly, to a United States Person (as defined below) or to any person within
the United States, except to the extent permitted under United States Treasury
regulations.
Bearer Securities will bear a legend to the following effect: "Any United
States person who holds this obligation will be subject to limitations under the
United States federal income tax laws, including the limitations provided in
Sections 165(j) and 1287(a) of the Internal Revenue Code." The sections referred
to
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in the legend provide that, with certain exceptions, a United States taxpayer
who holds Bearer Securities will not be allowed to deduct any loss with respect
to, and will not be eligible for capital gain treatment with respect to any gain
realized on the sale, exchange, redemption or other disposition of, the Bearer
Securities.
For this purpose, "United States" includes the United States of America and
its possessions, and "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States, or an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source.
Pending the availability of a definitive Global Security or individual
Bearer Securities, as the case may be, Debt Securities that are issuable as
Bearer Securities may initially be represented by a single temporary Global
Security, without interest coupons, to be deposited with a common depositary in
London for Morgan Guaranty Trust Company of New York, Brussels Office, as
operator of the Euroclear System ("Euroclear"), or Centrale de Livraison de
Valeurs Mobilieres S.A. ("CEDEL") for credit to the accounts designated by or on
behalf of the purchasers thereof. Following the availability of a definitive
Global Security in bearer form, without coupons attached, or individual Bearer
Securities and subject to any further limitations described in the applicable
Prospectus Supplement, the temporary Global Security will be exchangeable for
interests in the definitive Global Security or for the individual Bearer
Securities, respectively, only upon receipt of a "Certificate of Non-U.S.
Beneficial Ownership," which is a certificate to the effect that a beneficial
interest in a temporary Global Security is owned by a person that is not a
United States Person or is owned by or through a financial institution in
compliance with applicable United States Treasury regulations. No Bearer
Security will be delivered in or to the United States. If so specified in the
applicable Prospectus Supplement, interest on a temporary Global Security will
be paid to each of Euroclear and CEDEL with respect to that portion of the
temporary Global Security held for its account, but only upon receipt as of the
relevant interest payment date of a Certificate of Non-U.S. Beneficial
Ownership.
SUBORDINATION
Debt Securities of a series may be subordinated ("Subordinated Debt
Securities") to Senior Indebtedness (as defined below) to the extent set forth
in the Prospectus Supplement relating thereto. The Company currently conducts
substantially all its operations through subsidiaries, and the holders of Debt
Securities (whether or not Subordinated Debt Securities) will be structurally
subordinated to the creditors of the Company's subsidiaries.
Subordinated Debt Securities of a series and any coupons appertaining
thereto will be subordinate in right of payment, to the extent and in the manner
set forth in the Indenture and the Prospectus Supplement relating to the
Subordinated Debt Securities, to the prior payment of all indebtedness of the
Company that is designated as "Senior Indebtedness" with respect to the series.
"Senior Indebtedness," with respect to any series of Subordinated Debt
Securities, will consist of (a) any and all amounts payable under or with
respect to the Company's "Bank Indebtedness" and (b) any other indebtedness of
the Company that is designated in a resolution of the Company's Board of
Directors or in any supplemental indenture establishing any other series as
Senior Indebtedness with respect to the series. "Bank Indebtedness" is defined
as (i) the Amended and Restated Credit Facility Agreement (Primary Facility),
dated as of December 18, 1997, among the Company, as Borrower, and NationsBank
of Texas, N.A., as Administrative Agent, CIBC Inc., as Documentation Agent,
Morgan Guaranty Trust Company of New York, as Documentation Agent, The Chase
Manhattan Bank, as Syndication Agent, and the Co-Agents and Lenders party
thereto; (ii) the Amended and Restated Credit Facility Agreement (364 Day
Facility), dated as of December 18, 1997, among the Company, as Borrower, and
NationsBank of Texas, N.A., as Administrative Agent, CIBC Inc., as Documentation
Agent, Morgan Guaranty Trust Company of New York, as Documentation Agent, The
Chase Manhattan Bank, as Syndication Agent, and the Co-Agents and Lenders party
thereto; (iii) the Term Note, dated as of December 22, 1997, executed by the
Company and payable to NationsBank of Texas, N.A., in the original principal
amount of $100 million; and (iv) the Credit Agreement, dated as of December 18,
1997, among Chauvco Resources Ltd., Canadian Imperial Bank of Commerce, and the
other lenders signatory thereto; each as amended or modified from time to time,
and each of which is incorporated by reference as an exhibit to the Registration
Statement of which this Prospectus is a part.
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Upon any payment or distribution of assets of the Company to creditors or
upon a total or partial liquidation or dissolution of the Company or in a
bankruptcy, receivership or similar proceeding relating to the Company or its
property, holders of Senior Indebtedness shall be entitled to receive payment in
full in cash of the Senior Indebtedness before holders of Subordinated Debt
Securities shall be entitled to receive any payment of principal, premium or
interest with respect to the Subordinated Debt Securities, and until the Senior
Indebtedness is paid in full, any distribution to which holders of Subordinated
Debt Securities would otherwise be entitled shall be made to the holders of
Senior Indebtedness (except that the holders may receive shares of stock and any
debt securities that are subordinated to Senior Indebtedness to at least the
same extent as the Subordinated Debt Securities).
The Company may not make any payments of principal, premium or interest
with respect to Subordinated Debt Securities, make any deposit for the purpose
of defeasance of the Subordinated Debt Securities, or repurchase, redeem or
otherwise retire (except, in the case of Subordinated Debt Securities that
provide for a mandatory sinking fund, by the delivery of Subordinated Debt
Securities by the Company to the Trustee in satisfaction of the Company's
sinking fund obligation) any Subordinated Debt Securities if (a) any principal,
premium or interest with respect to Senior Indebtedness is not paid within any
applicable grace period (including at maturity), or (b) any other default on
Senior Indebtedness occurs and the maturity of the Senior Indebtedness is
accelerated in accordance with its terms, unless, in either case, the default
has been cured or waived and the acceleration has been rescinded, the Senior
Indebtedness has been paid in full in cash, or the Company and the Trustee
receive written notice approving the payment from the representatives of each
issue of "Designated Senior Indebtedness" (which will include the Bank
Indebtedness and any other specified issue of Senior Indebtedness of at least
$100 million). During the continuance of any default (other than a default
described in clause (a) or (b) above) with respect to any Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect the
acceleration) or the expiration of any applicable grace periods, the Company may
not pay the Subordinated Debt Securities for a period (the "Payment Blockage
Period") commencing on the receipt by the Company and the Trustee of written
notice of the default from the representative of any Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period (a
"Blockage Notice"). The Payment Blockage Period may be terminated before its
expiration by written notice to the Trustee and the Company from the person who
gave the Blockage Notice, by repayment in full in cash of the Senior
Indebtedness with respect to which the Blockage Notice was given, or because the
default giving rise to the Payment Blockage Period is no longer continuing.
Unless the holders of the Senior Indebtedness shall have accelerated the
maturity thereof, the Company may resume payments on the Subordinated Debt
Securities after the expiration of the Payment Blockage Period. Not more than
one Blockage Notice may be given in any period of 360 consecutive days unless
the first Blockage Notice within the 360-day period is given by or on behalf of
holders of Designated Senior Indebtedness other than the Bank Indebtedness, in
which case, the representative of the Bank Indebtedness may give another
Blockage Notice within the period. In no event, however, may the total number of
days during which any Payment Blockage Period or Periods is in effect exceed 179
days in the aggregate during any period of 360 consecutive days. After all
Senior Indebtedness is paid in full and until the Subordinated Debt Securities
are paid in full, holders of the Subordinated Debt Securities shall be
subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness.
By reason of the subordination, in the event of insolvency, creditors of
the Company who are holders of Senior Indebtedness, as well as certain general
creditors of the Company, may recover more, ratably, than the holders of the
Subordinated Debt Securities.
EVENTS OF DEFAULT AND REMEDIES
The following events are defined in the Indenture as "Events of Default"
with respect to a series of Debt Securities:
(a) Default in the payment of any installment of interest on any Debt
Securities of that series or any payment with respect to the related
coupons, if any, as and when the same shall become due and payable (whether
or not, in the case of Subordinated Debt Securities, the payment shall be
prohibited by reason of the subordination provisions described above) and
continuance of the default for a period of 30 days;
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(b) Default in the payment of principal or premium with respect to any
Debt Securities of that series as and when the same shall become due and
payable, whether at maturity, upon redemption, by declaration, upon
required repurchase or otherwise (whether or not, in the case of
Subordinated Debt Securities, the payment shall be prohibited by reason of
the subordination provisions described above);
(c) Default in the payment of any sinking fund payment with respect to
any Debt Securities of that series as and when the same shall become due
and payable;
(d) Failure on the part of the Company to comply with the provisions
of the Indenture relating to consolidations, mergers, and sales of assets;
(e) Failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company in the Debt
Securities of that series, in any resolution of the Board of Directors of
the Company authorizing the issuance of that series of Debt Securities, in
the Indenture with respect to the series, or in any supplemental indenture
with respect to the series (other than a covenant a default in the
performance of which is otherwise specifically dealt with) continuing for a
period of 60 days after the date on which written notice specifying the
failure and requiring the Company to remedy the same shall have been given
to the Company by the Trustee or to the Company and the Trustee by the
holders of at least 25% in aggregate principal amount of the Debt
Securities of that series at the time outstanding;
(f) Indebtedness of the Company or any subsidiary of the Company is
not paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default, the total amount
of the Indebtedness unpaid or accelerated exceeds $20 million, and the
default remains uncured or the acceleration is not rescinded for 10 days
after the date on which written notice specifying the failure and requiring
the Company to remedy the same shall have been given to the Company by the
Trustee or to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the Debt Securities of that series at the
time outstanding;
(g) The Company or any of its "Significant Subsidiaries" (defined as
any subsidiary of the Company that would be a "significant subsidiary" as
defined in Rule 405 under the Securities Act as in effect on the date of
the Indenture) shall (1) voluntarily commence any proceeding or file any
petition seeking relief under the United States Bankruptcy Code or other
federal or state bankruptcy, insolvency or similar law, (2) consent to the
institution of, or fail to controvert within the time and in the manner
prescribed by law, any such proceeding or the filing of any such petition,
(3) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator or similar official for the Company or any
Significant Subsidiary or for a substantial part of its property, (4) file
an answer admitting the material allegations of a petition filed against it
in any such proceeding, (5) make a general assignment for the benefit of
creditors, (6) admit in writing its inability to pay its debts as they
become due, (7) take corporate action for the purpose of effecting any of
the foregoing, or (8) take any comparable action under any foreign laws
relating to insolvency;
(h) The entry of an order or decree by a court having competent
jurisdiction for (1) relief with respect to the Company or any of its
Significant Subsidiaries or a substantial part of any of their property
under the United States Bankruptcy Code or any other federal or state
bankruptcy, insolvency or similar law, (2) the appointment of a receiver,
trustee, custodian, sequestrator or similar official for the Company or any
Significant Subsidiary or for a substantial part of any of their property
(except any decree or order appointing the official of any Significant
Subsidiary pursuant to a plan under which the assets and operations of the
Significant Subsidiary are transferred to or combined with another
Significant Subsidiary or Subsidiaries of the Company or to the Company),
or (3) the winding-up or liquidation of the Company or any Significant
Subsidiary (except any decree or order approving or ordering the winding-up
or liquidation of the affairs of a Significant Subsidiary pursuant to a
plan under which the assets and operations of the Significant Subsidiary
are transferred to or combined with another Significant Subsidiary or
Subsidiaries of the Company or to the Company), and the order or decree
shall continue unstayed and in effect for 60 consecutive days, or any
similar relief is granted under any foreign laws and the order or decree
stays in effect for 60 consecutive days;
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(i) Any judgment or decree for the payment of money in excess of $20
million is entered against the Company or any subsidiary of the Company by
a court of competent jurisdiction, which judgment is not covered by
insurance, and is not discharged and either (1) an enforcement proceeding
has been commenced by any creditor upon the judgment or decree, or (2)
there is a period of 60 days following the entry of the judgment or decree
during which the judgment or decree is not discharged or waived or the
execution thereof stayed and, in either case, the default continues for 10
days after the date on which written notice specifying the failure and
requiring the Company to remedy the same shall have been given to the
Company by the Trustee or to the Company and the Trustee by the holders of
at least 25% in aggregate principal amount of the Debt Securities of that
series at the time outstanding; or
(j) Any other Event of Default provided with respect to Debt
Securities of that series.
An Event of Default with respect to one series of Debt Securities is not
necessarily an Event of Default for another series.
If an Event of Default described in clause (a), (b), (c), (d), (e), (f),
(i) or (j) above occurs and is continuing with respect to any series of Debt
Securities, unless the principal and interest with respect to all the Debt
Securities of the series shall have already become due and payable, either the
Trustee or the holders of not less than 25% in aggregate principal amount of the
Debt Securities of that series then outstanding may declare the principal amount
(or, if Original Issue Discount Debt Securities, the portion of the principal
amount as may be specified in the series) of and interest on all the Debt
Securities of that series due and payable immediately. If an Event of Default
described in clause (g) or (h) above occurs, unless the principal and interest
with respect to all the Debt Securities of all series shall have become due and
payable, the principal amount (or, if Original Issue Discount Debt Securities,
the portion of the principal amount as may be specified in the series) of and
interest on all Debt Securities of all series then outstanding shall become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any holder of Debt Securities.
If an Event of Default occurs and is continuing, the Trustee shall be
entitled and empowered to institute any action or proceeding for the collection
of the sums so due and unpaid or to enforce the performance of any provision of
the Debt Securities of the affected series or the Indenture, to prosecute any
such action or proceeding to judgment or final decree, and to enforce any
judgment or final decree against the Company or any other obligor on the Debt
Securities of the series. In addition, if there shall be pending proceedings for
the bankruptcy or reorganization of the Company or any other obligor on the Debt
Securities, or if a receiver, trustee, or similar official shall have been
appointed for its property, the Trustee shall be entitled and empowered to file
and prove a claim for the whole amount of principal, premium and interest (or,
in the case of Original Issue Discount Debt Securities, the portion of the
principal amount as may be specified in the terms of the series) owing and
unpaid with respect to the Debt Securities.
The holders of not less than a majority in aggregate principal amount of a
series of Debt Securities may direct the time, method and place of conducting
any proceedings for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee; provided that such direction is not in
conflict with any rule of law or with the Indenture. The Trustee may take any
other action deemed proper by the Trustee which is not inconsistent with such
direction.
The Trustee will be entitled, subject to the duty of the Trustee during the
continuance of an Event of Default to act with the required standard of care, to
be indemnified by the holders of a series of Debt Securities before proceeding
to exercise any right or power under the Indenture at the request of the holders
of that series of Debt Securities.
No holder of any Debt Security or coupon of any series shall have any right
to institute any action or proceeding upon or under or with respect to the
Indenture, for the appointment of a receiver or trustee, or for any other
remedy, unless (a) the holder previously shall have given to the Trustee written
notice of an Event of Default with respect to Debt Securities of that series and
of the continuance thereof, (b) the holders of not less than 25% in aggregate
principal amount of the outstanding Debt Securities of that series shall have
made written request to the Trustee to institute the action or proceeding with
respect to the Event of Default and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses, and
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liabilities to be incurred therein or thereby, and (c) the Trustee, for 60 days
after its receipt of such notice, request, and offer of indemnity shall have
failed to institute the action or proceeding and no direction inconsistent with
the written request shall have been given to the Trustee pursuant to the
provisions of the Indenture. However, such limitations do not apply to a suit
instituted by a holder of Debt Securities for enforcement of payment of the
principal of, premium, if any, or interest on such Debt Securities on or after
the respective due dates expressed in such Debt Securities.
Prior to the acceleration of the maturity of the Debt Securities of any
series, the holders of a majority in aggregate principal amount of the Debt
Securities of that series at the time outstanding may, on behalf of the holders
of all Debt Securities and any related coupons of that series, waive any past
default or Event of Default and its consequences for that series, except (a) a
default in the payment of the principal, premium or interest with respect to the
Debt Securities, or (b) a default with respect to a provision of the Indenture
that cannot be amended without the consent of each holder affected thereby. In
case of any waiver, the default shall cease to exist, any Event of Default
arising therefrom shall be deemed to have been cured for all purposes, and the
Company, the Trustee and the holders of the Debt Securities of that series shall
be restored to their former positions and rights under the Indenture.
The Trustee shall, within 90 days after the occurrence of a default known
to it with respect to a series of Debt Securities, give to the holders of that
series of Debt Securities of the series notice of all uncured defaults with
respect to the series known to it, unless the defaults shall have been cured or
waived before the giving of the notice; provided, however, that except in the
case of default in the payment of principal, premium, or interest with respect
to the Debt Securities of that series or in the making of any sinking fund
payment with respect to the Debt Securities of that series, the Trustee shall be
protected in withholding notice if it in good faith determines that the
withholding of such notice is in the interest of the holders of the Debt
Securities of that series.
The Indenture will require the Company to file annually with the Trustee a
certificate, executed by a designated officer of the Company, stating to the
best of his knowledge that the Company is not in default under certain covenants
under the Indenture or if he has knowledge that the Company is in such default,
specifying such default.
MODIFICATION OF THE INDENTURE
The Company and the Trustee may enter into supplemental indentures without
the consent of the holders of Debt Securities for one or more of the following
purposes:
(a) To evidence the succession of another person to the Company
pursuant to the provisions of the Indenture relating to consolidations,
mergers and sales of assets and the assumption by the successor of the
covenants, agreements, and obligations of the Company in the Indenture and
in the Debt Securities;
(b) To surrender any right or power conferred upon the Company by the
Indenture, to add to the covenants of the Company such further covenants,
restrictions, conditions, or provisions for the protection of the holders
of all or any series of Debt Securities as the Board of Directors of the
Company shall consider to be for the protection of the holders of the Debt
Securities, and to make the occurrence, or the occurrence and continuance,
of a default in any of the additional covenants, restrictions, conditions
or provisions a default or an Event of Default under the Indenture
(provided, however, that with respect to any such additional covenant,
restriction, condition or provision, the supplemental indenture may provide
for a period of grace after default, which may be shorter or longer than
that allowed in the case of other defaults, may provide for an immediate
enforcement upon the default, may limit the remedies available to the
Trustee upon the default, or may limit the right of holders of a majority
in aggregate principal amount of any or all series of Debt Securities to
waive the default);
(c) To cure any ambiguity or omission or to correct or supplement any
provision contained in the Indenture, in any supplemental indenture, or in
any Debt Securities that may be defective or inconsistent with any other
provision contained therein, to convey, transfer, assign, mortgage or
pledge any property to
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or with the Trustee, or to make such other provisions in regard to matters
or questions arising under the Indenture as shall not adversely affect the
interests of any holders of Debt Securities of any series;
(d) To modify or amend the Indenture in such a manner as to permit the
qualification of the Indenture or any supplemental indenture under the
Trust Indenture Act as then in effect;
(e) To add to or change any of the provisions of the Indenture to
provide that Bearer Securities may be registerable as to principal, to
change or eliminate any restrictions on the payment of principal or premium
with respect to Registered Securities or of principal, premium or interest
with respect to Bearer Securities, or to permit Registered Securities to be
exchanged for Bearer Securities, so long as any such action does not
adversely affect the interests of the holders of Debt Securities or any
coupons of any series in any material respect or permit or facilitate the
issuance of Debt Securities of any series in uncertificated form;
(f) To comply with the provisions of the Indenture relating to
consolidations, mergers, and sales of assets;
(g) In the case of Subordinated Debt Securities, to make any change in
the provisions of the Indenture relating to subordination that would limit
or terminate the benefits available to any holder of Senior Indebtedness
under such provisions (but only if the holder of Senior Indebtedness
consents to the change);
(h) To add guarantees with respect to any or all of the Debt
Securities or to secure any or all of the Debt Securities;
(i) To make any change that does not adversely affect the rights of
any holder;
(j) To add to, change or eliminate any of the provisions of the
Indenture with respect to one or more series of Debt Securities, so long as
any such addition, change or elimination not otherwise permitted under the
Indenture shall (1) neither apply to any Debt Security of any series
created prior to the execution of the supplemental indenture and entitled
to the benefit of the provision nor modify the rights of the holders of any
such Debt Security with respect to the provision, or (2) become effective
only when there is no such Debt Security outstanding;
(k) To evidence and provide for the acceptance of appointment by a
successor or separate Trustee with respect to the Debt Securities of one or
more series and to add to or change any of the provisions of the Indenture
as shall be necessary to provide for or facilitate the administration of
the Indenture by more than one Trustee;
(l) To establish the form or terms of Debt Securities and coupons of
any series, as described under "Description of Debt Securities -- General";
and
(m) To provide for uncertificated Debt Securities in addition to or in
place of certificated Debt Securities (provided that the uncertificated
Debt Securities are issued in registered form for purposes of Section
163(f) of the Code or in a manner such that the uncertificated Debt
Securities are described in Section 163(f)(2)(B) of the Code).
With the consent of the holders of a majority in aggregate principal amount
of the outstanding Debt Securities of each series affected thereby, the Company
and the Trustee may from time to time and at any time enter into a supplemental
indenture for the purpose of adding any provisions to, changing in any manner,
or eliminating any of the provisions of the Indenture or of any supplemental
indenture or modifying in any manner the rights of the holders of the Debt
Securities of that series; provided, however, that without the consent of the
holders of each Debt Security so affected, no such supplemental indenture shall
(a) reduce the percentage in principal amount of Debt Securities of any series
whose holders must consent to an amendment, (b) reduce the rate of or extend the
time for payment of interest on any Debt Security or coupon or reduce the amount
of any payment to be made with respect to any coupon, (c) reduce the principal
of or extend the stated maturity of any Debt Security, (d) reduce the premium
payable upon the redemption of any Debt Security or change the time at which any
Debt Security may or shall be redeemed, (e) make any Debt
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Security payable in a currency other than that stated in the Debt Security, (f)
in the case of any Subordinated Debt Security or coupons appertaining thereto,
make any change in the provisions of the Indenture to subordination that
adversely affects the rights of any holder under the provisions, (g) release any
security that may have been granted with respect to the Debt Securities, (h)
impair the right of a holder of Debt Securities to receive payment of principal
of and interest on such holder's Debt Securities on or after the due dates
therefor or to institute suit for the enforcement of or with respect to such
holder's Debt Securities, (i) make any change in the provisions of the Indenture
to waivers of defaults or amendments that require unanimous consent, (j) change
any obligation of the Company provided for in the Indenture to pay additional
interest with respect to Bearer Securities, or (k) limit the obligation of the
Company to maintain a paying agency outside the United States for payment on
Bearer Securities or limit the obligation of the Company to redeem certain
Bearer Securities.
The consent of the holders of Debt Securities is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Debt Securities of all affected series a
notice briefly describing such amendment. However, the failure to give such
notice, or any defect therein, will not impair or affect the validity of the
amendment.
CONSOLIDATION, MERGER, AND SALE OF ASSETS
The Company may not consolidate with or merge with or into any person, or
convey, transfer or lease all or substantially all its assets, or permit any
person to consolidate with or merge into or convey, transfer or lease
substantially all its assets to the Company, unless the following conditions
have been satisfied:
(a) Either (1) the Company shall be the continuing person in the case
of a merger, or (2) the resulting, surviving or transferee person, if other
than the Company (the "Successor Company"), shall be a corporation
organized and existing under the laws of the United States, any State, or
the District of Columbia and shall expressly assume all the obligations of
the Company under the Debt Securities and coupons and the Indenture;
(b) Immediately after giving effect to the transaction (and treating
any indebtedness that becomes an obligation of the Successor Company or any
subsidiary of the Company as a result of the transaction as having been
incurred by the Successor Company or the subsidiary at the time of the
transaction), no Default or Event of Default would occur or be continuing;
(c) The Successor Company waives any right to redeem any Bearer
Security under circumstances in which the Successor Company would be
entitled to redeem the Bearer Security but the Company would not have been
so entitled to redeem if the consolidation, merger, conveyance, transfer or
lease had not occurred; and
(d) The Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that the consolidation,
merger or transfer complies with the Indenture.
Upon any consolidation by the Company with, or merger by the Company into,
any other person or any conveyance, transfer or lease of the properties and
assets of the Company as an entirety or virtually as an entirety as described in
the preceding paragraph, the successor resulting from such consolidation or into
which the Company is merged or the transferee or lessee to which such
conveyance, transfer or lease is made, will succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture, and
thereafter, except in the case of a lease, the predecessor (if still in
existence) will be released from its obligations and covenants under the
Indenture and all outstanding Debt Securities.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Indenture shall generally cease to be of any further effect with
respect to a series of Debt Securities if (a) the Company has delivered to the
Trustee for cancellation all Debt Securities of that series (with certain
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limited exceptions), or (b) all Debt Securities and coupons of the series not
theretofore delivered to the Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable within one year or are
to be called for redemption within one year, and the Company shall have
deposited with the Trustee as trust funds the entire amount sufficient to pay at
maturity or upon redemption all the Debt Securities and coupons of that series
(and if, in either case, the Company shall also pay or cause to be paid all
other sums payable under the Indenture by the Company).
In addition, the Company shall have a "legal defeasance option" (pursuant
to which it may terminate, with respect to the Debt Securities of a particular
series, all its obligations under the Debt Securities of that series and the
Indenture with respect to the Debt Securities of that series) and a "covenant
defeasance option" (pursuant to which it may terminate, with respect to the Debt
Securities of a particular series, its obligations with respect to the Debt
Securities under certain specified covenants contained in the Indenture). If the
Company exercises its legal defeasance option with respect to a series of Debt
Securities, payment of that series of Debt Securities may not be accelerated
because of an Event of Default. If the Company exercises its covenant defeasance
option with respect to a series of Debt Securities, payment of that series of
Debt Securities may not be accelerated because of an Event of Default related to
the specified covenants.
The Company may exercise its legal defeasance option or its covenant
defeasance option with respect to the Debt Securities of a series only if (a)
the Company irrevocably deposits in trust with the Trustee cash or U.S
Government Obligations (as defined in the Indenture) for the payment of
principal, premium, and interest with respect to that series of Debt Securities
to maturity or redemption, as the case may be, (b) the Company delivers to the
Trustee a certificate from a nationally recognized firm of independent
accountants expressing their opinion that the payments of principal and interest
when due and without reinvestment on the deposited U.S. Government Obligations
plus any deposited money without investment will provide cash at such times and
in such amounts as will be sufficient to pay the principal, premium and interest
when due with respect to all the Debt Securities of that series to maturity or
redemption, as the case may be, (c) 123 days pass after the deposit is made and
during the 123-day period no default described in clause (g) or (h) under
"Description of Debt Securities -- Events of Default and Remedies" with respect
to the Company occurs that is continuing at the end of the period, (d) no
Default has occurred and is continuing on the date of the deposit and after
giving effect thereto, (e) the deposit does not constitute a default under any
other agreement binding on the Company and, in the case of Subordinated Debt
Securities, is not prohibited by the provisions of the Indenture relating to
subordination, (f) the Company delivers to the Trustee an opinion of counsel to
the effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company Act of
1940, (g) the Company shall have delivered to the Trustee an opinion of counsel
addressing certain federal income tax matters relating to the defeasance, and
(h) the Company delivers to the Trustee an officers' certificate and an opinion
of counsel, each stating that all conditions precedent to the defeasance and
discharge of the Debt Securities of the series as contemplated by the Indenture
have been complied with.
The Trustee shall hold in trust cash or U.S. Government Obligations
deposited with it as described above and shall apply the deposited cash and the
proceeds from deposited U.S. Government Obligations to the payment of principal,
premium, and interest with respect to the Debt Securities and coupons of the
defeased series. In the case of Subordinated Debt Securities and coupons related
thereto, the money and U.S. Government Obligations so held in trust will not be
subject to the subordination provisions of the Indenture.
THE TRUSTEE
The Company may appoint a separate Trustee for any series of Debt
Securities. As used herein in the description of a series of Debt Securities,
the term "Trustee" refers to the Trustee appointed with respect to the series of
Debt Securities.
The Company may maintain banking and other commercial relationships with
the Trustee and its affiliates in the ordinary course of business, and the
Trustee may own Debt Securities.
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GOVERNING LAW
The Indenture provides that it and the Debt Securities will be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 500,000,000 shares
of common stock, par value $.01 per share ("Common Stock"), and 100,000,000
shares of preferred stock, par value $.01 per share ("Preferred Stock"), of
which one share has been designated as Special Preferred Voting Stock.
COMMON STOCK
All shares of Common Stock issued under the Registration Statement of which
this Prospectus is a part will be fully paid and nonassessable. The holders of
Common Stock are entitled to one vote for each share held on all matters
submitted to a vote of common stockholders. The Common Stock does not have
cumulative voting rights. Shares of Common Stock have no preemptive rights,
conversion rights, redemption rights or sinking fund provisions. The Common
Stock is not subject to redemption by the Company.
Subject to the rights of the holders of any class of capital stock of the
Company having any preference or priority over the Common Stock, the holders of
Common Stock are entitled to dividends in such amounts as may be declared by the
Board of Directors from time to time out of funds legally available for such
payments and, in the event of liquidation, to share ratably in any assets of the
Company remaining after payment in full of all creditors and provision for any
liquidation preferences on any outstanding preferred stock ranking prior to the
Common Stock.
PREFERRED STOCK
The Board of Directors, without further stockholder action, is authorized
to issue up to 100,000,000 shares of Preferred Stock in one or more series and
to fix and determine as to any series all the relative rights and preferences of
shares in the series, including voting rights, dividend rights, liquidation
preferences, terms of redemption and conversion rights.
Special Preferred Voting Stock
In connection with the Company's acquisition of Chauvco Resources Ltd., an
Alberta, Canada corporation (the "Chauvco Acquisition"), the Board of Directors
has designated one share of the 100,000,000 authorized shares of Preferred Stock
as Special Preferred Voting Stock (the "Voting Share"). The Montreal Trust
Company of Canada, or any successor thereto (for purposes of this discussion,
the "Share Trustee"), shall hold the Voting Share as trustee for and on behalf
of, and for the use and benefit of, the holders of exchangeable shares (the
"Exchangeable Shares") of Pioneer Natural Resources (Canada) Ltd., an
indirectly-owned subsidiary of the Company ("Pioneer Canada"), and in accordance
with the Voting and Exchange Trust Agreement described in "Description of
Capital Stock -- Pioneer Canada Exchangeable Shares." The Certificate of
Designations for the Voting Share includes the following principal terms:
Dividends. No dividend shall be paid to the Share Trustee as the holder of
the Voting Share.
Voting Rights. The Share Trustee, as the holder of record of the Voting
Share, shall be entitled to all of the voting rights attached to the Voting
Share, including the right to consent to or vote in person or by proxy the
Voting Share, on any matter, question or proposition whatsoever that may
properly come before the stockholders of the Company at a meeting thereof or
with respect to any written consent sought by the Company from its stockholders.
For each Exchangeable Share owned of record on the relevant record date, the
holder thereof shall be entitled to instruct the Share Trustee to cast and
exercise, in the manner instructed, a number of votes (including for purposes of
a quorum) equal to the number of votes to which a holder of one share of Common
Stock is entitled with respect to any matter, proposition or question on which
the holders of
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Common Stock are entitled to vote. Except as otherwise described herein or
required by law, the holder of the Voting Share will vote together with the
Common Stock as a single class and not as a separate class or series apart
therefrom, including any vote to approve or adopt: (i) any plan of merger,
consolidation or share exchange for which Delaware law requires a stockholder
vote; (ii) any disposition of assets for which Delaware law requires a
stockholder vote; and (iii) any dissolution of the Company for which Delaware
law requires a stockholder vote.
The holders of Exchangeable Shares have the right to submit stockholder
proposals to the Trustee and the Trustee has agreed pursuant to the Voting and
Exchange Trust Agreement to submit any such proposals to the Company. Such
stockholder proposals may be considered at any meeting of the Company at which
the holders of Common Stock of the Company are entitled to submit stockholder
proposals. The Company has agreed pursuant to the Voting and Exchange Trust
Agreement to accept all stockholder proposals submitted by the Trustee provided
that not more than one proposal is submitted by the Trustee on behalf of any one
holder of Exchangeable Shares.
So long as any Exchangeable Shares are outstanding, the number of shares
comprising the Special Preferred Voting Stock will not be increased or
decreased, and no other term of the Special Preferred Voting Stock may be
amended, except upon the approval of the holder of the Voting Share.
Conversion. The Voting Share is not convertible into any other class or
series of the capital stock of the Company or into cash, property or other
rights.
Redemption. The Voting Share may not be redeemed, except when no
Exchangeable Shares are outstanding, in which case the Voting Share will be
automatically redeemed. The redemption price due and payable upon the automatic
redemption will be $1.00. The Voting Share will be deemed retired and will be
canceled upon any purchase or other acquisition thereof by the Company. After
cancellation, the Voting Share may not be reissued or otherwise disposed of by
the Company.
Liquidation. The Voting Share will rank prior to each share of Common Stock
with respect to the distribution of assets upon a liquidation, dissolution or
winding-up of the Company. In the event of any such liquidation, dissolution or
winding-up, the holder of the Voting Share will be entitled to receive a
liquidation preference of $1.00 before any distribution to the holders of Common
Stock, but only after the liquidation preference of any other shares of
preferred stock of the Company has been paid in full.
Certain Covenants of the Company. For so long as the Voting Share is
outstanding, the Company will (i) fully comply with all terms of the
Exchangeable Shares and with all associated contractual obligations of the
Company, and (ii) not amend, alter or repeal the terms and conditions of the
Special Preferred Voting Stock, except with the approval of the holder of the
Voting Share.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Board of Directors is divided into three classes. The
directors of each class are elected for three-year terms, with the terms of the
three classes staggered so that directors from a single class are elected at
each annual meeting of stockholders. Stockholders may remove a director only for
cause. In general, the Board of Directors, not the stockholders, has the right
to appoint persons to fill vacancies on the Board of Directors.
The Amended and Restated Certificate of Incorporation of the Company (the
"Restated Certificate") contains a "fair price" provision that requires the
affirmative vote of the holders of least 80% of the Company's voting stock and
the affirmative vote of at least 66 2/3% of the Company's voting stock not
owned, directly or indirectly, by a Related Person (as defined below) to approve
any merger, consolidation, sale or lease of all or substantially all of the
Company's assets, or certain other transactions involving a Related Person. For
purposes of this fair price provision, a "Related Person" is any person
beneficially owning 10% or more of the voting power of the outstanding capital
stock of the Company who is a party to the transaction at issue. The voting
requirement is not applicable to certain transactions, including those that are
approved by the Continuing Directors (as defined in the Restated Certificate) or
that meet certain "fair price" criteria contained in the Restated Certificate.
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The Restated Certificate further provides that stockholders may act only at
annual or special meetings of stockholders and not by written consent, that
special meetings of stockholders may be called only by the Board of Directors,
and that only business proposed by the Board of Directors may be considered at
special meetings of stockholders.
The Restated Certificate also provides that the only business (including
election of directors) that may be considered at an annual meeting of
stockholders, in addition to business proposed (or persons nominated to be
directors) by the Company's directors, is business proposed (or persons
nominated to be directors) by stockholders who comply with the notice and
disclosure requirements set forth in the Restated Certificate. In general, the
Restated Certificate requires that a stockholder give the Company notice of
proposed business or nominations no later than 60 days before the annual meeting
of stockholders (meaning the date on which the meeting is first scheduled and
not postponements or adjournments thereof) or (if later) ten days after the
first public notice of the annual meeting is sent to common stockholders. In
general, the notice must also contain information about the stockholder
proposing the business or nomination, his interest in the business, and (with
respect to nominations for director) information about the nominee of the nature
ordinarily required to be disclosed in public proxy solicitations. The
stockholder also must submit a notarized letter from each of his nominees
stating the nominee's acceptance of the nomination and indicating the nominee's
intention to serve as director if elected.
The Restated Certificate also restricts the ability of stockholders to
interfere with the powers of the Board of Directors in certain specified ways,
including the constitution and composition of committees and the election and
removal of officers.
The Restated Certificate provides that approval by the holders of at least
66 2/3% of the outstanding voting stock of the Company is required to amend the
provisions of the Restated Certificate discussed above and certain other
provisions, except that (a) approval by the holders of at least 80% of the
outstanding voting stock of the Company together with approval by the holders of
at least 66 2/3% of the outstanding voting stock not owned, directly or
indirectly, by the Related Person, is required to amend the fair price
provisions, and (b) approval of the holders of at least 80% of the outstanding
voting stock of the Company is required to amend the provisions prohibiting
stockholders from acting by written consent.
DELAWARE ANTI-TAKEOVER STATUTE
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the Company's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with the Company for three years
following the date that person becomes an interested stockholder unless (a)
before that person became an interested stockholder, the Board of Directors
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination, (b) upon completion
of the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
Company's voting stock outstanding at the time the transaction commenced
(excluding stock held by directors who are also officers of the Company and by
employee stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer), or (c) following the transaction in which that person
became an interested stockholder, the business combination is approved by the
Board of Directors and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock of the Company not owned by the interested stockholder.
Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one or certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the Company's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors before any person became
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an interested stockholder in the previous three years or who were recommended
for election or elected to succeed such directors by a majority of such
directors then in office.
PIONEER CANADA EXCHANGEABLE SHARES
In connection with the Chauvco Acquisition, the Company issued the Voting
Share and entered into the Support Agreement and the Voting and Trust Agreement,
and assumed certain obligations with respect to the Exchangeable Shares issued
by Pioneer Canada. The Exchangeable Shares have the rights and preferences
summarized below.
Voting Rights. The holders of Exchangeable Shares have voting rights or
matters submitted to the holders of the Company's Common Stock as previously
described in "Description of Capital Stock -- Preferred Stock -- Special
Preferred Voting Stock."
Dividends. Holders of Exchangeable Shares will be entitled to receive
dividends equal to dividends paid from time to time by the Company on shares of
the Common Stock. The declaration date, record date and payment date for
dividends on the Exchangeable Shares will be the same as that for the
corresponding dividends on the Common Stock. In the event of the liquidation,
dissolution or winding-up of Pioneer Canada, a holder of Exchangeable Shares
will be entitled to receive for each Exchangeable Share one share of Common
Stock, together with a cash amount equal to the full amount of all unpaid
dividends on the Exchangeable Shares. See "Description of Capital
Stock -- Pioneer Canada Exchangeable Shares -- Voting and Exchange Trust
Agreement." The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be changed only with the approval of the holders
thereof.
Redemption of Exchangeable Shares by Holders. Each Exchangeable Share is
redeemable at the option of the holder for one share of Common Stock plus the
amount equal of unpaid dividends thereon. The redemption price must be delivered
on the date specified by the holder (not less than three nor more than ten
business days after the redemption request) and is payable by Pioneer Canada,
or, if it is unable to do so, by the Company.
Redemption of Exchangeable Shares. Upon at least 120-days prior written
notice by Pioneer Canada to the holders of Exchangeable Shares and subject to
the Company's redemption call right (as described below), on the Automatic
Redemption Date (as defined below) Pioneer Canada will redeem all but not less
than all of the then outstanding Exchangeable Shares for one share of Common
Stock for each Exchangeable Share plus an additional amount equivalent to the
full amount of all unpaid dividends thereon. "Automatic Redemption Date" means
December 18, 2003, unless (a) such date shall be extended at any time or from
time to time to a specified later date by the Board of Directors of Pioneer
Canada but not later than December 31, 2005, or (b) such date shall be
accelerated at any time to a specified earlier date (but no earlier than the
third anniversary of the first issuance of Exchangeable Shares) by the Board of
Directors of Pioneer Canada if at such time there are issued and outstanding
less than 5% of the number of Exchangeable Shares initially issued and
outstanding in the Chauvco Transaction.
Support Agreement
Under the Support Agreement, the Company agreed that: (i) it will not
declare or pay dividends on the Common Stock unless Pioneer Canada is able to
and simultaneously pays an equivalent dividend on the Exchangeable Shares; (ii)
it will advise Pioneer Canada in advance of the declaration of any dividend on
the Common Stock and ensure that the declaration date, record date and payment
date for dividends on the Exchangeable Shares are the same as that for the
Common Stock; (iii) it will take all actions and do all things necessary to
ensure that Pioneer Canada is able to provide to the holders of the Exchangeable
Shares the equivalent number of shares of Common Stock in the event of a
liquidation, dissolution, or winding-up of Pioneer Canada, a redemption request
by a holder of Exchangeable Shares, or a redemption of Exchangeable Shares of
Pioneer Canada; and (iv) it will not vote or otherwise take any action or omit
to take any action causing the liquidation, dissolution or winding-up of Pioneer
Canada.
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The Support Agreement also provides that, without the prior approval of
Pioneer Canada and the holders of the Exchangeable Shares, the Company will not
distribute additional shares of Common Stock or rights to subscribe therefor or
other property or assets to all or substantially all holders of shares of Common
Stock, nor change the Common Stock nor effect any tender offer, share exchange
offer, issuer bid, take-over bid or similar transaction affecting the Common
Stock, unless the same or an equivalent distribution on or change to the
Exchangeable Shares (or in the rights of the holders thereof) is made
simultaneously. The Company has agreed that so long as there remain outstanding
any Exchangeable Shares not owned by the Company or any entity controlled by the
Company, the Company will remain the beneficial owner, directly or indirectly,
of all outstanding shares of Pioneer Canada other than the Exchangeable Shares.
With certain limited exceptions, the Support Agreement may not be amended
without the approval of the holders of the Exchangeable Shares.
Under the Support Agreement, the Company has agreed not to exercise any
voting rights attached to the Exchangeable Shares owned by it or any entity
controlled by it on any matter considered at meetings of holders of Exchangeable
Shares (including any approval sought from such holders in respect of matters
arising under the Support Agreement).
Voting and Exchange Trust Agreement
Under the terms of the Voting and Exchange Trust Agreement, the Company
will issue and grant to the Share Trustee the (i) rights of the holders of
Exchangeable Shares to direct the voting of the Voting Share in accordance with
the Voting and Exchange Trust Agreement (the "Voting Rights"), and (ii) the
Automatic Exchange Rights (as defined below) and the optional exchange right
granted to the Share Trustee for the use and benefit of the holders of the
Exchangeable Shares pursuant to the Voting and Exchange Trust Agreement to
require the Company to purchase Exchangeable Shares from the holders thereof in
exchange for shares of Common Stock upon the occurrence of a Pioneer Canada
Insolvency Event (as defined herein). "Automatic Exchange Rights" means the
rights granted to the Share Trustee for the benefit of the holders of the
Exchangeable Shares pursuant to the Voting and Exchange Trust Agreement to
automatically exchange the Exchangeable Shares for shares of Common Stock upon a
Pioneer Liquidation Event (as defined herein).
Voting Rights. Under the Voting and Exchange Trust Agreement, the Company
will issue the Voting Share to the Share Trustee for the benefit of the holders
(other than the Company and its subsidiaries) of the Exchangeable Shares. The
Voting Share will have those voting rights with respect to the Company's Common
Stock as previously discussed in "Description of Capital Stock -- Special
Preferred Voting Stock."
Exchange Rights. Under the Voting and Exchange Trust Agreement, the Company
will grant the Exchange Rights (as defined below) to the Trustee for the benefit
of the holders of the Exchangeable Shares. "Exchange Rights" means the Automatic
Exchange Rights and the optional exchange right granted to the Share Trustee for
the use and benefit of the holders of the Exchangeable Shares pursuant to the
Voting and Exchange Trust Agreement to require the Company to purchase
Exchangeable Shares from the holders thereof in exchange for shares of Common
Stock upon the occurrence of a Pioneer Canada Insolvency Event.
Optional Exchange Right. Upon the occurrence and during the continuance of
a Pioneer Canada Insolvency Event, a holder of Exchangeable Shares will be
entitled to instruct the Share Trustee to exercise the optional Exchange Right
with respect to any or all of the Exchangeable Shares held by such holder,
thereby requiring the Company to purchase such Exchangeable Shares from the
holder. Immediately upon the occurrence of a Pioneer Canada Insolvency Event or
any event which may with the passage of time or the giving of notice become a
Pioneer Canada Insolvency Event, Pioneer Canada and the Company will give
written notice thereof to the Share Trustee. As soon as practicable thereafter,
the Trustee will notify each holder of Exchangeable Shares of such event or
potential event and will advise the holder of its rights with respect to the
optional Exchange Right. "Pioneer Canada Insolvency Event" means any insolvency
or bankruptcy proceeding instituted by or against Pioneer Canada, including any
such proceeding under the Companies' Creditors Arrangement Act (Canada) and the
Bankruptcy and Insolvency Act (Canada) and the admission in writing by Pioneer
Canada of its inability to pay its debts generally as they become due and the
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inability of Pioneer Canada, as a result of solvency requirements of applicable
law, to redeem any Exchangeable Shares tendered for redemption.
The consideration for each Exchangeable Share to be acquired under the
optional Exchange Right will be one share of Common Stock plus an additional
amount equivalent to the full amount of all dividends declared and unpaid on the
Exchangeable Share.
If, as a result of liquidity or solvency provisions of applicable law,
Pioneer Canada is unable to redeem all of the Exchangeable Shares tendered for
redemption by a holder in accordance with the Exchangeable Share Provisions, the
holder will be deemed to have exercised the optional Exchange Right with respect
to the unredeemed Exchangeable Shares and the Company will be required to
purchase such shares from the holder in the manner set forth above.
Automatic Exchange Right. In the event of a Pioneer Liquidation Event, the
Company will be required to acquire each outstanding Exchangeable Share by
exchanging one share of Common Stock for each such Exchangeable Share, plus an
additional amount equivalent to the full amount of all declared and unpaid
dividends on the Exchangeable Shares. "Pioneer Liquidation Event" means: (i) any
determination by the Company's Board of Directors to institute voluntary
liquidation, dissolution or winding-up proceedings with respect to the Company
or to effect any other distribution of assets of the Company among its
stockholders for the purpose of winding up its affairs; or (ii) immediately upon
the earlier of (A) receipt by the Company of notice of, and (B) the Company
becoming aware of any threatened or instituted claim, suit, petition or other
proceeding with respect to the involuntary liquidation, dissolution or
winding-up of the Company or to effect any other distribution of assets of the
Company among its stockholders for the purpose of winding-up its affairs.
Delivery of Common Stock
The Company has agreed to ensure that all shares of Common Stock to be
delivered by it under the Support Agreement or on the exercise of the Exchange
Rights under the Voting and Exchange Trust Agreement are duly registered,
qualified or approved under applicable Canadian and United States securities
laws, if required so that such shares may be freely traded by the holder thereof
(other than any restriction on transfer by reason of a holder being a "control
person" of the Company for purposes of Canadian law or an "affiliate" of the
Company for purposes of United States law). In addition, the Company will take
all actions necessary to cause all such shares of Common Stock to be listed or
quoted for trading on all stock exchanges or quotation systems on which
outstanding shares of Common Stock are then listed or quoted for trading.
Call Rights
The following section describes (i) the right of the Company, in the event
of a proposed liquidation, dissolution or winding-up of Pioneer Canada, to
purchase all of the outstanding Exchangeable Shares from the holders thereof on
the effective date of any such liquidation, dissolution or winding-up in
exchange for shares of Common Stock pursuant to the Plan of Arrangement (the
"Liquidation Call Right"), (ii) the right of the Company to purchase all of the
outstanding Exchangeable Shares from the holders thereof on the Automatic
Redemption Date in exchange for shares of Common Stock pursuant to the Plan of
Arrangement, and (iii) the overriding right of the Company, in the event of a
proposed redemption of Exchangeable Shares by a holder thereof, to purchase from
such holder on the redemption date the Exchangeable Shares tendered for
redemption in exchange for shares of Common Stock pursuant to the Exchangeable
Share Provisions.
Optional Redemption by the Holders. Pursuant to the Exchangeable Share
Provisions, a holder requesting Pioneer Canada to redeem the Exchangeable Shares
will be deemed to offer such shares to the Company, and the Company will have an
overriding redemption call right to acquire all but not less than all of the
Exchangeable Shares that the holder has requested Pioneer Canada to redeem in
exchange for one share of Common Stock for each Exchangeable Share, plus an
additional amount equivalent to the full amount of all declared and unpaid
dividends thereon.
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At the time of a redemption request by a holder of Exchangeable Shares,
Pioneer Canada will immediately notify the Company. The Company must then advise
Pioneer Canada within two business days as to whether the Company will exercise
its redemption call right. If the Company does not advise Pioneer Canada within
such two business day period, Pioneer Canada will notify the holder as soon as
possible thereafter that the Company will not exercise its redemption call
right. A holder may revoke his or her redemption request, at any time prior to
the close of business on the business day preceding the redemption date, in
which case the holder's Exchangeable Shares will neither be purchased by the
Company nor redeemed by Pioneer Canada. If the holder does not revoke his or her
redemption request, on the redemption date the Exchangeable Shares that the
holder has requested Pioneer Canada to redeem will be acquired by the Company
(assuming the Company exercises its redemption call right) or redeemed by
Pioneer Canada, as the case may be, in each case for one share of Common Stock
for each Exchangeable Share plus an additional amount equal to the full amount
of all declared and unpaid dividends on the Exchangeable Shares.
Liquidation Call Right. Pursuant to the Plan of Arrangement, the Company
will be granted an overriding Liquidation Call Right, in the event of and
notwithstanding a proposed Pioneer Canada Insolvency Event, to acquire all but
not less than all of the Exchangeable Shares then outstanding in exchange for
Common Stock and, upon the exercise by the Company of the Liquidation Call
Right, the holders thereof will be obligated to transfer such shares to the
Company. The acquisition by the Company of all of the outstanding Exchangeable
Shares upon the exercise of the Liquidation Call Right will occur on the
effective date of the voluntary or involuntary liquidation, dissolution or
winding-up of Pioneer Canada.
Optional Redemption by the Company. Pursuant to the Plan of Arrangement,
the Company will be granted an overriding redemption call right, notwithstanding
the proposed automatic redemption of the Exchangeable Shares by Pioneer Canada
pursuant to the Exchangeable Share Provisions, to acquire on the Automatic
Redemption Date all but not less than all of the Exchangeable Shares then
outstanding in exchange for Common Stock plus an additional amount equal to the
full amount of all declared and unpaid dividends on the Exchangeable Shares and,
upon the exercise by the Company of the redemption call right, the holders
thereof will be obligated to transfer such shares to the Company.
Effect of Call Right Exercise. If the Company exercises one or more of its
call rights, it will directly issue shares of Common Stock to holders of
Exchangeable Shares and will become the holder of such Exchangeable Shares. The
Company will not be entitled to exercise any voting rights attached to the
Exchangeable Shares it so acquires. If the Company declines to exercise its call
rights when applicable, it will be required, pursuant to the Support Agreement,
to issue shares of Common Stock to Pioneer Canada which will, in turn, transfer
such stock to the holders of Exchangeable Shares in consideration for the return
and cancellation of such Exchangeable Shares.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any Prospectus Supplement of certain
provisions of the Deposit Agreement (as defined below), Depositary Shares (as
defined below) and Depositary Receipts (as defined below) does not purport to be
complete and is subject to and qualified in its entirety by reference to the
forms of Deposit Agreement and Depositary Receipts to each series of Preferred
Stock that will be filed with the SEC in connection with the offering of the
series of Preferred Stock.
GENERAL
The Company may, at its option, elect to offer fractional interests in
shares of Preferred Stock, rather than shares of Preferred Stock. In the event
such option is exercised, the Company will provide for the issuance by a
depositary to the public of receipts for depositary shares ("Depositary
Shares"), each of which will represent fractional interests of a particular
series of Preferred Stock (which will be set forth in the Prospectus Supplement
to a particular series of Preferred Stock).
The shares of any series of Preferred Stock underlying the Depositary
Shares will be deposited under a separate Deposit Agreement (the "Deposit
Agreement") between the Company and a bank or trust company
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selected by the Company having its principal office in the United States and
having a combined capital and surplus of at least $50 million. The Prospectus
Supplement to a series of Depositary Shares will set forth the name and address
of the depositary with respect to the Depositary Shares. Subject to the terms of
the Deposit Agreement, each owner of Depositary Shares will be entitled, in
proportion to the applicable fractional interests in shares of Preferred Stock
underlying the Depositary Shares, to all the rights and preferences of the
Preferred Stock underlying the Depositary Shares (including dividend, voting,
redemption, conversion, and liquidation rights).
The Depositary Shares will be evidenced by depositary receipts issued
pursuant to the Deposit Agreement (the "Depositary Receipts"). Depositary
Receipts will be distributed to those persons purchasing the fractional
interests in shares of the related series of Preferred Stock in accordance with
the terms of the offering described in the related Prospectus Supplement.
DIVIDENDS AND OTHER DISTRIBUTIONS
The depositary will distribute all cash dividends or other cash
distributions received with respect to Preferred Stock to the record holders of
Depositary Shares to the Preferred Stock in proportion to the numbers of the
Depositary Shares owned by the holders on the relevant record date. The
depositary shall distribute only the amount, however, as can be distributed
without attributing to any holder of Depositary Shares a fraction of one cent,
and the balance not so distributed shall be added to and treated as part of the
next sum received by the depositary for distribution to record holders of
Depositary Shares.
In the event of a distribution other than in cash, the depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the depositary determines that it is not feasible to
make the distribution, in which case the depositary may, with the approval of
the Company, sell the property and distribute the net proceeds from the sale to
the holders.
The Deposit Agreement will also contain provisions to the manner in which
any subscription or similar rights offered by the Company to holders of the
Preferred Stock shall be made available to the holders of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
If a series of the Preferred Stock underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the proceeds
received by the depositary resulting from the redemption, in whole or in part,
of the series of the Preferred Stock held by the depositary. The depositary
shall mail notice of redemption not less than 30 and not more than 60 days prior
to the date fixed for redemption to the record holders of the Depositary Shares
to be so redeemed at their respective addresses appearing in the depositary's
books. The redemption price per Depositary Share will be equal to the applicable
fraction of the redemption price per share payable with respect to the series of
the Preferred Stock. Whenever the Company redeems shares of Preferred Stock held
by the depositary, the depositary will redeem as of the same redemption date the
number of Depositary Shares to shares of Preferred Stock so redeemed. If less
than all the Depositary Shares are to be redeemed, the Depositary Shares to be
redeemed will be selected by lot or pro rata as may be determined by the
depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be outstanding and all rights of the holders of the
Depositary Shares will cease, except the right to receive the money, securities,
or other property payable upon the redemption and any money, securities, or
other property to which the holders of the Depositary Shares were entitled upon
the redemption upon surrender to the depositary of the Depositary Receipts
evidencing the Depositary Shares.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the depositary will mail the information contained
in the notice of meeting to the record holders of the Depositary Shares to the
Preferred Stock. Each record holder of the Depositary Shares on the record date
(which will be
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the same date as the record date for the Preferred Stock) will be entitled to
instruct the depositary as to the exercise of the voting rights pertaining to
the number of shares of Preferred Stock underlying the holder's Depositary
Shares. The depositary will endeavor, insofar as practicable, to vote the number
of shares of Preferred Stock underlying the Depositary Shares in accordance with
the instructions, and the Company will agree to take all action that may be
deemed necessary by the depositary in order to enable the depositary to do so.
AMENDMENT AND TERMINATION OF DEPOSITARY AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the depositary. However, any amendment that materially
and adversely alters the rights of the existing holders of Depositary Shares
will not be effective unless the amendment has been approved by the record
holders of at least a majority of the Depositary Shares then outstanding. A
Deposit Agreement may be terminated by the Company or the depositary only if (a)
all outstanding Depositary Shares thereto have been redeemed or, (b) there has
been a final distribution with respect to the Preferred Stock of the relevant
series in connection with any liquidation, dissolution, or winding up of the
Company and the distribution has been distributed to the holders of the related
Depositary Shares.
CHARGES OF DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the depositary in connection with the initial deposit of the
Preferred Stock and any redemption of the Preferred Stock. Holders of Depositary
Shares will pay transfer and other taxes and governmental charges and the other
charges as are expressly provided in the Deposit Agreement to be for their
accounts.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering to the Company notice
of its election to do so, and the Company may at any time remove the depositary,
any such resignation or removal to take effect upon the appointment of a
successor depositary and its acceptance of the appointment. The successor
depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its principal
office in the United States and having a combined capital and surplus of at
least $50 million.
MISCELLANEOUS
The depositary will forward to the holders of Depositary Shares all reports
and communications from the Company that are delivered to the depositary and
that the Company is required to furnish to the holders of the Preferred Stock.
Neither the depositary nor the Company will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and the
depositary under the Deposit Agreement will be limited to performance in good
faith of their duties thereunder and they will not be obligated to prosecute or
defend any legal proceeding with respect to any Depositary Shares or Preferred
Stock unless satisfactory indemnity is furnished. They may rely upon written
advice of counsel or accountants, or information provided by persons presenting
Preferred Stock for deposit, holders of Depositary Shares, or other persons
believed to be competent and on documents believed to be genuine.
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DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Debt Securities,
Preferred Stock or Common Stock. Warrants may be issued independently or
together with Debt Securities, Preferred Stock or Common Stock offered by any
Prospectus Supplement and may be attached to or separate from any such Offered
Securities. Each series of Warrants will be issued under a separate warrant
agreement (a "Warrant Agreement") to be entered into between the Company and a
bank or trust company, as warrant agent (the "Warrant Agent"). The Warrant Agent
will act solely as an agent of the Company in connection with the Warrants and
will not assume any obligation or relationship of agency or trust for or with
any holders or beneficial owners of Warrants. The following summary of certain
provisions of the Warrants does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the provisions of the Warrant
Agreement that will be filed with the SEC in connection with the offering of the
Warrants.
DEBT WARRANTS
The Prospectus Supplement to a particular issue of Debt Warrants will
describe the terms of the Debt Warrants, including the following: (a) the title
of the Debt Warrants; (b) the offering price for the Debt Warrants, if any; (c)
the aggregate number of the Debt Warrants; (d) the designation and terms of the
Debt Securities purchasable upon exercise of the Debt Warrants; (e) if
applicable, the designation and terms of the Debt Securities with which the Debt
Warrants are issued and the number of the Debt Warrants issued with each Debt
Security; (f) if applicable, the date from and after which the Debt Warrants and
any Debt Securities issued therewith will be separately transferable; (g) the
principal amount of Debt Securities purchasable upon exercise of a Debt Warrant
and the price at which the principal amount of Debt Securities may be purchased
upon exercise (which price may be payable in cash, securities, or other
property); (h) the date on which the right to exercise the Debt Warrants shall
commence and the date on which the right shall expire; (i) if applicable, the
minimum or maximum amount of the Debt Warrants that may be exercised at any one
time; (j) whether the Debt Warrants represented by the Debt Warrant certificates
or Debt Securities that may be issued upon exercise of the Debt Warrants will be
issued in registered or bearer form; (k) information with respect to book- entry
procedures, if any; (l) the currency or currency units in which the offering
price, if any, and the exercise price are payable; (m) if applicable, a
discussion of material United States federal income tax considerations; (n) the
antidilution provisions of the Debt Warrants, if any; (o) the redemption or call
provisions, if any, applicable to the Debt Warrants; and (p) any additional
terms of the Debt Warrants, including terms, procedures, and limitations to the
exchange and exercise of the Debt Warrants.
STOCK WARRANTS
The Prospectus Supplement to any particular issue of Preferred Stock
Warrants or Common Stock Warrants will describe the terms of the Warrants,
including the following: (a) the title of the Warrants; (b) the offering price
for the Warrants, if any; (c) the aggregate number of the Warrants; (d) the
designation and terms of the Common Stock or Preferred Stock purchasable upon
exercise of the Warrants; (e) if applicable, the designation and terms of the
Offered Securities with which the Warrants are issued and the number of the
Warrants issued with each Offered Security; (f) if applicable, the date from and
after which the Warrants and any Offered Securities issued therewith will be
separately transferable; (g) the number of shares of Common Stock or Preferred
Stock purchasable upon exercise of a Warrant and the price at which the shares
may be purchased upon exercise (which price may be payable in cash, securities,
or other property); (h) the date on which the right to exercise the Warrants
shall commence and the date on which the right shall expire; (i) if applicable,
the minimum or maximum amount of the Warrants that may be exercised at any one
time; (j) the currency or currency units in which the offering price, if any,
and the exercise price are payable; (k) if applicable, a discussion of material
United States federal income tax considerations; (l) the antidilution provisions
of the Warrants, if any; (m) the redemption or call provisions, if any,
applicable to the Warrants; and (n) any additional terms of the Warrants,
including terms, procedures and limitations to the exchange and exercise of the
Warrants.
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DESCRIPTION OF GUARANTEES
Pioneer USA may issue Guarantees in connection with Debt Securities offered
by any Prospectus Supplement. The following summary of certain provisions of the
Guarantees does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the form of Guarantee that will
be filed with the SEC in connection with the offering of Guarantees. Each
Guarantee will be issued under the Indenture. The Prospectus Supplement to a
particular issue of Guarantees will describe the terms of the Guarantees,
including the following: (a) the series of Debt Securities to which the
Guarantees apply; (b) whether the Guarantees are secured or unsecured; (c)
whether the Guarantees are conditional or unconditional; (d) whether the
Guarantees are senior or subordinate to other Guarantees or debt; (e) the terms
under which the Guarantees may be amended, modified, waived, released or
otherwise terminated, if different from the provisions applicable to the
guaranteed Debt Securities; and (f) any additional terms of the Guarantees.
PLAN OF DISTRIBUTION
The Company or Pioneer USA may sell the Offered Securities within or
outside the United States through underwriters, brokers or dealers, directly to
one or more purchasers, or through agents. The Prospectus Supplement with
respect to the Offered Securities will set forth the terms of the offering of
the Offered Securities, including the name or names of any underwriters, dealers
or agents, the purchase price of the Offered Securities and the proceeds to the
Company or Pioneer USA from the sale, any delayed delivery arrangements, any
underwriting discounts and other items constituting underwriters' compensation,
the initial public offering price, any discounts or concessions allowed or
reallowed or paid to dealers, and any securities exchanges on which the Offered
Securities may be listed.
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Offered Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of Offered Securities will be
named in the Prospectus Supplement to the offering, and if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of the Prospectus Supplement. Unless otherwise set forth in the
Prospectus Supplement relating thereto, the obligations of the underwriters or
agents to purchase the Offered Securities will be subject to conditions
precedent and the underwriters will be obligated to purchase all the Offered
Securities if any are purchased. The initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
The Company or Pioneer USA may also sell the Offered Securities pursuant to
one or more standby agreements with one or more underwriters in connection with
the call for redemption of a specified class or series of any securities of the
Company or any subsidiary of the Company. In such a standby agreement, the
underwriter or underwriters would agree either (a) to purchase from the Company
up to the number of shares of Common Stock that would be issuable upon
conversion of all the shares of the class or series of securities of the Company
or its subsidiary at an agreed price per share of Common Stock, or (b) to
purchase from the Company or Pioneer USA up to a specified dollar amount of
Offered Securities at an agreed price per Offered Security which price may be
fixed or may be established by formula or other method and which may or may not
relate to market prices of the Common Stock or any other security of the Company
then outstanding. The underwriter or underwriters would also agree, if
applicable, to convert into Common Stock or other security of the Company any
securities of the class or series held or purchased by the underwriter or
underwriters. The underwriter or underwriters may assist in the solicitation of
conversions by holders of the class or series of securities.
If dealers are used in the sale of Offered Securities with respect to which
this Prospectus is delivered, the Company or Pioneer USA will sell the Offered
Securities to the dealers as principals. The dealers may then resell the Offered
Securities to the public at varying prices to be determined by the dealers at
the time of
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resale. The names of the dealers and the terms of the transaction will be set
forth in the Prospectus Supplement thereto.
Offered Securities may be sold directly by the Company or Pioneer USA or
through agents designated by the Company or Pioneer USA from time to time at
fixed prices, which may be changed, or at varying prices determined at the time
of sale. Any agent involved in the offer or sale of the Offered Securities with
respect to which this Prospectus is delivered will be named, and any commissions
payable by the Company to the agent will be set forth, in the Prospectus
Supplement thereto. Unless otherwise indicated in the Prospectus Supplement, any
agent will be acting on a best efforts basis for the period of its appointment.
In connection with the sale of the Offered Securities, underwriters or
agents may receive compensation from the Company or Pioneer USA or from
purchasers of Offered Securities for whom they may act as agents in the form of
discounts, concessions, or commissions. Underwriters, agents, and dealers
participating in the distribution of the Offered Securities may be deemed to be
underwriters, and any discounts or commissions received by them from the Company
or Pioneer USA and any profit on the resale of the Offered Securities by them
may be deemed to be underwriting discounts or commissions under the Securities
Act.
If so indicated in the Prospectus Supplement, the Company or Pioneer USA
will authorize agents, underwriters or dealers to solicit offers from certain
types of institutions to purchase Offered Securities from the Company or Pioneer
USA at the public offering price set forth in the Prospectus Supplement pursuant
to delayed delivery contracts providing for payment and delivery on a specified
date in the future. The contracts will be subject only to those conditions set
forth in the Prospectus Supplement, and the Prospectus Supplement will set forth
the commission payable for solicitation of the contracts.
Agents, dealers and underwriters may be entitled under agreements entered
into with the Company or Pioneer USA to indemnification by the Company or
Pioneer USA against certain civil liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments that the agents,
dealers or underwriters may be required to make with respect thereto. Agents,
dealers and underwriters may be customers of, engage in transactions with, or
perform services for the Company or Pioneer USA in the ordinary course of
business.
The Offered Securities may or may not be listed on a national securities
exchange. No assurances can be given that there will be a market for the Offered
Securities.
LEGAL OPINIONS
Certain legal matters in connection with the Offered Securities will be
passed upon for the Company and Pioneer USA by Vinson & Elkins L.L.P., Dallas,
Texas, and for any underwriters or agents by a firm named in the Prospectus
Supplement to a particular issue of Offered Securities.
EXPERTS
The consolidated financial statements of Pioneer Natural Resources Company
at December 31, 1999 and 1998, and for each of the two years in the period ended
December 31, 1999, incorporated by reference in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of Pioneer Natural Resources Company
for the year ended December 31, 1997, incorporated by reference in this
Prospectus have been audited by KPMG LLP, independent auditors, as set forth in
their report thereon and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
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