<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON ____________, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------
PETSEC ENERGY INC.
(Exact name of Registrant as specified in its charter)
NEVADA 1311 84-1157202
(State of other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation Code Number)
or organization)
143 RIDGEWAY DRIVE, SUITE 113 JEFFREY H. WARREN
LAFAYETTE, LA 70503-3402 VICE PRESIDENT AND SECRETARY
(318) 989-1942 143 RIDGEWAY DRIVE, SUITE 113
(Address, including zip code, and LAFAYETTE, LA 70503-3402
telephone number, including area code, of (318) 989-1942
registrant's principal executive offices) (Name, Address, including zip
code, and telephone number,
including area code, of agent
for service)
Copy to:
ALAN P. BADEN
VINSON & ELKINS L.L.P.
2300 FIRST CITY TOWER
HOUSTON, TEXAS 77002-6760
(713) 758-2430
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable following the effectiveness of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO BE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED REGISTRATION FEE
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9 1/2% Senior Subordinated Notes due 2007...................... $100,000,000 $30,303
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</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED ___________, 1997
PROSPECTUS
PETSEC ENERGY INC.
OFFER TO EXCHANGE
9 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
FOR ALL OUTSTANDING 9 1/2% SERIES A SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON _________, 1997, UNLESS EXTENDED
--------------------
Petsec Energy Inc., a Nevada corporation (the "Company"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying letter of transmittal (the "Letter of Transmittal," and
together with this Prospectus, the "Exchange Offer"), to exchange $1,000
principal amount of its 9 1/2% Series B Senior Subordinated Notes due 2007 (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement (as
defined herein) of which this Prospectus constitutes a part, for each $1,000
principal amount of its outstanding 9 1/2% Series A Senior Subordinated Notes
due 2007 (the "Old Notes"), of which $100,000,000 principal amount is
outstanding. The form and terms of the Exchange Notes are identical in all
material respects to the form and terms of the Old Notes except for certain
transfer restrictions and registration rights relating to the Old Notes. The
Exchange Notes will evidence the same debt as the Old Notes and will be issued
under and be entitled to the benefits of the Indenture (as defined herein). The
Exchange Notes and the Old Notes are collectively referred to herein as the
"Notes."
The Notes are senior subordinated obligations of the Company and are
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined herein) of the Company, including indebtedness under the Bank
Credit Facility (as defined herein), pari passu in right of payment with all
future senior subordinated indebtedness of the Company and senior in right of
payment to all existing and future subordinated indebtedness of the Company.
The Company will accept for exchange any and all Old Notes that are
validly tendered on or prior to 5:00 p.m., New York City time, on the date the
Exchange Offer expires, which will be __________, 1997, unless the Exchange
Offer is extended. See "The Exchange Offer -- Expiration Date; Extensions;
Amendment." Tenders of Old Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the business day prior to the Expiration Date (as
defined herein), unless previously accepted for exchange. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain conditions
which may be waived by the Company and to the terms and provisions of the
Registration Rights Agreement (as defined herein). Old Notes may be tendered
only in denominations of $1,000 principal amount and integral multiples
thereof. The Company has agreed to pay the expenses of the Exchange Offer. See
"The Exchange Offer."
(Cover continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE __ OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE NOTES.
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.
--------------------
The date of this Prospectus is _________, 1997
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The Exchange Notes will bear interest at the rate of 9 1/2% per annum,
payable semi-annually on June 15 aNd December 15 of each year, commencing
December 15, 1997, to holders of record on the June 1 and December 1
immediately preceding such interest payment date. Holders of Exchange Notes of
record on December 1, 1997 will receive interest on December 15, 1997 from the
date of issuance of the Exchange Notes, plus an amount equal to the accrued
interest on the Old Notes from the date of issuance of the Old Notes, June 13,
1997, to the date of exchange thereof. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
The Old Notes were sold by the Company on June 13, 1997 to the Initial
Purchasers (as defined herein) in a transaction not registered under the
Securities Act in reliance upon Section 4(2) of the Securities Act. The Old
Notes were thereupon offered and sold by the Initial Purchasers only to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) and to a limited number of institutional "accredited investors" (as
defined in Rule 501(a)(1),(2),(3) or (7) under the Securities Act), each of
whom agreed to comply with certain transfer restrictions and other conditions.
Accordingly, the Old Notes may not be offered, resold or otherwise transferred
unless registered under the Securities Act or unless an applicable exemption
from the registration requirements of the Securities Act is available. The
Exchange Notes are being offered hereunder in order to satisfy the obligations
of the Company under the Registration Rights Agreement entered into with the
Initial Purchasers in connection with the offering of the Old Notes. See "The
Exchange Offer" and "Description of Notes -- Registration Rights; Liquidated
Damages."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission" or "SEC") to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June 5, 1991)
(the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC No-Action
Letter (available June 5, 1991), the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by the respective holders thereof (other than a
"Restricted Holder," being (i) a broker-dealer who purchased Old Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder is not participating in, and has no arrangement with any person
to participate in, the distribution (within the meaning of the Securities Act)
of such Exchange Notes. Eligible holders wishing to accept the Exchange Offer
must represent to the Company that such conditions have been met. Holders who
tender Old Notes in the Exchange Offer with the intention to participate in a
distribution of the Exchange Notes may not rely upon the Morgan Stanley Letter
or similar no-action letters. See "The Exchange Offer -- General." Each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. A broker-dealer that delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations). This Prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has consented to the use of
this Prospectus and any amendment or supplement to this Prospectus by any
broker-dealer for use in connection with any such resale for a period of up to
180 days after consummation of the Exchange Offer. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer.
The Exchange Notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to the liquidity
of any markets that may develop for the Exchange Notes or as to the ability of
or price at which the holders of Exchange Notes would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on many
factors, including, among others, prevailing interest rates, the Company's
operating results and the market for similar securities. The Company does not
intend to apply for listing of the Exchange Notes on any securities exchange.
Merrill Lynch & Co., Donaldson, Lufkin & Jenrette Securities Corporation and
Salomon Brothers Inc (together, the "Initial Purchasers") have informed the
Company that they currently intend to make a market for the Exchange Notes.
However, they are not so obligated, and any such market making may be
discontinued at any time without notice. Accordingly, no assurance can be given
that an active public or other market will develop for the Exchange Notes or as
to the liquidity of or the trading market for the Exchange Notes.
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THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
TABLE OF CONTENTS
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PAGE NO.
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Available Information..................................................... 3
Prospectus Summary........................................................ 5
Forward Looking Statements................................................ 15
Risk Factors.............................................................. 15
The Company............................................................... 21
Private Placement......................................................... 21
Use of Proceeds........................................................... 21
Capitalization............................................................ 22
Selected Financial Data................................................... 23
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 24
Business.................................................................. 30
Management................................................................ 46
Certain Affiliate Transactions............................................ 48
The Exchange Offer........................................................ 49
Description of Notes...................................................... 55
Exchange Offer; Registration Rights....................................... 88
Plan of Distribution...................................................... 90
Transfer Restrictions on Old Notes........................................ 90
Legal Matters............................................................. 92
Experts................................................................... 92
Glossary of Oil and Gas Terms............................................. 94
Index to Financial Statements............................................. F-1
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AVAILABLE INFORMATION
The Company is not subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). However, the
Company has agreed under the Indenture to file with the Commission, to the
extent such filings are accepted by the Commission, the annual reports,
quarterly reports and other documents that the Company would be required to
file if it were subject to Section 13 or 15(d) of the Exchange Act. Such
reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Seven World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials can be obtained by mail from the Public
Reference Section of the Commission, at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information filed electronically by the
Company with the Commission which can be accessed over the Internet at
http://www.sec.gov. While any Old Notes remain outstanding, the Company will
make available, upon request, to any holder and any prospective purchaser of
Old Notes, the information required pursuant to Rule 144A(d)(4) under the
Securities Act during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act. Any such request should be directed to the
Secretary of the Company, 143 Ridgeway Drive, Suite 113, Lafayette, Louisiana
70503-3402.
This Prospectus constitutes part of a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus omits certain of the information set forth in
the Registration Statement. Reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the securities offered hereby. Statements contained
herein concerning the provisions of contracts or other documents
3
<PAGE> 5
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the copy of the applicable contract or other document
filed with the Commission. Copies of the Registration Statement and the
exhibits thereto are on file at the offices of the Commission and may be
obtained upon payment of the fee prescribed by the Commission, or may be
examined without charge at the public reference facilities of the Commission
described above.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. NEITHER
THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER,
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. References in this Prospectus to the "Company"
refer to Petsec Energy Inc. References to "Petsec Energy Ltd" or "Parent" refer
to the Company's parent. Certain terms relating to the oil and gas business are
defined in "Glossary of Oil and Gas Terms." Prospective investors should
carefully consider the matters discussed under the caption "Risk Factors."
THE COMPANY
GENERAL
Petsec Energy Inc. (the "Company") is an independent exploration and
production company operating in the shallow waters of the central and western
Gulf of Mexico. The Company is the principal operating subsidiary of Petsec
Energy Ltd, an Australian public company with American Depositary Shares
("ADSs") listed on the Nasdaq National Market (symbol: PSALY). Since
establishing its Gulf of Mexico operations in 1990, the Company has employed a
focused, integrated strategy of exploration and development to generate
substantial increases in reserves, production and cash flow. Currently, the
Company is drilling three wells in the Gulf of Mexico and has suspended
operations on three other wells pending evaluation of sidetracking and
completion alternatives. The Company has completed for commercial production
all of the 28 other wells it has drilled in the Gulf of Mexico. For the five
year period ended December 31, 1996, the Company achieved compound annual
growth rates for both production and EBITDA (as defined herein) of 98%. As of
December 31, 1996, the Company's estimated net proved reserves were 123.2 Bcfe
(approximately 59% of which were attributable to natural gas), with a PV10 of
approximately $308 million. See "Summary -- Reserve and Operating Data."
The regions of the central and western Gulf of Mexico within which the
Company operates have an extensive history of significant oil and gas
production. Through the application of 3-D seismic data and advanced
geophysical techniques, the Company has assembled a large inventory of lease
blocks that it believes has substantial exploration and production potential.
The Company has a significant base of operations consisting of 100% working
interests in 29 lease blocks covering a total of 100,374 acres, a 33.33%
working interest in another lease block and five production facilities. In
addition, in March 1997, the Company was high bidder on three federal lease
blocks (two of which have not yet been awarded) covering 11,646 acres.
Currently producing from only 14 of its lease blocks, the Company has in excess
of 50 prospects on its existing acreage that it intends to drill in the next
four years.
For the year ended December 31, 1996 and for the first quarter ended March
31, 1997, the Company generated revenues of $67.0 million and $30.9 million,
respectively, and EBITDA of $55.6 million and $27.2 million, respectively. In
the first quarter of 1997, the Company drilled and completed five exploratory
wells, two of which were drilled on the Company's previously producing lease
blocks and have been brought on production. Another well, drilled on a
non-producing lease block, was brought on production in late June 1997, and the
two other wells are expected to be brought on production in the third quarter
of 1997. In the first quarter of 1997, the Company's average daily net
production was 115 Mmcfe, a 54% increase over the fourth quarter of 1996.
COMPANY STRENGTHS AND BUSINESS STRATEGY
The Company believes that it is well-positioned to continue to grow its
reserves, production and cash flow by capitalizing on strengths developed since
inception. These strengths include the experience of its personnel, its large
inventory of drilling prospects defined by 3-D seismic data and the operating
flexibility achieved through 100% ownership of leases. The Company has
assembled a team of experienced geoscientists, engineers and other technical
personnel, with substantial experience with major oil companies or large
independents. This technical team has developed an extensive base of knowledge
regarding geophysical processing and interpretation of data, as well as field
operating practices in the Gulf of Mexico. This base of knowledge has led to
the development of over 50 prospects on its existing acreage and, the Company
believes, provides it with a competitive advantage in evaluating the potential
of leases proposed for acquisitions.
The Company has developed a focused, integrated business strategy, which
it believes capitalizes on its strengths and which incorporates the following
elements:
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FOCUS ON THE SHALLOW WATERS OF THE GULF OF MEXICO. Each year from the
start of its operations in the Gulf of Mexico, the Company has achieved
significant growth in production and reserves by concentrating its exploration
and development efforts in the shallow federal and state waters (400 feet or
less) in the region. The Company attributes this growth to the quality of its
inventory of lease blocks and the location of these blocks in regions where the
Company has accumulated a substantial base of technical and operating
experience. While these regions have prolific production histories, the Company
believes these regions have significant undiscovered reserves. By focusing its
efforts on leaseholds that generally have not been explored using 3-D seismic
techniques, the Company is able to take maximum advantage of both its
proprietary knowledge base and, in many cases, the results of prior operators
on the same or contiguous properties. The Company is producing from 14 of its
30 lease blocks. The Company believes it will take four to five years to
evaluate and drill the exploration and exploitation prospects on its existing
lease blocks. The Company believes that focusing its drilling activities on
properties in a relatively concentrated area in the Gulf of Mexico permits it
to utilize its base of geological, engineering, and production experience in
the region to enhance its drilling results and to minimize finding and
development costs.
CONTROL OF OPERATIONS AND COSTS. Over the last three years, the Company
has consistently been able to lower lease operating expenses and general and
administrative expense per unit of production, concurrent with increases in
production, through a strict control over operations and costs. For the three
years ended December 31, 1996, the total of these costs per Mcfe was $0.87,
$0.68 and $0.46, respectively. For the six years ended December 31, 1996, the
Company had an average finding and development cost of $1.09 per Mcfe of proved
reserves. The Company holds 100% working interests in all but one of its Gulf
of Mexico properties, unlike many other independent energy companies that
conduct business through fractional working interests and non-operated joint
ventures. Ownership of large working interests enables the Company to
effectively control expenses, capital allocation, and the timing and method of
exploration and development of its properties. The geographic focus of the
Company allows it to manage a large asset base with a relatively small number
of employees. The Company currently operates five production facilities, two of
which were upgraded in 1996 and all of which have excess capacity available.
Many of the prospects the Company intends to drill in the next three years are
located in close proximity to these production facilities, enabling the Company
to bring new wells into production at lower incremental costs. The Company also
pursues cost savings through the use of outside contractors where appropriate
for field operations, turnkey drilling and construction agreements, and
production handling agreements with operators of adjoining lease blocks. The
Company believes its working interest position, base of operations and focus on
costs will allow it to further reduce its per unit operating expenses as
additional production volumes are realized.
APPLICATION OF ADVANCED TECHNOLOGIES. The Company relies significantly on
advanced exploration technologies, such as 3-D seismic and time depth
migration, in its lease acquisition assessment and its exploration and
development activities. Historically, the Company has acquired and evaluated
3-D seismic data on leases prior to acquisition in order to reduce the risk
associated with the acquisition. The Company's geotechnical staff has
substantial experience in analyzing 3-D seismic data, which has enabled the
Company to identify multiple exploration and development prospects in both
mature producing fields where advanced technology has not been applied and in
unexplored areas.
EXPANSION OF EXPLORATION AND DEVELOPMENT PROSPECTS. The Company intends to
continue to expand its inventory of exploration and development prospects
through an active lease acquisition and exploitation program. The Company has
in excess of 10 development and 40 exploratory prospects that it expects to
drill over the next four years. For 1997, the Company has allocated a capital
expenditure budget of $136 million, 66% of which will be spent on exploration
and development drilling activities. In addition to the acreage the Company
currently owns, the Company actively participates in Outer Continental Shelf
("OCS") and state lease sales to build its inventory of lease blocks. Recently,
the Company was the high bidder on three lease blocks at the Central Gulf of
Mexico OCS Lease Sale held on March 5, 1997. The aggregate cost to the Company
of such blocks will be approximately $4.6 million. Two of these leases are
subject to final award by the Minerals Management Service ("MMS"). The
Company's principal lease acquisition criteria include, but are not limited to,
shallow offshore Gulf of Mexico properties with geological characteristics
similar to its existing properties, multiple pay objectives, proximity to
existing infrastructure, and the availability of 3-D seismic data for
evaluation prior to bidding. While the Company intends that competitive lease
sales will continue to be its primary method of building its inventory of lease
blocks, it will also evaluate other opportunities to acquire properties that
will complement the Company's existing reserve base and meet its economic and
investment criteria.
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THE PRIVATE PLACEMENT AND USE OF PROCEEDS
The Old Notes were sold by the Company on June 13, 1997 to the Initial
Purchasers and were thereupon offered and sold by the Initial Purchasers only
to certain qualified buyers. A portion of the $96.6 million net proceeds
received by the Company in connection with the sale of the Old Notes was used
to repay all borrowings outstanding under the Bank Credit Facility. It is
anticipated that the remainder of the net proceeds will be used to provide
working capital to the Company to fund further exploration and development of
the Company's oil and gas properties, the acquisition of lease blocks, and
other general corporate purposes. See "Private Placement" and "Capitalization."
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $100,000,000 principal
amount of Exchange Notes for up to $100,000,000 principal amount of Old Notes.
The form and terms of the Exchange Notes are identical in all material respects
to the form and terms of the Old Notes except that the Exchange Notes have been
registered under the Securities Act and will not contain certain transfer
restrictions and hence are not entitled to the benefits of the Registration
Rights Agreement relating to the contingent increases in the interest rate
provided for pursuant thereto. The Exchange Notes will evidence the same debt
as the Old Notes and will be issued under and be entitled to the benefits of
the Indenture governing the Old Notes. See "Description of the Notes."
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The Exchange Offer....................... Each $1,000 principal amount of Exchange Notes will be issued in
exchange for each $1,000 principal amount of outstanding Old Notes.
As of the date hereof, $100,000,000 principal amount of Old Notes
are issued and outstanding. The Company will issue the Exchange
Notes to tendering holders of Old Notes on or promptly after the
Expiration Date.
Resale................................... The Company believes that the Exchange Notes issued pursuant to the
Exchange Offer generally will be freely transferable by the holders
thereof without registration or any prospectus delivery requirement
under the Securities Act, except for certain Restricted Holders who
may be required to deliver copies of this Prospectus in connection
with any resale of the Exchange Notes issued in exchange for such
Old Notes. See "The Exchange Offer-- General" and "Plan of
Distribution."
Expiration Date.......................... 5:00 p.m., New York City time, on ________, 1997, unless the
Exchange Offer is extended, in which case the term "Expiration Date"
means the latest date to which the Exchange Offer is extended. See
"The Exchange Offer-- Expiration Date; Extensions; Amendments."
Interest on the Notes.................... The Exchange Notes will bear interest payable semi-annually on
June 15 and December 15 of each year, commencing December 15,
1997. Holders of Exchange Notes of record on December 1, 1997
will receive interest on December 15, 1997 from the date of issuance
of the Exchange Notes, plus an amount equal to the accrued interest
on the Old Notes from the date of issuance of the Old Notes, June 13,
1997, to the date of exchange thereof. Consequently, assuming the
Exchange Offer is consummated prior to the record date in respect of
the December 15, 1997 interest payment for the Old Notes, holders
who exchange their Old Notes for Exchange Notes will receive the
same interest payment on December 15, 1997 that they would have
received had they not accepted the Exchange Offer. Interest on the
Old Notes accepted for exchange will cease to accrue upon issuance
of the Exchange Notes. See "The Exchange Offer-- Interest on the
Exchange Notes."
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Procedures for Tendering Old Notes....... Each holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of Transmittal, or
such facsimile, or an Agent's Message (as defined herein) together
with the Old Notes to be exchanged and any other required
documentation to the Exchange Agent at the address set forth herein
and therein or effect a tender of Old Notes pursuant to the procedures
for book-entry transfer as provided for herein. See "The Exchange
Offer-- Procedures for Tendering."
Special Procedures for Beneficial
Holders.................................. Any beneficial holder whose Old Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender in the Exchange Offer should contact such
registered holder promptly and instruct such registered holder to
tender on the beneficial holder's behalf. If such beneficial holder
wishes to tender directly, such beneficial holder must, prior to
completing and executing the Letter of Transmittal and delivering the
Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or obtain a
properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time. See "The
Exchange Offer-- Procedures for Tendering."
Guaranteed Delivery Procedures........... Holders of Old Notes who wish to tender their Old Notes and whose
Old Notes are not immediately available or who cannot deliver their
Old Notes and a properly completed Letter of Transmittal or any
other documents required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date, or who cannot complete
the procedure for book-entry transfer on a timely basis and deliver an
Agent's Message, may tender their Old Notes according to the
guaranteed delivery procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights........................ Tenders of Old Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the business day prior to the Expiration
Date, unless previously accepted for exchange. See "The Exchange
Offer -- Withdrawal of Tenders."
Termination of the Exchange Offer........ The Company may terminate the Exchange Offer if it determines that
the Exchange Offer violates any applicable law or interpretation of
the staff of the SEC. Holders of Old Notes will have certain rights
against the Company under the Registration Rights Agreement should
the Company fail to consummate the Exchange Offer. See "The
Exchange Offer-- Termination" and "Description of the Notes--
Registration Rights; Liquidated Damages."
Acceptance of Old Notes and
Delivery of Exchange Notes............... Subject to certain conditions (as summarized above in "Termination
of the Exchange Offer" and described more fully in "The Exchange
Offer-- Termination"), the Company will accept for exchange any
and all Old Notes which are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date. See "The
Exchange Offer -- General."
</TABLE>
8
<PAGE> 10
<TABLE>
<S> <C>
Exchange Agent........................... The Bank of New York is serving as exchange agent (the "Exchange
Agent") in connection with the Exchange Offer. The mailing address
of the Exchange Agent is: The Bank of New York, 101 Barclay
Street, 7th Floor, Reorganization Section, New York, New York
10286, Attention: Henry Lopez. Hand deliveries and deliveries by
overnight courier should be sent to: The Bank of New York, 101
Barclay Street, New York, NY 10286, Corporate Trust Services
Window, Ground Level, Attention: Reorganization Section. For
information with respect to the Exchange Offer, the telephone number
for the Exchange Agent is (212) 815-2742 and the facsimile number
for the Exchange Agent is (212) 815-6639. See "The Exchange
Offer -- Exchange Agent."
Use of Proceeds.......................... There will be no cash proceeds payable to the Company from the
issuance of the Exchange Notes pursuant to the Exchange Offer. See
"Use of Proceeds." For a discussion of the use of the net proceeds
received by the Company from the sale of the Old Notes, see "Private
Placement."
TERMS OF THE NOTES
Notes Outstanding........................ $100,000,000 aggregate principal amount of 9 1/2% Series A Senior
Subordinated Notes due 2007.
Maturity Date............................ June 15, 2007.
Interest Payment Dates................... Interest on the Notes will be payable semi-annually in arrears on
June 15 and December 15 of each year, commencing December 15,
1997.
Optional Redemption...................... The Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after June 15, 2002, at the redemption
prices set forth herein, together with accrued and unpaid interest, if
any, to the date of redemption. In addition, at any time on or prior to
June 15, 2000, the Company may redeem up to 33=% of the Notes
with the net cash proceeds of one or more Public Equity Offerings, at
a redemption price equal to 109.5% of the principal amount to be
redeemed, together with accrued and unpaid interest, if any, to the
date of redemption, provided that at least $66,600,000 of the
aggregate principal amount of the Notes remains outstanding after
each such redemption. See "Description of the Notes--
Redemption-- Optional Redemption."
Mandatory Redemption..................... None.
Guarantees............................... The Company currently has no subsidiaries. Under certain
circumstances, however, the Company's payment obligations under
the Notes may be jointly and severally guaranteed on a senior
subordinated basis (the "Subsidiary Guarantees") by certain of the
Company's future Restricted Subsidiaries (the "Subsidiary
Guarantors"). See "Risk Factors-- Fraudulent Conveyance
Considerations Relating to Subsidiary Guarantees" and "Description
of the Notes-- Future Subsidiary Guarantees of the Notes."
Change of Control........................ Upon the occurrence of a Change of Control, each Holder may
require the Company to purchase all or a portion of such Holder's
Notes at a price equal to 101% of the principal amount thereof,
</TABLE>
9
<PAGE> 11
<TABLE>
<S> <C>
together with accrued and unpaid interest, if any, to the date of
purchase. See "Description of the Notes -- Certain Covenants --
Change of Control."
Ranking.................................. The Notes will be unsecured senior subordinated obligations of the
Company that will be subordinated in right of payment to all existing
and future Senior Indebtedness of the Company, pari passu with all
future senior subordinated indebtedness of the Company and senior
in right of payment to all existing and future Subordinated
Indebtedness of the Company. As of May 31, 1997, after giving
effect to the Offering, the Company would have had no outstanding
indebtedness that effectively would rank senior to the Notes other
than $9.5 million in reimbursement obligations for letters of credit
outstanding under the Company's revolving credit facility (the "Bank
Credit Facility"). Subject to certain limitations set forth in the
Indenture, the Company and its subsidiaries may incur additional
indebtedness. See "Capitalization," "Description of the Notes" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Liquidity and Capital Resources."
Certain Covenants........................ The Indenture pursuant to which the Notes (and, if issued, the
Exchange Notes) will be issued (the "Indenture") will contain certain
covenants, including, without limitation, covenants with respect to the
following matters: (i) limitations on Indebtedness; (ii) limitations on
Restricted Payments; (iii) limitations on issuances and sales of
Restricted Subsidiary stock; (iv) limitations on transactions with
Affiliates; (v) limitations on Liens; (vi) limitations on disposition of
proceeds of Asset Sales; (vii) limitations on Non-Guarantor
Restricted Subsidiaries; (viii) limitations on dividends and other
payment restrictions affecting Restricted Subsidiaries; (ix) limitations
on other Senior Subordinated Indebtedness; (x) limitations on conduct
of business; and (xi) reports. See "Description of the Notes--
Certain Covenants."
Use of Proceeds.......................... The net proceeds to the Company from the Offering will be used to
repay borrowings under the Bank Credit Facility and for general
corporate purposes. See "Use of Proceeds."
Exchange Offer;
Registration Rights.................... Pursuant to a Registration Rights Agreement by and among the Company and
the Initial Purchasers (the "Registration Rights Agreement"), the
Company agreed to use its best efforts (i) to Make the Exchange Offer
pursuant to which holders of the Old Notes will have the opportunity to
exchange their Old Notes for a like principal amount of the Exchange
Notes that are identical in all material respects to the Notes and that
may be offered and sold by the holders without restrictions or
limitations under the Securities Act or (ii) under certain
circumstances, to effect a shelf registration of the Notes (the "Shelf
Registration Statement") that would include a prospectus under cover of
which holders would be free to offer and sell their Notes from time to
time. The Company has agreed to use its best efforts to file with the
Commission a registration statement relating to the Exchange Offer (the
"Exchange Offer Registration Statement") within 60 days after the date
of issuance of the Notes (the "Issue Date"), and to use its best efforts
to cause such registration statement to be declared effective by the
Commission within 120 days after the Issue Date and, in the case
</TABLE>
10
<PAGE> 12
<TABLE>
<S> <C>
of the Shelf Registration Statement, to cause such to remain effective
until the second anniversary of its effective date. The interest rate on
the Old Notes is subject to increase under certain circumstances if the
Company is not in compliance with its obligations under the
Registration Rights Agreement. See "Exchange Offer; Registration
Rights."
Absence of a Public
Market for the Notes................... The Exchange Notes will be a new issue of securities for which there is
currently no market. The Company does not intend to apply for listing
of the Notes on any securities exchange or stock market. Although the
Initial Purchasers have informed the Company that they each currently
intend to make a market in the Notes and, if issued, the Exchange Notes,
they are not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any market for the
Notes. The Old Notes currently trade in the PORTAL market.
</TABLE>
11
<PAGE> 13
SUMMARY FINANCIAL DATA
The following table sets forth summary historical financial data for the
Company as of and for each of the periods indicated. The financial data, other
than the ratio of EBITDA to pro forma interest expense and the ratio of pro
forma debt to EBITDA, as of and for the three years ended December 31, 1996,
are derived from the financial statements of the Company audited by KPMG Peat
Marwick LLP, independent accountants. The financial data, other than the ratio
of EBITDA to pro forma interest expense and the ratio of pro forma debt to
EBITDA, for the three months ended March 31, 1996 and 1997 are derived from the
Company's unaudited financial statements, which, in the opinion of management,
include all adjustments (which consist only of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations of the Company for such interim periods. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements of
the Company and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ---------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas sales......................................... $ 15,098 $ 30,462 $ 67,027 $ 13,735 $ 30,921
Lease operating expenses.................................. 3,855 4,757 6,161 1,506 2,292
Depletion, depreciation and amortization.................. 4,291 9,256 29,639 6,430 14,095
Exploration expenditures.................................. 3,020 3,396 7,061 919 1,293
General and administrative................................ 2,046 4,502 5,259 1,230 1,404
Income from operations................................ 1,886 8,551 18,426 3,650 11,628
Interest expense ......................................... (959) (2,452) (3,369) (687) (727)
Interest income .......................................... 14 64 172 18 54
Net income............................................ $ 845 $ 6,973 $ 8,924 $ 1,311 $ 7,530
OTHER FINANCIAL DATA AND SELECTED RATIOS:
EBITDA (1)................................................ $ 9,142 $ 21,238 $ 55,607 $ 10,999 $ 27,225
EBITDA margin (2)......................................... 61% 70% 83% 80% 88%
Capital and exploration expenditures ..................... $ 22,449 $ 56,187 $ 93,000 $ 17,255 $ 38,980
Ratio of EBITDA to interest expense....................... 9.5x 8.7x 16.5x 16.0x 37.4x
Ratio of long-term debt to EBITDA......................... 2.6x 2.7x 1.7x -- --
Ratio of earnings to fixed charges (3).................... 1.9x 5.3x 5.5x 5.3x 16.1x
PRO FORMA SELECTED RATIOS:
Ratio of EBITDA to pro forma interest expense(4).......... -- -- 5.3x -- 8.9x
Ratio of pro forma debt to EBITDA (4)(5).................. -- -- 2.0x -- 1.9x
Ratio of pro forma earnings to fixed charges(4)........... -- -- 1.8x -- 3.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------ --------------------
1994 1995 1996 1996 1997
------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.............................................. $ 36,969 $ 89,110 $ 146,145 $ 98,092 $ 168,936
Bank credit facility...................................... 12,825 32,350 37,000 40,590 45,000
Subordinated shareholder loan(6).......................... 11,386 25,038 57,954 25,038 59,237
-------- -------- --------- -------- ---------
Total long-term debt.................................. 24,211 57,388 94,954 65,628 104,237
Shareholder's equity...................................... (1,342) 5,631 15,036 6,942 22,775
</TABLE>
- ------------------
(1) EBITDA is defined as earnings before interest, taxes, exploration
expenditures, stock compensation expense, depletion, depreciation and
amortization and other non-cash charges and is presented because it is a
widely accepted financial indication of an exploration and production
company's ability to service and incur debt. EBITDA should not be
considered as an alternative to earnings (loss) as an indicator of the
Company's operating performance or to cash flows as a measure of
liquidity.
(2) Represents EBITDA divided by oil and gas sales.
(3) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income (loss) before tax plus fixed charges. Fixed
charges consist of interest expense.
(4) Gives effect to the Offering and the application of the net proceeds
therefrom as described under "Use of Proceeds" as if such transaction had
occurred at the beginning of the period. Also gives effect to (i) a
recapitalization of $20 million of subordinated shareholder loan as equity
to be effective prior to the closing of the Offering and (ii) pro forma
interest expense on the outstanding balance of such loan.
(5) For the three months ended March 31, 1997, EBITDA was calculated using
data from the 12 months ended March 31, 1997.
(6) $20 million of such loan will be recapitalized as equity prior to the
closing of the Offering. See "Capitalization."
12
<PAGE> 14
SUMMARY RESERVE AND OPERATING DATA
The following tables set forth summary information with respect to the
Company's estimated net proved oil and gas reserves as of June 30, 1993, 1994
and 1995 and December 31, 1995 and 1996 and the Company's operating data for
the years ended December 31, 1994, 1995 and 1996 and the three months ended
March 31, 1996 and 1997. In 1996, the Company changed its fiscal year end from
June 30 to December 31, and consequently, the reserves presented below reflect
the periods for which the Company has reserve reports. All information in this
Prospectus relating to estimated net proved oil and gas reserves and the
estimated future net revenues attributable thereto is based upon the reserve
reports (the "Ryder Scott Reports") prepared by Ryder Scott Company,
independent petroleum engineers. All calculations of estimated net proved
reserves have been made in accordance with the rules and regulations of the
Commission and, except as otherwise indicated, give no effect to federal or
state income taxes otherwise attributable to estimated future net revenues from
the sale of oil and gas. The present value of estimated future net revenues has
been calculated using a discount factor of 10%. See "Risk Factors --
Uncertainty of Estimates of Oil and Gas Reserves," "Business -- Oil and Gas
Reserves" and "Reserve Engineers."
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, DECEMBER 31,
---------------------------------- ---------------------
1993 1994 1995 1995 1996
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total net proved:
Gas (Mmcf)......................................... 11,755 12,830 20,327 49,747 73,291
Oil (Mbbls)........................................ 1,136 2,650 6,881 7,172 8,318
Total (Mmcfe)...................................... 18,571 28,730 61,613 92,779 123,199
NET PROVED DEVELOPED:
Gas (Mmcf)......................................... 11,755 12,830 12,003 25,852 43,133
Oil (Mbbls)........................................ 1,136 2,650 4,076 6,962 6,670
Total (Mmcfe)...................................... 18,571 28,730 36,459 67,624 83,153
Estimated future net revenues before income taxes
(in thousands)........................................ $ 29,387 $ 44,480 $ 102,517 $ 190,703 $ 372,980
Present value of estimated future net revenues
before income taxes (in thousands)(1)(2).............. $ 24,653 $ 34,990 $ 76,632 $ 153,648 $ 308,226
Standardized measure of discounted future
net cash flows (in thousands)(3)...................... $ 21,509 $ 30,122 $ 65,136 $ 131,488 $ 223,381
</TABLE>
- ------------------
(1) The present value of estimated future net revenues attributable to the
Company's reserves was prepared using constant prices, including the
effects of hedging, as of the calculation date, discounted at 10% per
annum on a pre-tax basis.
(2) The December 31, 1996 amount was calculated using an average oil price of
$25.09 per barrel and an average gas price of $3.68 per Mcf, both adjusted
to reflect the effects of hedging. Using an oil price of $20.00 per barrel
and a gas price of $2.00 per Mcf at December 31, 1996, the discounted
present value of cash flows before income taxes of the Company's proved
reserves as of December 31, 1996, as estimated by Ryder Scott, would have
been $175 million.
(3) The standardized measure of discounted future net cash flows represents
the present value of estimated future net revenues after income tax
discounted at 10%.
13
<PAGE> 15
OPERATING DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH-31,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net production:
Gas (Mmcf)......................................... 4,028 7,519 11,722 2,855 5,868
Oil (Mbbls)........................................ 449 1,014 2,150 461 747
Total (Mmcfe).................................. 6,722 13,603 24,622 5,621 10,350
Net sales data (in thousands):
Gas................................................ $ 8,667 $ 13,863 $ 23,056 $ 5,294 $ 14,930
Oil................................................ $ 6,431 $ 16,599 $ 43,971 $ 8,441 $ 15,991
Total Oil and Gas Sales........................ $ 15,098 $ 30,462 $ 67,027 $ 13,735 $ 30,921
Average sales prices(1):
Gas (per Mcf)...................................... $ 2.15 $ 1.84 $ 1.97 $ 1.85 $ 2.54
Oil (per Bbls)..................................... $ 14.32 $ 16.37 $ 20.45 $ 18.31 $ 21.41
Total (per Mcfe)............................... $ 2.25 $ 2.24 $ 2.72 $ 2.44 $ 2.99
Average costs (per Mcfe):
Lease operating expenses........................... $ 0.57 $ 0.35 $ 0.25 $ 0.27 $ 0.22
General and administrative expenses................ $ 0.30 $ 0.33 $ 0.21 $ 0.22 $ 0.14
</TABLE>
- ------------------
(1) Includes effects of hedging activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RISK FACTORS
Prospective investors in the Notes should carefully consider all of the
information set forth in this Prospectus and, in particular, should evaluate
the specific factors set forth under "Risk Factors" for risks involved with an
investment in the Notes.
14
<PAGE> 16
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). All statements other than
statements of historical facts included in this Prospectus, including without
limitation statements under "Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
regarding the planned capital expenditures, increases in oil and gas
production, the number of anticipated wells to be drilled in 1997 and
thereafter, the Company's financial position, business strategy and other plans
and objectives for future operations, are forward-looking statements. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. There are numerous uncertainties inherent in
estimating quantities of proved oil and natural gas reserves and in projecting
future rates of production and timing of development expenditures, including
many factors beyond the control of the Company. Reserve engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that cannot be measured in an exact way, and the accuracy of any reserve
estimate is a function of the quality of available data and of engineering and
geological interpretation and judgment. As a result, estimates made by
different engineers often vary from one another. In addition, results of
drilling, testing and production subsequent to the date of an estimate may
justify revisions of such estimate and such revisions, if significant, would
change the schedule of any further production and development drilling.
Accordingly, reserve estimates are generally different from the quantities of
oil and natural gas that are ultimately recovered. Additional important factors
that could cause actual results to differ materially from the Company's
expectations are disclosed under "Risk Factors" and elsewhere in this
Prospectus. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by such factors.
RISK FACTORS
In addition to the other information set forth elsewhere in this
Prospectus, the following factors should be carefully considered when
evaluating an investment in the Exchange Notes.
SUBSTANTIAL LEVERAGE
As of May 31, 1997, as adjusted for the issuance of the Notes and the
application of the proceeds therefrom and after giving effect to a
recapitalization of $20 million of a portion of the subordinated shareholder
loan as additional paid in capital, the Company's long-term debt would have
been $139.2 million, of which $39.2 million was a subordinated shareholder
loan. See "Capitalization." In addition, the Indenture will allow the Company
to incur additional Indebtedness on a secured basis. As of May 31, 1997, after
giving effect to the Offering and the application of the net proceeds
therefrom, the Company estimates that it would have had $41.5 million committed
but undrawn under the Company's Bank Credit Facility, subject to the borrowing
base formula at the time of draw.
The Company's level of indebtedness will have several important effects on
its operations, including (i) a substantial portion of the Company's cash flow
from operations will be dedicated to the payment of interest on its
indebtedness and will not be available for other purposes, (ii) the covenants
contained in the Indenture limit its ability to borrow additional funds or to
dispose of assets and may affect the Company's flexibility in planning for, and
reacting to, changes in business conditions and (iii) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired. Moreover, future acquisition or development activities may require
the Company to alter its capitalization significantly. These changes in
capitalization may significantly alter the leverage of the Company. The
Company's ability to meet its debt service obligations and to reduce its total
indebtedness will be dependent upon the Company's future performance, which
will be subject to general economic conditions and to financial, business and
other factors affecting the operations of the Company, many of which are beyond
its control. There can be no assurance that the Company's future performance
will not be adversely affected by 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."
VOLATILITY OF OIL AND GAS PRICES; MARKETABILITY OF PRODUCTION
The Company's revenue, profitability and future rate of growth are
substantially dependent upon the prevailing prices of, and demand for, oil and
natural gas. Prices for oil and natural gas are subject to wide fluctuation in
response to relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of
15
<PAGE> 17
additional factors that are beyond the control of the Company. These factors
include the level of consumer product demand, weather conditions, domestic and
foreign governmental regulations, the price and availability of alternative
fuels, political conditions in the Middle East, the foreign supply of oil and
natural gas, the price of oil and gas imports and overall economic conditions.
From time to time, oil and gas prices have been depressed by excess domestic
and imported supplies. There can be no assurance that current price levels will
be sustained. It is impossible to predict future oil and natural gas price
movements with any certainty. Declines in oil and natural gas prices may
adversely affect the Company's financial condition, liquidity and results of
operations and may reduce the amount of the Company's oil and natural gas that
can be produced economically. Additionally, substantially all of the Company's
sales of oil and natural gas are made in the spot market or pursuant to
contracts based on spot market prices and not pursuant to long-term fixed price
contracts. With the objective of reducing price risk, the Company enters into
hedging transactions with respect to a portion of its expected future
production. There can be no assurance, however, that such hedging transactions
will reduce risk or mitigate the effect of any substantial or extended decline
in oil or natural gas prices. Any substantial or extended decline in the prices
of oil or natural gas would have a material adverse effect on the Company's
financial condition and results of operations. Since December 31, 1996, spot
prices at Henry Hub for gas have declined from $2.46 per Mmbtu to $2.26 per
Mmbtu at May 15, 1997. During the same period, the West Texas Intermediate spot
price for oil has declined from $25.92 per barrel to $21.30 per barrel.
In addition, the marketability of the Company's production depends upon
the availability and capacity of gas gathering systems, pipelines and
processing facilities. Federal and state regulation of oil and gas production
and transportation, general economic conditions and changes in supply and
demand all could adversely affect the Company's ability to produce and market
its oil and natural gas. If market factors were to change dramatically, the
financial impact on the Company could be substantial. The availability of
markets and the volatility of product prices are beyond the control of the
Company and represent a significant risk. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
"Business -- Oil and Gas Marketing."
UNCERTAINTY OF ESTIMATES OF OIL AND GAS RESERVES
This Prospectus contains estimates of the Company's proved oil and gas
reserves and the estimated future net revenues therefrom based upon the Ryder
Scott Reports that rely upon various assumptions, including assumptions
required by the Commission as to oil and gas prices, drilling and operating
expenses, capital expenditures, taxes and availability of funds. The process of
estimating oil and gas reserves is complex, requiring significant decisions and
assumptions in the evaluation of available geological, geophysical, engineering
and economic data for each reservoir. As a result, such estimates are
inherently imprecise. Actual future production, oil and gas prices, revenues,
taxes, development expenditures, operating expenses and quantities of
recoverable oil and gas reserves may vary substantially from those estimated in
the Ryder Scott Reports. Any significant variance in these assumptions could
materially affect the estimated quantity and value of reserves set forth in
this Prospectus. In addition, the Company's proved reserves may be subject to
downward or upward revision based upon production history, results of future
exploration and development, prevailing oil and gas prices and other factors,
many of which are beyond the Company's control. Actual production, revenues,
taxes, development expenditures and operating expenses with respect to the
Company's reserves will likely vary from the estimates used, and such variances
may be material.
Approximately 33% of the Company's total proved reserves at December 31,
1996 were undeveloped, which are by their nature less certain. Recovery of such
reserves will require significant capital expenditures and successful drilling
operations. The reserve data set forth in the Ryder Scott Report assumes that
substantial capital expenditures by the Company will be required to develop
such reserves. Although cost and reserve estimates attributable to the
Company's oil and gas reserves have been prepared in accordance with industry
standards, no assurance can be given that the estimated costs are accurate,
that development will occur as scheduled or that the results will be as
estimated. See "Business -- Oil and Gas Reserves."
The present value of future net revenues referred to in this Prospectus
should not be construed as the current market value of the estimated oil and
gas reserves attributable to the Company's properties. In accordance with
applicable requirements of the Securities and Exchange Commission, the
estimated discounted future net cash flows from proved reserves are generally
based on prices and costs as of the date of the estimate, whereas actual future
prices and costs may be materially higher or lower. Actual future net cash
flows also will be affected by increases in consumption by gas purchasers and
changes in governmental regulations or taxation. The timing of actual future
net cash flows from proved reserves, and thus their actual present value, will
be affected by the timing of both the production and the incurrence of expenses
in connection with development and production of oil and gas properties. In
addition, the 10% discount factor,
16
<PAGE> 18
which is required by the Securities and Exchange Commission to be used in
calculating discounted future net cash flows for reporting purposes, is not
necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the Company or the oil and
gas industry in general.
REPLACEMENT OF RESERVES
As is customary in the oil and gas exploration and production industry,
the Company's future success depends upon its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable.
Unless the Company replaces its estimated proved reserves (through development,
exploration or acquisition), the Company's proved reserves will generally
decline as they are produced.
The Company's current strategy includes increasing its reserve base
through acquisitions of lease blocks with drilling potential and by continuing
to exploit its existing properties. There can be no assurance, however, that
the Company's exploration and development projects will result in significant
additional reserves or that the Company will have continuing success drilling
productive wells at economically viable costs. Furthermore, while the Company's
revenues may increase if prevailing oil and gas prices increase significantly,
the Company's finding costs for additional reserves could also increase. For a
discussion of the Company's reserves, see "Business -- Oil and Gas Reserves."
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial expenditures for
the development, exploration, acquisition and production of oil and natural gas
reserves. The Company made capital expenditures, including exploration expense,
of $56 million during 1995 and $93 million during 1996. The Company plans to
make capital expenditures, including exploration expense but not including
expenditures for acquisitions, of approximately $290 million in 1997 and 1998.
Management believes that the Company will have sufficient cash provided by
operating activities, borrowings under the Bank Credit Facility and the
proceeds from the Offering to fund planned capital expenditures in 1997 and
1998. However, if revenues or cash flows from operations decrease as a result
of lower oil and natural gas prices or operating difficulties, the Company may
be limited in its ability to expend the capital necessary to undertake or
complete its drilling program, or it may be forced to raise additional debt or
equity proceeds to fund such expenditures. There can be no assurance that
additional debt or equity financing or cash generated by operations will be
available to meet these requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
INDUSTRY RISKS
Oil and gas drilling and production activities are subject to numerous
risks, many of which are beyond the Company's control. These risks include the
risk that no commercially productive oil or natural gas reservoirs will be
encountered, that operations may be curtailed, delayed or canceled and that
title problems, weather conditions, compliance with governmental requirements,
mechanical difficulties or shortages or delays in the delivery of drilling
rigs, work boats and other equipment may limit the Company's ability to market
its production. There can be no assurance that new wells drilled by the Company
will be productive or that the Company will recover all or any portion of its
investment. Drilling for oil and natural gas may involve unprofitable efforts,
not only from dry wells but also from wells that are productive but do not
produce sufficient net revenues to return a profit after drilling, operating
and other costs. In addition, the Company's properties may be susceptible to
hydrocarbon drainage from production by other operators on adjacent properties.
Industry operating risks include the risk of fire, explosions, blow-outs,
pipe failure, abnormally pressured formations and environmental hazards such as
oil spills, gas leaks, ruptures or discharges of toxic gases, the occurrence of
any of which could result in substantial losses to the Company due to injury or
loss of life, severe damage to or destruction of property, natural resources
and equipment, pollution or other environmental damage, clean-up
responsibilities, regulatory investigation and penalties and suspension of
operations. Additionally, the Company's oil and gas operations are located in
an area that is subject to tropical weather disturbances, some of which can be
severe enough to cause substantial damage to facilities and possibly interrupt
production. In accordance with customary industry practice, the Company
maintains insurance against some, but not all, of the risks described above.
There can be no assurance that any insurance will be adequate to cover losses
or liabilities. The Company cannot predict the continued availability of
insurance at premium levels that justify its purchase.
17
<PAGE> 19
GOVERNMENTAL REGULATION
Oil and gas operations are subject to various United States federal, state
and local governmental regulations that change from time to time in response to
economic or political conditions. Matters subject to regulation include
discharge permits for drilling operations, drilling and abandonment bonds,
reports concerning operations, the spacing of wells, and unitization and
pooling of properties and taxation. From time to time, regulatory agencies have
imposed price controls and limitations on production by restricting the rate of
flow of oil and gas wells below actual production capacity in order to conserve
supplies of oil and gas. In addition, the production, handling, storage,
transportation and disposal of oil and gas, by-products thereof and other
substances and materials produced or used in connection with oil and gas
operations are subject to regulation under federal, state and local laws and
regulations primarily relating to protection of human health and the
environment. To date, expenditures related to complying with these laws and for
remediation of existing environmental contamination have not been significant
in relation to the results of operations of the Company. Although the Company
believes it is in substantial compliance with all applicable laws and
regulations, the requirements imposed by such laws and regulations are
frequently changed and subject to interpretation, and the Company is unable to
predict the ultimate cost of compliance with these requirements or their effect
on its operations. See "Business -- Regulation."
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes may
require the Company to purchase all or a portion of such holder's Notes at 101%
of the principal amount of the Notes, together with accrued and unpaid
interest, if any, to the date of purchase. Prior to any such repurchase of the
Notes, the Company may be required to (i) repay all or a portion of
indebtedness under the Bank Credit Facility or (ii) obtain any requisite
consent to permit the repurchase. If the Company is unable to repay all of such
indebtedness or is unable to obtain the necessary consents, the Company would
be unable to offer to repurchase the Notes, which would constitute an Event of
Default under the Indenture. There can be no assurance that the Company will
have sufficient funds available at the time of any Change of Control to make
any debt payment (including repurchases of Notes) as described above. See
"Description of the Notes -- Certain Covenants -- Change of Control."
The events that constitute a Change of Control under the Indenture may
also be events of default under the Bank Credit Facility or other senior
indebtedness of the Company. Such events may permit the leaders under such debt
instruments to reduce the borrowing base thereunder or accelerate the debt and,
if the debt is not paid, to enforce security interests on, or commence
litigation that could ultimately result in a sale of, substantially all the
assets of the Company, thereby limiting the Company's ability to raise cash to
repurchase the Notes and receive the special benefit of the offer-to-purchase
provisions to the Holders of the Notes.
SUBORDINATION OF NOTES
The Indenture governing the Notes, and, if issued, the Exchange Notes,
will limit, but will not prohibit, the incurrence by the Company of additional
indebtedness that is senior in right of payment to the Notes and, if issued,
the Exchange Notes. In the event of bankruptcy, liquidation, reorganization or
other winding up of the Company, the assets of the Company will be available to
pay the Company's obligations on the Notes only after all Senior Indebtedness
(as defined herein) has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on the Notes. In addition, under certain
circumstances, no payments may be made with respect to principal of, premium,
if any, or interest on the Notes if a default exists with respect to any Senior
Indebtedness. See "Description of the Notes -- Subordination."
In addition, the Notes will be effectively subordinated to any
indebtedness and liabilities (including trade payables) of the Company's future
Subsidiaries that are not Subsidiary Guarantors. Presently, the Company has no
subsidiaries.
The Indenture imposes limits on the ability of the Company and its future
Restricted Subsidiaries (as defined herein) to incur additional indebtedness
and liens and to enter into agreements that would restrict the ability of such
future Restricted Subsidiaries to make distributions, loans or other payments
to the Company. These limitations are subject to various qualifications.
Subject to certain limitations, the Company and its Subsidiaries may incur
additional secured indebtedness. For additional details of these provisions and
the applicable qualifications, see "Description of the Notes -- Subordination"
and "-- Certain Covenants."
18
<PAGE> 20
FRAUDULENT CONVEYANCE CONSIDERATIONS RELATING TO FUTURE SUBSIDIARY GUARANTEES
Although the Company currently has no Restricted Subsidiaries, the
Company's obligations under the Notes may under certain circumstances be
guaranteed on an unsecured senior subordinated basis by future Restricted
Subsidiaries. Various fraudulent conveyance laws have been enacted for the
protection of creditors and may be utilized by a court of competent
jurisdiction to subordinate or avoid any Subsidiary Guarantee issued by a
Subsidiary Guarantor. It is also possible that under certain circumstances a
court could hold that the direct obligations of a Subsidiary Guarantor could be
superior to the obligations under the Subsidiary Guarantee.
To the extent that a court were to find that at the time a Subsidiary
Guarantor entered into a Subsidiary Guarantee either (x) the Subsidiary
Guarantee was incurred by a Subsidiary Guarantor with the intent to hinder,
delay or defraud any present of future creditor or that a Subsidiary Guarantor
contemplated insolvency with a design to favor one or more creditors to the
exclusion in whole or in part of others or (y) the Subsidiary Guarantor did not
receive fair consideration or reasonably equivalent value for issuing the
Subsidiary Guarantee and, at the time it issued the Subsidiary Guarantee, the
Subsidiary Guarantor (i) was insolvent or rendered insolvent by reason of the
issuance of the Subsidiary Guarantee, (ii) 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 (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as
they matured, the court could avoid or subordinate the Subsidiary Guarantee in
favor or the Subsidiary Guarantor's other credits. Among other things, a legal
challenge of a Subsidiary Guarantee issued by a Subsidiary Guarantor on
fraudulent conveyance grounds may focus on the benefits, if any, realized by
the Subsidiary Guarantor as a result of the issuance by the Company of the
Notes. To the extent a Subsidiary Guarantee is avoided 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 such Subsidiary Guarantor and would
be creditors solely of the Company.
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent upon a relatively small group of
key management and technical personnel. There can be no assurance that such
individuals will remain with the Company for the immediate or foreseeable
future. The unexpected loss of the services of one or more of these individuals
could have a detrimental effect on the Company.
See "Management."
COMPETITION
The Company operates in a highly competitive environment. The Company
competes with major and independent oil and gas companies for the acquisition
of desirable oil and gas properties, as well as for the equipment and labor
required to develop and operate such properties. Many of these competitors have
financial and other resources substantially greater than those of the Company.
See "Business -- Competition."
RISKS OF HEDGING TRANSACTIONS
In order to manage its exposure to price risks in the marketing of its oil
and natural gas, the Company has in the past and expects to continue to enter
into oil and natural gas price hedging arrangements with respect to a portion
of its expected production. These arrangements may include futures contracts on
the New York Mercantile Exchange (NYMEX), fixed price delivery contracts and
financial swaps. While intended to reduce the effects of volatility of the
price of oil and natural gas, such transactions may limit potential gains by
the Company if oil and natural gas prices were to rise substantially over the
price established by the hedge. In addition, such transactions may expose the
Company to the risk of financial loss in certain circumstances, including
instances in which (i) production is less than expected, (ii) if there is a
widening of price differentials between delivery points for the Company's
production and the delivery point assumed in the hedge arrangement, (iii) the
counterparties to the Company's future contracts fail to perform the contract
or (iv) a sudden, unexpected event materially impacts oil or natural gas
prices. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Business -- Oil
and Gas Marketing."
19
<PAGE> 21
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes will be new securities for which currently there is no trading
market. The Company does not intend to apply for listing of the Notes on any
securities exchange or stock market. The Notes are expected to be eligible for
trading in the Private Offerings, Resale and Trading through Automated Linkages
("PORTAL") market. Although the Initial Purchasers have informed the Company
that they currently intend to make a market in the Notes, the Initial
Purchasers are not obligated to do so, and any such market making may be
discontinued at any time without notice. The liquidity of any market for the
Notes will depend upon the number of Holders of the Notes, the interest of
securities dealers in making a market in the Notes and other factors.
Accordingly, there can be no assurance as to the development or liquidity of
any market for the Notes.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. There can be no assurance that the market, if any, for
the Notes will not be subject to similar disruptions. Any such disruptions may
have an adverse effect on the Holders of the Notes.
20
<PAGE> 22
THE COMPANY
The address of the Company's principal executive offices is 143 Ridgeway
Drive, Suite 113, Lafayette, LA 70503-3402 and its telephone number is (318)
989-1942. The offices of the Company's parent, Petsec Energy Ltd, are located
at Level 13, 1 Alfred Street, Sydney NSW 2000, Australia, and its telephone
number is (011) (6129) 246-4605.
The Company's parent, Petsec Energy Ltd, was incorporated in 1967 and
began focusing its operations on oil and gas exploration and production in
1981, when Terrence N. Fern became Chief Executive Officer. In 1988, the
management of the Company's parent decided to sell most of its petroleum
interests in Australia and began evaluation of opportunities in the United
States. The Company entered into a joint venture with Ampolex (Texas), Inc. in
1990 and participated in an oil discovery in the Paradox Basin in Colorado. In
addition, the Company acquired oil and gas lease interests in northern
California. Subsequently, the Company decided to focus its activities
principally in the offshore Gulf of Mexico and sell substantially all of its
other interests. The Company established an office in Lafayette, Louisiana,
hired several former employees of Tenneco Oil Company and acquired leases in
the Gulf of Mexico, offshore Louisiana. The Company purchased oil and gas
leases from the State of Louisiana in Main Pass Block 6 and drilled its first
discovery well thereon in 1991. In 1992, the Company purchased two adjoining
oil and gas leases in Main Pass Blocks 6 and 7 and a production facility
located thereon.
PRIVATE PLACEMENT
On June 13, 1997, the Company completed the private sale to the Initial
Purchasers of $100,000,000 principal amount of the Old Notes at a price of
97.117% of the principal amount thereof in a transaction not registered under
the Securities Act in reliance upon Section 4(2) of the Securities Act. The
Initial Purchasers thereupon offered and resold the Old Notes only to qualified
institutional buyers and a limited number of institutional accredited investors
at an initial price to such purchasers of 99.617% of the principal amount
thereof. A portion of the $96.6 million net proceeds received by the Company in
connection with the sale of the Old Notes was used to repay all borrowings
outstanding under the Bank Credit Facility. It is anticipated that the
remainder of the net proceed will be used to provide working capital to the
Company to fund further exploration and development of the Company's oil and
gas properties, the acquisition of lease blocks, and other general corporate
purposes.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange a like
principal amount of Old Notes, the terms of which are identical in all material
respects to the Exchange Notes. The Old Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any change in
capitalization of the Company.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth the cash and cash equivalents and the
capitalization of the Company as of March 31, 1997 as adjusted to give effect
to a recapitalization of a portion of the subordinated shareholder loan, and as
adjusted to give effect to the application of the estimated net proceeds of the
Offering. See "Use of Proceeds." This table should be read in conjunction with
the Financial Statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
--------------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) ADJUSTED
------------------ ------------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents..................................... $ 399 $ 399 $ 51,999
================== ================== ==================
Long-term debt, less current maturities:
Bank Credit Facility..................................... $ 45,000 $ 45,000 $ --
Notes offered hereby..................................... -- -- 100,000
Subordinated shareholder loan............................ 59,237 39,237 39,237
------------------ ------------------ ------------------
Total long-term debt 104,237 84,237 139,237
------------------ ------------------ ------------------
Shareholder's equity:
Common stock, $1.00 par value, 1,000,000 shares
authorized; one share issued and outstanding......... -- -- --
Additional paid in capital............................... 691 20,691 20,691
Retained earnings (deficit).............................. 22,084 22,084 22,084
------------------ ------------------ ------------------
Total shareholder's equity........................... 22,775 42,775 42,775
------------------ ------------------ ------------------
Total capitalization................................. $ 127,012 $ 127,012 $ 182,012
================== ================== ==================
</TABLE>
- ------------------
(1) Gives effect to a recapitalization of $20 million in subordinated
shareholder loan as additional paid in capital to be effected prior to the
closing of the Offering.
22
<PAGE> 24
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data for the
Company as of and for each of the periods indicated. The financial data, other
than the ratio of EBITDA to pro forma interest expense and the ratio of pro
forma debt to EBITDA, as of and for the years ended December 31, 1994, 1995 and
1996, are derived from the financial statements of the Company audited by KPMG
Peat Marwick LLP, independent accountants. The financial data, other than the
ratio of EBITDA to pro forma interest expense and the ratio of pro forma debt
to EBITDA, for the years ended December 31, 1992 and 1993 and the three months
ended March 31, 1996 and 1997 are derived from the Company's unaudited
financial statements which, in the opinion of management, include all
adjustments (which consist only of normal recurring adjustments) necessary for
a fair presentation of the financial position and results of operations of the
Company for such interim periods. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements of the Company and the
related notes thereto included elsewhere in this Prospectus. In 1996, the
Company changed its fiscal year end from June 30 to December 31. The audited
financial statements for the 1994, 1995 and 1996 periods and the unaudited
financial data for 1992 and 1993 have been presented on a calendar year end.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- --------- --------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas sales........................... $ 5,172 $ 11,829 $ 15,098 $ 30,462 $ 67,027 $ 13,735 $ 30,921
Lease operating expenses.................... 809 2,782 3,855 4,757 6,161 1,506 2,292
Depletion, depreciation and amortization.... 1,379 4,113 4,291 9,256 29,639 6,430 14,095
Exploration expenditures.................... 1,982 2,603 3,020 3,396 7,061 919 1,293
General and administrative.................. 775 1,421 2,046 4,502 5,259 1,230 1,404
Stock compensation expense.................. -- -- -- -- 481 -- 209
--------- --------- -------------------- -------- --------- ---------
Total operating expenses................ 4,945 10,919 13,212 21,911 48,601 10,085 19,293
-------- -------- --------- --------- -------- -------- ---------
Income from operations...................... 227 910 1,886 8,551 18,426 3,650 11,628
Other income (expense....................... -- -- (55) 35 -- -- --
Gain (loss) on sale of property, plant
and equipment........................... -- -- (16) 4,312 6 -- --
Interest expense ........................... (109) (347) (959) (2,452) (3,369) (687) (727)
Interest income ............................ 9 19 14 64 172 18 54
-------- -------- --------- --------- -------- -------- ---------
Income before income taxes.............. 127 582 870 10,510 15,235 2,981 10,955
Income tax expense.......................... -- -- 25 3,537 6,311 1,670 3,425
-------- -------- --------- --------- -------- -------- ---------
Net income.............................. $ 127 $ 582 $ 845 $ 6,973 $ 8,924 $ 1,311 $ 7,530
======== ======== ========= ========= ======== ======== =========
OTHER FINANCIAL DATA AND SELECTED RATIOS:
EBITDA (1).................................. $ 3,588 $ 7,626 $ 9,142 $21,238 $55,607 $10,999 $27,225
EBITDA margin (2)........................... 69% 64% 61% 70% 83% 80% 88%
Capital and exploration expenditures ....... $11,093 $12,739 $22,449 $56,187 $93,000 $17,255 $38,980
Ratio of EBITDA to interest expense......... 32.9x 22.0x 9.5x 8.7x 16.5x 16.0x 37.4x
Ratio of long-term debt to EBITDA........... 4.5x 2.8x 2.6x 2.7x 1.7x -- --
Ratio of earnings to fixed charges (3)...... 2.2x 2.7x 1.9x 5.3x 5.5x 5.3x 16.1x
PRO FORMA SELECTED RATIOS:
Ratio of EBITDA to pro forma interest
expense(4).............................. -- -- -- -- 5.3x -- 8.9x
Ratio of pro forma debt to EBITDA (4)(5).... -- -- -- -- 2.0x -- 1.9x
Ratio of pro forma earnings to fixed
charges(4).............................. -- -- -- -- 1.8x -- 3.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- --------- --------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................ $ 14,960 $ 21,894 $ 36,969 $ 89,110 $146,145 $ 98,092 $ 168,936
Bank credit facility........................ 4,500 9,766 12,825 32,350 37,000 40,590 45,000
Subordinated shareholder loan(6)............ 11,637 11,386 11,386 25,038 57,954 25,038 59,237
-------- -------- --------- --------- -------- -------- ---------
Total long-term debt.................... 16,137 21,152 24,211 57,388 94,954 65,628 104,237
Shareholder's equity........................ (2,770) (2,188) (1,342) 5,631 15,036 6,942 22,775
</TABLE>
- ------------------
(1) EBITDA is defined as earnings before interest, taxes, exploration
expenditures, stock compensation expense, depletion, depreciation and
amortization and other non-cash charges and is presented because it is a
widely accepted financial indication of an exploration and production
company's ability to service and incur debt. EBITDA should not be
considered as an alternative to earnings (loss) as an indicator of the
Company's operating performance or to cash flows as a measure of
liquidity.
(2) Represents EBITDA divided by oil and gas sales.
(3) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income (loss) before tax plus fixed charges. Fixed
charges consist of interest expense.
(4) Gives effect to the Offering and the application of the net proceeds
therefrom as described under "Use of Proceeds" as if such transaction had
occurred at the beginning of the period. Also gives effect to (i) a
recapitalization of $20 million of subordinated shareholder loan as equity
to be effected prior to the closing of the Offering and (ii) pro forma
interest expense on the outstanding balance of such loan.
(5) For the three months ended March 31, 1997, EBITDA was calculated using
data from the 12 months ended March 31, 1997.
(6) $20 million of such loan will be recapitalized as equity prior to the
closing of the Offering. See "Capitalization."
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion is intended to assist in the understanding of the
Company's historical financial position and results of operations for each year
in the three years ended December 31, 1996 and for the three months ended March
31, 1997 and 1996. Financial Statements and notes thereto included elsewhere in
this Prospectus should be referred to in conjunction with the following
discussion.
OVERVIEW
The Company is the principal operating subsidiary of Petsec Energy Ltd, an
Australian public company with ADSs listed on the Nasdaq National Market. The
Company was incorporated in March 1990 to evaluate oil and gas exploration
opportunities in the United States. In 1990, the Company participated in an oil
discovery in the Paradox Basin in Colorado. In addition the Company acquired
oil and gas lease interests in northern California. The Company also
established an office in Lafayette, Louisiana, hired several former employees
of Tenneco Oil Company and acquired leases in the Gulf of Mexico, offshore
Louisiana. The Company subsequently made a strategic decision to focus its
efforts entirely in the Gulf of Mexico and disposed of its interests in the
Paradox Basin in January 1995.
The Company has acquired substantially all of its 29 leases in the Gulf of
Mexico at federal or state lease sales. The Company maintains an active lease
acquisition program in order to increase its inventory of prospects and was
recently the high bidder on three leases at the Central Gulf of Mexico federal
OCS lease sale held in March 1997. To date, the Company has retained a 100%
working interest ownership in all but one of its leases in the Gulf of Mexico,
which enables it to effectively control expenses, capital allocation, and the
timing and method of exploration and development of its properties. In the
future, the Company intends to maintain substantial working interest positions.
The Company has historically expanded its oil and gas reserves principally
through drilling. The Company is currently producing from 14 of its lease
blocks. The Company's activities are focused in the shallow waters of the Gulf
of Mexico, which provides the Company with access to the substantial
infrastructure of the Gulf and allows the Company to utilize lower cost rigs
and equipment in bringing its production on line. Over the last three years,
concurrent with increases in production, the Company has lowered its lease
operating expenses and general and administrative expenses per unit of
production.
The Company has significantly increased production and proved reserves in
the last three years. Production has increased from 6,722 Mmcfe in 1994 to
24,622 Mmcfe in 1996. For the three months ended March 31, 1997, the Company's
average daily net production was 115 Mmcfe. As of December 31, 1996, the
Company's proved reserves were 123.2 Bcfe. The Company's current production and
reserves base represents a balanced mix between oil and gas, with 59% of proved
reserves consisting of natural gas.
The Company markets its oil through spot price contacts and typically
receives a premium above the price posted. The Company's gas production is sold
under contracts which generally reflect spot market conditions in the central
Gulf of Mexico. The Company has historically entered into crude oil and natural
gas price swaps to reduce its exposure to price fluctuations. The results of
operations described herein reflect any hedging transactions undertaken by the
Company. See Note 9 to the Financial Statements.
The Company follows the successful efforts method of accounting. Under
this method, the Company capitalizes lease acquisition costs, costs to drill
and complete exploration wells in which proven reserves are discovered and
costs to drill and complete development wells. Seismic, geological and
geophysical, and delay rental expenditures are expensed as incurred. See Note
12 to the Financial Statements.
The Company is allocated stock compensation expense in respect to options
in the Parent which are granted to the Company's employees and certain
consultants. In 1996, the Parent adopted SFAS No. 123, Accounting for
Stock-Based Compensation under which it recognizes as expense over the vesting
period the fair value of all stock based awards on the date of grant. See Note
5 to the Financial Statements.
24
<PAGE> 26
The Company reimburses Petsec Energy Ltd for direct expenses incurred in
connection with the Company's operations. In addition, the Company has received
subordinated loans from its parent to finance its operations. See "-- Liquidity
and Capital Resources."
The Company's revenues, profitability and future rate of growth are
substantially dependent upon prevailing prices for oil and gas, which are in
turn dependent upon numerous factors that are beyond the Company's control,
such as economic, political and regulatory developments and competition from
other sources of energy. The energy markets have historically been volatile,
and there can be no assurance that oil and gas prices will not be subject to
wide fluctuations in the future. A substantial or extended decline in oil and
gas prices could have a material adverse effect on the Company's financial
position, results of operations and access to capital, as well as the
quantities of oil and gas reserves that the Company may economically produce.
The following table sets forth certain operating information with respect
to the oil and gas operations of the Company.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET PRODUCTION:
Gas (Mmcf)........................................... 4,028 7,519 11,722 2,855 5,868
Oil (Mbbls).......................................... 449 1,014 2,150 461 747
Total (Mmcfe)........................................ 6,722 13,603 24,622 5,621 10,350
NET SALES DATA (IN THOUSANDS):
Gas.................................................. $ 8,667 $ 13,863 $ 23,056 $ 5,294 $ 14,930
Oil.................................................. $ 6,431 $ 16,599 $ 43,971 $ 8,441 $ 15,991
Total................................................ $ 15,098 $ 30,462 $ 67,027 $ 13,735 $ 30,921
AVERAGE SALES PRICE (1):
Gas (per Mcf)........................................ $ 2.15 $ 1.84 $ 1.97 $ 1.85 $ 2.54
Oil (per Bbl)........................................ $ 14.32 $ 16.37 $ 20.45 $ 18.31 $ 21.41
Total (per Mcfe)..................................... $ 2.25 $ 2.24 $ 2.72 $ 2.44 $ 2.99
AVERAGE COSTS (PER MCFE):
Lease operating expenses............................. $ 0.57 $ 0.35 $ 0.25 $ 0.27 $ 0.22
General, administrative and other expenses........... $ 0.30 $ 0.33 $ 0.21 $ 0.22 $ 0.14
</TABLE>
- ------------------
(1) Includes effects of hedging activities.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED MARCH
31, 1996
General. The Company drilled and completed five wells during the three
month period ended March 31, 1997. In addition, the Company completed the
installation of its Ship Shoal 194 platform and two wells were brought into
production. This resulted in an increase in production of 4.7 Bcfe to 10.4 Bcfe
for the quarter, or 82% over the corresponding quarter in 1996. Average daily
production for the three months ended March 31, 1997 was 115 Mmcfe, almost
double the average rate of 62 Mmcfe for the comparable period in 1996.
Oil and Gas Revenues. Oil and gas revenues for the three months ended
March 31, 1997 were $30.9 million, an increase of $17.2 million, or 126% above
$13.7 million for the comparable period in 1996. A 62% increase in oil
production and a 17% increase in oil prices combined to account for $7.6
million of the increase. A 106% increase in gas production and a 37% increase
in gas prices accounted for the remaining $9.6 million of the increase.
Increased oil production followed the successful drilling and development of
the Ship Shoal 194 field, while the increased gas production stems from
successful drilling at the Main Pass 6/7 and 91 and West Cameron 543/544
fields.
For the three months ended March 31, 1997 gas price hedging resulted in an
average realized price of $2.54 per Mcf, or 10% below the $2.81 per Mcf price
that would otherwise have been received. Over the same period, oil price
hedging had no effect on the average realized price of $21.41 per Bbl. Hedging
activities resulted in a $1.5 million decrease in
25
<PAGE> 27
oil and gas revenues. For the comparable period in 1996 gas price hedging
resulted in an average realized price of $1.85 per Mcf, or 31% below the $2.69
per Mcf that would otherwise have been received. In the same period oil price
hedging resulted in an average realized price of $18.31 per Bbl or 3% below the
$18.88 per Bbl that would have otherwise been received. Hedging activities
resulted in a $2.7 million decrease in oil and gas revenues for the three month
period ended March 31, 1996.
Lease Operating Expenses. Lease operating expenses increased $0.8 million,
or 53% to $2.3 million for the three months ended March 31, 1997, from $1.5
million for the three months ended March 31, 1996. The increase was
attributable to increased production. Lease operating expenses per Mcfe
decreased from $0.27 to $0.22 continuing the trend of previous years reflecting
economies of scale from higher rates of production.
Depletion, Depreciation and Amortization ("DD&A"). DD&A expense for the
three months ended March 31, 1997 increased $7.7 million, or 120% to $14.1
million from $6.4 million, in the same period in 1996. Production increases
accounted for $5.4 million of the increase while an increase in the average
rate per Mcfe from $1.14 to $1.36 per Mcfe accounted for the balance. The
increase in the unit rate was attributable to increased capital expenditures
from the Company's exploration and production activities.
Exploration Expenditures. The Company uses the successful efforts method
to account for oil and gas exploration, evaluation and development expenditure.
Under this method $1.3 million of seismic, geological and geophysical
expenditures were expensed as incurred during the three month period ended
March 31, 1997. This was an increase of $0.4 million, or 44% over the
expenditure of $0.9 million for the three months ended March 31, 1996 and
resulted from the 1997 Central Gulf of Mexico lease sale.
General and Administrative Expense. General and administrative expense
increased $0.2 million, or 17%, to $1.4 million for the three months ended
March 31, 1997 from $1.2 million for the comparable period in 1996. On a per
Mcfe basis the rate decreased 36% from $0.22 to $0.14 due to increased
production.
Interest Expense. Interest expense of $727,000 for the three months ended
March 31, 1997 was marginally higher than the expense of $687,000 for the
comparable period in 1996.
Net Income. As a result of the conditions discussed above, net income for
the three months ended March 31, 1997 was $7.5 million, an increase of $6.2
million, or 477% over the earnings of $1.3 million for the three months ended
March 31, 1996.
1996 COMPARED TO 1995
General. During the twelve month period ended December 31, 1996, the
Company set a larger platform and facility at Ship Shoal 193, significantly
increasing production capacity at that field. In addition, a facility and
pipeline was completed to tie-in its Main Pass 91 wells to its Main Pass 6/7
facility. The Company drilled and completed eight wells during the period. This
activity resulted in an increase in production of 81% from 13.6 Bcfe in 1995 to
24.6 Bcfe in 1996. Average daily production for 1996 increased 81% to 67.5
Mmcfe from 37.3 Mmcfe for 1995.
Oil and Gas Revenues. Oil and gas revenues for 1996 were $67.0 million, an
increase of $36.5 million, or 120% above 1995 revenues of $30.5 million. A 112%
increase in oil production coupled with a 25% increase in oil prices combined
to account for $27.3 million of the increase. A 56% increase in gas production
and a 7% increase in the gas price accounted for the remaining $9.2 million of
the increase. The increased oil production resulted from the tie-back of
additional wells and increased capacity at Ship Shoal 193 following
installation of a larger manned four pile platform. The increased gas
production resulted from a full year's production at West Cameron 543/544 and
commencement of production at Main Pass 91 in the second half of the year.
Gas price hedging in 1996 resulted in an average realized price of $1.97
per Mcf, or 24% below the $2.58 per Mcf price that would have otherwise been
received. In the same period oil price hedging resulted in an average realized
price of $20.45 per Bbl, or 3% below the $21.04 per Bbl that would have
otherwise been received. For the comparable period in 1995 gas price hedging
resulted in an average realized price of $1.84 per Mcf, or 4% above the $1.76
per Mcf that would have otherwise been received. In the same period oil price
hedging resulted in an average realized price of $16.37, or 1% above the $16.22
per Bbl that would have otherwise been received. Hedging activities resulted in
a $8.4 million decrease in revenues for 1996 compared to a $0.8 million
increase in 1995.
26
<PAGE> 28
Lease Operating Expenses. Lease operating expenses in 1996 were $6.2
million, an increase of $1.4 million, or 29%, from $4.8 million in 1995.
Production efficiencies were realized as lease operating expense per Mcfe
decreased from $0.35 in 1995 to $0.25 in 1996.
Depletion, Depreciation and Amortization. DD&A expense increased $20.3
million, or 218%, from $9.3 million in 1995 to $29.6 million in 1996.
Production increases accounted for $7.5 million of the increase while an
increase in the average rate per unit from $0.68 to $1.20 per Mcfe accounted
for the balance. The increase in rate was attributable to increased capital
expenditures from the Company's exploration and production activities.
Exploration Expenditures. Under the successful efforts method of
accounting $7.1 million of seismic, geological and geophysical expenditures
were expensed as incurred in 1996. This was an increase of $3.7 million, or
109%, over the expense of $3.4 million for 1995 as the Company expanded its
access to a broader seismic base in the Gulf of Mexico.
General and Administrative Expenses. General and administrative expense
increased $0.8 million, or 18%, to $5.3 million in 1996 from $4.5 million in
1995. This increase was attributable to the Company's success and resultant
growth in production. On a per Mcfe basis the rate decreased 36% from $0.33 to
$0.21.
Interest Expense. Interest expense in 1996 increased $0.9 million, or 36%,
to $3.4 million from $2.5 million in 1995 due to increased borrowings under the
Bank Credit Facility.
Net Income. As a result of the conditions noted above, net income for 1996
was $8.9 million, an increase of $1.9 million, or 27% over the earnings of $7.0
million for 1995.
1995 COMPARED TO 1994
General. During the twelve month period to December 31, 1995, the Company
set production facilities at West Cameron 543/44. In addition, the Company
drilled and completed five wells during the period. This resulted in an
increase in production of 103% from 6.7 Bcfe in 1994 to 13.6 Bcfe in 1995.
Average daily production for 1995 increased 103% to 37.3 Mmcfe from 18.4 Mmcfe
for 1994.
Oil and Gas Revenues. Oil and gas revenues for 1995 were $30.5 million, an
increase of $15.4 million, or 102% above 1994 revenues of $15.1 million. A 126%
increase in oil production and a 14% increase in oil prices combined to account
for $10.2 million of the increase. An 87% increase in gas production offset by
a 14% decrease in the gas price accounted for the remaining $5.2 million of the
overall increase. The increase in oil production resulted from the successful
drilling of two additional wells at Ship Shoal 193 in late 1994 and
consequently a full year's production in 1995 from four wells at this field.
The increase in gas production followed the completion of development and
commencement of production at West Cameron 543/544 in May 1995.
Gas price hedging in 1995 resulted in an average realized price of $1.84
per Mcf, or 4% above the $1.76 per Mcf price that would have otherwise been
received. In the same period oil price hedging resulted in an average realized
price of $16.37 per Bbl, or 1% above the $16.22 per Bbl that would have
otherwise been received. The Company did not enter into any oil or gas price
hedging agreements in 1994. Hedging activities resulted in a $0.8 million
increase in revenues in 1995.
Lease Operating Expenses. Lease operating expenses increased $0.9 million
(23%) to $4.8 million in 1995 from $3.9 million for 1994. The increase was due
to higher production. Lease operating expenses per Mcfe decreased 39% from
$0.57 in 1994 to $0.35 in 1995 as the Company's production base expanded
significantly.
Depletion, Depreciation and Amortization. DD&A expense for 1995 increased
$5.0 million, or 116% to $9.3 million in 1995 from $4.3 million in 1994. The
increase was attributable to the increase in oil and gas production over the
two periods. The average depletion rate per unit increased from $0.64 per Mcfe
in 1994 to $0.68 per Mcfe in 1995.
Exploration Expenditures. Under the successful efforts method of
accounting $3.4 million of seismic, geological and geophysical expenditures
were expensed as incurred in 1995. This was a marginal increase on the $3.0
million expensed in 1994.
27
<PAGE> 29
General and Administrative Expenses. General and administrative expense
increased $2.5 million, or 125%, to $4.5 million in 1995 from $2.0 million in
1994. This increase was due to the Company's growth in operations. On a per
Mcfe basis the rate increased 10% from $0.30 to $0.33.
Interest Expense. Interest expense in 1995 increased $1.5 million, or
150%, to $2.5 million from $1.0 million in 1994 due to increased borrowings
under the Company's reserve based credit facility.
Net Income. As a result of the conditions noted above, net income for 1995
was $7.0 million, an increase of $6.2 million or 775% over the earnings of $0.8
million for 1994.
LIQUIDITY AND CAPITAL RESOURCES
The following table represents cash flow data for the Company for the
periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, -------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOW DATA:
Net cash provided by operating activities........ $ 10,475 $ 21,561 $ 47,297 $ 7,522 $ 28,461
Net cash used in investing activities............ 19,429 47,836 85,939 16,336 37,687
Net cash provided by financing activities........ 9,078 27,158 37,566 8,240 9,283
</TABLE>
The fluctuation in cash provided by operating activities from 1995 to 1996
was primarily due to increased oil and gas production coupled with higher
prices for both commodities. Similarly the fluctuation from 1994 to 1995 was as
a result of increased production however this was offset by decreased prices.
Working capital decreased in all periods. Before changes in working capital,
cash flow from operations was $45.4 million in 1996, $16.0 million in 1995,
$5.2 million in 1994 and $9.4 million and $25.3 million for the respective
three month periods in 1996 and 1997.
The increase in cash used in investing activities in 1996 over 1995 was
due to expenditures on exploration and development. Similarly the increase in
1995 over 1994 was due to exploration and development offset by the proceeds
from the sale of the Paradox Basin producing properties.
The cash provided by financing activities in all periods consisted of
advances from Petsec Energy Ltd and borrowings under the Bank Credit Facility.
Since 1990 the Company has financed its working capital needs, operations
and growth primarily with advances from its parent, Petsec Energy Ltd, cash
flow from operations and bank borrowings.
Petsec Energy Ltd made an initial cash investment of $11.4 million in the
Company and, subsequently, increased this investment with advances of $18.5
million from an Australian offering of Ordinary Shares in September 1995 and
$31.0 million out of net proceeds from a U.S. offering of ADSs in July 1996.
Funds advanced by the Company's parent have historically been provided in
the form of subordinated loans. These loans are subordinated to the payment of
all Senior Indebtedness and have been subordinated to the Notes. Effective as
of June 1, 1997, these loans will bear interest at market rates, currently
LIBOR plus 1.5% or, in the case of Australian dollar borrowings, the Australian
bank bill rate plus 1.5%. The loans from the Company's parent do not have any
mandatory principal payments due until after the maturity of the Notes. See
"Certain Affiliate Transactions." No interest has been paid or accrued on these
loans prior to June 1, 1997. Payments or distributions made by the Company to
its Parent have been made principally for reimbursement of direct expenses
incurred in connection with the Company's operations. For the years ended
December 31, 1995 and 1996, the aggregate cash payments to the Company's Parent
were $630,000 and $1.0 million, respectively.
In April 1996, the Company entered into the $75 million Bank Credit
Facility, under which the Company estimates the borrowing base, as a result of
this Offering, will be $50 million, with a sublimit of $15 million for letter
of credit purposes to support the bonding requirements of the MMS and commodity
swap transactions. At March 31, 1997, borrowings outstanding under the Bank
Credit Facility totaled $45 million. The Bank Credit Facility is a two-year
28
<PAGE> 30
revolving credit facility followed by a two-year term period with equal
quarterly amortization payments maturing in April 2001. The Bank Credit
Facility is secured by the Company's Gulf of Mexico producing properties and
contains financial covenants that require the Company to maintain a ratio of
senior debt to earnings before interest, taxes, depreciation and amortization
of not more than 2.75 to 1.0 and a coverage ratio of earnings before interest
and taxes to total interest of not less than 2.5 to 1.0 until December 31,
1996, and 3.0 to 1.0 thereafter. The Company is currently in compliance with
all financial covenants under the Bank Credit Facility. Outstanding borrowings
accrue interest at the rate of LIBOR plus a margin of 1.25% to 1.75% per annum,
depending upon the total amount borrowed. The Company is obligated to pay a fee
equal to .3% to .375% per annum based on the unused portion of the borrowing
base under the facility.
The Company's ability to borrow under the Bank Credit Facility is
dependent upon the reserve value of its oil and gas properties, as determined
by The Chase Manhattan Bank ("Chase"). If the reserve value of the Company's
borrowing base declines, the amount available to the Company under the Bank
Credit Facility will be reduced and, to the extent that the borrowing base is
less than the amount then outstanding (including letters of credit) under the
Bank Credit Facility, the Company will be obligated to repay such excess amount
upon ninety days' notice from Chase or to provide additional collateral.
The Company has used a portion of the net proceeds of the Offering of the
Old Notes to repay borrowings under the Bank Credit Facility. The remainder of
the net proceeds will be used to provide working capital to the Company to fund
further exploration and development of the Company's oil and gas properties,
the acquisition of lease blocks and other general corporate purposes.
For 1997, the Company has budgeted capital expenditures of approximately
$136 million on exploration and development drilling and other capital
projects. In the three months ended March 31, 1997, the Company incurred $39
million of capital expenditures. The Company intends to finance expenditures
for the remainder of 1997 and for 1998 with proceeds from the Offering, cash
flow from operations and bank borrowings. The Company continues to evaluate its
capital expenditure budget based on drilling results, commodity prices, cash
flow from operations and property acquisitions.
HEDGING TRANSACTIONS
From time to time, the Company has utilized hedging transactions with
respect to a portion of its oil and gas production to achieve a more
predictable cash flow and to reduce its exposure to oil and gas price
fluctuations. While these hedging arrangements limit the downside risk of
adverse price movements, they may also limit future revenues from favorable
price movements. The use of hedging transactions also involves the risk that
the counterparties will be unable to meet the financial terms of such
transactions. The credit worthiness of counter parties is subject to continuing
review and full performance is anticipated. The Company limits the duration of
the transactions and the percentage of the Company's expected aggregate oil and
gas production that may be hedged. The Company accounts for these transactions
as hedging activities and, accordingly, gains or losses are included in oil and
gas revenues when the hedged production is delivered.
For the calendar years 1997 through 2000, the Company has entered into
commodity swaps effectively fixing the price of 12.795 million Mmbtu, 6.981
million Mmbtu, 1.825 million Mmbtu and 760,000 Mmbtu of gas at $2.15 per Mmbtu,
1.98 per Mmbtu, 2.15 per Mmbtu and 2.15 per Mmbtu respectively. For the same
period, the Company has entered into commodity swap contracts for 1,219,000
barrels, 761,000 barrels, 365,000 barrels and 152,000 barrels at $21.48 per
barrel, $20.10 per barrel, $19.70 per barrel and $19.70 per barrel
respectively. For any particular swap transaction, the counterparty is required
to make a payment to the Company in the event that the average NYMEX reference
prices for any settlement period are less than the swap prices for such hedge,
and the Company is required to make a payment to the counterparty in the event
that the average NYMEX reference prices for any settlement period is greater
than the swap price for such hedge. The Company has proved reserves sufficient
to cover all of these contracts and does not trade in derivatives without
underlying forecasted production and proved reserves.
29
<PAGE> 31
BUSINESS
GENERAL
The Company is an independent exploration and production company operating
in the shallow waters of the central and western Gulf of Mexico. The Company is
the principal operating subsidiary of Petsec Energy Ltd, an Australian public
company with ADSs listed on the Nasdaq National Market (symbol: PSALY). Since
establishing its Gulf of Mexico operations in 1990, the Company has employed a
focused, integrated strategy of exploration and development to generate
substantial increases in reserves, production and cash flow. Currently, the
Company is drilling three wells in the Gulf of Mexico and has suspended
operations on three other wells pending evaluation of sidetracking and
completion alternatives. The Company has completed for commercial production
all of the 28 other wells it has drilled in the Gulf of Mexico. For the five
year period ended December 31, 1996, the Company achieved compound annual
growth rates for both production and EBITDA (as defined herein) of
approximately 98%. As of December 31, 1996, the Company's estimated net proved
reserves were 123.2 Bcfe (approximately 59% of which were attributable to
natural gas), with a PV10 of approximately $308 million. See "Summary --
Reserve and Operating Data."
The regions of the central and western Gulf of Mexico within which the
Company operates have an extensive history of significant oil and gas
production. Through the application of 3-D seismic data and advanced
geophysical techniques, the Company has assembled a large inventory of lease
blocks that it believes has substantial exploration and production potential.
The Company has a significant base of operations consisting of 100% working
interests in 29 lease blocks covering a total of 100,374 acres, a 33.33%
working interest in another lease block and five production facilities. In
addition, in March 1997, the Company was high bidder on three federal lease
blocks (two of which have not yet been awarded) covering 11,646 acres.
Currently producing from only 14 of its lease blocks, the Company has in excess
of 50 prospects on its existing acreage that it intends to drill in the next
four years.
For the year ended December 31, 1996 and for the first quarter ended March
31, 1997, the Company generated revenues of $67.0 million and $30.9 million,
respectively, and EBITDA of $55.6 million and $27.2 million, respectively. In
the first quarter of 1997, the Company drilled and completed five exploratory
wells, two of which were drilled on the Company's previously producing lease
blocks and have been brought on production. Another well, drilled on a
non-producing lease block, was brought on production in late June 1997, and the
two other wells are expected to be brought on production in the third quarter
of 1997. In the first quarter of 1997, the Company's average daily net
production was 115 Mmcfe, a 54% increase over the fourth quarter of 1996.
COMPANY STRENGTHS AND BUSINESS STRATEGY
The Company believes that it is well-positioned to continue to grow its
reserves, production and cash flow by capitalizing on strengths developed since
inception. These strengths include the experience of its personnel, its large
inventory of drilling prospects defined by 3-D seismic data and the operating
flexibility achieved through 100% ownership of leases. The Company has
assembled a team of experienced geoscientists, engineers and other technical
personnel, with substantial experience with major oil companies or large
independents. This technical team has developed an extensive base of knowledge
regarding geophysical processing and interpretation of data, as well as field
operating practices in the Gulf of Mexico. This base of knowledge has led to
the development of over 50 prospects on its existing acreage and, the Company
believes, provides it with a competitive advantage in evaluating the potential
of leases proposed for acquisitions.
The Company has developed a focused, integrated business strategy, which
it believes capitalizes on its strengths and which incorporates the following
elements:
FOCUS ON THE SHALLOW WATERS OF THE GULF OF MEXICO. Each year from the
start of its operations in the Gulf of Mexico, the Company has achieved
significant growth in production and reserves by concentrating its exploration
and development efforts in the shallow federal and state waters (400 feet or
less) in the region. The Company attributes this growth to the quality of its
inventory of lease blocks and the location of these blocks in regions where the
Company has accumulated a substantial base of technical and operating
experience. While these regions have prolific production histories, the Company
believes these regions have significant undiscovered reserves. By focusing its
efforts on leaseholds that generally have not been explored using 3-D seismic
techniques, the Company is able to take maximum advantage of both its
proprietary knowledge base and, in many cases, the results of prior operators
on the same or contiguous properties. The Company is producing from 14 of its
30 lease blocks. The Company believes it will take
30
<PAGE> 32
four to five years to evaluate and drill the exploration and exploitation
prospects on its existing lease blocks. The Company believes that focusing its
drilling activities on properties in a relatively concentrated area in the Gulf
of Mexico permits it to utilize its base of geological, engineering, and
production experience in the region to enhance its drilling results and to
minimize finding and development costs.
CONTROL OF OPERATIONS AND COSTS. Over the last three years, the Company
has consistently been able to lower lease operating expenses and general and
administrative expense per unit of production, concurrent with increases in
production, through a strict control over operations and costs. For the three
years ended December 31, 1996, the total of these costs per Mcfe was $0.87,
$0.68 and $0.46, respectively. For the six years ended December 31, 1996, the
Company had an average finding and development cost of $1.09 per Mcfe of proved
reserves. The Company holds 100% working interests in all but one of its Gulf
of Mexico properties, unlike many other independent energy companies that
conduct business through fractional working interests and non-operated joint
ventures. Ownership of large working interests enables the Company to
effectively control expenses, capital allocation, and the timing and method of
exploration and development of its properties. The geographic focus of the
Company allows it to manage a large asset base with a relatively small number
of employees. The Company currently operates five production facilities, two of
which were upgraded in 1996 and all of which have excess capacity available.
Many of the prospects the Company intends to drill in the next three years are
located in close proximity to these production facilities, enabling the Company
to bring new wells into production at lower incremental costs. The Company also
pursues cost savings through the use of outside contractors where appropriate
for field operations, turnkey drilling and construction agreements, and
production handling agreements with operators of adjoining lease blocks. The
Company believes its working interest position, base of operations and focus on
costs will allow it to further reduce its per unit operating expenses as
additional production volumes are realized.
APPLICATION OF ADVANCED TECHNOLOGIES. The Company relies significantly on
advanced exploration technologies, such as 3-D seismic and time depth
migration, in its lease acquisition assessment and its exploration and
development activities. Historically, the Company has acquired and evaluated
3-D seismic data on leases prior to acquisition in order to reduce the risk
associated with the acquisition. The Company's geotechnical staff has
substantial experience in analyzing 3-D seismic data, which has enabled the
Company to identify multiple exploration and development prospects in both
mature producing fields where advanced technology has not been applied and in
unexplored areas.
EXPANSION OF EXPLORATION AND DEVELOPMENT PROSPECTS. The Company intends to
continue to expand its inventory of exploration and development prospects
through an active lease acquisition and exploitation program. The Company has
in excess of 10 development and 40 exploratory prospects that it expects to
drill over the next four years. For 1997, the Company has allocated a capital
expenditure budget of $136 million, 66% of which will be spent on exploration
and development drilling activities. In addition to the acreage the Company
currently owns, the Company actively participates in OCS and state lease sales
to build its inventory of lease blocks. Recently, the Company was the high
bidder on three lease blocks at the Central Gulf of Mexico OCS Lease Sale held
on March 5, 1997. The aggregate cost to the Company of such blocks will be
approximately $4.6 million. Two of these leases are subject to final award by
the MMS. The Company's principal lease acquisition criteria include, but are
not limited to, shallow offshore Gulf of Mexico properties with geological
characteristics similar to its existing properties, multiple pay objectives,
proximity to existing infrastructure, and the availability of 3-D seismic data
for evaluation prior to bidding. While the Company intends that competitive
lease sales will continue to be its primary method of building its inventory of
lease blocks, it will also evaluate other opportunities to acquire properties
that will complement the Company's existing reserve base and meet its economic
and investment criteria.
31
<PAGE> 33
PROPERTIES
The following table lists the status, year of acquisition, lease
acquisition cost, working interest, and net revenue interest of the Company's
offshore Gulf of Mexico properties. All of the leases are located offshore
Louisiana, except Mustang Island 748, High Island A-307 and A-308, which are
located offshore Texas.
<TABLE>
<CAPTION>
LEASE
YEAR ACQUISITION WORKING NET REVENUE
LEASE STATUS(1) ACQUIRED COST(2) INTEREST INTEREST
- --------------------------------------- --------- --------- ---------------- -------- --------------
<S> <C> <C> <C> <C> <C>
Main Pass 6 and 7 Area (3) HBP 1989-1992 $ 4,209,000 100% 75.5% - 81.33%
Ship Shoal 193 HBP 1993 $ 1,666,650 100% 80.33%
West Cameron 543 HBP 1991 $ 421,150 100% 80.83%
West Cameron 544 HBP 1994 $ 1,381,185 100% 80.33%
Main Pass 91 (western half) HBP 1994 $ 40,905 100% 80.33%
Ship Shoal 194 HBP 1995 $ 1,166,000 100% 83.33%
West Cameron 542(4) HBP 1997 $ 850,000 33.33% 27.77%
South Marsh Island 7 HBP 1993 $ 441,050 100% 80.33%
West Cameron 237(4) HBP 1997 $ 150,000 100% 83.33%
West Cameron 461 Drlg. 1994 $ 331,000 100% 80.33%
Grand Isle 45 Drlg. 1996 $ 1,280,000 100% 83.33%
Main Pass 84 Drlg. 1994 $ 14,463 100% 77.00%
West Cameron 480 Drlg. 1993 $ 411,050 100% 80.33%
Main Pass 104 Drlg. 1993 $ 328,140 100% 80.33%
West Cameron 462 Expl. 1994 $ 428,000 100% 80.33%
Ship Shoal 192 Expl. 1996 $ 893,000 100% 83.33%
South Marsh Island 189 Expl. 1996 $ 831,000 100% 83.33%
South Marsh Island 190 Expl. 1996 $ 3,181,000 100% 83.33%
West Cameron 515 Expl. 1995 $ 281,000 100% 83.33%
West Cameron 516 Expl. 1995 $ 171,000 100% 83.33%
High Island A-307 Expl. 1996 $ 384,100 100% 83.33%
High Island A-308 Expl. 1996 $ 466,100 100% 83.33%
Vermilion 47 Expl. 1995 $ 561,000 100% 83.33%
Mustang Island 748 Expl. 1997 $ 200,160 100% 75.0% - 80.0%
West Cameron 653 Expl. 1997 $ 1,917,962 100% 83.33%
Main Pass 91 (eastern half) NYA 1997 $ 482,357 100% 83.33%
South Pelto 22 NYA 1997 $ 2,218,000 100% 83.33%
</TABLE>
- ------------------
(1) HBP: Held by production; Drlg: Drilling or drilled and awaiting
installation of production facilities; Expl.: Exploration lease; NYA:
Company was high bidder but lease not yet awarded by the MMS.
(2) Represents competitive bid price paid for award of leases, except for Main
Pass 6 and 7 (see footnote 3).
(3) Comprised of four leases acquired from the State of Louisiana for $209,000
and two producing leases acquired from Unocal Corporation for $4 million.
(4) Both properties were acquired by the Company from a third party for an
aggregate price of $1 million.
Set forth below is a description of the Company's significant properties
and certain related exploration and production projects which the Company
expects to pursue in the next several years. The number, type, and timing of
the proposed projects are subject to revision as a result of many factors,
including the availability of capital to fund such projects, initial test
results, results of drilling by third parties on adjacent blocks, oil and gas
prices, weather, and other general and economic conditions that are beyond the
control of the Company. The Company has budgeted capital expenditures of
approximately $136 million for exploration and development drilling and other
projects in 1997. The Company continues to evaluate its capital expenditure
budget based on drilling results, commodity prices, cash flow from operations
and property acquisitions. Actual capital spending may vary from the capital
expenditure budget. There can be no assurance that any of these projects can be
successfully developed within budget, or that, once developed, such projects
will be commercially productive. See "Risk Factors -- Uncertainty of Estimates
of Oil and Gas Reserves," "-- Replacement of Reserves" and "-- Industry Risks."
32
<PAGE> 34
Main Pass 6 and 7 Area
The Company acquired four leases in the Main Pass 6 area from the State of
Louisiana in 1990 for $209,000. The leases are 40 miles offshore Louisiana and
lie on the west flank of the Main Pass 6 gas field in 35 feet of water.
In September 1991, the Company drilled its first well in the Gulf of
Mexico on these leases and discovered gas in commercial quantities.
Subsequently the Company acquired for $4.0 million two leases in the adjacent
Main Pass 7 area, which contained production facilities and wells producing
approximately 300 barrels of oil per day. Detailed mapping by the Company
indicated a number of unproduced gas sands could be accessed from existing
wells on this property. In October 1992, following a number of recompletions in
existing wells, the drilling of a sidetrack well and modification of the
facilities, these Main Pass 6 and 7 leases commenced production at a net rate
of 8.6 Mmcf of gas per day and 420 barrels of oil per day from 10 wells.
In 1995, the Company acquired and interpreted a 3-D seismic survey
covering all of the Company's Main Pass leases, resulting in the mapping of
additional drilling prospects. Three wells were subsequently drilled and
completed for gas production on the Main Pass 7 leases. The #8 well intersected
several zones with gas pay and the #A-12 well intersected the gas reservoir in
a crestal position and both wells were brought into production in February
1996. In addition, the #A-11 well intersected 122 feet of net gas and oil pay
in ten sands and this well was brought into production in November 1996 as a
dual zone producer.
All wells are produced through the Main Pass 7 platform, where facilities
were upgraded in 1996 to accommodate the increased production from the new
discoveries. The upgrade of the Main Pass 7 platform included conversion from
unmanned to fully-manned status and the connection of a second pipeline from
the platform to the gas sales trunk-line. The Main Pass 7 facilities are
capable of handling 40 Mmcf per day and 3,000 barrels of oil per day and
currently service 13 wells from the Main Pass 6, 7, and 91 areas. For the
quarter ended March 31, 1997, net production from the Main Pass 6 and 7 leases
averaged 616 barrels of oil per day and 6.5 Mmcf of gas per day.
Ship Shoal Block 193
The Company acquired Ship Shoal Block 193 in a 1993 OCS lease sale for
$1.7 million. This block is approximately 50 miles offshore Louisiana in water
depths of approximately 80 feet adjacent to the Ship Shoal Block 182 field.
Prior to the Company's acquisition, Ship Shoal Block 193 had no previous
production, although five prior unsuccessful exploration wells had been drilled
on the block by other energy companies. Two of such wells encountered
non-commercial oil bearing sands. Using 2-D seismic data, the Company
identified four prospect traps with seismic amplitude anomalies in the "E"
Series Sands. After acquiring the lease block, the Company purchased a 3-D
seismic survey which confirmed these anomalies and identified additional
prospects.
In the second half of 1993, the Company drilled and completed two
exploratory wells that were brought into production in February 1994.
Subsequently, an additional three wells were drilled and completed for
commercial production. Initially the Company produced the wells through a
"mantis" style production platform which consisted of a supported caisson
structure connected by pipeline to the Ship Shoal Block 182 field. In January
1996, the Company installed a manned four-pile production platform with a
processing capacity of 10,000 barrels of oil per day and 20 Mmcf of gas per
day. In January 1997, this processing capacity was further increased to 20,000
barrels of oil per day and 40 Mmcf of gas per day to accommodate production
from recent discoveries on Ship Shoal Blocks 193 and 194 with some extra
capacity for future discoveries on the Ship Shoal Block 192, 193, and 194
leases.
In the first quarter of 1997, the Company drilled and completed the Ship
Shoal 193 #B-1 well that intersected 36 feet of net oil pay in two sands
identified on 3-D seismic data in the central part of the lease block. After
installing a caisson platform and connecting the platform to the Ship Shoal 193
main processing facility, the well commenced production at the rate of 1,100
barrels of oil per day and 1.9 Mmcf of gas per day. The Company spudded its
seventh well on Block 193 on May 4, 1997. After failing to recover stuck drill
pipe, the Company has suspended operations in the well pending its review of
sidetrack operations.
For the quarter ended March 31, 1997, six wells produced a net average of
3,690 barrels of oil per day and 4.7 Mmcf of gas per day from four separate
pools in three geologic horizons. The Company believes there is additional
exploration potential on this block and plans to drill additional wells on the
block over the next two years to evaluate this reserve potential.
33
<PAGE> 35
West Cameron Blocks 543 and 544
The Company acquired West Cameron Block 543 in a 1991 OCS lease sale for
$421,150. This block is located on the southeast flank of a shale diapir
situated approximately 100 miles offshore Louisiana in approximately 180 feet
of water. Between 1972 and 1985, the previous lessee produced approximately 175
Bcf of gas and one million barrels of oil from this block primarily from the
L-1 Sand. Prior production data is not necessarily indicative of future
production. In developing the L-1 Sand, however, the previous lessee located
its platform off structure in a less than optimum position to evaluate and
access hydrocarbons trapped in sands both above and below the L-1 Sand level.
Prior to bidding on this block, the Company used 2-D seismic data to determine
the prospects for hydrocarbons in sands above and below the L-1 Sand.
After acquiring Block 543, the Company shot a proprietary 3-D seismic
survey over the block and the adjoining Block 544. This seismic data indicated
the presence of untested hydrocarbon bearing sands trapped updip against the
shale diapir. The Company subsequently acquired West Cameron Block 544 at a
1994 OCS lease sale for $1.4 million.
During the second half of calendar 1994, the Company drilled two
exploratory wells down the face of the shale diapir. The first well intersected
multiple hydrocarbon bearing sand intervals and encountered over 637 feet of
net pay. The second well confirmed the areal extent of these pay intervals in a
second fault block, and the decision was made to proceed immediately with the
construction and installation of a manned four-pile production platform. This
platform was installed in June 1995 and is capable of processing 4,000 barrels
of oil and 80 Mmcf of gas per day. This manned platform is expected to be the
center of operations for the Company's West Cameron and High Island area
leases.
In 1996, the Company drilled two additional wells on the lease blocks. The
#A-6 well intersected oil and gas pay in five of the "B" Series Sands. This
well was brought into production during the first quarter of 1997, after the
Company performed remedial actions to correct mechanical problems in the well
bore. The #A-7 well intersected 203 feet of net gas pay in three zones and
production from this well has stabilized at the approximate rate of 200 barrels
of oil per day and 26 Mmcf of gas per day from two of the zones.
In February 1997, the Company drilled and completed the #A-8 well. This
well intersected 70 feet of net gas and oil pay in two zones. Production from
this well has stabilized at the approximate rate of 650 barrels of oil per day
and 2.0 Mmcf of gas per day.
For the quarter ended March 31, 1997, the eight wells produced a net
average of 1,848 barrels of oil per day and 29.9 Mmcf of gas per day.
Main Pass Block 91
The Company acquired the western half of Main Pass Block 91 in a 1994 OCS
lease sale for $40,905. This property is approximately 40 miles offshore
Louisiana in approximately 35 feet of water. The lease block is adjacent to the
Company's Main Pass 6 and 7 area leases. Between 1968 and 1992, previous
lessees produced 14 Mbbls of oil and 87 Bcf of gas from four wells on this
lease block, however prior production data is not necessarily indicative of
future production.
Main Pass Block 91 is situated on the north flank of the Main Pass Block 6
gas field, which is a four-way anticline with numerous gas reservoirs and one
oil reservoir. Prior to acquiring the lease block, the Company identified what
it believed to be additional reserve potential through the use of 3-D seismic
data and detailed geologic work.
During the fourth quarter of calendar 1995, the Company drilled and
completed two exploratory wells on this block. These wells encountered a number
of geologic horizons that the Company believes will be commercially productive
and to which proved reserves have been ascribed in the Ryder Scott Report as of
December 31, 1996. Production from both wells commenced during the second
quarter of calendar 1996 after the Company installed pipelines connecting the
wells to the Company's Main Pass Block 7 production facility. During the third
quarter of 1996, the Company drilled the #A-2 well that intersected gas pay in
eleven sands. This well was brought into production in October 1996 as a dual
zone producer. For the quarter ended March 31, 1997, net production from Main
Pass Block 91 averaged 47 barrels of oil per day and 17.0 Mmcf of gas per day.
34
<PAGE> 36
Ship Shoal Block 194
Ship Shoal Block 194 is adjacent to the Company's productive Ship Shoal
Block 193 and is due south of the Ship Shoal Block 181 oil field. The lease was
acquired in a 1995 OCS lease sale for $1.2 million and is in 80 feet of water.
The lease had not been previously drilled and before acquiring this lease,
the Company, using 3-D seismic data, identified a fault closure prospect
similar to the productive traps on Ship Shoal Block 193.
In 1996, the Company drilled and completed two exploratory wells on this
block. The first well encountered commercial quantities of hydrocarbons in six
sands. The Company electrically logged in excess of 232 feet (true vertical
thickness) of hydrocarbon-bearing sands. The well was completed as a dual zone
producer with production commencing in January 1997. Production stabilized at
the combined total rate of approximately 4,000 barrels of oil per day and 14
Mmcf of gas per day.
The second well drilled on the block tested the structural crest at a
bottom hole location lying approximately 2,500 feet northeast of the bottom
hole location of the #1 well. The second well encountered thirty feet of true
vertical thickness net oil pay in the primary target that was fault separated
from the #1 well. This well was brought into production in February 1997.
To produce reserves from these wells, a mantis-type platform facility was
installed and connected by pipeline to the Company's production platform
located on Ship Shoal Block 193.
West Cameron Blocks 461, 462 and 480
West Cameron Blocks 461, 462 and 480 were acquired at OCS lease sales in
1993 and 1994 at an aggregate cost of $1.17 million. These blocks are
contiguous and in approximately 135 feet of water offshore Louisiana. Between
1975 and 1991, the previous lessee of Block 480 produced 106 Bcf of gas from 16
wells completed in four separate pay zones, although prior production data is
not necessarily indicative of future production. The Company identified its
initial prospects on this block using 2-D seismic data and conventional log
analysis. Although the Company has identified prospects on this block, there
can be no assurance that such prospects will be commercially productive.
In late 1993, the Company acquired 3-D seismic data over Block 480 and the
adjoining open lease blocks, Blocks 461 and 462, on which only one well had
been previously drilled. Using this 3-D seismic data, the Company identified
additional reserve potential on all three lease blocks and subsequently
acquired Blocks 461 and 462 at a 1994 OCS lease sale.
The Company has identified six prospective zones, characterized by 3-D
seismic amplitude anomalies, trapped in three separate fault blocks. In the
first quarter of 1997, the Company drilled two wells on Block 461. The #1 well
encountered 111 feet of net gas pay in seven zones and the #2 well intersected
60 feet of net gas pay in two zones. Production from both wells is expected to
commence by mid 1997 after the Company installs a caisson platform and pipeline
connecting the facility to a gas sales trunkline. The Company spudded the first
exploratory well on Block 480 on May 22, 1997. The well encountered a single
target amplitude which was found to be an undersaturated gas sand, and the
Company has suspended operations in the well pending its review of sidetrack
options.
The Company is currently drilling the West Cameron Block 461 #3 well from
the same surface location as the Block 480 well. This well will test different
zones than those zones encountered in the West Cameron Block 461 #1 and #2
wells. The results of this well will determine which options will be pursued in
the Block 480 well.
South Marsh Island Block 7
South Marsh Island Block 7 is in 65 feet of water adjacent to the South
Marsh Island Block 6 field. The Company acquired this block at a 1993 OCS lease
sale for $411,050.
The lease produced gas until 1991 from two pools trapped in strong east
dipping sands truncated against a salt dome with north and south bounding
radial faults. Using conventional 3-D seismic data and well log analysis, the
Company identified objectives in two established producing zones and two zones
not previously tested. The seismic data also suggested the possibility of a
salt overhang existing on the block. Subsequently, the Company reprocessed
35
<PAGE> 37
newly-acquired 3-D seismic data using post-stack turning wave depth migration,
which identified an untested geologic prospect beneath the salt overhang.
During the first quarter of 1997, the Company tested these prospects with the
drilling of the South Marsh Island 7 #1 well. This well encountered 100 feet of
net gas pay in three zones. After installing a production caisson and pipeline,
this well was brought on production during the last week of June 1997. This
well has been completed as a dual producer.
Grand Isle Block 45
Grand Isle Block 45 was purchased by the Company at an OCS lease sale in
1996 for $1.3 million. This block is in 120 feet of water, and the lease was
originally purchased by a consortium in 1967. The lease was held by production
until 1988 at which time it was dropped. The previous lessees reacquired the
lease block in 1990 and dropped the lease in 1995 without any additional
drilling activity.
The Company's interpretation of 3-D seismic data indicated a number of
prospects involving the same Pliocene and Miocene sands that produce from the
nearby Grand Isle Block 41, Block 43, and Block 47 Fields. These prospects
include a structural stratigraphic trap that is updip from a watered out gas
well with a deeper untested fault trap closure. Previous lessees of Block 45
did not have 3-D seismic data available for interpretation prior to drilling on
the block.
During the second quarter of 1997, the Company drilled its first
exploratory well on this block. This well encountered 40 feet of net gas pay in
two zones in an updip section of a previously produced structural stratigraphic
trap. Production from the well is expected to commence during the third quarter
of 1997 after the Company installs a caisson platform and pipeline connecting
the facility to a gas sales trunkline. The Company anticipates drilling
additional wells on Block 45 commencing in the fourth quarter of 1997.
Ship Shoal Block 192
Ship Shoal Block 192 is located east of and adjacent to the Company's
productive Ship Shoal Block 193. The lease was acquired in a 1996 OCS lease
sale for $893,000 and is in 80 feet of water.
In 1980 and 1981, two unsuccessful exploration wells were drilled on the
lease block by other energy companies. Neither exploratory well was drilled
deep enough to test the Company's objective. Before acquiring the lease, the
Company used 3-D seismic data to identify a fault closure prospect. Previous
lessees of this block did not have 3-D seismic data available for
interpretation prior to drilling.
The objective on Ship Shoal Block 192 is a prospective sand in a
south-dipping down thrown, amplitude supported fault trap located in the
central portion of the lease block. This sand is stratigraphically equivalent
to sands that are currently producing oil from the Company's Ship Shoal Block
193. The Company plans to test this objective sand in Block 192 during the
third quarter of 1997. Although the Company has identified prospects on this
block, there can be no assurance that these prospects will be commercially
productive.
Main Pass Block 104
Main Pass Block 104 is five miles from the Company's Main Pass Block 7
production facility in approximately 35 feet of water. The lease was acquired
by the Company at an OCS lease sale in 1993 for $328,140.
The Company initially identified an amplitude in a down thrown fault
closure on a portion of this lease block. The trapping fault is an easterly
extension of a trapping fault in the nearby Main Pass Block 19 field, and 3-D
seismic data indicates the potential presence of gas bearing sands. The Company
believes that these prospects could be developed with one well and, due to its
proximity to the Company's Main Pass Block 7 production facility, at relatively
low development costs. The Company is currently drilling its initial
exploration well on this block. Although the Company has identified prospects
on this block, there can be no assurance that these prospects will be
commercially productive.
Main Pass Block 84
The Company acquired Main Pass Block 84, located in less than ten feet of
water, at a State of Louisiana lease sale in May 1994 for $14,463. The Company
has identified a prospect using 2-D seismic data and well control. The prospect
is interpreted to contain multiple oil zones lying updip from an adjacent
abandoned well drilled by a previous operator.
36
<PAGE> 38
The Company believes this prospect can be developed with one well. There are
several transportation pipelines within a three-mile radius of the lease block.
The Company is currently drilling its initial exploration well on Block
84. Although the Company has identified prospects on this block, there can be
no assurance that these prospects will be commercially productive.
South Marsh Island Blocks 189 and 190
South Marsh Island Blocks 189 and 190 were awarded to the Company at an
OCS lease sale in 1996 for $831,000 and $3.2 million, respectively. These
leases are in 350 feet of water, and the blocks were originally leased in 1983
at a total cost of $10,000,000. The original lessees drilled wells on the
blocks and encountered hydrocarbons that were considered non-commercial and the
blocks were dropped in 1988. The blocks were leased again in 1990 at a total
cost of $3,500,000 and this lessee drilled two wells on the blocks that were
also considered non-commercial. These leases expired in 1995.
The Company has identified four primary objectives distributed over five
areas underlying the two blocks. The reservoirs are typically stacked
channel-levee systems and ponded basin floor fans. One objective is a south
plunging faulted nose on the south flank of a partially overhung salt dome.
Previous lessees of Blocks 189 and 190 did not have 3-D seismic data available
for interpretation prior to drilling on the blocks. Although the Company has
identified multiple prospects on these blocks, there can be no assurance that
these prospects will be commercially productive.
West Cameron Blocks 515 and 516
The Company acquired West Cameron Blocks 515 and 516, located in
approximately 160 feet of water, at an OCS lease sale in 1995 for a total cost
of $452,000. The Company has identified a prospect that overlaps both blocks
using 3-D seismic data. The prospect is interpreted to be a gas-filled channel
sand encased by a thick shale section. The Company believes this prospect could
be developed with one well and the installation of a support caisson with
production deck and pipeline. Although the Company has identified prospects on
these blocks, there can be no assurance that the prospects will be commercially
productive.
High Island Blocks A-307 and A-308
At an OCS lease sale in 1995, the Company acquired at a total cost of
$850,200 the contiguous High Island Blocks 307-A and 308-A, which are
approximately 100 miles offshore Texas in 200 feet of water and 12 miles
southwest of the Company's facilities at West Cameron 544.
The Company identified a number of prospects using 3-D seismic data
acquired just prior to the lease sale. These prospects are characterized by 3-D
seismic amplitudes located within northerly dipping up thrown fault traps. The
Company believes these prospects could be developed with one unmanned
production facility and connected by pipeline to the Company's nearby West
Cameron 543/544 production platform, where the hydrocarbons could be processed
for sale at relatively low incremental costs. Although the Company has
identified prospects on these blocks, there can be no assurance that such
prospects will be commercially productive. Although the Company has identified
prospects on these blocks, there can be no assurance that the prospects will be
commercially productive.
Vermilion Block 47
Vermilion Block 47 was purchased by the Company at an OCS lease sale in
1995 for $561,000. This block is in 24 feet of water two miles east of the
Vermilion 46 field, which has produced over 130 Bcf; however, prior production
data is not necessarily indicative of future production. Production on this
block ceased in 1971 prior to the Company's acquisition.
The Company's interpretation of 3-D seismic data indicated a number of
prospects located in several northerly dipping up thrown fault block traps
potentially containing multiple pay sands similar to those sands found in
adjacent fields. Although the Company has identified prospects on this block,
there can be no assurance that these prospects will be commercially productive.
The Company plans to test its primary objective in this Block 47 within
the next two years.
37
<PAGE> 39
Mustang Island Block 748
The Company acquired Mustang Island Block 748, located in approximately 35
feet of water, at a State of Texas lease sale in April 1997 for a total cost of
$200,160. The Company has identified a prospect using 2-D seismic data and well
control. The first 3-D seismic survey is scheduled to be shot over the block in
1997. The Company believes this prospect could be developed with one well and
the installation of a support caisson with production deck and pipeline.
Although the Company has identified prospects on this block, there can be no
assurance that the prospects will be commercially productive.
OIL AND GAS RESERVES
The following table sets forth estimated net proved oil and gas reserves
of the Company, the estimated future net revenues before income taxes and the
present value of estimated future net revenues before income taxes related to
such reserves as of June 30, 1993, 1994, and 1995 and December 31, 1995 and
1996. All information in this Prospectus relating to estimated net proved oil
and gas reserves and the estimated future net cash flows attributable thereto
is based upon the Ryder Scott Reports. All calculations of estimated net proved
reserves have been made in accordance with the rules and regulations of the
Securities and Exchange Commission, and, except as otherwise indicated, give no
effect to federal or state income taxes otherwise attributable to estimated
future net revenues from the sale of oil and gas. The present value of
estimated future net revenues has been calculated using a discount factor of
10%.
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Total net proved:
Gas (Mmcf)...................................... $ 11,755 12,830 20,327 49,747 73,291
Oil (Mbbls)..................................... 1,136 2,650 6,881 7,172 8,318
Total (Mmcfe)................................... 18,571 28,730 61,613 92,779 123,199
NET PROVED DEVELOPED:
Gas (Mmcf)...................................... 11,755 12,830 12,003 25,852 43,133
Oil (Mbbls)..................................... 1,136 2,650 4,076 6,962 6,670
Total (Mmcfe)................................... 18,571 28,730 36,459 67,624 83,153
Estimated future net revenues before income taxes
(in thousands)..................................... $ 29,387 $ 44,480 $ 102,517 $ 190,703 $ 372,980
Present value of estimated future net revenues
before income taxes (in thousands)(1)(2)........... $ 24,653 $ 34,990 $ 76,632 $ 153,648 $ 308,226
Standardized measure of discounted future
net cash flows (in thousands)(3)................... $ 21,509 $ 30,122 $ 65,136 $ 131,488 $ 223,381
</TABLE>
- ------------------
(1) The present value of estimated future net revenues attributable to the
Company's reserves was prepared using constant prices as of the
calculation date, discounted at 10% per annum on a pre-tax basis.
(2) The December 1, 1996 amount was calculated using an average oil price of
$25.09 per barrel and an average gas price of $3.68 per Mcf, both adjusted
to reflect the effects of hedging. Using an oil price of $20.00 per barrel
and a gas price of $2.00 per Mcf at December 31, 1996, the discounted
present value of cash flows before income taxes of the Company's proved
reserves as of December 31, 1996, as estimated by Ryder Scott, would have
been $175 million.
(3) The standardized measure of discounted future net cash flows represents
the present value of estimated future net revenues after income tax
discounted at 10%.
There are numerous uncertainties inherent in estimating quantities of
proved reserves, future rates of production and the timing of development
expenditures, including many factors beyond the control of the Company. The
reserve data set forth herein represent only estimates. Reserve engineering is
a subjective process of estimating underground accumulations of oil and gas
that cannot be measured in an exact manner, and the accuracy of any reserve
estimate is a function of the quality of available data, engineering and
geological interpretation and judgment and the existence of development plans.
As a result, estimates of reserves made by different engineers for the same
property will often vary. Results of drilling, testing and production
subsequent to the date of an estimate may justify a revision of such estimates.
Accordingly, reserve estimates generally differ from the quantities of oil and
gas ultimately produced. Further, the
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<PAGE> 40
estimated future net revenues from proved reserves and the present value thereof
are based upon certain assumptions, including geological success, prices, future
production levels and costs that may not prove to be correct. Predictions about
prices and future production levels are subject to great uncertainty, and the
meaningfulness of such estimates depends on the accuracy of the assumptions upon
which they are based.
ACQUISITION, PRODUCTION AND DRILLING ACTIVITY
Acquisition and Development Costs. The following table sets forth certain
information regarding the costs incurred by the Company in its acquisition,
exploration and development activities.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
------------ ----------- ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Acquisition costs....................................... $ 2,785 $ 2,930 $ 6,699 $ 24 $ 1,129
Exploration costs....................................... 11,115 34,786 71,490 13,866 32,577
Development costs....................................... 6,344 12,925 14,187 3,323 5,389
------------ ----------- ------------ ----------- ------------
Total costs incurred.................................... $ 20,244 $ 50,641 $ 92,376 $ 17,213 $ 39,095
============ =========== ============ =========== ============
</TABLE>
Productive Well and Acreage Data. The following table sets forth certain
statistics for the Company regarding the number of productive wells and
developed and undeveloped acreage in the Gulf of Mexico as of March 31, 1997.
<TABLE>
<CAPTION>
GROSS NET
----------- -------------
<S> <C> <C>
Productive Wells(1):
Oil(2)............................................................................... 16 16
Gas.................................................................................. 19 18.5
----------- -------------
Total............................................................................ 35 34.5
=========== =============
Developed Acreage(1)...................................................................... 26,654 23,304
Undeveloped Acreage(1)(3)................................................................. 78,720 78,720
----------- -------------
Total............................................................................ 105,374 102,024
=========== =============
</TABLE>
- ------------------
(1) Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections. Wells that
are completed in more than one producing horizon are counted as one well.
Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of
commercial quantities of oil and gas, regardless of whether or not such
acreage contains proved reserves. A gross acre is an acre in which an
interest is owned. A net acre is deemed to exist when the sum of
fractional ownership interests in gross acres equals one. The number of
net acres is the sum of the fractional interests owned in gross acres
expressed as whole numbers and fractions thereof.
(2) Four gross wells each have dual completions.
(3) Leases covering 6% of the Company's undeveloped acreage will expire in
1997, approximately 19% in 1998, 13% in 1999, 19% in 2000, 37% in 2001,
and 6% in 2002.
Drilling Activity. The following table sets forth the Company's drilling
activity for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ ------------------------------
1994 1995 1996 1996 1997
------------- ------------ ------------- ------------- -------------
GROSS NET GROSS NET GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gulf of Mexico
Exploratory wells.............. 2 2 4 4 1 1 0 0 5 5
Development wells.............. 1 1 3 3 7 7 3 3 0 0
Dry holes...................... 0 0 0 0 0 0 0 0 0 0
----- --- ----- --- ----- --- ----- --- ----- ---
Total...................... 3 3 7 7 8 8 3 3 5 5
</TABLE>
39
<PAGE> 41
OIL AND GAS MARKETING
All of the Company's natural gas, oil and condensate production was sold
at market prices under short-term contracts providing for variable or market
sensitive prices. The Company has not experienced any difficulties in marketing
its oil or gas.
There are a variety of factors which affect the market for oil and gas,
including the extent of domestic production and imports of oil and gas, the
proximity and capacity of natural gas pipelines and other transportation
facilities, demand for oil and gas, the marketing of competitive fuels and the
effects of state and federal regulations of oil and gas production and sales.
The oil and gas industry also competes with other industries in supplying the
energy and fuel requirements of industrial, commercial and individual
customers.
From time to time, the Company has utilized hedging transactions with
respect to a portion of its oil and gas production to achieve more predictable
cash flows, as well as to reduce its exposure to fluctuations in oil and gas
prices. The Company restricts the time and quantity of the aggregate oil and
gas production covered by such transactions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Hedging
Transactions."
Despite the measures taken by the Company to attempt to control price
risk, the Company remains subject to price fluctuations for oil and natural gas
sold in the spot market due primarily to seasonality of demand and other
factors beyond the Company's control. Domestic oil prices generally follow
worldwide oil prices, which are subject to price fluctuations resulting from
changes in world supply and demand. The Company continues to evaluate the
potential for reducing these risks, and expects to enter into additional hedge
transactions in future years. In addition, the Company also may close out any
portion of the existing, or yet to be entered into, hedges as determined to be
appropriate by management.
PRODUCTION SALES CONTRACTS
The Company markets all of the oil and gas production from its properties.
All of the Company's crude oil and gas production is sold to a variety of
purchasers under short-term (less than twelve months) contracts or thirty-day
spot purchase contracts. Natural gas and crude oil sales contracts are based
upon field posted prices plus negotiated bonuses. During calendar 1996, Pan
Energy Trading and Market Services, L.L.C. (formerly Panhandle Eastern
Corporation), Aquila Energy Marketing Corporation, and Natural Gas
Clearinghouse each purchased in excess of 10% of the gas sold by the Company
and Vision Resources, Inc. purchased in excess of 10% of the oil sold by the
Company. Based upon current demand for oil and gas, the Company does not
believe the loss of any of these purchasers would have a material adverse
effect on the Company.
Most of the Company's oil and all of the Company's gas is transported
through gathering systems and pipelines that are not owned by the Company.
Transportation space on such gathering systems and pipelines is occasionally
limited, and at times unavailable, due to repairs or improvements being made to
such facilities or due to such space being utilized by other oil or gas
shippers with priority transportation agreements. While the Company has not
experienced any inability to market its natural gas and oil, if transportation
space is restricted or unavailable, the Company's cash flow could be adversely
impacted.
COMPETITION
The oil and gas industry is highly competitive. The Company competes for
the acquisition of oil and gas properties with numerous other entities,
including major oil companies, other independent oil and gas concerns and
individual producers and operators. Many of these competitors have financial,
technical and other resources substantially greater than those of the Company.
Such companies may be able to pay more for productive oil and gas properties
and exploratory prospects and to define, evaluate, bid for and purchase a
greater number of properties and prospects than the Company's financial or
human resources permit. The Company's ability to acquire additional properties
and to discover reserves in the future will be dependent upon its ability to
evaluate and select suitable properties and to consummate transactions in a
highly competitive environment.
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<PAGE> 42
REGULATION
The oil and gas industry is extensively regulated by federal, state and
local authorities. In particular, oil and gas production operations and
economics are affected by price controls, environmental protection statutes and
regulations, tax statutes and other laws relating to the petroleum industry, as
well as changes in such laws, changing administrative regulations and the
interpretations and application of such laws, rules and regulations. In October
1992, comprehensive national energy legislation was enacted which focuses on
electric power, renewable energy sources and conservation. This legislation,
among other things, guarantees equal treatment of domestic and imported natural
gas supplies, mandates expanded use of natural gas and other alternative fuel
vehicles, funds natural gas research and development, permits continued
offshore drilling and use of natural gas for electric generation and adopts
various conservation measures designed to reduce consumption of imported oil.
The legislation may be viewed as generally intended to encourage the
development and use of natural gas. Oil and gas industry legislation and agency
regulation are under constant review for amendment and expansion for a variety
of political, economic and other reasons.
Regulation of Natural Gas and Oil Exploration and Production. The
Company's operations are subject to various types of regulation at the federal,
state and local levels. Such regulation includes requiring permits for the
drilling of wells, maintaining bonding requirements in order to drill or
operate wells and regulating the location of wells, the method of drilling and
casing wells, the surface use and restoration of properties upon which wells
are drilled, the plugging and abandoning of wells and the disposal of fluids
used in connection with operations. The Company's operations are also subject
to various conservation laws and regulations. These include the regulation of
the size of drilling and spacing units or proration units and the density of
wells which may be drilled in and the unitization or pooling of oil and gas
properties. In this regard, some states (such as Oklahoma) allow the forced
pooling or integration of tracts to facilitate exploration while other states
(such as Texas) rely on voluntary pooling of lands and leases. In areas where
pooling is voluntary, it may be more difficult to form units and, therefore,
more difficult to develop a project if the operator owns less than 100% of the
leasehold. In addition, state conservation laws establish maximum rates of
production from oil and gas wells, generally prohibit the venting or flaring of
gas and impose certain requirements regarding the ratability of production. The
effect of these regulations may limit the amount of oil and gas the Company can
produce from its wells and may limit the number of wells or the locations at
which the Company can drill. The regulatory burden on the oil and gas industry
increases the Company's costs of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently expanded,
amended or reinterpreted, the Company is unable to predict the future cost or
impact of complying with such regulations.
The Company has operations located on federal oil and gas leases, which
are administered by the MMS. Such leases are issued through competitive
bidding, contain relatively standardized terms and require compliance with
detailed MMS regulations and orders pursuant to the Outer Continental Shelf
Lands Act ("OCSLA") (which are subject to change by the MMS). For offshore
operations, lessees must obtain MMS approval for exploration plans and
development and production plans prior to the commencement of such operations.
In addition to permits required from other agencies (such as the Coast Guard,
the Army Corps of Engineers and the Environmental Protection Agency (the
"EPA")), lessees must obtain a permit from the MMS prior to the commencement of
drilling. The MMS has promulgated regulations requiring offshore production
facilities located on the OCS to meet stringent engineering and construction
specifications. The MMS proposed additional safety-related regulations
concerning the design and operating procedures for OCS production platforms and
pipelines. These proposed regulations were withdrawn pending further
discussions among interested federal agencies. The MMS also has regulations
restricting the flaring or venting of natural gas, liquid hydrocarbons and oil
without prior authorization. Similarly, the MMS has promulgated other
regulations governing the plugging and abandonment of wells located offshore
and the removal of all production facilities. To cover the various obligations
of lessees on the OCS, the MMS generally requires that lessees post substantial
bonds or other acceptable assurances that such obligations will be met. The
cost of such bonds or other surety can be substantial and there is no assurance
that bonds or other surety can be obtained in all cases. Under certain
circumstances, the MMS may require Company operations on federal leases to be
suspended or terminated. Any such suspension or termination could materially
and adversely affect the Company's financial condition and operations.
The MMS issued a notice of proposed rulemaking in which it proposed to
amend its regulations governing the calculation of royalties and the valuation
of crude oil produced from federal leases. The proposed rule would modify the
valuation procedures for both arm's length and non-arm's length crude oil
transactions to decrease reliance on posted prices and assign a value to crude
oil that better reflects market value, establish a new MMS form for collecting
value differential data, and amend the valuation procedure for the sale of
federal royalty oil. The Company cannot predict at this stage of the rulemaking
proceeding how it might be affected by this amendment to the MMS' regulations.
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In April 1997, after two years of study, the MMS withdrew proposed changes
to the way it values natural gas for royalty payments. These proposed changes
would have established an alternative market-based method to calculate
royalties on certain natural gas sold to affiliates or pursuant to non-arm's
length sales contracts.
Natural Gas and Oil Marketing and Transportation. Historically, the
transportation and sale for resale of natural gas in interstate commerce have
been regulated pursuant to the Natural Gas Act of 1938, the Natural Gas Policy
Act of 1978 (the "NGPA") and the regulations promulgated thereunder by the
Federal Energy Regulatory Commission (the "FERC"). In the past, the federal
government has regulated the prices at which oil and gas could be sold.
Deregulation of wellhead sales in the natural gas industry began with the
enactment of the NGPA. In 1989, the Natural Gas Wellhead Decontrol Act was
enacted. This act amended the NGPA to remove both price and non-price controls
from natural gas sold in "first sales" as of January 1, 1993. While sales by
producers of natural gas and all sales of crude oil, condensate and natural gas
liquids can currently be made at uncontrolled market prices, Congress could
reenact price controls in the future.
Several major regulatory changes have been implemented by the FERC from
1985 to the present that affect the economics of natural gas production,
transportation and sales. In addition, the FERC continues to promulgate
revisions to various aspects of the rules and regulations affecting those
segments of the natural gas industry, most notably interstate natural gas
transmission companies, which remain subject to the FERC's jurisdiction. These
initiatives may also affect the intrastate transportation of gas under certain
circumstances. The stated purposes of many of these regulatory changes is to
promote competition among the various sectors of the gas industry. The ultimate
impact of these complex and overlapping rules and regulations, many of which
are repeatedly subjected to judicial challenge and interpretation, cannot be
predicted.
Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, 636-B and
636-C (collectively, "Order No. 636"), which, among other things, require
interstate pipelines to "restructure" to provide transportation separate, or
"unbundled," from the pipelines' sales of gas. Also, Order No. 636 requires
pipelines to provide open-access transportation on a basis that is equal for
all gas supplies. Order No. 636 has been implemented as a result of FERC orders
in individual pipeline service restructuring proceedings. In many instances,
the result of the Order No. 636 and related initiatives have been to
substantially reduce or bring to an end the interstate pipelines' traditional
roles as wholesalers of natural gas in favor of providing only storage and
transportation services. The FERC has issued final orders in virtually all
pipeline restructuring proceedings, and has completed a series of one year
reviews to determine whether refinements are required regarding individual
pipeline implementations of Order No. 636.
Although Order No. 636 does not directly regulate natural gas producers
such as the Company, the FERC has stated that Order No. 636 is intended to
foster increased competition within all phases of the natural gas industry. It
is unclear what impact, if any, increased competition within the natural gas
industry under Order No. 636 will have on the Company and its natural gas
marketing efforts. The United States Court of Appeals for the District of
Columbia Circuit (the "Court") recently issued its decision in the appeals of
Order No. 636. The Court largely upheld the basic tenets of Order No. 636,
including the requirements that interstate pipelines "unbundle" their sales of
gas from transportation and that pipelines provide open-access transportation
on a basis that is equal for all gas suppliers. The Court remanded several
relatively narrow issues for further explanation by the FERC. In doing so, the
Court made it clear that the FERC's existing rules on the remanded issues would
remain in effect pending further consideration. The Company believes that the
issues remanded for further action do not appear to materially affect it. The
United States Supreme Court has decided not to review the Court's decision
regarding Order No. 636. In February 1997, the FERC issued Order No. 636-C, its
order on remand from the Court. Order 636-C is currently pending on rehearing
before the FERC. Although Order No. 636 could provide the Company with
additional market access and more fairly applied transportation service rates,
terms and conditions, it could also subject the Company to more restrictive
pipeline imbalance tolerances and greater penalties for violations of those
tolerances. The Company does not believe, however, that it will be affected by
any action taken with respect to Order No. 636 materially differently than
other natural gas producers and marketers with which it competes.
The FERC has issued a statement of policy and a request for comments
concerning alternatives to its traditional cost-of-service rate making
methodology. This policy statement articulates the criteria that the FERC will
use to evaluate proposals to charge market-based rates for the transportation
of natural gas. The policy statement also provides that the FERC will consider
proposals for negotiated rates for individual shippers of natural gas, so long
as a cost-of-service-based rate is available as a recourse rate. The FERC also
has requested comments on whether it should allow gas pipelines the flexibility
to negotiate the terms and conditions of transportation service with
prospective
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shippers. The Company cannot predict what further action the FERC will take on
these matters, however, the Company does not believe that it will be affected
by any action taken materially differently than other natural gas producers and
marketers with which it competes.
The FERC has announced its intention to reexamine certain of its
transportation-related policies, including the manner in which interstate
pipeline shippers may release interstate pipeline capacity under Order No. 636
for resale in the secondary market. While any resulting FERC action would
affect the Company only indirectly, the FERC's current rules and policies may
have the effect of enhancing competition in natural gas markets by, among other
things, encouraging non-producer natural gas marketers to engage in certain
purchase and sale transactions. The Company cannot predict what action the FERC
will take on these matters, nor can it accurately predict whether the FERC's
actions will achieve the goal of increasing competition in markets in which the
Company's natural gas is sold. However, the Company does not believe that it
will be affected by any action taken materially differently than other natural
gas producers and marketers with which it competes.
The FERC has issued a policy statement on how interstate natural gas
pipelines can recover the costs of new pipeline facilities. While the FERC's
policy statement on new construction cost recovery affects the Company only
indirectly, in its present form, the new policy should enhance competition in
natural gas markets and facilitate construction of gas supply laterals. The
FERC has denied requests for rehearing of this policy statement. The FERC has
issued numerous orders approving the spin-down or spin-off by interstate
pipelines of their gathering facilities. A "spin-off" is a FERC-approved sale
of gathering facilities to a non-affiliate. A "spin-down" is a transfer of
gathering facilities to an affiliate. These approvals were given despite the
strong protests of a number of producers concerned that any diminution in
FERC's oversight of interstate pipeline-related gathering services might result
in a denial of open access or otherwise enhance the pipeline's monopoly power.
While the FERC has stated that it will retain limited jurisdiction over such
gathering facilities and will hear complaints concerning any denial of access,
it is unclear what effect the FERC's gathering policy will have on producers
such as the Company and the Company cannot predict what further action the FERC
will take on these matters.
Commencing in October 1993, the FERC issued a series of rules (Order Nos.
561 and 561-A) establishing an indexing system under which oil pipelines will
be able to change their transportation rates, subject to prescribed ceiling
levels. The indexing system, which allows or may require pipelines to make rate
changes to track changes in the Producer Price Index for Finished Goods, minus
one percent, became effective January 1, 1995. The FERC's decision in this
matter was recently affirmed by the Court. The Company is not able at this time
to predict the effects of Order Nos. 561 and 561-A, if any, on the
transportation costs associated with oil production from the Company's oil
producing operations.
Additional proposals and proceedings that might affect the oil and gas
industry are pending before the FERC and the courts. The Company cannot predict
when or whether any such proposals may become effective. In the past, the
natural gas industry has been heavily regulated. There is no assurance that the
regulatory approach currently pursued by the FERC will continue indefinitely.
Notwithstanding the foregoing, the Company does not anticipate that compliance
with existing federal, state and local laws, rules and regulations will have a
material or significantly adverse effect upon the capital expenditures,
earnings or competitive position of the Company.
Environmental Regulation. Activities of the Company with respect to the
exploration, development and production of oil and natural gas are subject to
stringent environmental regulation by state and federal authorities including
the EPA. Such regulation has increased the cost of planning, designing,
drilling, operating and in some instances, abandoning wells. In most instances,
the regulatory requirements relate to the handling and disposal of drilling and
production waste products and waste created by water and air pollution control
procedures. Although the Company believes that compliance with environmental
regulations will not have a material adverse effect on operations or earnings,
the risks of substantial costs and liabilities are inherent in oil and gas
operations, and there can be no assurance that significant costs and
liabilities, including criminal penalties, will not be incurred. Moreover, it
is possible that other developments, such as stricter environmental laws and
regulations, and claims for damages to property or person resulting from the
Company's operations could result in substantial costs and liabilities.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons with respect to the release of a "hazardous substance" into the
environment. These persons include the owner and operator of the disposal site
or sites where the release occurred and companies that disposed or arranged for
the
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<PAGE> 45
disposal of the hazardous substances found at such site. Persons who are or
were responsible for releases of hazardous substances under CERCLA may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment.
The Company generates wastes, including hazardous wastes, that are subject
to the federal Resource Conservation and Recovery Act ("RCRA") and comparable
state statutes. The EPA and various state agencies have limited the disposal
options for certain hazardous and nonhazardous wastes. Furthermore, certain
wastes generated by the Company's oil and natural gas operations that are
currently exempt from treatment as "hazardous wastes" may in the future be
designated as "hazardous wastes," and therefore be subject to more rigorous and
costly operating and disposal requirements.
The Company currently owns or leases, and has in the past owned or leased,
numerous properties that for many years have been used for the exploration and
production of oil and gas. Although the Company has utilized operating and
disposal practices that were standard in the industry at the time, hydrocarbons
or other wastes may have been disposed of or released on or under the
properties owned or leased by the Company or on or under other locations where
such wastes have been taken for disposal. In addition, many of these properties
have been operated by third parties whose treatment and disposal or release of
hydrocarbons or other wastes was not under the Company's control. These
properties and the wastes disposed thereon may be subject to CERCLA, RCRA and
analogous state laws. Under such laws, the Company could be required to remove
or remediate previously disposed wastes (including wastes disposed of or
released by prior owners or operators) or property contamination (including
groundwater contamination) or to perform remedial plugging operations to
prevent future contamination.
The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder
impose a variety of regulations on "responsible parties" related to the
prevention of oil spills and liability for damages resulting from such spills
in United States waters. A "responsible party" includes the owner or operator
of an onshore facility, vessel or pipeline, or the lessee or permittee of the
area in which an offshore facility is located. The OPA assigns liability to
each responsible party for oil removal costs and a variety of public and
private damages. While liability limits apply in some circumstances, a party
cannot take advantage of liability limits if the spill was caused by gross
negligence or willful misconduct or resulted from violation of a federal
safety, construction or operating regulation. If the party fails to report a
spill or cooperate fully in the cleanup, liability limits likewise do not
apply. Few defenses exist to the liability imposed by the OPA.
The OPA also imposes ongoing requirements on responsible parties,
including proof of financial responsibility to cover at least some costs in a
potential spill. For tank vessels, including mobile offshore drilling rigs, the
OPA imposes on owners, operators and charterers of the vessels, an obligation
to maintain evidence of financial responsibility of up to $10 million depending
on gross tonnage. With respect to offshore facilities, proof of greater levels
of financial responsibility may be applicable. For offshore facilities that
have a worst case oil spill potential of more than 1,000 barrels (which
includes many of the Company's offshore producing facilities), certain
amendments to the OPA that were enacted in 1996 provide that the amount of
financial responsibility that must be demonstrated by most facilities range
from $10 million in specified state waters to $35 million in federal OCS
waters, with higher amounts, up to $150 million in certain limited
circumstances where the MMS believes such a level is justified by the risks
posed by the quantity or quality of oil that is handled by the facility. On
March 25, 1997, the MMS promulgated a proposed rule implementing these OPA
financial responsibility requirements. Under the proposed rule, the amount of
financial responsibility required for a facility would depend on the "worst
case" oil spill discharge volume calculated for the facility. For oil and gas
producers such as the Company operating offshore facilities in OCS waters,
worst case discharge volumes of up to 35,000 barrels will require a financial
responsibility demonstration of $35.0 million, while worst case discharge
volumes in excess of 35,000 barrels will require demonstrations ranging from
$70.0 million to $150.0 million.
The Company believes that it currently has established adequate proof of
financial responsibility for its offshore facilities at no significant increase
in expense over recent prior years. However, the Company cannot predict whether
these financial responsibility requirements under the OPA amendments or
proposed rule will result in the imposition of substantial additional annual
costs to the Company in the future or otherwise materially adversely effect the
Company. The impact, however, should not be any more adverse to the Company
than it will be to other similarly situated or less capitalized owners or
operators in the Gulf of Mexico. OPA also imposes other requirements on
facility operators, such as the preparation of an oil spill contingency plan.
The Company has such plans in place. The failure to comply with
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ongoing requirements or inadequate cooperation in a spill event may subject a
responsible party to civil or even criminal liability.
OPERATING HAZARDS AND INSURANCE
Oil and gas drilling and production activities are subject to numerous
risks, many of which are beyond the Company's control. These risks include the
risk that no commercially productive oil or natural gas reservoirs will be
encountered, that operations may be curtailed, delayed or canceled as a result
of title problems, weather conditions, compliance with governmental
requirements, mechanical difficulties or shortages or delays in the delivery of
equipment and that the availability or capacity of gathering systems, pipelines
or processing facilities may limit the Company's ability to market its
production. There can be no assurance that new wells drilled by the Company
will be productive or that the Company will recover all or any portion of its
investment. Drilling for oil and natural gas may involve unprofitable efforts,
not only from dry wells, but from wells that are productive but do not produce
sufficient net revenues to return a profit after drilling, operating and other
costs.
In addition, the Company's properties may be susceptible to hydrocarbon
drainage from production by other operators on adjacent properties. Industry
operating risks include the risk of fire, explosions, blow-outs, pipe failure,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures or discharges of toxic gases, the occurrence of any of
which could result in substantial losses to the Company due to injury or loss
of life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations.
Additionally, the Company's oil and gas operations are located in an area that
is subject to tropical weather disturbances, some of which can be severe enough
to cause substantial damage to facilities and possibly interrupt production.
The MMS requires lessees of OCS properties to post performance bonds in
connection with the plugging and abandonment of wells located offshore and the
removal of all production facilities. The Company has posted an area wide bond
meeting MMS requirements and has obtained additional supplemental bonding on
its offshore leases as required by the MMS.
The Company maintains customary oil and gas related third party liability
coverage, which it must renew annually, that insures the Company against
certain sudden and accidental risks associated with drilling, completing and
operating its wells. There can be no assurance that this insurance will be
adequate to cover any losses or exposure to liability or that the Company will
be able to renew its coverage annually. The Company and its subsidiaries carry
workers' compensation insurance in all states in which they operate. While the
Company believes this coverage is customary in the industry, it does not
provide complete coverage against all operating risks.
EMPLOYEES
The Company presently has 47 full-time employees, primarily professionals,
including geologists, geophysicists and engineers. The Company also relies on
the services of certain consultants for technical and operational guidance. The
Company believes that its relationships with its employees and consultants are
satisfactory and has entered into employment and consulting contracts with its
executives and agreements with certain technical personnel and consultants whom
it considers particularly important to the operations of the Company. There can
be no assurance that such individuals will remain with the Company for the
immediate or foreseeable future. None of the Company's employees are covered by
a collective bargaining agreement. From time to time, the Company also utilizes
the services of independent consultants and contractors to perform various
professional services, particularly in the areas of construction, design, well
site surveillance, permitting and environmental assessment. Field and on-site
production operation services, such as maintenance, dispatching, inspection and
testing, are generally provided by independent contractors supervised by
Company employees.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings,
other than ordinary routine litigation incidental to its business that
management believes would not have a material adverse effect on its financial
condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVES
The following table sets forth the name, age and position of each person
who is a director, executive officer, key employee, or who provides services to
the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- ------- ----------------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVES:
Terrence N. Fern........................... 48 Chairman and Chief Executive Officer
Alan H. Stevens............................ 52 Director, President and Chief Operating Officer
Jeffrey H. Warren.......................... 45 Director, Vice President and Secretary
Anthony J. Walton.......................... 54 Director
Maynard V. Smith........................... 47 General Manager-- Exploration and Production
Howard H. Wilson, Jr....................... 39 Vice President (Operations)
Mark A. Gannaway........................... 41 Exploration Manager
Prent H. Kallenberger...................... 42 Geophysical Manager
Ross A. Keogh.............................. 38 Financial Controller and Treasurer
</TABLE>
Mr. Smith provides services to the Company through an arrangement with the
Company's parent.
The following biographies describe the business experience of the
directors and executives of the Company and Petsec Energy. Directors serve
annual terms.
TERRENCE N. FERN has served as Chairman and Chief Executive Officer of the
Company since 1989. Mr. Fern has over 25 years of extensive international
experience in petroleum and minerals exploration, development and financing.
Mr. Fern holds a Bachelor of Science degree from The University of Sydney and
has followed careers in both exploration geophysics and natural resource
investment.
ALAN H. STEVENS has served as Director, President and Chief Operating
Officer since July 1997. Mr. Stevens has over 31 years of experience in the
petroleum industry and has served in various technical and executive positions
involving all phases of exploration and operations management in domestic and
international regions. Previously, Mr. Stevens was Senior Vice President,
Worldwide Exploration, for Occidental Petroleum Corporation. Prior to joining
Occidental, Mr. Stevens was the Exploration Manager in Tenneco Oil Company's
Pacific Coast Division. Mr. Stevens holds Bachelor of Science and Master of
Science degrees in Geological Engineering from Michigan Technical University.
JEFFREY H. WARREN has served as Director, Vice President and Secretary of
the Company since 1994. Between 1978 and 1988, Mr. Warren served in various
technical and supervisory positions with Getty Oil Company and Tenneco Oil
Company in California. From November 1988 to September 1994, Mr. Warren served
as Vice President of Tejon Ranch Company (AMEX: TRC). Mr. Warren holds a
Bachelor of Science degree and Bachelor of Arts degree from the University of
California at Davis.
ANTHONY J. WALTON has served as Director of the Company since 1994. Mr.
Walton is President of Armstrong Holdings Corp., a private investment company
and corporate finance advisory firm. Previously, Mr. Walton was Chief Executive
Officer of Llama Company, a regional investment bank specializing in private
equity and debt placements for medium-sized companies. Prior to joining Llama
Company, Mr. Walton served as Chief General Manager, Americas and Europe, of
Westpac Banking Corporation of Sydney, Australia, and held various management
positions with Chase Manhattan Bank in New York and London. Mr. Walton received
his B.A. from Haverford College and an M.B.A. in International Finance from the
Wharton Graduate School of Finance at the University of Pennsylvania.
MAYNARD V. SMITH has served as General Manager -- Exploration and
Production since 1990. Mr. Smith has over 20 years of oil and gas exploration
experience and has served in various technical and executive positions with
Gulf Oil Corporation, Tenneco Oil Company, Natomas Oil Company, and Barcoo
Petroleum Company in the United States, Australia and Southeast Asia. Mr. Smith
holds a Bachelor of Science degree in Geology from the California State
University at San Diego.
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<PAGE> 48
HOWARD H. WILSON, JR. has served as Vice President (Operations) of the
Company since 1993. Between 1981 and 1993, Mr. Wilson held various technical
and managerial positions with Placid Oil Company and Nerco Oil and Gas, Inc.
involving onshore and offshore oil and gas fields in Louisiana. Mr. Wilson
holds a Bachelor of Science degree in Petroleum Engineering from the Louisiana
Polytechnic Institute.
MARK A. GANNAWAY is the Exploration Manager of the Company. Mr. Gannaway
joined the Company in July 1991. Between 1979 and 1988, Mr. Gannaway worked for
Tenneco Oil Company in various technical and supervisory positions and his
career with Tenneco involved working in the Midcontinent and Eastern Gulf of
Mexico regions. From 1988 to 1990 Mr. Gannaway was a geologic consultant in
Lafayette, Louisiana. Mr. Gannaway holds a Bachelor of Science degree in
Geological Engineering from the University of Oklahoma.
PRENT H. KALLENBERGER is the Geophysical Manager of the Company. He joined
the Company in September 1992. Between 1982 and 1992, Mr. Kallenberger worked
in various technical and supervisory positions with Tenneco Oil Company, Union
Pacific Resources, Inc., and Unocal Corporation in California and Texas. Mr.
Kallenberger holds a Bachelor of Science degree in Geology from Boise State
University and a Master of Science degree in Geophysics from the Colorado
School of Mines.
ROSS A. KEOGH has served as Financial Controller and Treasurer of the
Company since 1990 and has 15 years experience in the oil and gas industry.
Between 1979 and 1989, Mr. Keogh worked in the financial accounting and
budgeting divisions of Total Oil Company and as Joint Venture Administrator for
Bridge Oil Limited in Australia. Mr. Keogh holds a Bachelor of Economics
degree, with a major in Accounting, from Macquarie University in Sydney.
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
The total compensation received by the five highest compensated executive
officers of the Company during the twelve months to December 31, 1996 was
$911,611. The Company has entered into employment agreements with certain
management and technical personnel. These agreements expire in June 1999. In
addition, the Parent has entered into agreements with entities controlled by
the families of Messrs. Fern and Smith for the provision of services to that
company. Mr. Smith's agreement also expires in June 1999. In exchange for
entering into these employment agreements, the Parent granted such management
and key personnel options for Ordinary Shares in the Parent pursuant to its
Option Plan.
SHARE AND OPTION PLANS
The Parent maintains an Employee Share Plan (the "Share Plan") and an
Employee Share Option Plan (the "Option Plan"). Both plans were approved by the
shareholders at the Parent's 1994 Annual General Meeting and are administered
by a committee (the "Remuneration Committee") appointed by the Board of
Directors of the Parent. The total number of Ordinary Shares issued or subject
to option under all share and option plans during any five year period may not
exceed 5% of the total number of issued Ordinary Shares at the relevant date.
The Share Plan provides for the issue of Ordinary Shares to employees and
directors at prevailing market prices. Purchases pursuant to the Share Plan are
financed by interest free loans from the Parent, subject to certain conditions
set by the Remuneration Committee. Grants are subject to a minimum six month
vesting term and the vesting may also be contingent upon the market price of
the Ordinary Shares on the Australian Stock Exchange ("ASX") achieving certain
benchmarks. After the vesting of such shares, the grantee may either repay the
Parent loan or sell such shares and retain the difference. As of May 30, 1996,
all employees and directors of the Parent, in the aggregate, owned 2,285,000
Ordinary Shares subject to the terms of this Plan. As of May 30, 1996, Mr. Fern
had a Parent loan of A$2,625,000 ($2,135,963) in connection with grants of a
total of 1,500,000 Ordinary Shares under the plan. Most of the Ordinary Shares
under the Share Plan were issued in fiscal 1995 at an issue price of A$1.75 per
share.
The Option Plan provides for the issue of options to purchase Ordinary
Shares to employees and directors at prevailing market prices and subject to
certain conditions set by the Remuneration Committee. Grants are subject to a
minimum six month vesting term and the vesting may also be contingent upon the
market price on the ASX of the Ordinary Shares achieving certain benchmarks.
Options granted under the Option Plan expire five years after the date of
grant. As of May 30, 1996 all directors and employees of the Parent, in the
aggregate, held options to purchase an aggregate of 2,314,000 Ordinary Shares
pursuant to the Option Plan.
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CERTAIN AFFILIATE TRANSACTIONS
The Company has historically been financed in part with borrowings from
its immediate parent company, Petsec (U.S.A.), Inc., which is an indirect
wholly-owned subsidiary of Petsec Energy Ltd. Outstanding borrowings (the
"Subordinated Shareholder Loan") are made by the Company under a subordinated
note (the "Subordinated Shareholder Note") in either or both U.S. or Australian
dollars, which effective as of June 1, 1997 will bear interest at market rates,
currently LIBOR plus 1.5% or, in the case of Australian dollar borrowings, the
Australian bank bill rate plus 1.5%. The Subordinated Shareholder Note provides
that the Subordinated Shareholder Loan (i) is subordinated in right of payment
to all present and future Indebtedness of the Company for borrowed money and
(ii) not subject to any mandatory principal or sinking fund payment, or
mandatory repurchase obligation, until 91 days following the final Stated
Maturity of the Notes. The Company has agreed not to modify these two terms of
the Subordinated Shareholder Loan until all outstanding Notes have been paid in
full, retired or acquired in their entirety by Affiliates of the Company. As of
May 15, 1997, the amount of Subordinated Shareholder Loan outstanding was $59.2
million, which amount has since been reduced by $20 million after a
recapitalization of a portion of the Subordinated Shareholder Loan as
additional paid in capital.
Three executives, Mark Gannaway, Prent Kallenberger and Maynard Smith,
also own overriding royalty interests on certain leases held by the Company,
which were issued prior to July 1994 as incentives. As of July 1994, the
granting of overriding royalty interests as an incentive was replaced by grants
under the Parent's Option Plan.
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THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Notes, the purchasers thereof
became entitled to the benefits of certain registration rights under the
Registration Rights Agreement. The Exchange Notes are being offered hereunder
in order to satisfy the obligations of the Company under the Registration
Rights Agreement. See "Exchange Offer; Registration Rights."
For each $1,000 principal amount of Old Notes surrendered to the Company
pursuant to the Exchange Offer, the holder of such Old Notes will receive
$1,000 principal amount of Exchange Notes. Upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, the Company will accept all Old Notes properly tendered prior to
5:00 p.m., New York City time, on the Expiration Date. Holders may tender some
or all of their Old Notes pursuant to the Exchange Offer in integral multiples
of $1,000 principal amount.
Under existing interpretations of the staff of the SEC, including Exxon
Capital Holdings Corporation, SEC No-Action Letter (available April 13, 1989),
the Morgan Stanley Letter and Mary Kay Cosmetics, Inc., SEC No-Action Letter
(available June 5, 1991), the Company believes that the Exchange Notes would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act by the respective holders thereof (other
than a "Restricted Holder," being (i) a broker-dealer who purchased Old Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder is not participating in, and has no arrangement with any person
to participate in, the distribution (within the meaning of the Securities Act)
of such Exchange Notes. Eligible holders wishing to accept the Exchange Offer
must represent to the Company that such conditions have been met. Any holder of
Old Notes who tenders in the Exchange Offer for the purpose of participating in
a distribution of the Exchange Notes could not rely on the interpretation by
the staff of the SEC enunciated in the Morgan Stanley Letter and similar
no-action letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including that (i) it is neither an affiliate of the Company nor a
broker-dealer tendering Old Notes acquired directly from the Company for its
own account, (ii) any Exchange Notes to be received by it are being acquired in
the ordinary course of its business and (iii) it is not participating in, and
it has no arrangement with any person to participate in, the distribution
(within the meaning of the Securities Act) of the Exchange Notes. In addition,
in connection with any resales of Exchange Notes, any broker-dealer (a
"Participating Broker-Dealer") who acquired Old Notes for its own account as a
result of market-making activities or other trading activities must acknowledge
that it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such Exchange Notes. The staff of the SEC
has taken the position in no-action letters issued to third parties including
Shearman & Sterling, SEC No-Action Letter (available July 2, 1993), that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of Old Notes) with this Prospectus, as it may be amended
or supplemented from time to time. Under the Registration Rights Agreement, the
Company is required to allow Participating Broker-Dealers to use this
Prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of such Exchange Notes. See "Plan of Distribution."
The Exchange Offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged Exchange Notes for all
outstanding Old Notes (other than Old Notes held by a Restricted Holder)
pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant
to the Exchange Offer, Exchange Notes for all Old Notes that have been tendered
and not withdrawn on the date that is 30 days following the commencement of the
Exchange Offer. In such event, holders of Old Notes seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes are issued and outstanding. In connection with the issuance of the
Old Notes, the Company arranged for the Old Notes to be eligible for trading in
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the Private Offering, Resale and Trading through Automated Linkages (PORTAL)
Market, the National Association of Securities Dealers' screen based, automated
market trading of securities eligible for resale under Rule 144A.
The Company shall be deemed to have accepted for exchange validly tendered
Old Notes when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as
agent for the tendering holders of Old Notes for the purpose of receiving
Exchange Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender or the occurrence of certain other events set forth herein, certificates
for any such unaccepted Old Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of the date of this Prospectus.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean ___________, 1997 unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date to which the Exchange Offer
is extended. In order to extend the Expiration Date, the Company will notify
the Exchange Agent of any extension by oral or written notice and will mail to
the record holders of Old Notes an announcement thereof, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time. The Company
reserves the right (i) to delay acceptance of any Old Notes, to extend the
Exchange Offer or to terminate the Exchange Offer and to refuse to accept Old
Notes not previously accepted, if any of the conditions set forth herein under
"-- Termination" shall have occurred and shall not have been waived by the
Company (if permitted to be waived by the Company), by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, and (ii)
to amend the terms of the Exchange Offer in any manner deemed by it to be
advantageous to the holders of the Old Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform
the holders of the Old Notes of such amendment. Without limiting the manner in
which the Company may choose to make public announcements of any delay in
acceptance, extension, termination or amendment of the Exchange Offer, the
Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest payable semi-annually on June 15 and
December 15 of each year, commencing December 15, 1997. Holders of Exchange
Notes of record on December 1, 1997 will receive interest on December 15, 1997
from the date of issuance of the Exchange Notes, plus an amount equal to the
accrued interest on the Old Notes from the date of issuance of the Old Notes,
June 13, 1997, to the date of exchange thereof. Consequently, assuming the
Exchange Offer is consummated prior to the record date in respect of the
December 15, 1997 interest payment for the Old Notes, holders who exchange
their Old Notes for Exchange Notes will receive the same interest payment on
December 15, 1997 that they would have received had they not accepted the
Exchange Offer. Interest on the Old Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, or an Agent's Message,
together with the Old Notes and any other required documents, to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In
addition, either (i) the certificates for such Old Notes must be received by
the Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure
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is available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent along with an
Agent's Message prior to the Expiration Date or (iii) the Holder must comply
with the guaranteed delivery procedures described below. The tender by a holder
of Old Notes will constitute an agreement between such holder and the Company
in accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal. Delivery of all documents must be made to the
Exchange Agent at its address set forth herein. Holders may also request that
their respective brokers, dealers, commercial banks, trust companies or
nominees effect such tender for such holders.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering Old Notes which are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company. Only a holder of Old Notes may tender such Old Notes in
the Exchange Offer. The term "holder" with respect to the Exchange Offer means
any person in whose name Old Notes are registered on the books of the Company
or any other person who has obtained a properly completed stock power from the
registered holder.
Any beneficial holder whose Old Notes are registered in the name of such
holder's broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such registered holder promptly and
instruct such registered holder to tender on behalf of the registered holder.
If such beneficial holder wishes to tender directly, such beneficial holder
must, prior to completing and executing the Letter of Transmittal and
delivering his Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or obtain a properly completed
bond power from the registered holder. The transfer of record ownership may
take considerable time. If the Letter of Transmittal is signed by the record
holder(s) of the Old Notes tendered thereby, the signature must correspond with
the name(s) written on the face of the Old Notes without alteration,
enlargement or any change whatsoever. If the Letter of Transmittal is signed by
a participant in Depositary Trust Company ("DTC"), the signature must
correspond with the name as it appears on the security position listing as the
holder of the Old Notes. Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution") unless the Old Notes tendered pursuant thereto are tendered (i)
by a registered holder (or by a participant in DTC whose name appears on a
security position listing as the owner) who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal and the Exchange Notes are being issued directly to such
registered holder (or deposited into the participant's account at DTC) or (ii)
for the account of an Eligible Institution. If the Letter of Transmittal is
signed by a person other than the registered holder of any Old Notes listed
therein, such Old Notes must be endorsed or accompanied by appropriate bond
powers which authorize such person to tender the Old Notes on behalf of the
registered holder, in either case signed as the name of the registered holder
or holders appears on the Old Notes. If the Letter of Transmittal or any Old
Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, evidence satisfactory to the Company
of their authority to so act must be submitted with the Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Old Notes
(or a timely confirmation received of a book-entry transfer of Old Notes into
the Exchange Agent's account at DTC with an Agent's Message) or a Notice of
Guaranteed Delivery from an Eligible Institution is received by the Exchange
Agent. Issuances of Exchange Notes in exchange for Old Notes tendered pursuant
to a Notice of Guaranteed Delivery by an Eligible Institution will be made only
against delivery of the Letter of Transmittal (and any other required
documents) and the tendered Old Notes (or a timely confirmation received of a
book-entry transfer of Old Notes into the Exchange Agent's account at DTC with
an Agent's Message) with the Exchange Agent.
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All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Old Notes not properly tendered or any Old Notes the Company's acceptance
of which would, in the opinion of the Company or its counsel, be unlawful. The
Company also reserves the absolute right to waive any conditions of the
Exchange Offer or defects or irregularities in tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned without cost by the Exchange Agent to the tendering
holder of such Old Notes unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date. In addition,
the Company reserves the right in its sole discretion to (i) purchase or make
offers for any Old Notes that remain outstanding subsequent to the Expiration
Date, or, as set forth under "-- Termination," to terminate the Exchange Offer
and (ii) to the extent permitted by applicable law, purchase Old Notes in the
open market, in privately negotiated transactions or otherwise. The terms of
any such purchases or offers may differ from the terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Old Notes
at DTC within two business days after the date of this Prospectus, and any
financial institution which is a participant in DTC may make book-entry
delivery of the Old Notes by causing DTC to transfer such Old Notes into the
Exchange Agent's account in accordance with DTC's procedure for such transfer.
Although delivery of Old Notes may be effected through book-entry transfer into
the Exchange Agent's account at DTC, an Agent's Message must be transmitted to
and received by the Exchange Agent on or prior to the Expiration Date at one of
its addresses set forth below under "-- Exchange Agent", or the guaranteed
delivery procedure described below must be complied with. DELIVERY OF DOCUMENTS
TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in
this Prospectus to deposit or delivery of Old Notes shall be deemed to include
DTC's book-entry delivery method.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer
on a timely basis and deliver an Agent's Message, may effect a tender if: (i)
the tender is made by or through an Eligible Institution; (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder of the Old Notes, the registration number or numbers of
such Old Notes (if applicable), and the total principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that,
within five business days after the Expiration Date, the Letter of Transmittal,
together with the Old Notes in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at DTC with an Agent's
Message) and any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed Letter of Transmittal, together with the
certificate(s) representing all tendered Old Notes in proper form for transfer
(or a confirmation of such a book-entry transfer) and all other documents
required by the Letter of Transmittal are received by the Exchange Agent within
five business days after the Expiration Date.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, certain terms and
conditions which are summarized below and are part of the Exchange Offer.
Each holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that such holder is not participating in, and
has no
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arrangement with any person to participate in, the distribution (within the
meaning of the Securities Act) of the Exchange Notes, and that such holder is
not a Restricted Holder.
Old Notes tendered in exchange for Exchange Notes (or a timely
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC) must be received by the Exchange Agent, with the Letter
of Transmittal or an Agent's Message and any other required documents, by the
Expiration Date or within the time periods set forth above pursuant to a Notice
of Guaranteed Delivery from an Eligible Institution. Each holder tendering the
Old Notes for exchange sells, assigns and transfers the Old Notes to the
Exchange Agent, as agent of the Company, and irrevocably constitutes and
appoints the Exchange Agent as the holder's agent and attorney-in-fact to cause
the Old Notes to be transferred and exchanged. The holder warrants that it has
full power and authority to tender, exchange, sell, assign and transfer the Old
Notes and to acquire the Exchange Notes issuable upon the exchange of such
tendered Old Notes, that the Exchange Agent, as agent of the Company, will
acquire good and unencumbered title to the tendered Old Notes, free and clear
of all liens, restrictions, charges and encumbrances, and that the Old Notes
tendered for exchange are not subject to any adverse claims when accepted by
the Exchange Agent, as agent of the Company. The holder also warrants and
agrees that it will, upon request, execute and deliver any additional documents
deemed by the Company or the Exchange Agent to be necessary or desirable to
complete the exchange, sale, assignment and transfer of the Old Notes. All
authority conferred or agreed to be conferred in the Letter of Transmittal by
the holder will survive the death, incapacity or dissolution of the holder and
any obligation of the holder shall be binding upon the heirs, personal
representatives, successors and assigns of such holder.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior
to the Expiration Date, unless previously accepted for exchange. To withdraw a
tender of Old Notes in the Exchange Offer, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the business day prior
to the Expiration Date and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify
the Old Notes to be withdrawn (including, if applicable, the registration
number or numbers and total principal amount of such Old Notes), (iii) be
signed by the Depositor in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to permit the Trustee with respect to the Old Notes to register the
transfer of such Old Notes into the name of the Depositor withdrawing the
tender, (iv) specify the name in which any such Old Notes are to be registered,
if different from that of the Depositor and (v) if applicable because the Old
Notes have been tendered pursuant to the book-entry procedures, specify the
name and number of the participant's account at DTC to be credited, if
different than that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be
issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes which have been tendered but which are not accepted
for exchange will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described above under "-- Procedures for Tendering" at
any time prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange any Old Notes not theretofore accepted for
exchange, and may terminate the Exchange Offer if it determines that the
Exchange Offer violates any applicable law or interpretation of the staff of
the SEC.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes, and the Company will extend the Exchange
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Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Old Notes, if the Exchange Offer would otherwise expire during
such period. Holders of Old Notes will have certain rights against the Company
under the Registration Rights Agreement should the Company fail to consummate
the Exchange Offer.
EXCHANGE AGENT
The Bank of New York, the trustee under the Indenture, has been appointed
as Exchange Agent for the Exchange Offer. Questions and requests for assistance
and requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent addressed as follows:
By Mail: By Hand or Overnight Courier:
The Bank of New York The Bank of New York
101 Barclay Street, 7th Floor 101 Barclay Street, 7th Floor
Reorganization Section New York, New York 10286
New York, New York 10286 Corporate Trust Services Window
Attention: Henry Lopez Ground Level
Attention: Reorganization Section
Facsimile Transmission: (212) 815-6639
Confirm by Telephone: (212) 815-2742
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone. The Company will not make any payments to brokers,
dealers or other persons soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection therewith. The Company may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Old Notes and in handling or forwarding tenders for exchange.
The other expenses incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting
and legal fees, will be paid by the Company. The Company will pay all transfer
taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange
Offer. If, however, Exchange Notes or Old Notes not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Notes tendered, or
if tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the Company over the term of the Exchange Notes under
generally accepted accounting principles.
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DESCRIPTION OF THE NOTES
The Exchange Notes will be issued and the Old Notes were issued under an
indenture to be dated as of June 13, 1997 (the "Indenture") between the
Company, as issuer, and The Bank of New York, as trustee (the "Trustee"). A
copy of the Indenture in substantially the form in which it is to be executed
is available upon request. The following summary of the material provisions of
the Indenture does not purport to be complete and is subject to, and qualified
in its entirety by reference to, all of the provisions of the Indenture,
including the definitions of certain terms contained therein. The definitions
of certain capitalized terms used in the following summary are set forth below
under "Certain Definitions."
It is expected that the Notes and the Exchange Notes will constitute a
single series of debt securities under the Indenture. If the Exchange Offer is
consummated, Holders of Notes who do not exchange their Notes for Exchange
Notes will vote together with Holders of the Exchange Notes for all relevant
purposes under the Indenture. In that regard, the Indenture requires that
certain actions by the Holders thereunder (including acceleration following an
Event of Default) must be taken, and certain rights must be exercised, by
specified minimum percentages of the aggregate principal amount of the
outstanding securities issued under the Indenture. In determining whether
Holders of the requisite percentage in principal amount have given any notice,
consent or waiver or taken any other action permitted under the Indenture, any
Notes that remain outstanding after the Exchange Offer will be aggregated with
the Exchange Notes, and the Holders of such Notes and the Exchange Notes will
vote together as a single series for all such purposes. Accordingly, all
references herein to specified percentages in aggregate principal amount of the
outstanding Notes shall be deemed to mean, at any time after the Exchange Offer
is consummated, such percentages in aggregate principal amount of the Notes and
the Exchange Notes then outstanding.
GENERAL
The Notes will be unsecured senior subordinated obligations of the Company
limited to $100,000,000 aggregate principal amount. The Notes will be issued
only in registered form, without coupons, in denominations of $1,000 and
integral multiples thereof. Principal of, premium, if any, on and interest on
the Notes will be payable, and the Notes will be transferable, at the office or
agency of the Company in the City of New York maintained for such purposes,
which initially will be the corporate trust office or agency of the Trustee
maintained at New York, New York. In addition, interest may be paid, at the
option of the Company, by check mailed to the registered holders of the Notes
at their respective addresses as shown on the Note Register. No service charge
will be made for any transfer, exchange or redemption of Notes, but the Company
or the Trustee may require payment of a sum sufficient to cover any tax or
other governmental charge that may be payable in connection therewith. For a
discussion of the circumstances in which the interest rate on the Notes may be
temporarily increased, see "Exchange Offer; Registration Rights."
Under certain circumstances, the Company will be able to designate
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants set forth in the Indenture.
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Notes will mature on June 15, 2007. Interest on the Notes will accrue
at the rate of 9 1/2% per annum and will be payable semiannually on June 15 and
December 15 of each year, commencing December 15, 1997, to the Person in whose
name the Note is registered in the Note Register at the close of business on
the June 1 or December 1 next preceding such interest payment date. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
REDEMPTION
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after June 15, 2002, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest, if any, to the redemption date
(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
redemption date), if redeemed during the 12-month period beginning on June 15
of the years indicated below:
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<TABLE>
<CAPTION>
YEAR PRICE
- ---- -----
<S> <C>
2002 104.750%
2003 103.167%
2004 101.583%
2005 and thereafter 100%
</TABLE>
In addition, at any time and from time to time prior to June 15, 2000, the
Company may, at its option, redeem in the aggregate up to 33% of the aggregate
principal amount of the Notes originally issued under the Indenture with the
cash proceeds of one or more Public Equity Offerings at a redemption price
(expressed as a percentage of principal amount) of 109.5%, plus accrued and
unpaid interest, if any, to the redemption date (subject to the right of
Holders of Notes on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that at least $66,600,000
aggregate principal amount of the Notes must remain outstanding after each such
redemption. In order to effect the foregoing redemption, the Company must mail
notice of redemption no later than 60 days after the related Public Equity
Offering and must consummate such redemption within 90 days of the closing of
the Public Equity Offering.
Selection and Notice. In the event that less than all of the Notes are to
be redeemed at any time, selection of such Notes (or any portion thereof that
is an integral multiple of $1,000) for redemption will be made by the Trustee
from the outstanding Notes not previously called for redemption (or otherwise
purchased by the Company) on a pro rata basis, by lot or by such method as the
Trustee shall deem fair and appropriate; provided, however, that no Note with a
principal amount of $1,000 or less shall be redeemed in part. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for
redemption and accepted for payment.
Offers to Purchase. As described below, (a) upon the occurrence of a
Change of Control, the Company is obligated to make an offer to purchase all
outstanding Notes at a purchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase and (b) upon the occurrence of an Asset Sale, the Company may be
obligated to make offers to purchase Notes with a portion of the Net Cash
Proceeds of such Asset Sale at a purchase price equal to 100% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of purchase. See "Certain Covenants -- Change of Control" and "Limitation on
Disposition of Proceeds of Asset Sales."
SUBORDINATION
Payments of and distributions on or with respect to the Note Obligations
will be subordinated, to the extent set forth in the Indenture, in right of
payment to the prior payment in full in cash or cash equivalents of all
existing and future Senior Indebtedness, which includes, without limitation,
all Credit Agreement Obligations of the Company. The Notes will rank prior in
right of payment only to other Indebtedness of the Company which is, by its
terms, expressly subordinated in right of payment to the Notes. There is
currently no Indebtedness of the Company which would constitute such
Subordinated Indebtedness other than $59.2 million of subordinated loans from
the Company's immediate parent outstanding as of May 31, 1997. Of such
Subordinated Indebtedness, $20 million has been recapitalized as equity. In
addition, the Note Obligations will be effectively subordinated to all of the
creditors of the Company's Subsidiaries, including trade creditors. See "Risk
Factors -- Subordination of Notes."
The Indenture will provide that in the event of (a) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company (or its creditors, as such) or its assets, or (b) any liquidation,
dissolution or other winding-up of the Company, whether voluntary or
involuntary or (c) any assignment for the benefit of creditors or other
marshaling of assets or liabilities of the Company, all Senior Indebtedness of
the Company must be paid in full in cash or cash equivalents before any direct
or indirect payment or distribution, whether in cash, property or securities
(excluding certain permitted equity and subordinated debt securities referred
to in the Indenture as "Permitted Junior Securities" and payments made from the
trusts described under "-- Legal Defeasance or Covenant Defeasance of
Indenture"), is made on account of the Note Obligations. In the event that,
notwithstanding the foregoing, the Trustee or the Holder of any Note receives
any payment
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<PAGE> 58
or distribution of properties or assets of the Company of any kind or
character, whether in cash, property or securities, by set-off or otherwise, in
respect of Note Obligations before all Senior Indebtedness is paid or provided
for in full, then the Trustee or the Holders of Notes receiving any such
payment or distribution (other than a payment or distribution in the form of
Permitted Junior Securities and payments made from the trusts described under
"-- Legal Defeasance or Covenant Defeasance of Indenture") will be required to
pay or deliver such payment or distribution forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
person making payment or distribution of assets of the Company for application
to the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full.
During the continuance of any default in the payment when due (whether at
Stated Maturity, upon scheduled repayment, upon acceleration or otherwise) of
principal of or premium, if any, or interest on, or of unreimbursed amounts
under drawn letters of credit or fees relating to letters of credit
constituting, any Designated Senior Indebtedness (a "Payment Default"), no
direct or indirect payment or distribution by or on behalf of the Company of
any kind or character shall be made on account of the Note Obligations or any
obligation under any Subsidiary Guarantee unless and until such default has
been cured or waived in writing or such Designated Senior Indebtedness shall
have been discharged or paid in full in cash or cash equivalents.
In addition, during the continuance of any default other than a Payment
Default with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may then be accelerated (a "Nonpayment Default"), after
receipt by the Trustee from the holders (or their representative) of such
Designated Senior Indebtedness of a written notice of such Non-payment Default,
no payment or distribution of any kind or character may be made by the Company
on account of the Note Obligations for the period specified below (the "Payment
Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of a
Non-payment Default by the Trustee from the holders (or their representative)
of Designated Senior Indebtedness stating that such notice is a payment
blockage notice pursuant to the Indenture and shall end on the earliest to
occur of the following events: (i) 179 days shall have elapsed since the
receipt by the Trustee of such notice; (ii) the date, as set forth in a written
notice to the Company or the Trustee from the holders (or their representative)
of the Designated Senior Indebtedness initiating such Payment Blockage Period,
on which such default is cured or waived (provided that no other Payment
Default or Non-payment Default has occurred or is then continuing after giving
effect to such cure or waiver); (iii) the date on which such Designated Senior
Indebtedness is discharged or paid in full in cash or cash equivalents; and
(iv) the date, as set forth in a written notice to the Company or the Trustee
from the holders (or their representative) of the Designated Senior
Indebtedness initiating such Payment Blockage Period, on which such Payment
Blockage Period shall have been terminated by written notice to the Company or
the Trustee from the holders (or their representative) of Designated Senior
Indebtedness initiating such Payment Blockage Period, after which the Company,
subject to the subordination provisions set forth above and the existence of
another Payment Default, shall promptly resume making any and all required
payments in respect of the Notes, including any missed payments. Only one
Payment Blockage Period with respect to the Notes may be commenced within any
360 consecutive day period. No Non-payment Default with respect to Designated
Senior Indebtedness that existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period will be, or can be,
made the basis for the commencement of a second Payment Blockage Period,
whether or not within a period of 360 consecutive days, unless such default has
been cured or waived in writing for a period of not less than 90 consecutive
days (it being acknowledged that any subsequent action, or any breach of any
financial covenant for a period commencing after the date of commencement of
such Payment Blockage Period, that, in either case, would give rise to a
Non-payment Default pursuant to any provision under which a Non-payment Default
previously existed or was continuing shall constitute a new Non-payment Default
for this purpose; provided, however, that, in the case of a breach of a
particular financial covenant, the Company shall have been in compliance for at
least one full 90 consecutive day period commencing after the date of
commencement of such Payment Blockage Period). In no event will a Payment
Blockage Period extend beyond 179 days from the date of the receipt by the
Trustee of the notice, and there must be a 181 consecutive day period in any
360-day period during which no Payment Blockage Period is in effect. In the
event that, notwithstanding the foregoing, the Company makes any payment or
distribution to the Trustee or the Holder of any Note prohibited by the
subordination provision of the Indenture, then such payment or distribution
will be required to be held in trust for the holders of the Designated Senior
Indebtedness and will be paid over and delivered forthwith to the holders (or
their representative) of Designated Senior Indebtedness.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure will constitute an Event of Default
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under the Indenture and will enable the Holders of the Notes to accelerate the
maturity thereof. See "-- Events of Default."
By reason of such subordination, in the event of liquidation,
receivership, reorganization or insolvency, creditors of the Company who are
holders of Senior Indebtedness may recover more, ratably, than the Holders of
the Notes, and funds which would be otherwise payable to the Holders of the
Notes will be paid to the holders of the Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full, and the Company may be unable
to meet its obligations in full with respect to the Notes.
As of May 31, 1997, after giving effect to the sale of the Notes and the
estimated application of the net proceeds therefrom, there would have been no
outstanding Senior Indebtedness other than approximately $9.5 million in letter
of credit reimbursement obligations under the Credit Facility. See "Use of
Proceeds," "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." Although the Indenture will contain limitations on the amount of
additional Indebtedness that the Company and the Restricted Subsidiaries may
incur, the amounts of such Indebtedness could be substantial and, in any case,
such Indebtedness may be Senior Indebtedness or Indebtedness of Subsidiaries to
which the Notes will be subordinated. The Indenture will prohibit the
incurrence by the Company of Indebtedness that is contractually subordinated in
right of payment to any Senior Indebtedness of the Company and senior in right
of payment to the Notes. After giving effect to the issuance of the Notes and
the application of the net proceeds therefrom and after giving effect to a
recapitalization of $20 million of a portion of the Subordinated Shareholder
Loan as additional paid-in-capital, there will be $39.2 million of Indebtedness
of the Company owed to its immediate parent, which constitutes all Indebtedness
that is subordinated in right of payment to the Notes, and there will be no
Indebtedness of the Company which is pari passu in right of payment with the
Notes.
FUTURE SUBSIDIARY GUARANTEES OF THE NOTES
The Company has no Subsidiaries as of the date of this Prospectus. Under
the circumstances described below, the Company's payment obligations under the
Notes may in the future be jointly and severally guaranteed by future
Subsidiaries of the Company as Subsidiary Guarantors. Each Subsidiary Guarantor
will guarantee, jointly and severally, to each Holder of Notes and the Trustee,
the full and prompt performance of the Company's obligations under the
Indenture and the Notes, including the payment of principal of (or premium, if
any, on) and interest on the Notes pursuant to its Subsidiary Guarantee. The
Subsidiary Guarantees will be subordinated to Guarantor Senior Indebtedness of
the Subsidiary Guarantors to the same extent and in the same manner as the
Notes are subordinated to Senior Indebtedness.
The obligations of each Subsidiary Guarantor will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities (including, but not limited to, Guarantor Senior Indebtedness) of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. Each Subsidiary Guarantor that makes a payment or
distribution under a Subsidiary Guarantee shall be entitled to a contribution
from each other Subsidiary Guarantor (if any) in a pro rata amount based on the
Adjusted Net Assets of each Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell all,
substantially all or any portion of its assets to the Company or another
Subsidiary Guarantor without limitation, except to the extent any such
transaction is subject to the "Merger, Consolidation and Sale of Assets"
section of the Indenture. Each Subsidiary Guarantor may consolidate with or
merge into or sell all or substantially all of its assets to a corporation
other than the Company or another Subsidiary Guarantor (whether or not
affiliated with the Subsidiary Guarantor); provided, however, that (a) if the
surviving corporation is not the Subsidiary Guarantor, the surviving
corporation agrees to assume such Subsidiary Guarantor's Subsidiary Guarantee
and all its obligations pursuant to the Indenture (except to the extent the
following paragraph would result in the release of such Subsidiary Guarantee)
and (b) such transaction does not (i) violate any of the covenants described
below under "Certain Covenants" or in the Indenture or (ii) result in a Default
or Event of Default immediately thereafter that is continuing. The Subsidiary
Guarantee of any Restricted Subsidiary may be released upon the terms and
subject to the conditions described under paragraph (b) of "Certain Covenants
- -- Limitation on Non-Guarantor Restricted Subsidiaries."
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Although the Indenture does not contain any requirement that any
Subsidiary execute and deliver a Subsidiary Guarantee, certain covenants
described below require a Restricted Subsidiary in the future to execute and
deliver a Subsidiary Guarantee prior to the incurrence or guarantee of other
Indebtedness. In addition, any Subsidiary Guarantor that is designated an
Unrestricted Subsidiary in accordance with the terms of the Indenture shall be
released from and relieved of its obligations under its Subsidiary Guarantee.
See "Certain Covenants -- Limitation on Non-Guarantor Restricted Subsidiaries."
CERTAIN COVENANTS
The Indenture will contain, among others, the covenants described below.
Limitation on Indebtedness. (a) The Indenture will provide that neither
the Company nor any Restricted Subsidiary will create, incur, issue, assume,
guarantee or in any manner become directly or indirectly liable for the payment
of (collectively "incur") any Indebtedness (including any Acquired
Indebtedness), other than Permitted Indebtedness and Permitted Subsidiary
Indebtedness, as the case may be; provided, however, that the Company and its
Restricted Subsidiaries that are Subsidiary Guarantors may incur Indebtedness
if (x) the Company's Consolidated Fixed Charge Coverage Ratio for the four full
fiscal quarters immediately preceding the incurrence of such Indebtedness (and
for which financial statements are available), taken as one period (at the time
of such incurrence, after giving pro forma effect to: (i) the incurrence of
such Indebtedness and (if applicable) the application of the net proceeds
therefrom, including to refinance other Indebtedness or to acquire producing
oil and gas properties, as if such Indebtedness had been incurred and the
application of such proceeds had occurred at the beginning of such four-quarter
period; (ii) the incurrence, repayment or retirement of any other Indebtedness
(including Permitted Indebtedness) by the Company or its Restricted
Subsidiaries since the first day of such four-quarter period (including any
other Indebtedness to be incurred concurrent with the incurrence of such
Indebtedness) as if such Indebtedness had been incurred, repaid or retired at
the beginning of such four-quarter period; and (iii) notwithstanding clause (d)
of the definition of Consolidated Net Income, the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any Person acquired, or to be acquired, or disposed of, or to be
disposed of, by the Company or its Restricted Subsidiaries, as the case may be,
since the first day of such four-quarter period, as if such acquisition or
disposition had occurred at the beginning of such four-quarter period and the
pro forma effect to consolidated results of operations of the Company were
reflected for such period), would have been equal to at least 2.5 to 1.0 and
(y) no Default or Event of Default shall have occurred and be continuing at the
time such additional Indebtedness is incurred or would occur as a consequence
of the incurrence of the additional Indebtedness.
Limitation on Restricted Payments. (a) The Indenture will provide that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, take the following actions:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Company's Capital Stock (other than
dividends or distributions payable solely in shares of Qualified Capital
Stock of the Company, options, warrants or other rights to purchase
Qualified Capital Stock of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value (other
than solely for shares of Qualified Capital Stock of the Company, options,
warrants or other rights to purchase Qualified Capital Stock of the
Company) any Capital Stock of the Company or any Affiliate thereof (other
than any Wholly Owned Restricted Subsidiary of the Company) or any
options, warrants or other rights to acquire such Capital Stock;
(iii)make any principal payment on or repurchase, redeem, defease or
otherwise acquire or retire for value (other than solely for shares of
Qualified Capital Stock of the Company, options, warrants or other rights
to purchase Qualified Capital Stock of the Company), prior to any
scheduled principal payment, scheduled sinking fund payment or maturity,
any Subordinated Indebtedness;
(iv) declare or pay any dividend on, or make any distribution to the
holders of, any shares of Capital Stock of any Restricted Subsidiary of
the Company (other than to the Company or any of its Wholly Owned
Restricted Subsidiaries) or purchase, redeem or otherwise acquire or
retire for value any Capital Stock of any Restricted Subsidiary or any
options, warrants or other rights to acquire any such Capital Stock (other
than with respect to any such Capital Stock held by the Company or any
Wholly Owned Restricted Subsidiary of the Company);
(v) make any Investment (other than a Permitted Investment); or
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(vi) incur any guarantee of Indebtedness of any Affiliate (other than
(a) guarantees of Indebtedness of any Restricted Subsidiary by the Company
or (b) guarantees of Indebtedness of the Company by any Restricted
Subsidiary, in each case in accordance with the terms of the Indenture);
(such payments or other actions described in (but not excluded from) clauses
(i) through (vi) are collectively referred to as "Restricted Payments"), unless
at the time of and after giving effect to the proposed Restricted Payment (with
the amount of any such Restricted Payment, if other than cash, being the amount
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a board resolution), (1) no Default or Event of
Default shall have occurred and be continuing, (2) the Company could incur
$1.00 of additional Indebtedness (excluding Permitted Indebtedness) in
accordance with the "Limitation on Indebtedness" covenant and (3) the aggregate
amount of all Restricted Payments declared or made after the date of the
Indenture shall not exceed the sum (without duplication) of the following:
(A) 50% of the aggregate cumulative Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on the
first day of the first month after the date of the Indenture and ending on
the last day of the Company's last fiscal quarter ending prior to the date
of such proposed Restricted Payment (or, if such aggregate cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss), plus
(B) the aggregate net cash proceeds received after the date of the
Indenture by the Company either (i) from the issuance or sale (other than
to any of its Restricted Subsidiaries) of shares of Qualified Capital
Stock of the Company or any options, warrants or rights to purchase such
shares of Qualified Capital Stock of the Company or (ii) as an equity
contribution from the holder of all of the outstanding Qualified Capital
Stock of the Company provided that at the time of such equity contribution
such holder delivers an officers' certificate to the Company and the
Trustee designating such equity contribution, plus
(C) the aggregate net cash proceeds received after the date of the
Indenture by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase shares of Qualified Capital Stock of the Company, plus
(D) the aggregate net cash proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of
its Restricted Subsidiaries) of debt securities or shares of Redeemable
Capital Stock that have been converted into or exchanged for Qualified
Capital Stock of the Company to the extent such debt securities were
originally sold for cash, together with the aggregate cash received by the
Company at the time of such conversion or exchange, plus
(E) to the extent not otherwise included in the Company's Consolidated
Net Income, the net reduction in Investments in Unrestricted Subsidiaries
resulting from the payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each
case to the Company or a Restricted Subsidiary after the date of the
Indenture from any Unrestricted Subsidiary or from the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as
provided in the definition of "Investment"), not to exceed in the case of
any Unrestricted Subsidiary the total amount of Investments (other than
Permitted Investments) in such Unrestricted Subsidiary made by the Company
and its Restricted Subsidiaries in such Unrestricted Subsidiary after the
date of the Indenture, plus
(F) $5,000,000.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (in the case of clauses
(ii), (iii) and (iv) below) no Default or Event of Default shall have occurred
and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such declaration complied
with the provisions of paragraph (a) above (and such payment shall be
deemed to have been paid on such date of declaration for purposes of any
calculation required by the provisions of paragraph (a) above);
(ii) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate net cash proceeds of,
a
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substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company;
(iii)the purchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness
(other than Redeemable Capital Stock) in exchange for or out of the
aggregate net cash proceeds of a substantially concurrent (A) issue and
sale (other than to a Restricted Subsidiary) by the Company of shares of
Qualified Capital Stock of the Company or (B) equity contribution to the
Company by the holder of all of the Qualified Capital Stock of the
Company; and
(iv) the purchase, redemption, repayment, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness (other
than Redeemable Capital Stock) in exchange for, or out of the aggregate
net cash proceeds of, a substantially concurrent incurrence (other than to
a Restricted Subsidiary) of Subordinated Indebtedness of the Company so
long as (A) the principal amount of such new Indebtedness does not exceed
the principal amount (or, if such Subordinated Indebtedness being
refinanced provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration thereof, such
lesser amount as of the date of determination) of the Subordinated
Indebtedness being so purchased, redeemed, repaid, defeased, acquired or
retired, plus the amount of any premium required to be paid in connection
with such refinancing pursuant to the terms of the Subordinated
Indebtedness refinanced or the amount of any premium reasonably determined
by the Company as necessary to accomplish such refinancing, plus the
amount of expenses of the Company incurred in connection with such
refinancing, (B) such new Subordinated Indebtedness is subordinated to the
Notes at least to the same extent as such Subordinated Indebtedness so
purchased, redeemed, repaid, defeased, acquired or retired, (C) such new
Subordinated Indebtedness has an Average Life to Stated Maturity that is
longer than the Average Life to Stated Maturity of the Notes and such new
Subordinated Indebtedness has a Stated Maturity for its final scheduled
principal payment that is at least 91 days later than the Stated Maturity
for the final scheduled principal payment of the Notes.
The actions described in clauses (i), (ii) and (iii) of this paragraph (b)
shall be permitted to be taken in accordance with this paragraph (b) but to the
extent such actions otherwise constitute Restricted Payments under this
covenant, such actions shall reduce the amount that would otherwise be
available for Restricted Payments under clause (3) of paragraph (a) (provided
that any dividend paid pursuant to clause (i) of this paragraph (b) shall
reduce the amount that would otherwise be available under clause (3) of
paragraph (a) when declared, but not also when subsequently paid pursuant to
such clause (i)), and the actions described in clause (iv) of this paragraph
(b) shall be permitted to be taken in accordance with this paragraph and shall
not reduce the amount that would otherwise be available for Restricted Payments
under clause (3) of paragraph (a).
(c) In computing Consolidated Net Income of the Company under paragraph
(a) above, (1) the Company shall use audited financial statements for the
portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (2) the Company shall be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment, would in the good faith determination of
the Company be permitted under the requirements of the Indenture, such
Restricted Payment shall be deemed to have been made in compliance with the
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.
(d) Notwithstanding paragraph (a) above, payments by the Company or any
Restricted Subsidiary to an Affiliate of the Company described in clauses (6)
and (7) of the proviso to the covenant described under "Limitation on
Transactions with Affiliates" shall not constitute Restricted Payments.
Limitation on Issuances and Sales of Restricted Subsidiary Stock. The
Indenture will provide that the Company (i) will not permit any Restricted
Subsidiary to issue any Preferred Stock (other than to the Company or a Wholly
Owned Restricted Subsidiary) and (ii) will not permit any Person (other than
the Company and/or one or more Wholly Owned Restricted Subsidiaries) to own any
Capital Stock of any Restricted Subsidiary; provided, however, that this
covenant shall not prohibit (1) the issuance and sale of all, but not less than
all, of the issued and outstanding Capital Stock of any Restricted Subsidiary
owned by the Company or any of its Restricted Subsidiaries in compliance with
the other
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provisions of the Indenture, or (2) the ownership by directors of directors'
qualifying shares or the ownership by foreign nationals of Capital Stock of any
Restricted Subsidiary, to the extent mandated by applicable law.
Limitation on Transactions with Affiliates. The Indenture will provide
that the Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or the rendering of any services) with,
or for the benefit of, any Affiliate of the Company other than a Restricted
Subsidiary (each, other than a Restricted Subsidiary, being an "Interested
Person"), unless (i) such transaction or series of transactions is on terms
that are no less favorable to the Company or such Restricted Subsidiary, as the
case may be, than those that would be available in a comparable arm's length
transaction with unrelated third parties who are not Interested Persons, (ii)
except with respect to loans from Affiliates, with respect to any one
transaction or series of transactions involving aggregate payments in excess of
$1,000,000, the Company delivers an officer's certificate to the Trustee
certifying that such transaction or series of transactions complies with clause
(i) above and such transaction or series of transactions has been approved by
the Board of Directors of the Company and (iii) except with respect to loans
from Affiliates, with respect to any one transaction or series of transactions
involving aggregate payments in excess of $10,000,000, the officer's
certificate referred to in clause (ii) above also certifies that such
transaction or series of transactions has been approved by a majority of the
Disinterested Directors or, in the event there are no such Disinterested
Directors, that the Company has obtained a written opinion from an independent
nationally recognized investment banking firm or appraisal firm, in either case
specializing or having a specialty in the type and subject matter of the
transaction or series of transactions at issue, which opinion shall be to the
effect set forth in clause (i) above or shall state that such transaction or
series of transactions is fair from a financial point of view to the Company or
such Restricted Subsidiary; provided, however, that this covenant will not
restrict the Company from (1) paying reasonable and customary regular
compensation and fees to directors of the Company who are not employees of the
Company or any Restricted Subsidiary, (2) entering into and making payments
under any employment or secondment agreement entered into in the ordinary
course of its business and consistent with past practices, (3) paying dividends
on, or making distributions with respect to, shares of Capital Stock of the
Company on a pro rata basis to the extent permitted by the "Limitation on
Restricted Payments" covenant, (4) other transactions permitted by the
"Limitation on Restricted Payments" covenant, (5) effecting transactions
pursuant to agreements with Affiliates existing on the date of the Indenture or
entering into any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) in any replacement agreement
thereto, so long as any such amendment or replacement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the date of the Indenture, (6) making payments to
Affiliates in reimbursement for direct expenses incurred for the benefit of the
Company or any Restricted Subsidiary, including without limitation,
compensation, consulting services, insurance, communications, travel, legal and
audit expenses, to the extent such costs and expenses are reasonably allocable
to the Company and any Restricted Subsidiaries plus a mark-up on such costs and
expenses but only to the extent permitted under international transfer pricing
regulations, rules and procedures applicable to the Company and such Affiliates
for tax purposes, (7) any payment to an Affiliate under any parent-subsidiary
or consolidated group tax sharing agreement, whether existing or entered in the
future, provided that the obligations of the Company and any Restricted
Subsidiaries thereunder shall be no greater than their aggregate separate
return liability if the Company and the Restricted Subsidiaries filed separate
tax returns or separate consolidated tax returns with taxing authorities, (8)
repayments of any Senior Indebtedness to an Affiliate of the Company which,
when incurred or entered into, complied with clause (i) of this definition and
(9) indemnities of officers, directors and employees of the Company or any
Subsidiary pursuant to bylaw or statutory provisions.
Limitation on Liens. The Indenture will provide that the Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly,
create, incur, assume, affirm or suffer to exist or become effective any Lien
of any kind, except for Permitted Liens, on or with respect to any of its
property or assets, whether owned at the date of the Indenture or thereafter
acquired, or any income, profits or proceeds therefrom, or assign or otherwise
convey any right to receive income thereon, unless (x) in the case of any Lien
securing Subordinated Indebtedness, the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Lien and (y) in
the case of any other Lien, the Notes are directly secured equally and ratably
with the obligation or liability secured by such Lien. The incurrence of
additional secured Indebtedness by the Company or any Restricted Subsidiary is
subject to further limitations on the incurrence of Indebtedness as described
under "-- Limitation on Indebtedness."
Change of Control. Upon the occurrence of a Change of Control, the Company
shall be obligated to make an offer to purchase all of the then outstanding
Notes (a "Change of Control Offer"), and shall purchase, on a business day (the
"Change of Control Purchase Date") not more than 70 nor less than 30 days
following the Change of Control, all of the then outstanding Notes validly
tendered pursuant to such Change of Control Offer at a purchase price (the
"Change of
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Control Purchase Price") equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the Change of Control Purchase Date.
The Change of Control Offer is required to remain open for at least 20 Business
Days and until the close of business on the fifth business day prior to the
Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the Change of Control, mail to each Noteholder a
notice of the Change of Control Offer, which notice shall govern the terms of
the Change of Control Offer and shall state, among other things, the procedures
that Noteholders must follow to accept the Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes delivered by Noteholders seeking to accept
the Change of Control Offer. If on a Change of Control Purchase Date the
Company does not have available funds sufficient to pay the Change of Control
Purchase Price or is prohibited from purchasing the Notes, an Event of Default
will occur under the Indenture. The definition of "Change of Control" includes
an event by which the Company sells, conveys, transfers or leases all or
substantially all of its properties to any Person; the phrase "all or
substantially all" is subject to applicable legal precedent and as a result in
the future there may be uncertainty as to whether a Change of Control has
occurred.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer at the
same purchase price, at the same times and otherwise in substantial compliance
with the requirements applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The Company intends to comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder, if applicable, in the
event that a Change of Control occurs and the Company is required to purchase
Notes as described above. The existence of a Holder's right to require, subject
to certain conditions, the Company to repurchase its Notes upon a Change of
Control may deter a third party from acquiring the Company in a transaction
that constitutes, or results in, a Change of Control.
Limitation on Disposition of Proceeds of Asset Sales. (a) The Indenture
will provide that the Company will not, and will not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the fair market value of the assets and
properties sold or otherwise disposed of pursuant to the Asset Sale (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a board resolution) and (ii) at least 75% of the
consideration received by the Company or the Restricted Subsidiary, as the case
may be, in respect of such Asset Sale consists of cash, Cash Equivalents or the
assumption by the purchaser of liabilities of the Company (other than
liabilities of the Company that are by their terms subordinated to the Notes)
or any Restricted Subsidiary as a result of which the Company and its remaining
Restricted Subsidiaries are no longer liable.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may either (x) apply the Net Cash Proceeds thereof to permanently
reduce Senior Indebtedness or to permanently reduce Guarantor Senior
Indebtedness, or (y) invest all or any part of the Net Cash Proceeds thereof,
within 365 days after such Asset Sale, in properties and assets which replace
the properties and assets that were the subject of the Asset Sale or in
properties and assets that will be used in the business of the Company or its
Restricted Subsidiaries, as the case may be ("Replacement Assets"). The amount
of such Net Cash Proceeds not applied or invested as provided in this paragraph
constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds
$15,000,000, the Company shall make an offer to purchase, from all Holders of
the Notes and any then outstanding Pari Passu Indebtedness required to be
repurchased or repaid on a permanent basis in connection with an Asset Sale, an
aggregate principal amount of Notes and any then outstanding Pari Passu
Indebtedness equal to such Excess Proceeds as follows:
(i) (A) the Company shall make an offer to purchase (a "Net Proceeds
Offer") from all Holders of the Notes in accordance with the procedures
set forth in the Indenture the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased out of an amount (the
"Payment Amount") equal to the product of such Excess Proceeds multiplied
by a fraction, the numerator of which is the outstanding principal amount
of the Notes and the denominator of which is the sum of the outstanding
principal amount of the Notes and such Pari Passu
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Indebtedness, if any (subject to proration in the event such amount is
less than the aggregate Offered Price (as defined herein) of all Notes
tendered), and (B) to the extent required by such Pari Passu Indebtedness
and provided there is a permanent reduction in the principal amount of
such Pari Passu Indebtedness, the Company shall make an offer to purchase
Pari Passu Indebtedness (a "Pari Passu Offer") in an amount (the "Pari
Passu Indebtedness Amount") equal to the excess of the Excess Proceeds
over the Payment Amount.
(ii) The offer price for the Notes shall be payable in cash in an
amount equal to 100% of the principal amount of the Notes tendered
pursuant to a Net Proceeds Offer, plus accrued and unpaid interest, if
any, to the date such Net Proceeds Offer is consummated (the "Offered
Price"), in accordance with the procedures set forth in the Indenture. To
the extent that the aggregate Offered Price of the Notes tendered pursuant
to a Net Proceeds Offer is less than the Payment Amount relating thereto
or the aggregate amount of the Pari Passu Indebtedness that is purchased
or repaid pursuant to the Pari Passu Offer is less than the Pari Passu
Indebtedness Amount (such shortfall constituting a "Net Proceeds
Deficiency"), the Company may use such Net Proceeds Deficiency, or a
portion thereof, for general corporate purposes, subject to the
limitations of the "Limitation on Restricted Payments" covenant.
(iii)If the aggregate Offered Price of Notes validly tendered and not
withdrawn by Holders thereof exceeds the Payment Amount, Notes to be
purchased will be selected on a pro rata basis. Upon completion of such
Net Proceeds Offer and Pari Passu Offer, the amount of Excess Proceeds
shall be reset to zero.
The Credit Agreement may prohibit the Company from purchasing any Notes
and also provides that certain change of control events with respect to the
Company would constitute a default thereunder. Any future credit agreements or
other agreements relating to Senior Indebtedness to which the Company becomes a
party may contain similar restrictions and provisions. In the event a Change of
Control or Net Proceeds Offer occurs at a time when the Company is prohibited
from purchasing Notes, the Company could seek the consent of its lenders to the
purchase of the Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the company may remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture which would, in turn, constitute a default
under the Credit Agreement. In such circumstances, the subordination provisions
in the Indenture would likely restrict payments to the Holders of Notes. The
Company will not permit any Subsidiary to enter into or suffer to exist any
agreement that would place any restriction of any kind (other than pursuant to
law or regulation) on the ability of the Company to make a Net Proceeds Offer
following any Asset Sale.
The Company intends to comply with Rule 14e-1 under the Exchange Act, and
any other securities laws and regulations thereunder, if applicable, in the
event that an Asset Sale occurs and the Company is required to purchase Notes
as described above.
Limitation on Non-Guarantor Restricted Subsidiaries. (a) The Indenture
will provide that the Company will not permit any Restricted Subsidiary that is
not a Subsidiary Guarantor to incur any Indebtedness for borrowed money or
guarantee the payment of any such Indebtedness of the Company or any other
Restricted Subsidiary unless (i)(A) such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for a
Subsidiary Guarantee of the Notes by such Restricted Subsidiary which
Subsidiary Guarantee will be subordinated to Guarantor Senior Indebtedness (but
no other Indebtedness) to the same extent that the Notes are subordinated to
Senior Indebtedness and (B), with respect to any guarantee of Subordinated
Indebtedness by a Restricted Subsidiary, any such guarantee shall be
subordinated to such Restricted Subsidiary's Subsidiary Guarantee at least to
the same extent as such Subordinated Indebtedness is subordinated to the Notes;
(ii) such Restricted Subsidiary waives, and agrees not in any manner whatsoever
to claim to take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee until such time as the obligations guaranteed
thereby are paid in full; and (iii) such Restricted Subsidiary shall deliver to
the Trustee an opinion of independent legal counsel to the effect that such
Subsidiary Guarantee has been duly executed and authorized and constitutes a
valid, binding and enforceable obligation of such Restricted Subsidiary, except
insofar as enforcement thereof may be limited by bankruptcy, insolvency or
similar laws (including, without limitation, all laws relating to fraudulent
transfers) and except insofar as enforcement thereof is subject to general
principles of equity; provided that this paragraph (a) shall not be applicable
to any guarantee of any Restricted Subsidiary that (x) existed at the time such
Person became a Restricted Subsidiary of the Company and (y) was not incurred
in connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary of the Company.
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(b) Notwithstanding the foregoing and the other provisions of the
Indenture, any Subsidiary Guarantee incurred by a Restricted Subsidiary
pursuant to the covenant shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon (i) any sale,
exchange or transfer, to any Person that is not an Affiliate of the Company, of
all of the Company's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture), (ii) the merger of such Restricted Subsidiary
into the Company or any other Restricted Subsidiary (provided the surviving
Restricted Subsidiary assumes the Subsidiary Guarantee) or the liquidation and
dissolution of such Restricted Subsidiary (in each case to the extent not
prohibited by the Indenture), or (iii) (x) the release or discharge of all
guarantees by such Restricted Subsidiary of any Indebtedness other than the
Note Obligations, except a discharge or release by or as a result of payment
under such guarantees and (y) after giving effect to the proposed release and
discharge, the aggregate total combined assets of all Restricted Subsidiaries
that are not Subsidiary Guarantors do not exceed 5% of Adjusted Consolidated
Net Tangible Assets.
Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries. The Indenture will provide that the Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock to the Company or any
Restricted Subsidiary, (b) pay any Indebtedness owed to the Company or any
Restricted Subsidiary, (c) make an Investment in the Company or any Restricted
Subsidiary or (d) transfer any of its properties or assets to the Company or
any Restricted Subsidiary, except for such encumbrances or restrictions under
or by reason of (i) any agreement in effect or entered into on the date of the
Indenture (including the Credit Agreement), (ii) any agreement or other
instrument of a Person acquired by the Company or any Restricted Subsidiary in
existence at the time of such acquisition (but not created in contemplation
thereof), which encumbrance or restriction is not applicable to any other
Person, or the properties or assets of any other Person, other than the Person,
or the property or assets of the Person, so acquired, (iii) any agreement that
extends, renews, refinances or replaces the agreements containing the
restrictions in the foregoing clauses (i) and (ii), provided that the terms and
conditions of any such restrictions are not materially less favorable to the
Holders of the Notes than those under or pursuant to the agreement evidencing
the Indebtedness so extended, renewed, refinanced or replaced, (iv) the
Indenture and the Notes, (v) applicable law, (vi) customary non-assignment
provisions in leases, and customary provisions in other agreements that
restrict assignment of such agreements or rights thereunder, (vii) customary
restrictions contained in asset sale agreements limiting the transfer of such
assets pending the closing of such sale or (viii) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (d) above on the property so
acquired.
Limitation on Other Senior Subordinated Indebtedness. The Indenture will
provide that the Company will not incur, directly or indirectly, any
Indebtedness which is expressly subordinate or junior in right of payment in
any respect to Senior Indebtedness unless such Indebtedness ranks pari passu in
right of payment with the Notes, or is expressly subordinated in right of
payment to the Notes; provided, however, that the foregoing limitations will
not apply to distinctions between categories of Indebtedness that exist by
reason of any Liens arising or created in respect of some but not all such
Indebtedness.
Limitation on Conduct of Business. The Company shall not, and shall not
permit any of its Restricted Subsidiaries to, engage in the conduct of any
business other than the Oil and Gas Business.
Reports. The Indenture will require that the Company (and the Subsidiary
Guarantors, if applicable) file on a timely basis with the Commission, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15(d) of the Exchange
Act). The Company (and the Subsidiary Guarantors, if applicable) will also be
required (a) to file with the Trustee, and provide to each holder of Notes,
without cost to such holder, copies of such reports and documents within 15
days after the date on which the Company files such reports and documents with
the Commission or the date on which the Company (and the Subsidiary Guarantors,
if applicable) would be required to file such reports and documents if the
Company (and the Subsidiary Guarantors, if applicable) were so required and (b)
if filing such reports and documents with the Commission is not accepted by the
Commission or is prohibited under the Exchange Act, to furnish at the Company's
cost copies of such reports and documents to any holder of Notes promptly upon
written request. The Company is obligated to make available, upon request, to
any Holder of Notes the information required by Rule 144A(d)(4) under the
Securities Act, during any period in which the Company is not subject to
Section 13 or 15(d) of the Exchange Act.
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Future Designation of Restricted and Unrestricted Subsidiaries. The
foregoing covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness and Liens) may
be affected by the designation by the Company of any future Subsidiary of the
Company as an Unrestricted Subsidiary. Generally, a Restricted Subsidiary
includes any Subsidiary of the Company, whether existing on or after the date
of the Indenture, unless the Subsidiary of the Company is designated as an
Unrestricted Subsidiary pursuant to the terms of the Indenture. The definition
of "Unrestricted Subsidiary" set forth under the caption "-- Certain
Definitions" describes the circumstances under which a future Subsidiary of the
Company may be designated as an Unrestricted Subsidiary by the Board of
Directors of the Company.
MERGER, CONSOLIDATION AND SALE OF ASSETS, ETC.
The Indenture will provide that the Company will not, in any single
transaction or series of related transactions, merge or consolidate with or
into any other Person, or sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of its properties and assets to any Person
or group of Affiliated Persons, and the Company may not permit any of its
Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company and its Restricted Subsidiaries on a consolidated basis to any other
Person or group of Affiliated Persons, unless at the time and after giving
effect thereto (i) either (A) if the transaction or transactions is a merger or
consolidation, the Company shall be the surviving Person of such merger or
consolidation, or (B) the Person (if other than the Company) formed by such
consolidation or into which the Company or such Restricted Subsidiary is merged
or to which the properties and assets of the Company or such Restricted
Subsidiary, as the case may be, are sold, assigned, conveyed, transferred,
leased or otherwise disposed of (any such surviving Person or transferee Person
being the "Surviving Entity") shall be a corporation organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia and shall, in either case, expressly assume by a
supplemental indenture to the Indenture executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company under
the Notes and the Indenture, and, in each case, the Indenture shall remain in
full force and effect; (ii) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma basis (and
treating any Indebtedness not previously an obligation of the Company or any of
its Restricted Subsidiaries in connection with or as a result of such
transaction as having been incurred at the time of such transaction), no
Default or Event of Default shall have occurred and be continuing; (iii) except
in the case of the consolidation or merger of any Restricted Subsidiary with or
into the Company, immediately after giving effect to such transaction or
transactions on a pro forma basis, the Consolidated Net Worth of the Company
(or the Surviving Entity if the Company is not the continuing obligor under the
Indenture) is at least equal to the Consolidated Net Worth of the Company
immediately before such transaction or transactions; (iv) except in the case of
the consolidation or merger of any Restricted Subsidiary with or into the
Company or any Wholly Owned Restricted Subsidiary, immediately before and
immediately after giving effect to such transaction or transactions on a pro
forma basis (on the assumption that the transaction or transactions occurred on
the first day of the period of four fiscal quarters ending immediately prior to
the consummation of such transaction or transactions, with the appropriate
adjustments with respect to the transaction or transactions being included in
such pro forma calculation), the Company (or the Surviving Entity if the
Company is not the continuing obligor under the Indenture) could incur $1.00 of
additional Indebtedness (excluding Permitted Indebtedness) pursuant to the
"Limitation on Indebtedness" covenant; (v) each Subsidiary Guarantor, unless it
is the other party to the transactions described above, shall have by
supplemental indenture to the Indenture confirmed that its Subsidiary Guarantee
of the Notes shall apply to such Person's obligations under the Indenture and
the Notes; and (vi) if any of the properties or assets of the Company or any of
its Restricted Subsidiaries would upon such transaction or series of related
transactions become subject to any Lien (other than a Permitted Lien), the
creation and imposition of such Lien shall have been in compliance with the
"Limitation on Liens" covenant.
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an officers' certificate stating that such consolidation, merger,
transfer, lease or other disposition and the supplemental indenture in respect
thereto comply with the requirements under the Indenture and an opinion of
counsel stating that the requirements of clause (i) of the preceding paragraph
have been complied with. Upon any consolidation or merger or any sale,
assignment, transfer, lease or other disposition of all or substantially all of
the assets of the Company in accordance with the foregoing, in which the
Company is not the continuing corporation, the Surviving Entity shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Indenture with the same effect as if such successor
corporation had been named as the Company therein, and thereafter the Company,
except in the case of a lease, will be discharged from all obligations and
covenants under the Indenture and the Notes.
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EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any,
on any of the Notes, whether such payment is due at maturity, upon
redemption, upon repurchase pursuant to a Change of Control Offer or a Net
Proceeds Offer, upon acceleration or otherwise; or
(ii) default in the payment of any installment of interest on any of
the Notes, when it becomes due and payable, and the continuance of such
default for a period of 30 days; or
(iii) default in the performance or breach of the provisions of the
"Merger, Consolidation and Sale of Assets" section of the Indenture, the
failure to make or consummate a Change of Control Offer in accordance with
the provisions of the "Change of Control" covenant or the failure to make
or consummate a Net Proceeds Offer in accordance with the provisions of
the "Limitation on Disposition of Proceeds of Asset Sales" covenant; or
(iv) the Company or any Subsidiary Guarantor shall fail to perform or
observe any other term, covenant or agreement contained in the Notes, any
Subsidiary Guarantee or the Indenture (other than a default specified in
(i), (ii) or (iii) above) for a period of 60 days after written notice of
such failure requiring the Company to remedy the same shall have been
given (x) to the Company by the Trustee or (y) to the Company and the
Trustee by the holders of at least 25% in aggregate principal amount of
the Notes then outstanding; or
(v) the occurrence and continuation beyond any applicable grace
period of any default in the payment of the principal of (or premium, if
any, on) or interest on any Indebtedness of the Company (other than the
Notes) or any Restricted Subsidiary for money borrowed when due, or any
other default causing acceleration of any Indebtedness of the Company or
any Restricted Subsidiary for money borrowed, provided that the aggregate
principal amount of such Indebtedness shall exceed $5,000,000; provided
further that if any such default is cured or waived or any such
acceleration rescinded, or such debt is repaid, within a period of 10 days
from the continuation of such default beyond the applicable grace period
or the occurrence of such acceleration, as the case may be, such Event of
Default under the Indenture and any consequential acceleration of the
Notes shall be automatically rescinded, so long as such rescission does
not conflict with any judgment or decree; or
(vi) any Subsidiary Guarantee shall for any reason cease to be, or be
asserted by the Company or any Subsidiary Guarantor, as applicable, not to
be, in full force and effect, enforceable in accordance with its terms
(except pursuant to the release of any such Subsidiary Guarantee in
accordance with the Indenture); or
(vii) final judgments or orders rendered against the Company or any
Restricted Subsidiary that are unsatisfied and that require the payment in
money, either individually or in an aggregate amount, that is more than
$5,000,000 over the coverage under applicable insurance policies and
either (i) commencement by any creditor of an enforcement proceeding upon
such judgment (other than a judgment that is stayed by reason of pending
appeal or otherwise) or (ii) the occurrence of a 60-day period during
which a stay of such judgment or order, by reason of pending appeal or
otherwise, was not in effect; or
(viii)the entry of a decree or order by a court having jurisdiction
in the premises (A) for relief in respect of the Company or any Restricted
Subsidiary in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar
law or (B) adjudging the Company or any Restricted Subsidiary bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of the Company or a Restricted Subsidiary under
any applicable federal or state law, or appointing under any such law a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Restricted Subsidiary or of a
substantial part of their consolidated assets, or ordering the winding up
or liquidation of their affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect
for a period of 60 consecutive days; or
(ix) the commencement by the Company or any Restricted Subsidiary of a
voluntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or any other
case or proceeding to be adjudicated bankrupt or insolvent, or the consent
by the Company or any Restricted Subsidiary to the entry of a decree or
order for relief in respect thereof in an involuntary case or proceeding
under any
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applicable federal or state bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency
case or proceeding against it, or the filing by the Company or any
Restricted Subsidiary of a petition or consent seeking reorganization or
relief under any applicable federal or state law, or the consent by it
under any such law to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or other similar official) of any of
the Company or any Restricted Subsidiary or of any substantial part of
their consolidated assets, or the making by it of an assignment for the
benefit of creditors under any such law, or the admission by it in writing
of its inability to pay its debts generally as they become due or taking
of corporate action by the Company or any Restricted Subsidiary in
furtherance of any such action.
If an Event of Default (other than as specified in clause (viii) or (ix)
above) shall occur and be continuing, the Trustee, by written notice to the
Company, or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by notice to the Trustee and the Company, may declare
the principal of, premium, if any, and accrued interest on all of the
outstanding Notes due and payable immediately, upon which declaration all
amounts payable in respect of the Notes shall be immediately due and payable.
If an Event of Default specified in clause (viii) or (ix) above occurs and is
continuing, then the principal of, premium, if any, and accrued interest on all
of the outstanding Notes shall ipso facto become and be immediately due and
payable without any declaration, notice or other act on the part of the Trustee
or any holder of Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration if (a) the Company or any Subsidiary Guarantor has
paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or
advanced by the Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
(ii) all overdue interest on all Notes, (iii) the principal of and premium, if
any, on any Notes which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes, and (iv) to
the extent that payment of such interest is lawful, interest upon overdue
interest and overdue principal at the rate borne by the Notes which has become
due otherwise than by such declaration of acceleration; (b) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction; and (c) all Events of Default, other than the nonpayment of
principal of, premium, if any, and interest on the Notes that has become due
solely by such declaration of acceleration, have been cured or waived.
Under certain circumstances described in the Indenture, in the event of a
declaration of acceleration in respect of the Notes because of an Event of
Default specified in clause (v) above shall have occurred and be continuing,
such declaration of acceleration and any consequential acceleration shall be
automatically rescinded if the Indebtedness that is the subject of such Event
of Default has been repaid, or if the default relating to such Indebtedness is
waived or cured and if such Indebtedness had been accelerated, then the holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may on behalf of the holders of all the Notes waive any
past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
No holder of any of the Notes has any right to institute any proceeding
with respect to the Indenture or any remedy thereunder, unless the holders of
at least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 60 days after receipt of such notice
and offer of indemnity and the Trustee, within such 60-day period, has not
received directions inconsistent with such written request by holders of a
majority in aggregate principal amount of the outstanding Notes. Such
limitations do not apply, however, to a suit instituted by a holder of a Note
for the enforcement of the payment of the principal of, premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
under the Indenture
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is not under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Noteholders unless such
holders shall have offered to the Trustee reasonable security or indemnity.
Subject to certain provisions concerning the rights of the Trustee, the holders
of a majority in aggregate principal amount of the outstanding Notes have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee under the Indenture.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Notes notice of
the Default or Event of Default within 60 days after the occurrence thereof,
provided, however, that in case of a Default of the type listed in clause (v)
above, no notice to Holders shall be given until at least 60 days after the
occurrence thereof. Except in the case of a Default or an Event of Default in
payment of principal of, premium, if any, or interest on any Notes, the Trustee
may withhold the notice to the holders of such Notes if a committee of its
Trust Officers in good faith determines that withholding the notice is in the
interest of the Noteholders.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Subsidiary Guarantors
of its obligations under the Indenture and as to any default in such
performance.
The Company is also required to notify the Trustee within ten days of any
Default.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company and the Subsidiary Guarantors with respect to the outstanding
Notes ("legal defeasance"). Such legal defeasance means that the Company and
the Subsidiary Guarantors shall be deemed to have paid and discharged the
entire Indebtedness represented by the outstanding Notes, except for (i) the
rights of holders of outstanding Notes to receive payment in respect of the
principal of, premium, if any, on and interest on such Notes when such payments
are due, (ii) the Company's obligations to issue temporary Notes, register the
transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen
Notes and maintain an office or agency for payments in respect of the Notes,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and
(iv) the defeasance provisions of the Indenture. In addition, the Company may,
at its option and at any time, elect to terminate the obligations of the
Company and any Subsidiary Guarantor with respect to certain covenants that are
set forth in the Indenture, some of which are described under "-- Certain
Covenants" above, and any omission to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the Notes
("covenant defeasance").
In order to exercise either legal defeasance or covenant defeasance, (i)
the Company or any Subsidiary Guarantor must irrevocably deposit, with the
Trustee, in trust, for the benefit of the holders of the Notes, cash in United
States dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, on and interest on the outstanding Notes to
redemption or maturity; (ii) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that the holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such legal defeasance or covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such legal defeasance or covenant defeasance had
not occurred (in the case of legal defeasance, such opinion must refer to and
be based upon a published ruling of the Internal Revenue Service or a change in
applicable federal income tax laws); (iii) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as either clause (viii) or (ix) under "-- Events of
Default" is concerned, at any time in the period ending on the 91st day after
the date of the deposit; (iv) such legal defeasance or covenant defeasance
shall not cause the Trustee to have a conflicting interest under the Indenture
or the Trust Indenture Act with respect to any securities of the Company or any
Subsidiary Guarantor, (v) such legal defeasance or covenant defeasance shall
not result in a breach or violation of, or constitute a default under, any
material agreement or instrument to which the Company or any Subsidiary
Guarantor is a party or by which it is bound; and (vi) the company shall have
delivered to the Trustee an officers' certificate and an opinion of counsel
satisfactory to the Trustee, which, taken together, state that all conditions
precedent under the Indenture to either legal defeasance or covenant
defeasance, as the case may be, have been complied with and that no violations
under agreements governing any other outstanding Indebtedness would result
therefrom.
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable or will become due and payable at
their Stated Maturity within one year, or are to be called for redemption
within one year under arrangement satisfactory to the Trustee for the serving
of notice of redemption by the Trustee in the name, and at the expense, of the
Company, and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and discharge the entire
indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of (and premium, if any, on) and interest on the
Notes to the date of deposit (in the case of Notes which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be,
together with instructions from the Company irrevocably directing the Trustee
to apply such funds to the payment thereof at maturity or redemption, as the
case may be, (ii) the Company has paid all other sums payable under the
Indenture by the Company; and (iii) the Company has delivered to the Trustee an
officers' certificate and an opinion of counsel satisfactory to the Trustee,
which, taken together, state that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
AMENDMENTS AND WAIVERS
From time to time, the Company and the Trustee may, without the consent of
the Noteholders, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act of 1939, or making any change that
does not adversely affect the rights of any Noteholder. Other amendments and
modifications of the Indenture or the Notes may be made by the Company, the
Subsidiary Guarantors and the Trustee with the consent of the holders of not
less than a majority of the aggregate principal amount of the outstanding
Notes; provided, however, that no such modification or amendment may, without
the consent of the holder of each outstanding Note affected thereby, (a) change
the Stated Maturity of the principal of, or any installment of interest on any
Note, (b) reduce the principal amount of (or the premium, if any, on) or
interest on any Note, (c) change the coin or currency of payment of principal
of (or the premium, if any, on) or interest on, any Note, (d) impair the right
to institute suit for the enforcement of any payment on or with respect to any
Note, (e) reduce the above-stated percentage of aggregate principal amount of
outstanding Notes necessary to modify or amend the Indenture, (f) reduce the
percentage of aggregate principal amount of outstanding Notes necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults, (g) modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of past defaults or
covenants, except as otherwise specified, (h) modify any provision of the
Indenture relating to the Subsidiary Guarantees in a manner adverse to the
Holders, or (i) amend, change or modify the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of Control or
make and consummate the Net Proceeds Offer with respect to any Asset Sale or
modify any of the provisions or definitions with respect thereto.
The Holders of a majority in aggregate principal amount of the outstanding
Notes may waive compliance by the Company with certain restrictive provisions
of the Indenture. The Holders of a majority in aggregate principal amount of
the outstanding Notes may waive any past default under the Indenture, except a
default in the payment of principal (or premium, if any, on) or interest on the
Notes.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent Person would exercise under the circumstances in the
conduct of such Person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, contain limitations on the rights of the Trustee thereunder, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to
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realize on certain property received by it in respect of any such claims, as
security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest
(as defined) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees provide that they
will be governed by the laws of the State of New York, without regard to the
principles of conflicts of law.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes will be issued in the
form of one or more global Notes (the "Global Notes"). The Global Notes will be
deposited on the original date of issuance of the Notes with, or on behalf of,
The Depository Trust Company ("DTC") and registered in the name of Cede & Co.,
as nominee of DTC. The interest of QIBs in the Global Notes will be represented
through financial institutions acting on their behalf as direct or indirect
participants of DTC.
Notes (a) originally purchased by or transferred to an institutional
"accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or
(7) of Rule 501 under the Securities Act (each an "Institutional Accredited
Investor") who are not QIBs or (b) held by "qualified institutional buyers"
("QIBs") who elect to take physical delivery of their certificates instead of
holding their interest in the Global Notes (and which are thus ineligible to
trade through DTC) will be represented by certificates in definitive form
registered in the names of such investors or their nominees ("Certificated
Securities"). Upon the transfer of Certificated Securities to a QIB, such
Certificated Securities will, unless the transferee requests otherwise or the
Global Notes have previously been exchanged in whole for Certificated
Securities, be exchanged for an interest in the Global Notes. For a description
of the restrictions on the transfer of Certificated Securities and any interest
in the Global Notes, see "Notices to Investors."
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in the Global
Notes will be shown on, and the transfer of these ownership interests will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. In addition, no beneficial owner of
an interest in a Global Note will be able to transfer that interest except in
accordance with the applicable procedures of DTC.
Payments on Global Notes will be made to DTC or its nominee, as the
registered owner thereof. None of the Company, the Trustee or any paying agent
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Notes or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. The Company expects that DTC
or its nominee, upon receipt of any payment in respect of a Global Note
representing any Notes held by it or its nominee, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note for
such Notes as shown on the records of DTC or its nominee. The Company also
expects that payments by participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers registered in the names of nominees for such customers.
Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. The laws of some states require that certain
Persons take physical delivery of securities in definitive form. Consequently,
the ability to transfer beneficial interests in a Global Note to such Persons
may be limited. Because DTC can only act on behalf of participants, who in turn
act on behalf of indirect participants (as defined below) and certain banks,
the ability of a Person having a beneficial interest in a Global Note to pledge
such interest to Persons that do not participate in the DTC system, or
otherwise take actions in respect of such interest, may be affected by the lack
of a physical certificate of such interest.
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DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, 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. DTC holds securities that its participants
deposit with DTC and facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. Access to the
DTC system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a direct participant, either directly or indirectly
("indirect participants"). The rules applicable to DTC and its participants are
on file with the Commission. Although DTC is expected to follow the foregoing
procedures in order to facilitate transfers of interests in the Global Notes
among participants of DTC it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the Company nor the Trustee will have any responsibility for the
performance by DTC or the participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in
a Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Notes in the form of Certificated Securities. See
"Notices to Investors." Upon any such issuance, the Trustee is required to
register such Notes in the name of, and cause the same to be delivered to, such
Person or Persons (or the nominee of any thereof). All such Certificated
Securities would be subject to the legend requirements described herein under
"Notices to Investors." In addition, if (i) DTC or any successor depositary
(the "Depositary") notifies the Company in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes
in the form of Certificated Securities under the Indenture, then, upon
surrender by the registered owner or holder of a Global Note (a "Global Note
Holder") of its Global Note, Notes in such form will be issued to each Person
that such Global Note Holder and the Depositary identify as the beneficial
owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
related Global Note Holder or the Depositary in identifying the beneficial
owners of the related Notes, and each such Person may conclusively rely on, and
will be protected in relying on, instructions from such Global Note Holder or
of the Depositary for all purposes (including with respect to the registration
and delivery, and the respective principal amounts, of the Notes to be issued).
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person, (b) outstanding at the
time such Person becomes a Subsidiary of any other Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such Person becoming such a Subsidiary) or (c) any renewals,
extensions, substitutions, refinancings or replacements (each, for purposes of
this clause, a "refinancing") by the Company of any Indebtedness described in
clause (a) or (b) of this definition, including any successive refinancings, so
long as (A) any such new Indebtedness shall be in a principal amount that does
not exceed the principal amount (or, if such Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as of
the date of determination) so refinanced plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing, plus the
amount of expenses of the Company incurred in connection with such refinancing,
and (B) in the case of any refinancing of Subordinated Indebtedness, such new
Indebtedness is made subordinate to the Notes at least to the same extent as
the Indebtedness being refinanced and (C) such new Indebtedness has an Average
Life longer than the Average Life of the Notes and a final Stated Maturity
later than the final Stated Maturity of the Notes.
"Adjusted Consolidated Net Tangible Assets" means (without duplication),
as of the date of determination, (a) the sum of (i) discounted future net
revenues from proved oil and gas reserves of the Company and its Restricted
Subsidiaries calculated in accordance with SEC guidelines before any state or
federal income taxes, as estimated by a nationally recognized firm of
independent petroleum engineers in a reserve report prepared as of the end of
the Company's most
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recently completed fiscal year, 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 the date of 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 the date of such year-end
reserve report 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 the date of such
year-end reserve report and (D) estimated oil and gas reserves attributable to
downward revisions of estimates of proved oil and gas reserves since the date
of such year-end reserve report due to changes in geological conditions or
other factors which would, in accordance with standard industry practice, cause
such revisions, in each case calculated in accordance with SEC guidelines
(utilizing the prices utilized in such year-end reserve report); provided that,
in the case of each of the determinations made pursuant to clauses (A) through
(D), such increases and decreases shall be as estimated by the Company's
petroleum engineers, unless in the event that there is a Material Change as a
result of such acquisitions, dispositions or revisions, then the discounted
future net revenues utilized for purposes of this clause (a)(i) shall be
confirmed in writing by a nationally recognized firm of independent petroleum
engineers, (ii) the capitalized costs that are attributable to oil and gas
properties of the Company and its Restricted 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 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 statements
or (B) the appraised value, as estimated by independent appraisers, of other
tangible assets (including, without duplication, Investments in unconsolidated
Restricted Subsidiaries) of the Company and its Restricted Subsidiaries, as of
the date no earlier than the date of the Company's latest audited financial
statements, minus (b) the sum of (i) minority interests (other than a minority
interest in a Subsidiary that is a business trust or similar entity formed for
the primary purpose of issuing preferred securities the proceeds of which are
loaned to the Company or a Restricted Subsidiary), (ii) any net gas balancing
liabilities of the Company and its Restricted 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 obligations of the Company and its Restricted
Subsidiaries with respect to Volumetric Production Payments on 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 in (a)(i) above, would be necessary to fully satisfy the
payment obligations of the Company and its Restricted Subsidiaries with respect
to Dollar-Denominated Production Payments on the schedules specified with
respect thereto. If the Company changes its method of accounting from the
successful efforts method to the full cost method 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" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or 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
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 this definition, beneficial ownership of 10% or more of the voting
common equity (on a fully diluted basis) or options or warrants to purchase
such equity (but only if exercisable at the date of determination or within 60
days thereof) of a Person shall be deemed to constitute control of such Person.
No Person shall be deemed an Affiliate of an oil and gas royalty trust solely
by virtue of ownership of units of beneficial interest in such trust.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or any Restricted Subsidiary shall be merged
with or into the Company or any Restricted Subsidiary or (b) the acquisition by
the Company or any Restricted Subsidiary of the assets of any Person which
constitute all or substantially all of the assets of such Person or any
division or line of business of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by means of a Sale/Leaseback
Transaction or by way of merger or consolidation) (collectively, for purposes
of this definition, a "transfer"), directly or indirectly, in one or a series
of related transactions, of (a) any Capital Stock of any Restricted Subsidiary
held by the Company or
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any Restricted Subsidiary; (b) all or substantially all of the properties and
assets of any division or line of business of the Company or any of its
Restricted Subsidiaries; or (c) any other properties or assets of the Company
or any of its Restricted Subsidiaries other than a disposition of hydrocarbons
or other mineral products in the ordinary course of business. For the purposes
of this definition, the term "Asset Sale" shall not include (i) any transfer of
properties or assets that is governed by, and made in accordance with, the
provisions described under "Merger, Consolidation and Sale of Assets, Etc.";
(ii) a Permitted Investment or Restricted Payment, if permitted under the
covenant described under "Limitation on Restricted Payments"; (iii) any trade
or exchange of oil and gas properties or shares of Capital Stock in any
corporation in the Oil and Gas Business owned by the Company or any Restricted
Subsidiary for oil and gas properties owned or held by another Person provided
that (x) the fair market value of the properties or shares traded or exchanged
by the Company or such Restricted Subsidiary (including any cash or Cash
Equivalents, not to exceed 15% of such fair market value, to be delivered by
the Company or such Restricted Subsidiary) is reasonably equivalent to the fair
market value of the properties (together with any cash or Cash Equivalents, not
to exceed 15% of such fair market value) to be received by the Company or such
Restricted Subsidiary as determined in good faith by (A) any officer of the
Company if such fair market value is less than $5,000,000 and (B) the Board of
Directors of the Company as certified by a certified resolution delivered to
the Trustee if such fair market value is equal to or in excess of $5,000,000;
provided that if such resolution indicates that such fair market value is equal
to or in excess of $10,000,000 such resolution shall be accompanied by a
written appraisal by a nationally recognized investment banking firm or
appraisal firm, in each case specializing or having a specially in oil and gas
properties, and (y) such exchange is approved by a majority of the
Disinterested Directors of the Company; (iv) the abandonment, farm-out, lease
or sublease of developed or undeveloped oil and gas properties in the ordinary
course of business; (v) the sale or transfer of surplus or obsolete equipment
in the ordinary course of business; or (vi) any transfer of properties or
assets having a fair market value of less than $750,000.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the present value of the total net amount
of rent required to be paid by such Person under the lease during the primary
term thereof, without giving effect to any renewals at the option of the
lessee, discounted from the respective due dates thereof to such date of
determination at the rate of interest per annum implicit in the terms of the
lease. As used in the preceding sentence, the "net amount of rent" under any
lease for any such period shall mean the sum of rental and other payments
required to be paid with respect to such period by the lessee thereunder,
excluding any amounts required to be paid by such lessee on account of
maintenance and repairs, insurance, taxes, assessments, water rates or similar
charges. In the case of any lease which is terminable by the lessee upon
payment of a penalty, such net amount of rent shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years (and any portion thereof) from the date of
determination to the date or dates of each successive scheduled principal
payment (including, without limitation, any sinking fund or mandatory
redemption payment requirements) of such Indebtedness multiplied by (ii) the
amount of each such principal payment by (b) the sum of all such principal
payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents in the equity
interests (however designated) in such Person, and any rights (other than debt
securities convertible into an equity interest), warrants or options
exercisable for, exchangeable for or convertible into such an equity interest
in such Person.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the
purpose of the Indenture, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with
GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 365 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States of America is pledged in
support thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 365 days or less of any financial institution
that is a member of the Federal Reserve System, or a United States branch of a
commercial bank with its principal offices located in Australia, in each case
having combined capital and surplus and undivided profits of not less than
$500,000,000; (iii) commercial paper with a maturity of 365 days or less issued
by a corporation that is not an Affiliate of the Company
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and is organized under the laws of any state of the United States or the
District of Columbia and rated at least A-1 by S&P or at least P-1 by Moody's;
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with any commercial bank meeting the specifications of clause (ii) above; and
(v) overnight bank deposits and bankers' acceptances at any commercial bank
meeting the qualifications specified in clause (ii) above.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d)(3) or
14(d)(2) of the Exchange Act) other than the Exempt Interests is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of more than (i) 50% of the total voting power of the
outstanding Voting Stock of the Parent or (ii) 50% of the total voting power of
outstanding Voting Stock of the Company; (b) the Parent or the Company is
merged with or into or consolidated with another Person and, immediately after
giving effect to the merger or consolidation, (A) less than 50% of the total
voting power of the outstanding Voting Stock of the surviving or resulting
Person is then "beneficially owned" (within the meaning of Rule 13d-3 under the
Exchange Act) in the aggregate by (x) the stockholders of the Parent or the
Company immediately prior to such merger or consolidation, or (y) if a record
date has been set to determine the stockholders of the Parent or the Company
entitled to vote with respect to such merger or consolidation, the stockholders
of the Parent or the Company as of such record date and (B) any "person" or
"group" (as such terms are used in Sections 13(d)(3) or 14(d)(2) of the
Exchange Act) has become the direct or indirect "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting
power of the Voting Stock of the surviving or resulting Person; (c) the
Company, either individually or in conjunction with one or more Restricted
Subsidiaries, sells, conveys, transfers or leases, or the Restricted
Subsidiaries sell, convey, transfer or lease, all or substantially all of the
assets of the Company and the Restricted Subsidiaries, taken as a whole (either
in one transaction or a series of related transactions), including Capital
Stock of the Restricted Subsidiaries, to any Person (other than the Company or
a Wholly Owned Subsidiary that is a Restricted Subsidiary); (d) during any
consecutive two-year period, (i) individuals who at the beginning of such
period constituted the Board of Directors of the Parent, or (ii) in the event
the Parent is not the beneficial owner, directly or indirectly of 50% of the
total voting power of the outstanding Voting Stock of the Company, individuals
who at the beginning of such two-year period constituted the Board of Directors
of the Company (in each case, together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders of
Parent or the Company, as the case may be, was approved by a vote of a majority
of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved), cease for any reason to constitute a majority of the
Board of Directors of the Parent or the Company, as the case may be, then in
office; or (e) the liquidation or dissolution of the Company. For purposes of
this definition only, "Parent" shall also include any Subsidiary of Parent that
holds, directly or indirectly, more than 50% of the total voting power of the
outstanding Voting Stock of the Company.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Exploration Expense" means all exploration expenses of the
Company and Restricted Subsidiaries to the extent deducted in calculating
Consolidated Net Income.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the
ratio of (a) the sum of Consolidated Net Income, Consolidated Interest Expense,
Consolidated Income Tax Expense, Consolidated Exploration Expense and
Consolidated Non-cash Charges deducted in computing Consolidated Net Income, in
each case, for such period, of the Company and its Restricted Subsidiaries on a
consolidated basis, all determined in accordance with GAAP, decreased (to the
extent included in determining Consolidated Net Income) by 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, to (b) the sum of
such Consolidated Interest Expense for such period; provided that (i) in making
such computation, the Consolidated Interest Expense attributable to interest on
any Indebtedness required to be computed on a pro forma basis in accordance
with clause (x) of the "Limitation on Indebtedness" covenant and bearing a
floating interest rate shall be computed as if the rate in effect on the date
of computation had been the applicable rate for the entire period, (ii) in
making such computation, the Consolidated Interest Expense attributable to
interest on any Indebtedness under a revolving credit facility required to be
computed on a pro forma basis in accordance with clause (x) of the "Limitation
on Indebtedness" covenant shall be computed based upon the average daily
balance of such Indebtedness during the applicable period, provided that such
average daily balance shall be reduced by the amount of any repayment
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of Indebtedness under a revolving credit facility during the applicable period,
which repayment permanently reduced the commitments or amounts available to be
reborrowed under such facility, (iii) notwithstanding clauses (i) and (ii) of
this proviso, interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by agreements relating to Interest Rate
Protection Obligations, shall be deemed to have accrued at the rate per annum
resulting after giving effect to the operation of such agreements and (iv) in
making such calculation, Consolidated Interest Expense shall exclude interest
attributable to Dollar Denominated Production Payments.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and its
Restricted Subsidiaries as on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of (i) the interest expense of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing and (e) all accrued interest, in each case to the extent attributable
to such period, (ii) to the extent any Indebtedness of any Person (other than
the Company or a Restricted Subsidiary) is guaranteed by the Company or any
Restricted Subsidiary, the aggregate amount of interest paid or accrued by such
other Person during such period attributable to any such Indebtedness, in each
case to the extent attributable to that period, (iii) the aggregate amount of
the interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and its Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with
GAAP and (iv) the aggregate amount of dividends paid or accrued on Redeemable
Capital Stock or Preferred Stock of the Company and its Restricted
Subsidiaries, to the extent such Redeemable Capital Stock or Preferred Stock is
owned by Persons other than Restricted Subsidiaries.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto),
(b) net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) the net income (or net loss) of any Person
(other than the Company or any of its Restricted Subsidiaries), in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of the amount of dividends or other distributions actually paid
to the Company or its Restricted Subsidiaries in cash by such other Person
during such period (regardless of whether such cash dividends, distributions or
interest on indebtedness is attributable to net income (or net loss) of such
Person during such period or during any prior period), (d) net income (or net
loss) of any Person combined with the Company or any of its Restricted
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination, (e) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary is not at the date of determination
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (f) income resulting from transfers of assets received by the
Company or any Restricted Subsidiary from an Unrestricted Subsidiary, (g) any
write-downs of non-current assets; provided, however, that any ceiling
limitation write-downs under SEC guidelines shall be treated as capitalized
costs, as if such write-downs had not occurred and (h) any cumulative effect of
a change in accounting principles.
"Consolidated Net Worth" means, at any date, the consolidated
stockholders' equity of the Company less the amount of such stockholders'
equity attributable to Redeemable Capital Stock or treasury stock of the
Company and its Restricted Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization, impairment, stock compensation and other
non-cash expenses of the Company and its Restricted Subsidiaries reducing
Consolidated Net Income for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such non-cash charge which requires an
accrual of or reserve for cash charges for any future period).
"Credit Agreement" means the Credit Agreement dated April 25, 1996, as
amended, among the Company and Chase Manhattan Bank, as agent, and the other
lenders party thereto from time to time, as such agreement may be further
amended, modified, supplemented, extended, restated, replaced (including
replacement after the termination of such agreement), restructured, increased,
renewed or refinanced from time to time in one or more credit agreements, loan
agreements, instruments or similar agreements, as such may be further amended,
modified, supplemented, extended,
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restated, replaced (including replacement after the termination of such
agreement), restructured, increased, renewed or refinanced from time to time.
"Credit Agreement Obligations" means all monetary obligations of every
nature of the Company or a Restricted Subsidiary, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations in connection with letters of credit, fees, expenses, indemnities
and other amounts, from time to time owed to the lenders or any agent under or
in respect of the Credit Agreement or any note, mortgage or other agreement,
instrument or document executed at any time in connection with or pursuant to
the Credit Agreement.
"Default" means any event, act or condition that is, or after notice or
passage of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness
constituting Credit Agreement Obligations and (ii) any other Senior
Indebtedness which (a) at the time of incurrence equals or exceeds $10,000,000
in aggregate principal amount and (b) is specifically designated by the Company
in the instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of the Company is
required to deliver a resolution of the Board of Directors under the Indenture,
a member of the Board of Directors of the Company who does not have any
material direct or indirect financial interest (other than an interest arising
solely from the beneficial ownership of Capital Stock of the Company, the
Parent or an Affiliate of Parent or the Company) in or with respect to such
transaction or series of transactions.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Event of Default" has the meaning set forth above under the caption
"Events of Default."
"Exempt Interest" means, collectively, (i) Terrence N. Fern, his spouse,
lineal descendants and ascendants, heirs, executors or other legal
representatives and any trusts established for the benefit of the foregoing,
(ii) any company, corporation or other business entity a majority of the
outstanding Voting Stock of which is owned beneficially and of record by a
Person described in clause (i) of this definition or (iii) a Subsidiary of
Parent provided that such Subsidiary shall constitute an Exempt Interest only
for so long as a majority of the outstanding Voting Stock is "beneficially
owned" (within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, by the Parent.
"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States of America, which are applicable as of the date of the Indenture.
"Guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. When used as a verb,
"guarantee" shall have a corresponding meaning.
"Guarantor Senior Indebtedness" means all Indebtedness of a Subsidiary
Guarantor (including Indebtedness of a Subsidiary Guarantor under any guarantee
of Indebtedness under the Credit Agreement) created, incurred, assumed or
guaranteed by such Subsidiary Guarantor (and all renewals, substitutions,
refinancings or replacements thereof) (including the principal of, interest on
and fees, premiums, expenses (including costs of collection), indemnities and
other amounts payable in connection with, such Indebtedness) (and including, in
the case of the Credit Agreement, interest accruing after the filing of a
petition by or against such Subsidiary Guarantor under any bankruptcy law, in
accordance with and at the rate, including any default rate, specified with
respect to such Indebtedness, whether or not a claim for such interest is
allowed as a claim after such filing in any proceeding under such bankruptcy
law), unless the instrument governing such Indebtedness expressly provides that
such Indebtedness is not senior in right of payment to its Subsidiary
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Guarantee. Notwithstanding the foregoing, Guarantor Senior Indebtedness of a
Subsidiary Guarantor will not include (i) Indebtedness of such Subsidiary
Guarantor evidenced by its Subsidiary Guarantee, (ii) Indebtedness of such
Subsidiary Guarantor that is expressly subordinated or junior in tight of
payment to any Guarantor Senior Indebtedness of such Subsidiary Guarantor or
its Subsidiary Guarantee, (iii) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11 United States Code,
is by its terms without recourse to such Subsidiary Guarantor, (iv) any
repurchase, redemption or other obligation in respect of Redeemable Capital
Stock of such Subsidiary Guarantor, (v) to the extent it might constitute
Indebtedness, any liability for federal, state, local or other taxes owed or
owing by such Subsidiary Guarantor, (vi) Indebtedness of such Subsidiary
Guarantor to the Company or any of the Company's other Subsidiaries or any
other Affiliate of the Company or any of such Affiliate's Subsidiaries, and
(vii) that portion of any Indebtedness of such Subsidiary Guarantor which at
the time of issuance is issued in violation of the Indenture (but, as to any
such Indebtedness, no such violation shall be deemed to exist for purposes of
this clause (vii) if the holder(s) of such Indebtedness or their representative
or such Subsidiary Guarantor shall have furnished to the Trustee an opinion of
counsel unqualified in all material respects of independent legal counsel,
addressed to the Trustee (which legal counsel may, as to matters of fact, rely
upon a certificate of such Subsidiary Guarantor) to the effect that the
incurrence of such Indebtedness does not violate the provisions of such
Indenture); provided that the foregoing exclusions shall not affect the
priorities of any Indebtedness arising solely by operation of law in any case
or proceeding or similar event described in clause (a), (b) or (c) of the
second paragraph of "-- Subordination."
"Holder" or "Noteholder" means a Person in whose name a Note is registered
in the Note Register and, after the Exchange Offer, a person in whose name an
Exchange Note is registered in the Note Register.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade accounts payable and other
accrued current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of
such Person under any letters of credit, bankers' acceptance or other similar
credit transaction and in connection with any agreement to purchase, redeem,
exchange, convert or otherwise acquire for value any Capital Stock of such
Person, or any warrants, rights or options to acquire such Capital Stock, now
or hereafter outstanding, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, (b) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, if, and to the extent, any of
the foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (c) all Indebtedness of such Person created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such Person, (e) the Attributable Indebtedness (in excess of any
related Capitalized Lease Obligations) related to any Sale/Leaseback
Transaction of such Person, (f) all Indebtedness referred to in the preceding
clauses of other Persons and all dividends of other Persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (g) all guarantees by such Person of Indebtedness
referred to in this definition (including, with respect to any Production
Payment, any warranties or guaranties of production or payment by such Person
with respect to such Production Payment but excluding other contractual
obligations of such Person with respect to such Production Payment), (h) all
Redeemable Capital Stock of such Person valued at the greater of its voluntary
or involuntary maximum fixed repurchase price plus accrued dividends, (i) all
obligations of such Person under or in respect of currency exchange contracts
and Interest Rate Protection Obligations and (j) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of
such Person of the types referred to in clauses (a) through (i) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock; provided, however,
that if such Redeemable Capital Stock is not at the date of determination
permitted or required to be repurchased, the "maximum fixed repurchase price"
shall be the book value of such Redeemable Capital Stock. Subject to clause (g)
of the first sentence of this definition, neither Dollar-Denominated Production
Payments nor Volumetric Production Payments shall be deemed to be Indebtedness.
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"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
Person calculated by applying a fixed or a floating rate of interest on the
same notional amount and includes, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to
protect against or manage such Person's and any of its Subsidiaries' exposure
to fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or
capital contribution to (by means of any transfer of cash or other property or
assets to others (other than Capital Stock of the Company) or any payment for
property, assets or services for the account or use of others), or any purchase
or acquisition by such Person of any Capital Stock, bonds, notes, debentures or
other securities (including derivatives) or evidences of Indebtedness issued
by, any other Person. In addition, the fair market value of the net assets of
any Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary shall be deemed to be an "Investment"
made by the Company in such Unrestricted Subsidiary at such time. "Investments"
shall exclude (a) extensions of trade credit on commercially reasonable terms
in accordance with normal trade practices and (b) Interest Rate Protection
Obligations entered into in the ordinary course of business or as required by
any Permitted Indebtedness or any Indebtedness incurred in compliance with the
"Limitation on Indebtedness" covenant, but only to the extent that the notional
principal amount of such Interest Rate Protection Obligations does not exceed
105% of the principal amount of such Indebtedness to which such Interest Rate
Protection Obligations relate, (c) bonds, notes, debentures or other securities
received in compliance with the "Limitation on Disposition of Proceeds of Asset
Sales" covenant and (d) endorsements of negotiable instruments and documents in
the ordinary course of business.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
any agreement to give or grant a Lien or any lease, conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing) upon or with respect to any property of any kind. A Person
shall be deemed to own subject to a Lien any property which such Person has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Material Change" means an increase or decrease (excluding changes that
result solely from changes in prices) of more than 10% during a fiscal quarter
in the estimated discounted future net cash flows from proved oil and gas
reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (a)(i) of the definition of Adjusted Consolidated Net
Tangible Assets; provided, however, that the following will be excluded from
the calculation of Material Change: (i) any acquisitions during the quarter of
oil and gas reserves that have been estimated by a nationally recognized firm
of independent petroleum engineers and on which a report or reports exist and
(ii) any disposition of properties held at the beginning of such quarter that
have been disposed of as provided in the "Limitation on Disposition of Proceeds
of Asset Sales" covenant.
"Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as provided therein or in the
Indenture, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the assets subject to the Asset
Sale, (iv) amounts required to be applied to the repayment of indebtedness
(other than indebtedness under any credit facility) secured by a Lien on the
assets or the assets that were the subject of such Asset Sale, and (v)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP consistently
applied against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such Asset
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Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an officers' certificate delivered to the Trustee; provided,
however, that any amounts remaining after adjustments, revaluations or
liquidations of such reserves shall constitute Net Cash Proceeds.
"Net Working Capital" means (i) all current assets of the Company and its
Restricted Subsidiaries, minus (ii) all current liabilities of the Company and
its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in 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
or assets and as to which (a) the holders of such Indebtedness agree that they
will look solely to the property or assets so acquired and securing such
Indebtedness for payment on or in respect of such Indebtedness and (b) no
default with respect to such Indebtedness would permit (after notice or passage
of time or both), according to the terms thereof, any holder of any
Indebtedness of the Company or a Restricted Subsidiary to declare a default on
such Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity.
"Note Register" means the register maintained by or for the Company in
which the Company shall provide for the registration of the Notes and, after
the Exchange Offer, the Exchange Notes and of transfer of the Notes and the
Exchange Notes.
"Note Obligations" means any principal of, premium, if any, and interest
on, and any other amounts (including, without limitation, any payment or
purchase obligations with respect to the Notes as a result of any Asset Sale,
Change of Control or redemption) owing in respect of, the Notes payable
pursuant to the terms of the Notes or the Indenture or upon acceleration of the
Notes, in each case whether now or hereafter existing.
"Oil and Gas Business" means (i) the acquisition, exploration,
development, operation and disposition of interests in oil, gas and other
hydrocarbon properties (including properties producing other minerals and
products in association with hydrocarbon production), (ii) the gathering,
marketing, treating, processing, storage, refining, selling and transporting of
any production of oil, gas and other minerals produced in association therewith
from such interests or properties, (iii) any business relating to or arising
from exploration for or development, production, treatment, processing,
storage, refining, transportation or marketing of oil, gas and other minerals
and products produced in association therewith, and (iv) any activity
necessary, appropriate or incidental to the activities described in the
foregoing clauses (i) through (iii) of this definition.
"Parent" means Petsec Energy Ltd, an Australian public limited company, or
its successor, or if the foregoing entity ceases to beneficially own, directly
or indirectly, 50% of the Voting Stock of the Company, "Parent" shall mean such
ultimate parent corporation, limited company or other business entity that
beneficially owns, directly or indirectly, more than 50% of the Voting Stock of
the Company.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment to the Notes.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness of the Company under one or more credit or
revolving credit facilities, including Indebtedness of the Company under
the Credit Agreement, (which may also include credit or revolving credit
facilities provided by an Affiliate of the Company provided that such
facility and borrowings thereunder comply with the "Limitation on
Transactions with Affiliates" covenant) in an aggregate principal amount
at any one time outstanding not to exceed the greater of (A) $85,000,000
and (B) an amount equal to the sum of (x) $25,000,000 and (y) 20% of
Adjusted Consolidated Net Tangible Assets determined as of the date of the
incurrence of such Indebtedness (such greater amount being referred to as
the "Adjusted Maximum Credit Amount") (plus interest and fees under such
facilities), less any amounts derived from Asset Sales and applied to the
required permanent reduction of Senior Indebtedness (and a permanent
reduction of the related commitment to lend or amount available to be
reborrowed in the case of a revolving credit facility) under such credit
facilities as contemplated by the "Limitation on Disposition of Proceeds
of Asset Sales" covenant (the "Maximum Credit Amount") (with the Maximum
Credit Amount to be an aggregate maximum amount for the Company and all
Restricted Subsidiaries, pursuant to clause
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(i) of the definition of "Permitted Subsidiary Indebtedness"), and any
renewals, amendments, extensions, supplements, modifications, deferrals,
refinancings or replacements (each, for purposes of this clause, a
"refinancing") thereof by the Company, including any successive
refinancings thereof by the Company, so long as the aggregate principal
amount of any such new Indebtedness, together with the aggregate principal
amount of all other Indebtedness outstanding pursuant to this clause (i)
(and clause (i) of the definition of "Permitted Subsidiary Indebtedness"),
shall not at any one time exceed the Maximum Credit Amount;
(ii) Indebtedness of the Company under the Notes;
(iii) Indebtedness of the Company outstanding on the date of the
Indenture (and not repaid or defeased with the proceeds of the Offering),
provided that the aggregate principal amount of such Indebtedness for
borrowed money shall not exceed $50,000,000, and provided further that if
such Indebtedness is payable to an Affiliate of the Company, such
Indebtedness (A) shall be subordinate in right of payment to the Notes and
all other Indebtedness of the Company, at least to the same extent as the
Notes are subordinated in right of payment to the Senior Indebtedness and
(B) shall not be subject to maturity or any mandatory principal or sinking
fund payment or mandatory repurchase right prior to 91 days after the
stated Maturity of the Notes;
(iv) obligations of the Company pursuant to Interest Rate Protection
Obligations, but only to the extent such obligations do not exceed 105% of
the aggregate principal amount of the Indebtedness covered by such
Interest Rate Protection Obligations; obligations under currency exchange
contracts entered into in the ordinary course of business; and hedging
arrangements that the Company enters into in the ordinary course of
business for the purpose of protecting its production against fluctuations
in oil or natural gas prices;
(v) Indebtedness of the Company to any Restricted Subsidiaries;
(vi) in-kind obligations relating to net gas balancing positions
arising in the ordinary course of business and consistent with past
practice;
(vii) Indebtedness in respect of bid, performance or surety bonds
issued or other reimbursement obligations for the account of the Company
or any Restricted Subsidiary in the ordinary course of business, including
guarantees and letters of credit supporting such bid, performance, surety
bonds or other reimbursement obligations (in each case other than for an
obligation for money borrowed);
(viii)any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by the
Company of any Indebtedness of the Company other than Indebtedness
incurred pursuant to clauses (iv), (vi) and (vii) of this definition,
including any successive refinancings by the Company, so long as (A) any
such new Indebtedness shall be in a principal amount that does not exceed
the principal amount (or, if such Indebtedness being refinanced provides
for an amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration thereof, such lesser amount as of the
date of determination) so refinanced plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of the Indebtedness refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing, plus the amount of expenses of the Company incurred in
connection with such refinancing, and (B) in the case of any refinancing
of Subordinated Indebtedness, such new Indebtedness is made subordinate to
the Notes at least to the same extent as the Indebtedness being refinanced
and (C) such new Indebtedness has an Average Life equal to or longer than
the Average Life of the Indebtedness being refinanced and a final Stated
Maturity equal to or later than the final Stated Maturity of the
Indebtedness being refinanced;
(ix) Subordinated Indebtedness of the Company to Affiliates, provided,
however, that all such Indebtedness (A) shall be incurred solely for cash
loaned or advanced to the Company, (B) shall have a principal amount equal
to the amount of cash so loaned or advanced, (C) shall be subordinate in
right of payment to the Notes and all other Indebtedness of the Company,
at least to the same extent as the Notes are subordinated in right of
payment to the Senior Indebtedness, (D) shall not be subject to maturity
or any mandatory principal or sinking fund payment, or mandatory
repurchase right prior to 91 days after the Stated Maturity of the Notes,
and (E) the aggregate principal amount of Indebtedness incurred pursuant
to this clause (ix) shall not exceed the aggregate interest payments made
by the Company after the date of the Indenture in respect of all
Subordinated Indebtedness of the Company to Affiliates;
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(x) Non-Recourse Indebtedness;
(xi) Indebtedness consisting of obligations in respect of purchase
price adjustments, indemnities or guarantees incurred in connection with
the acquisition or disposition of assets; and
(xii) other Indebtedness of the Company in an aggregate principal
amount, which taken together with all outstanding Indebtedness incurred
pursuant to clause (viii) of this definition in respect of Indebtedness
previously incurred pursuant to this clause (xii), does not exceed
$25,000,000 at any one time outstanding.
"Permitted Investments" means any of the following: (i) Investments in
Cash Equivalents; (ii) Investments in the Company or any of its Restricted
Subsidiaries; (iii) Investments in an amount not to exceed $15,000,000
determined as of the date of the making or incurrence of such Permitted
Investment at any one time outstanding; (iv) Investments by the Company or any
of its Restricted Subsidiaries in another Person, if as a result of such
Investment (A) such other Person becomes a Restricted Subsidiary of the Company
or (B) such other Person is merged or consolidated with or into, or transfers
or conveys all or substantially all of its assets to, the Company or a
Restricted Subsidiary; (v) entry into operating agreements, joint ventures,
partnership agreements, working interests, royalty interests, mineral leases,
processing agreements, farm-out agreements, farm-in agreements, contracts for
the sale, transportation or exchange of oil and natural gas, unitization
agreements, pooling arrangements, area of mutual interest agreements,
production sharing agreements or other similar or customary agreements,
transactions, properties, interests or arrangements, and Investments and
expenditures in connection therewith or pursuant thereto, in each case made or
entered into in the ordinary course of the Oil and Gas Business, excluding,
however, Investments in corporations; (vi) entry into any hedging arrangements
in the ordinary course of business for the purpose of protecting the Company's
or any Restricted Subsidiary's production against fluctuations in oil or
natural gas prices; (vii) Investments in units of any oil and gas royalty
trust; (viii) entry into a joint venture or partnership agreement in connection
with ownership and operation of office and building real estate and related
assets owned by the Company or any Restricted Subsidiary and contribution of
such assets to such entity; (ix) Investments in the form of securities received
from Asset Sales, provided that such Asset Sales are made in compliance with
the covenant described under "Limitation on Disposition of Proceeds of Asset
Sales" or (x) Investment in shares of Capital Stock or other securities
received in settlement of debts owed to the Company or any of its Restricted
Securities as a result of foreclosure, perfection or enforcement of any Lien or
Indebtedness or in connection with any good faith settlement of a bankruptcy
proceeding.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date the Notes are first issued;
(b) Liens securing the Notes;
(c) Liens in favor of the Company or a Subsidiary Guarantor;
(d) Liens securing Senior Indebtedness or Guarantor Senior
Indebtedness;
(e) Liens for taxes, assessments and governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required
pursuant to GAAP;
(f) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by
law incurred in the ordinary course of business;
(g) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety and appeal bonds,
bids, leases, government contracts and leases, performance and return of
money bonds and other similar obligations (exclusive of obligations for
the payment of borrowed money but including lessee or operator obligations
under statutes, governmental regulations or instruments related to the
ownership, exploration and production of oil, gas and minerals on state,
federal or foreign lands or waters);
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(h) judgment Liens not giving rise to an Event of Default so long as
any appropriate legal proceedings which may have been duly initiated for
the review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have
expired;
(i) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Restricted
Subsidiaries;
(j) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;
(k) 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 the Subsidiaries;
(l) Liens securing obligations under hedging agreements that the
Company or any Restricted Subsidiary enters into in the ordinary course of
business for the purpose of protecting its production against fluctuations
in oil or natural gas prices;
(m) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(n) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(o) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets;
(p) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(q) Liens securing Interest Rate Protection Obligations which Interest
Rate Protection Obligations relate to Indebtedness that is secured by
Liens otherwise permitted under this Indenture;
(r) Liens on, or related to, properties or assets to secure all or
part of the costs incurred in the ordinary course of business for the
acquisition, exploration, drilling, development or operation thereof;
(s) Liens on pipeline or pipeline facilities which arise out of
operation of law;
(t) Liens arising under operating agreements, joint venture
agreements, partnership agreements, oil and gas leases, farm-out
agreements, farm-in agreements, division orders, contracts for the sale,
transportation or exchange of oil and natural gas, unitization and pooling
declarations and agreements, area of mutual interest agreements and other
agreements which are customary in the Oil and Gas Business;
(u) Liens reserved in oil and gas mineral leases for bonus or rental
payments and for compliance with the terms of such leases;
(v) Liens constituting survey exceptions, encumbrances, easements, or
reservations of, or rights to others for, rights-of-way, zoning or other
restrictions as to the use of real properties, and minor defects of title
which, in the case of any of the foregoing, were not incurred or created
to secure the payment of borrowed money or the deferred purchase price of
Property or services, and in the aggregate do not materially adversely
affect the value of Property of the Company and the Restricted
Subsidiaries, taken as a whole, or materially impair the use of such
Properties for the purposes for which such Properties are held by the
Company or any Restricted Subsidiaries;
(w) 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 and assets acquired by the Company with the proceeds of such
Non-Recourse Indebtedness;
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(x) Liens securing Attributable Indebtedness with respect to any Sale/
Leaseback Transaction permitted by the terms of the Indenture;
(y) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company and Liens on property or
assets of a Subsidiary existing at the time it became a Subsidiary,
provided that such Liens were in existence prior to the contemplation of
the acquisition and do not extend to any assets other than the acquired
property;
(z) Liens on the Capital Stock of Unrestricted Subsidiaries;
(aa)Liens to secure any permitted extension, renewal, refinancing,
refunding or exchange (or successive extensions, renewals, refinancings,
refundings or exchanges), in whole or in part, of or for any Indebtedness
secured by Liens referred to in clauses (b), (p), and (y) of this
definition; 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, the committed amount
of the Indebtedness secured by Liens described under clauses (b), (p), and
(y) of this definition at the time the original Lien became a Lien
permitted in accordance with the Indenture and (B) an amount necessary to
pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or exchange; and
(bb)other Liens that are incurred in the ordinary course of business
of the Company or any Restricted Subsidiary with respect to obligations
that do not exceed $5.0 million at any one time outstanding.
Notwithstanding anything in clauses (a) through (aa) of this definition, the
term "Permitted Liens" does not include any Liens resulting from the creation,
incurrence, issuance, assumption or guarantee of any Production Payments other
than Production Payments that are created, incurred, issued, assumed or
guaranteed in connection with the financing of, and within 30 days after, the
acquisition of the properties or assets that are subject thereto.
"Permitted Subsidiary Indebtedness" means any of the following:
(i) Indebtedness of any Restricted Subsidiary under one or more
credit or revolving credit facilities, including Indebtedness of any
Restricted Subsidiary under the Credit Agreement, (which may also include
credit or revolving credit facilities provided by an Affiliate of the
Company provided that such facility and borrowings thereunder comply with
the "Limitation on Transactions with Affiliates" covenant) (and
"refinancings" thereof) in an amount at any one time outstanding not to
exceed the Maximum Credit Amount (in the aggregate for all Restricted
Subsidiaries and the Company, pursuant to clause (i) of the definition of
"Permitted Indebtedness");
(ii) obligations of any Restricted Subsidiary pursuant to Interest
Rate Protection Obligations, but only to the extent such obligations do
not exceed 105% of the aggregate principal amount of the Indebtedness
covered by such Interest Rate Protection Obligations; and hedging
arrangements that any Restricted Subsidiary enters into in the ordinary
course of business for the purpose of protecting its production against
fluctuations in oil or natural gas prices;
(iii) any Subsidiary Guarantees (and any assumption of the obligations
guaranteed thereby);
(iv) Indebtedness of any Restricted Subsidiary relating to guarantees
by such Restricted Subsidiary of Permitted Indebtedness pursuant to clause
(i) of the definition of "Permitted Indebtedness;"
(v) in-kind obligations relating to net gas balancing positions
arising in the ordinary course of business and consistent with past
practice;
(vi) Indebtedness in respect of bid, performance or surety bonds or
other reimbursement obligations issued for the account of any Restricted
Subsidiary in the ordinary course of business, including guarantees and
letters of credit supporting such bid, performance, surety bonds or other
reimbursement obligations (in each case other than for an obligation for
money borrowed);
(vii) Indebtedness of any Restricted Subsidiary to any other
Restricted Subsidiary or to the Company;
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(viii)Indebtedness relating to guarantees by any Restricted
Subsidiary permitted to be incurred pursuant to paragraph (a) of the
"Limitation on Non-Guarantor Restricted Subsidiaries" covenant;
(ix) Non-Recourse Indebtedness; and
(x) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by any
Restricted Subsidiary of any Indebtedness of such Restricted Subsidiary
other than Indebtedness incurred pursuant to clauses (ii), (iv) and (v) of
this definition, including any successive refinancings by such Restricted
Subsidiary, so long as (a) any such new Indebtedness shall be in a
principal amount that does not exceed the principal amount (or, if such
Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination)
so refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Indebtedness
refinanced or the amount of any premium reasonably determined by such
Restricted Subsidiary as necessary to accomplish such refinancing, plus
the amount of expenses of such Subsidiary incurred in connection with such
refinancing and (b) such new Indebtedness has an Average Life equal to or
longer than the Average Life of the Indebtedness being refinanced and a
final Stated Maturity equal to or later than the final Stated Maturity of
the Indebtedness being refinanced.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the date of the Indenture, including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"Public Equity Offering" means (i) an underwritten public offering for
cash by the Company of its Qualified Capital Stock pursuant to a registration
statement that has been declared effective by the Commission (other than a
registration statement on Form S-8 or any successor form or otherwise relating
to equity securities issuable under any employee benefit plan of the Company)
or (ii) a public offering for cash by Parent of its Qualified Capital Stock
(including without limitation an offering of American depositary shares) but
only to the extent that the net cash proceeds of such public offering of Parent
are advanced to the Company by Parent or its Subsidiaries as an equity
contribution within 30 days of the completion of such offering.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed
prior to 91 days after the final Stated Maturity of the Notes or is redeemable
at the option of the holder thereof at any time prior to 91 days after such
final Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to 91 days after such final Stated Maturity.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of the Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of the Indenture.
"S&P" means Standard and Poor's Rating Group, a division of McGraw Hill,
Inc., and its successors.
"Sale/Leaseback Transaction" means, with respect to any Person, any direct
or indirect arrangement pursuant to which properties or assets are sold or
transferred by such Person or a Subsidiary of such Person and are thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries.
"Senior Indebtedness" means the principal of, premium, if any, and
interest on any Indebtedness of the Company (including all Indebtedness of the
Company under the Credit Agreement (which includes reimbursement obligations in
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connection with letters of credit thereunder) and, in the case of the Credit
Agreement, interest accruing after the filing of a petition by or against the
Company under any bankruptcy law, in accordance with and at the rate, including
any default rate, specified with respect to such indebtedness, whether or not a
claim for such interest is allowed as a claim after such filing in any
proceeding under such bankruptcy law), whether outstanding on the date of the
Indenture or thereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the Notes, (b) Indebtedness that is expressly
subordinate or junior in right of payment to any Senior Indebtedness of the
Company, (c) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11 United States Code, is by its terms
without recourse to the Company, (d) any repurchase, redemption or other
obligation in respect of Redeemable Capital Stock of the Company, (e) to the
extent it might constitute Indebtedness, any liability for federal, state,
local or other taxes owed or owing by the Company, (f) Indebtedness of the
Company to a Subsidiary of the Company, to any other Affiliate of the Company
(other than a lender under the Credit Agreement) or to any of such Affiliate's
Subsidiaries (other than a lender under the Credit Agreement), and (g) that
portion of any Indebtedness of the Company which at the time of issuance is
issued in violation of the Indenture (but, as to any such Indebtedness, no such
violation shall be deemed to exist for purposes of this clause (g) if the
holder(s) of such Indebtedness or their representative or the Company shall
have furnished to the Trustee an opinion of counsel unqualified in all material
respects of independent legal counsel, addressed to the Trustee (which legal
counsel may, as to matters of fact, rely upon a certificate of the Company) to
the effect that the incurrence of such Indebtedness does not violate the
provisions of such Indenture); provided that the foregoing exclusions shall not
affect the priorities of any Indebtedness arising solely by operation of law in
any case or proceeding or similar event described in clause (a), (b) or (c) of
the second paragraph of "Subordination."
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness or any
installment of interest thereon, means the date specified in the instrument
evidencing or governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or such installment of interest is due and
payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to the Note Obligations.
"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned,
by such Person, by one or more Subsidiaries of such Person or by such Person
and one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person performing
similar functions).
"Subsidiary Guarantee" means any guarantee of the Notes by (i) any
Subsidiary Guarantor in accordance with the provisions set forth in "Subsidiary
Guarantees of Notes" and (ii) any Restricted Subsidiary in accordance with the
provisions set forth in the "Limitation on Non-Guarantor Restricted
Subsidiaries" covenant.
"Subsidiary Guarantor" means (i) each of the Company's Restricted
Subsidiaries that becomes a guarantor of the Notes in compliance with the
provisions described under "-- Subsidiary Guarantees of the Notes" or the
provisions of the "Limitation on Non-Guarantor Restricted Subsidiaries"
covenant and (ii) each of the Company's Subsidiaries executing a supplemental
indenture in which such Subsidiary agrees to be bound by the terms of the
Indenture and to guarantee on an unsubordinated basis the payment of the Notes
pursuant to the provisions described under "-- Subsidiary Guarantees of Notes."
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination will be designated an Unrestricted Subsidiary by the
Board of Directors of the Company as provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company as an Unrestricted Subsidiary so long as (a)
neither the Company nor any Restricted Subsidiary is directly or indirectly
liable pursuant to the terms of any Indebtedness of such Subsidiary, (b) no
default with respect to any Indebtedness of such Subsidiary would permit (upon
notice, lapse of time or otherwise) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the
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payment thereof to be accelerated or payable prior to its stated maturity, (c)
neither the Company nor any Restricted Subsidiary has made an Investment in
such Subsidiary unless such Investment was made pursuant to, and in accordance
with, the "Limitation on Restricted Payments" covenant (other than Investments
of the type described in clause (iv) of the definition of Permitted
Investments), and (d) such designation shall not result in the creation or
imposition of any Lien on any of the Properties of the Company or any
Restricted Subsidiary (other than any Permitted Lien or any Lien the creation
or imposition of which shall have been in compliance with the "Limitation on
Liens" covenant); provided, however, that with respect to clause (a), the
Company or a Restricted Subsidiary may be liable for Indebtedness of an
Unrestricted Subsidiary if (x) such liability constituted a Permitted
Investment or a Restricted Payment permitted by the "Limitation on Restricted
Payments" covenant, in each case at the time of incurrence, or (y) the
liability would be a Permitted Investment at the time of designation of such
Subsidiary as an Unrestricted Subsidiary. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing a board
resolution with the Trustee giving effect to such designation. The Board of
Directors of the Company may designate any Unrestricted Subsidiary as a
Restricted Subsidiary if, immediately after giving effect to such designation,
(i) no Default or Event of Default shall have occurred and be continuing, (ii)
the Company could incur $1.00 of additional Indebtedness (not including the
incurrence of Permitted Indebtedness) under the first paragraph of the
"Limitation on Indebtedness" covenant and (iii) if any of the Properties of the
Company or any of its Restricted Subsidiaries would upon such designation
become subject to any Lien (other than a Permitted Lien), the creation or
imposition of such Lien shall have been in compliance with the "Limitation on
Liens" covenant.
"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" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock
of any other class or classes shall have, or might have, voting power by reason
of the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to
the extent all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company.
"Wholly Owned Subsidiary" means, with respect to any Person, any
Subsidiary of such Person to the extent all of the Capital Stock or other
ownership interests in such Subsidiary, other than any directors qualifying
shares mandated by applicable law, is owned directly or indirectly by such
Person.
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EXCHANGE OFFER; REGISTRATION RIGHTS
The Company entered into a Registration Rights Agreement with the Initial
Purchasers pursuant to which the Company agreed, for the benefit of the holders
of the Notes, at the Company's cost, to use its best efforts (i) to file with
the Commission the Exchange Offer Registration Statement with respect to the
Exchange Offer of the Exchange Notes within 60 days after the date of original
issuance of the Notes (the "Issue Date"), (ii) to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
120 days of the Issue Date, (iii) to keep the Exchange Offer Registration
Statement effective until the closing of the Exchange Offer, and (iv) to cause
the Exchange Offer to be consummated within 180 days of the Issue Date.
Promptly after the Exchange Offer Registration Statement has been declared
effective, the Company will offer the Exchange Notes in exchange for surrender
of the Notes. The Company will keep the Exchange Offer open for not less than
30 days (or longer if required by applicable law) after the date notice of the
Exchange Offer has been mailed to the holders of the Notes. For each Old Note
validly tendered to the Company pursuant to the Exchange Offer and not
withdrawn by the holder thereof, the holder of such Old Note will receive an
Exchange Note having a principal amount equal to the principal amount of such
surrendered Note. Interest on each Exchange Note will accrue from the last
interest payment date to which interest was paid on the Old Note surrendered in
exchange therefor or, if no interest has been paid on such Note, from the Issue
Date.
Based on existing interpretations of the Securities Act by the staff of
the Commission set forth in several no-action letters to third parties, and
subject to the immediately following sentence, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and transferred by the holders thereof without further compliance with
the registration and prospectus delivery requirements of the Securities Act.
However, any purchaser of Notes who is an affiliate of the Company or who
intends to participate in the Exchange Offer for the purpose of distributing
the Exchange Notes, or any broker-dealer who purchased the Notes from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act, (i) will not be able to rely on the interpretations by the
staff of the Commission set forth in the above-mentioned no-action letters;
(ii) will not be able to tender its Notes in the Exchange Offer and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Notes unless such
sale or transfer is made pursuant to an exemption from such requirements. The
Company does not intend to seek its own no-action letter and there is no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Notes as it has in such no-action letters to third
parties.
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange Old Notes for Exchange Notes in the Exchange Offer will be
required to represent that (i) it is not an affiliate of the Company nor a
broker-dealer tendering Notes acquired directly from the Company for its own
account, (ii) any Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of the commencement of the
Exchange Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
In addition, in connection with any resales of Exchange Notes, any broker-dealer
who acquired the Notes for its own account as a result of market-making
activities or other trading activities (a "Participating Broker-Dealer") must
deliver a prospectus meeting the requirements of the Securities Act. The staff
of the Commission has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the Exchange
Notes (other than a resale of an unsold allotment from the original sale of the
Notes) with the prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement, the Company will be required
to allow Participating Broker-Dealers to use the prospectus contained in the
Exchange Offer Registration Statement, for up to 180 days following the Exchange
Offer, in connection with the resale of Exchange Notes received in exchange for
Notes acquired by such Participating Broker-Dealers for their own account as a
result of market-making or other trading activities.
In the event that any changes in law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect the Exchange
Offer, or if for any reason the Exchange Offer Registration Statement is not
declared effective within 120 days following the Issue Date or the Exchange
Offer is not consummated within 180 days after such date, or upon the request
of the Initial Purchasers in certain circumstances, the Company will, in lieu
of effecting (or, in the case of such a request by the Initial Purchasers, in
addition to effecting) the registration of the Exchange Notes pursuant to the
Exchange Offer Registration Statement (i) as promptly as practicable, file with
the Commission the Shelf Registration Statement covering resales of the Notes,
(ii) use its best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act by the 180th day after the Issue
Date (or promptly in the event of a request by the Initial Purchasers) and
(iii) use its best efforts to keep effective the Shelf Registration Statement
until two years after its effective date (or until one year after such
effective date if such Shelf Registration Statement is filed at the
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request of the Initial Purchasers) or until all of the Notes covered by such
Shelf Registration Statement have been sold. In the event of the filing of the
Shelf Registration Statement, the Company will provide to each holder of the
Notes copies of the prospectus which is a part of the Shelf Registration
Statement and notify each such holder when the Shelf Registration Statement has
become effective. A holder of Notes that sells such Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations). In addition, each
holder of the Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement in order to have its Notes included in the Shelf
Registration Statement and to benefit from the provisions regarding the
increase in the interest rate borne by the Notes described in the second
succeeding paragraph.
The Company may require, as a condition to including the Notes of any
holder in the Shelf Registration Statement, that such holder furnish to the
Company a written agreement to the effect that such holder agrees to comply
with and be bound by the provisions of the Registration Rights Agreement. In
that regard, each holder of Notes registered under the Shelf Registration
Statement will be deemed to have agreed that, upon receipt of notice from the
Company of the occurrence of any event that makes any statement in the
prospectus that is a part of the Shelf Registration Statement (or, in the case
of Participating Broker-Dealers, the prospectus that is a part of the Exchange
Offer Registration Statement) untrue in any material respect or that requires
the making of any changes in such prospectus in order to make the statements
therein not misleading or of certain other events specified in the Registration
Rights Agreement, such holder (or Participating Broker-Dealers, as the case may
be) will suspend the sale of Notes pursuant to such prospectus until the
Company has amended or supplemented such prospectus to correct such
misstatement or omission, has furnished copies of the amended or supplemented
prospectus to such holder (or Participating Broker-Dealer, as the case may be)
or the Company has given notice that the sale of the Notes may be resumed, as
the case may be. If the Company shall give such notice to suspend the sale of
the Notes, it shall extend the relevant period referred to above during which
it is required to keep effective the Shelf Registration Statement (or the
period during which Participating Broker-Dealers are entitled to use the
prospectus included in the Exchange Offer Registration Statement in connection
with the resale of Exchange Notes, as the case may be) by the number of days
during the period and including the date of the giving of such notice to and
including the date when holders shall have received copies of the supplemented
or amended prospectus necessary to permit resales of the Notes or to and
including the date on which the Company has given notice that the sale of Notes
may be resumed, as the case may be.
In the event that (a) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to the 60th day following the Issue Date,
(b) the Exchange Offer Registration Statement is not declared effective on or
prior to the 120th day following the Issue Date or (c) the Exchange Offer is
not consummated or a Shelf Registration Statement with respect to the Notes is
not declared effective on or prior to the 180th day following the Issue Date,
the interest rate borne by the Notes shall be increased by .50% per annum
following such 60th day in the case of clause (a) above, such 120th day in the
case of clause (b) above and such 180th day in the case of clause (c) above;
provided that the aggregate amount of any such increase in the interest rate on
the Notes pursuant to the foregoing provisions shall in no event exceed 1.50%
per annum; and provided, further, that if the Exchange Offer Registration
Statement is not declared effective on or prior to the 120th day following the
Issue Date and the Company shall request holders of Notes to provide the
information called for by the Registration Rights Agreement for inclusion in
the Shelf Registration Statement, then Notes owned by holders who do not
deliver such information to the Company or who do not provide comments on the
Shelf Registration Statement when required pursuant to the Registration Rights
Agreement will not be entitled to any such increase in the interest rate for
any day after the 180th day following the Issue Date. Upon (x) the filing of
the Exchange Offer Registration Statement after the 60th day described in
clause (a) above, (y) the effectiveness of the Exchange Offer Registration
Statement after the 120th day described in clause (b) above or (z) the
consummation of the Exchange Offer or the effectiveness of the Shelf
Registration Statement, as the case may be, after the 180th day described in
clause (c) above, the interest rate on the Notes from the date of such filing,
effectiveness or consummation, as the case may be, will be reduced to the
original interest rate set forth on the cover page of this Prospectus;
provided, however, that the interest rate on the Notes will be reduced to the
original interest rate only if all of the events set forth in the immediately
preceding sentence causing the rate on the Notes to increase have been cured.
The Registration Rights Agreement is governed by, and construed in
accordance with, the laws of the State of New York. The summary herein of
certain provisions of the Registration Rights Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provision of the Registration Rights Agreement, a form of which is
available upon request to the Company. In addition, the information set forth
above
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concerning certain interpretations of and positions taken by the staff of the
Commission is not intended to constitute legal advice and prospective investors
should consult their own legal advisors with respect to such matters.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale for a period of 180
days after consummation of the Exchange Offer, or such shorter period as will
terminate when all Old Notes acquired by broker-dealers for their own accounts
as a result of market-making activities or other trading activities have been
exchanged for Exchange Notes and resold by such broker-dealers. A broker-dealer
that delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. For a period of 180 days after consummation of the Exchange
Offer, or such shorter period as will terminate when all Old Notes acquired by
broker-dealers for their own accounts as a result of market-making activities
or other trading activities have been exchanged for Exchange Notes and resold
by such broker-dealers, the Company has consented to the use of this Prospectus
and any amendment or supplement to this Prospectus by any broker-dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such broker-dealer as a result of market
making activities or other trading activities. The Company has agreed in the
Registration Rights Agreement to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act.
TRANSFER RESTRICTIONS ON OLD NOTES
OFFERS AND SALES BY THE INITIAL PURCHASERS
The Old Notes were not registered under the Securities Act and may not be
offered or sold in the United States or to, or for the account or benefit of,
U.S. persons except in accordance with an applicable exemption from the
registration requirements thereof. Accordingly, the Old Notes were offered and
sold only in the United States to QIBs under Rule 144A under the Securities Act
and other Institutional Accredited Investors who, prior to their purchase of
Old Notes, delivered to the Initial Purchasers a letter containing certain
representations and agreements, in a private sale exempt from the registration
requirements of the Securities Act.
INVESTOR REPRESENTATIONS AND RESTRICTIONS ON RESALE
Each purchaser of the Old Notes was deemed to have represented and agreed
as follows:
(1) It understands and acknowledges that the Notes have not been
registered under the Securities Act or any other applicable securities
law, the Notes are being offered for resale in transactions not requiring
registration under the Securities Act or any other securities laws,
including sales pursuant to Rule 144A, and none of the Notes may be
offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities
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Act and any other applicable securities laws, pursuant to an exemption
therefrom or in a transaction not subject thereto and in each case in
compliance with the conditions for transfer set forth in paragraph (4)
below.
(2) It is not an "affiliate" (as defined in Rule 501(b) under the
Securities Act) of the Company or acting on behalf of the Company and it
is either:
(a) a "Qualified Institutional Buyer" within the meaning of Rule
144A and is aware that any sale of Notes to it will be made in
reliance on Rule 144A. Such acquisition will be for its own account or
for the account of another Qualified Institutional Buyer; or
(b) an institutional "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities
Act (an "Institutional Accredited Investor") or, if the Notes are to
be purchased for one or more accounts ("investor accounts") for which
it is acting as fiduciary or agent (except if it is a bank as defined
in Section 3(a)(2) of the Securities Act or a savings and loan
association or other institution as described in Section 3(a)(5)(A) of
the Securities Act, whether acting in its individual capacity or in a
fiduciary capacity), each such investor account is an Institutional
Accredited Investor on a like basis; in the normal course of its
business, it invests in or purchases securities similar to the Notes
and it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of
purchasing Notes. It is aware that it (or any investor account) may be
required to bear the economic risk of an investment in the Notes for
an indefinite period of time and it (or such investor account) is able
to bear such risk for an indefinite period.
(3) It acknowledges that neither the Company nor the Initial
Purchasers nor any person representing the Company or the Initial
Purchasers has made any representation to it with respect to the Company
or the offering or sale of any Notes, other than the information contained
in the Offering Memorandum, which Offering Memorandum has been delivered
to it. Accordingly, it acknowledges that the Initial Purchasers make no
representation or warranty as to the accuracy or completeness of such
materials. It has had access to such financial and other information as it
has deemed necessary in connection with its decision to purchase Notes,
including an opportunity to ask questions of and to request information
from the Company and the Initial Purchasers, and it has received and
reviewed all information that it requested.
(4) It is purchasing the Notes for its own account, or for one or more
investor accounts for which it is acting as a fiduciary or agent, in each
case for investment, and not with a view to, or for offer or sale in
connection with, any distribution thereof in violation of the Securities
Act, subject to any requirement of law that the disposition of its
property or the property of such investor account or accounts be at all
times within its or their control and subject to its or their ability to
resell such Notes pursuant to Rule 144A, or any exemption from
registration available under the Securities Act. It agrees on its own
behalf and on behalf of any investor account for which it is purchasing
the Notes, and each subsequent holder of the Notes by its acceptance
thereof will agree, to offer, sell or otherwise transfer such Notes prior
to the date that is two years after the later of the date of the original
issuance of the Notes and the last date on which the Company or any
affiliate of the Company was the owner of such Notes (the "Resale
Restriction Termination Date") only (a) to the Company, (b) pursuant to a
registration statement that has been declared effective under the
Securities Act, (c) for so long as the Notes are eligible for resale
pursuant to Rule 144A, to a person it reasonably believes is a Qualified
Institutional Buyer that purchases for its own account or for the account
of a Qualified Institutional Buyer to whom notice is given that the
transfer is being made in reliance to Rule 144A, (d) to an Institutional
Accredited Investor that is acquiring the security for its own account or
for the account of another Institutional Accredited Investor for
investment purposes and not with a view to, or for offer or sale in
connection with, any distribution in violation of the Securities Act or
(e) pursuant to any available exemption from the registration requirements
of the Securities Act, subject in each of the foregoing cases to any
requirement of law that the disposition of its property or the property of
such investor account or accounts be at all times within its or their
control and to compliance with any applicable state securities laws. The
foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Notes
is proposed to be made pursuant to clause (d) above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from
the transferee substantially in the form of Annex A hereto to the Company,
which shall provide (as applicable) that, among other things, the
transferee is an Institutional Accredited Investor that is acquiring such
Notes for investment purposes and not with a view to, or for offer or sale
in connection with, any distribution in violation of the Securities Act.
Each purchaser acknowledges that the Company and the Trustee reserve the
right prior to any offer, sale or other transfer pursuant to clauses (d)
or (e) prior to the Resale Restriction
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Termination Date of the Notes to require the delivery of an opinion of
counsel, certifications and/or other information satisfactory to the
Company and the Trustee.
Each purchaser acknowledges that each certificate representing a Note will
contain a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION
IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE
DATE THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF
AND THE LAST DAY ON WHICH PETSEC ENERGY Inc. (THE "COMPANY") OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE")
ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
("INSTITUTIONAL ACCREDITED INVESTOR") THAT IS ACQUIRING SUCH SECURITY FOR
ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL ACCREDITED
INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR
SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES
ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE
TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO
CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND
(ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED
BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
(5) It acknowledges that the Company, the Initial Purchasers and
others will rely upon the truth and accuracy of the foregoing
acknowledgments, representations, warranties and agreements and agrees
that if any of the acknowledgments, representations, warranties or
agreements deemed to have been made by its purchase of the Notes is no
longer accurate, it shall promptly notify the Initial Purchasers. If it is
acquiring any Notes as a fiduciary or agent for one or more investor
accounts, it represents that it has sole investment discretion with
respect to each such investor account and that it has full power to make
the foregoing acknowledgments, representations and agreements on behalf of
each such investor account.
LEGAL MATTERS
The validity of the issuance of the Exchange Notes offered hereby is being
passed upon for the Company by Sklar Warren & Sylvester Ltd., Las Vegas,
Nevada.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996,
and for each of the years in the three year period ended December 31, 1996,
have been included herein and in the registration statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP indicates that
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the Parent Company adopted the method of accounting for stock based
compensation prescribed by the Statement of Financial Accounting Standard No.
123 for expense allocated to the Company.
Information relating to the estimated proved reserves of oil and natural
gas and the related estimates of future net revenues and present values thereof
for the periods included in this Prospectus and in the notes to the financial
statements of the Company have been prepared by Ryder Scott Company, Petroleum
Engineers, independent petroleum engineers.
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GLOSSARY OF OIL AND GAS TERMS
The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Btu. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
Completion. The installation of permanent equipment for the production of
oil or natural gas, or in the case of a dry hole, the reporting of abandonment
to the appropriate agency.
Developed acreage. The number of acres that are allocated or assignable to
producing wells or wells capable of production.
Development well. A well drilled within the proved area of an oil or
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.
Dry hole or well. A well found to be incapable of producing hydrocarbons
in sufficient quantities such that proceeds from the sale of such production
exceed production expenses and taxes.
Exploratory well. A well drilled to find and produce oil or natural gas
reserves not classified as proved, to find a new reservoir in a field
previously found to be productive of oil or natural gas in another reservoir or
to extend a known reservoir.
Field. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.
Gross acres or gross wells. The total acres or wells, as the case may be,
in which a working interest is owned.
Liquids. Crude oil, condensate and natural gas liquids.
Mbbls. One thousand barrels of crude oil or other liquid hydrocarbons.
Mcf. One thousand cubic feet. Mcf/d. One thousand cubic feet per day.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of
six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.
MMS. Mineral Management Service of the United States Department of the
Interior.
Mmbtu. One million Btus.
Mmcf. One million cubic feet.
Mmcfe. One million cubic feet equivalent, determined using the ratio of
six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.
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Net acres or net wells. The sum of the fractional working interests owned
in gross acres or gross wells, as the case may be.
OCS. Outer continental shelf.
Oil. Crude oil and condensate.
Present value or PV10. When used with respect to oil and natural gas
reserves, the estimated future gross revenue to be generated from the
production of proved reserves, net of estimated production and future
development costs, using prices and costs in effect as of the date indicated,
without giving effect to non-property related expenses such as general and
administrative expenses, debt service and future income tax expenses or to
depreciation, depletion and amortization, discounted using an annual discount
rate of 10%.
Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
Proved developed nonproducing reserves. Proved developed reserves expected
to be recovered from zones behind casing in existing wells.
Proved developed producing reserves. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and capable of production to market.
Proved reserves. The estimated quantities of crude oil, natural gas and
natural 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.
Proved undeveloped location. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.
Proved undeveloped reserves. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
Recompletion. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
Reservoir. A porous and permeable underground formation containing a
natural accumulation of producible oil and/or natural gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
Royalty interest. An interest in an oil and natural gas property entitling
the owner to a share of oil or natural gas production free of costs of
production.
Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.
Updip. A higher point in the reservoir.
Working interest. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.
Workover. Operations on a producing well to restore or increase
production.
95
<PAGE> 97
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report....................................................................................F-2
Balance Sheets as of December 31, 1995, 1996 and March 31, 1997.................................................F-3
Statements of Operations and Retained Earnings (Deficit) for the years ended
December 31, 1994, 1995 and 1996 and the three months ended
March 31, 1996 and 1997.......................................................................................F-4
Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996 and the three months ended March 31, 1996 and 1997.......................................................F-5
Notes to Financial Statements...................................................................................F-6
</TABLE>
F-1
<PAGE> 98
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Petsec Energy Inc.:
We have audited the balance sheets of Petsec Energy Inc. as of December
31, 1995 and 1996, and the related statements of operations and retained
earnings (deficit) and cash flows for each of the years in the three-year
period ended December 31, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 presentations. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Petsec Energy Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
As discussed in note 4 to the financial statements, in 1996 the Parent
Company adopted the method of accounting for stock-based compensation
prescribed by the Statement of Financial Accounting Standards No. 123 for the
expense allocated to the Company.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
May 2, 1997
F-2
<PAGE> 99
PETSEC ENERGY INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1995 1996 1997
------------- ------------ -------------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash................................................................. $ 1,418 $ 342 $ 399
Accounts receivable.................................................. 8,332 11,855 10,901
Other receivables.................................................... 403 101 81
Inventories of crude oil............................................. 88 45 64
Prepaid expenses..................................................... 191 168 86
------------- ------------ -------------
Total Current Assets............................................. 10,432 12,511 11,531
------------- ------------ -------------
Property, plant and equipment-- at cost under the successful efforts
method of accounting for oil and gas properties
Proved oil and gas properties........................................ 61,729 131,933 163,676
Unproved oil and gas properties...................................... 5,859 7,276 7,939
Production facilities................................................ 24,353 38,049 43,092
Other................................................................ 436 1,040 1,278
------------- ------------ -------------
92,377 178,298 215,985
Less accumulated depletion, depreciation and amortization............ (15,636) (44,664) (58,580)
------------- ------------ -------------
Net property, plant and equipment.................................... 76,741 133,634 157,405
-------------- ------------ -------------
Other assets.............................................................. 1,937 -- --
------------- ------------ -------------
Total Assets......................................................... $ 89,110 $ 146,145 $ 168,936
============= ============ =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Trade accounts payable............................................... 18,601 18,364 20,066
Interest payable..................................................... 187 202 256
Accrued liabilities.................................................. 2,621 6,003 6,412
------------- ------------ -------------
Total Current Liabilities........................................ 21,409 24,569 26,734
------------- ------------ -------------
Bank credit facility...................................................... 32,350 37,000 45,000
Subordinated shareholder loan............................................. 25,038 57,954 59,237
Provision for dismantlement............................................... 1,145 1,738 1,917
Deferred income taxes..................................................... 3,537 9,848 13,273
------------- ------------ -------------
Total Liabilities................................................ 83,479 131,109 146,161
------------- ------------ -------------
Shareholder's Equity:
Common stock, $1 par value; authorized 1,000,000 shares;
issued and outstanding 1 share..................................... -- -- --
Additional paid in capital........................................... 1 482 691
Retained earnings.................................................... 5,630 14,554 22,084
------------- ------------ -------------
Total Shareholder's Equity....................................... 5,631 15,036 22,775
------------- ------------ -------------
Total Liabilities and Shareholder's Equity....................... $ 89,110 $ 146,145 $ 168,936
============= ============ =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 100
PETSEC ENERGY INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Oil and gas sales................................. $ 15,098 $ 30,462 $ 67,027 $ 13,735 $ 30,921
Operating expenses:
Lease operating expenses.......................... 3,139 4,269 5,561 1,381 2,081
Production taxes.................................. 716 488 600 125 211
Exploration expenditures.......................... 3,020 3,396 7,061 919 1,293
General and administrative........................ 2,046 4,502 5,259 1,230 1,404
Stock compensation................................ -- -- 481 -- 209
Depletion, depreciation and amortization.......... 4,291 9,256 29,639 6,430 14,095
----------- ----------- ----------- ----------- -----------
Total operating expenses............................... 13,212 21,911 48,601 10,085 19,293
----------- ----------- ----------- ----------- -----------
Income from operations................................. 1,886 8,551 18,426 3,650 11,628
----------- ----------- ----------- ----------- -----------
Other income (expenses):
Interest expense.................................. (959) (2,452) (3,369) (687) (727)
Interest income................................... 14 64 172 18 54
Gain (loss) on sale of property, plant
and equipment................................... (16) 4,312 6 -- --
Other............................................. (55) 35 -- -- --
----------- ----------- ----------- ----------- -----------
(1,016) 1,959 (3,191) (669) (673)
----------- ----------- ----------- ----------- -----------
Income before income taxes............................. 870 10,510 15,235 2,981 10,955
Income tax expense..................................... 25 3,537 6,311 1,670 3,425
----------- ----------- ----------- ----------- -----------
Net income............................................. 845 6,973 8,924 1,311 7,530
Retained earnings (deficit) at beginning of year....... (2,188) (1,343) 5,630 5,630 14,554
----------- ----------- ----------- ----------- -----------
Retained earnings (deficit) at end of year............. $ (1,343) $ 5,630 $ 14,554 $ 6,941 $ 22,084
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 101
PETSEC ENERGY INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 845 $ 6,973 $ 8,924 $ 1,311 $ 7,530
Adjustments to reconcile income to net cash
provided by operating activities:
Depletion, depreciation and amortization.......... 4,291 9,256 29,639 6,430 14,095
Deferred income taxes............................. 25 3,537 6,311 1,670 3,425
Loss (gain) on sale of property, plant
and equipment................................. 16 (4,312) -- -- --
Abandonments...................................... -- 545 2 2 --
Stock compensation expense........................ -- -- 481 -- 209
Unrealized foreign exchange (gain) loss........... 56 (30) -- -- --
Changes in operating assets and liabilities:
Decrease (increase) in receivables................ (530) (6,197) (3,523) 403 954
Decrease (increase) in inventories................ 48 (78) 43 8 (19)
Decrease (increase) in prepayments................ 30 (140) 23 124 82
Decrease (increase) in other receivables.......... (69) (334) 301 (8) 20
Decrease (increase) in other assets............... -- (1,937) 1,937 -- --
Increase (decrease) in trade accounts payable..... 4,479 12,754 (237) (3,115) 1,702
Increase in accrued liabilities................... 1,284 1,337 3,381 712 409
Increase (decrease) in interest payable........... -- 187 15 (15) 54
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities..... 10,475 21,561 47,297 7,522 28,461
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Lease acquisitions................................ (2,364) (2,792) (6,367) (3) (1,127)
Exploration and development expenditures.......... (16,908) (50,369) (78,951) (16,293) (36,322)
Proceeds from sale of property, plant
and equipment................................. -- 5,500 -- -- --
Other asset additions............................. (157) (175) (621) (40) (238)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities......... (19,429) (47,836) (85,939) (16,336) (37,687)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from bank credit facility................ 10,184 20,025 63,540 8,240 8,000
Repayment of bank credit facility................. (1,625) (6,000) (58,890) -- --
Proceeds from shareholder loans................... 519 18,500 36,000 -- 1,500
Repayment of shareholder loans.................... -- (5,367) (3,084) -- (217)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities..... 9,078 27,158 37,566 8,240 9,283
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash........................ 124 883 (1,076) (574) 57
Cash at beginning of year.............................. 411 535 1,418 1,418 342
----------- ----------- ----------- ----------- -----------
$ 535 $ 1,418 $ 342 $ 844 $ 399
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 102
PETSEC ENERGY INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Petsec Energy Inc. (the Company), located in Lafayette, Louisiana, is a
wholly-owned subsidiary of Petsec (U.S.A.) Inc. which is a wholly-owned
subsidiary of Petsec America Pty. Limited, a company incorporated in Australia.
The ultimate holding company is Petsec Energy Ltd (the Parent Company),
(formerly Petroleum Securities Australia Limited), also incorporated in
Australia.
The primary business of the Company is exploration, development and
production of oil and gas; therefore, the Company is directly affected by
fluctuating economic conditions of the oil and gas industry. The Company's
activities are focused in the shallow waters of the Gulf of Mexico, primarily
offshore Louisiana and Texas. Additionally, the Company currently owns a 100%
working interest in all of its leaseholds in order to control all exploration,
development and marketing decisions.
(b) Income Taxes
The Company is included in the consolidated federal and state income tax
returns of Petsec (U.S.A.) Inc. The income tax provision has been prepared as
if the Company were a separate taxpayer.
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (Statement 109), Accounting for Income Taxes.
Under the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
(c) Oil and Gas Properties
The Company uses the successful efforts method of accounting for oil and
gas producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves, and geological and
geophysical costs are expensed.
Unproved oil and gas properties are periodically assessed on a
property-by-property basis, and a loss is recognized to the extent, if any,
that the cost of the property has been impaired. Capitalized costs of producing
oil and gas properties are depreciated and depleted by the units-of-production
method.
Effective in 1996, the Company began assessing the impairment of
capitalized costs of proved oil and gas properties and other long-lived assets
in accordance with Statement of Financial Accounting Standards No. 121
(Statement 121), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. Under this method, the Company generally
assesses its oil and gas properties on a field-by-field basis, utilizing its
current estimate of future revenues and operating expenses. In the event net
undiscounted cash flow is less than the carrying value, an impairment loss is
recorded based on estimated fair value, which would consider discounted future
net cash flows. Prior to 1996, this assessment had been determined on a
company-wide basis. The adoption of Statement 121 did not have an effect on the
Company's financial position or results of operations.
The estimated costs of dismantling and abandoning offshore oil and gas
properties are provided currently using the units-of-production method. Such
provision is included in depletion, depreciation and amortization in the
accompanying statement of operations.
F-6
<PAGE> 103
On the sale or retirement of a complete unit of a proved property, the
cost and related accumulated depletion, depreciation and amortization are
eliminated from the property accounts, and the resultant gain or loss is
recognized.
(d) Other Property, Plant and Equipment
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets.
(e) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally on the average cost method.
(f) Hedging Activities
The Company's anticipated hydrocarbon transactions are periodically hedged
against market risks through the use of derivative financial instruments. To
qualify as a hedge, these instruments must correlate to anticipated future
production such that the Company's exposure to the effects of commodity price
changes is reduced. The gains and losses on these instruments are included in
the valuation of the transactions being hedged upon completion of the
transactions.
(g) Use of Estimates
The preparation of 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(h) Fiscal Year End
Effective December 31, 1996, the Company changed its fiscal year end from
June 30 to December 31. These financial statements have been prepared on a
calendar year basis; however, reserve information required for Note 12 is
unavailable for calendar years preceding December 31, 1995.
(i) Interim Financial Information
The interim financial information have been prepared without audit. In the
opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included.
2. BANK CREDIT FACILITY
At December 31, 1995, the Company had a commercial credit facility of
$34.75 million. At the option of the Company, the outstanding borrowings
accrued interest at the bank's prime rate plus .5%, or at LIBOR plus 2%. At
December 31, 1995, there were $32.35 million in borrowings and $2.4 million in
letters of credit outstanding under the facility. The weighted average annual
interest rate applicable to the outstanding principal balance was 7.82%.
In April 1996, the Company entered into a $75 million revolving credit
facility (the facility) with a syndicate of banks with a borrowing base of $65
million. The facility is a two-year revolving credit facility followed by a
two-year term loan with equal quarterly amortization payments. Maturities based
on current amounts outstanding are $9.25 million, $18.5 million and $9.25
million for the years ended 1999, 2000 and 2001. The facility is secured by the
Company's Gulf of Mexico producing properties. Outstanding borrowings accrue
interest at LIBOR plus a margin of 1.375% to 1.875% per annum, depending on the
balance drawn. The Company is obligated to pay a fee equal to one-half of 1%
per annum of the unused portion of the borrowing base.
At December 31, 1996, borrowings outstanding totaled $37 million at a
weighted average annual interest rate of 7.155% and letters of credit
outstanding totaled $12.21 million. The fair market value of secured loans
payable approximated the carrying amount of the liability.
F-7
<PAGE> 104
3. SUBORDINATED SHAREHOLDER LOAN
Petsec (U.S.A.) Inc. had advances outstanding to the Company of $25
million and $58 million at December 31, 1995 and 1996 respectively. A summary
of activity is as follows (in thousands):
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE ADVANCES REPAYMENTS BALANCE
--------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
1994 ...................................... $ 11,386 $ -- $ -- $ 11,386
1995....................................... 11,905 18,500 (4,848) 25,038
1996....................................... 25,038 36,000 (3,084) 57,954
</TABLE>
The average balance outstanding for the years ended 1994, 1995 and 1996
was $11.6 million, $13.7 million and $33.6 million, respectively.
The advances are without interest charges or fixed repayment terms. Petsec
(U.S.A.) Inc. has confirmed that no repayments will be required prior to
December 31, 2007.
4. SIGNIFICANT CUSTOMERS
Customers which account for 10% or more of revenue for the years ended
December 31, 1994, 1995 and 1996 follow:
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------ ------------
<S> <C> <C> <C>
Vision Resources, Inc.......................................... 37% 55% 60%
Aquila Energy Marketing Corporation............................ * 30% 12%
Pan Energy Trading and Market Services, L.L.C.................. 45% 13% 19%
Celsius Energy Company......................................... 10% * *
</TABLE>
* less than 10%
Based upon the current demand for oil and gas, the Company does not
believe the loss of any current purchasers would have a material adverse effect
on the Company. The Company continually evaluates the financial strength of its
customers but does not require collateral to support trade receivables.
5. STOCK COMPENSATION EXPENSE
The Parent Company has an Employee Option Plan under which the employees
and certain consultants of the Company are entitled to receive options to
purchase stock in the Parent Company. The Parent Company's shares are traded on
both the Australian Stock Exchange and the Nasdaq National Market.
The Company is allocated stock compensation expense in respect to the
options in the Parent Company which are granted to the Company's employees and
certain consultants. Prior to 1996, the Parent Company accounted for its
expense related to the stock option plan in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. In 1996, the Parent Company adopted
Statement of Financial Accounting Standards No. 123 (Statement 123), Accounting
for Stock-Based Compensation, under which it recognizes as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
The amount is recorded as an increase to additional paid in capital. The fair
value was determined using the Black-Scholes valuation method. The calculation
takes into account the exercise price, expected life, current price of
underlying stock, expected volatility of the underlying stock, expected
dividend yield and the risk-free interest rate. The expected life, volatility,
dividend yield and risk-free interest rates used in determining the fair value
of options granted in 1996 were 2.1 to 3.5 years (weighted average 3.0 years);
30%; 0; and 7.1% to 8.4% per annum (weighted average 8% per annum),
respectively.
F-8
<PAGE> 105
6. INCOME TAXES
Although the Company is included in the consolidated federal and state
income tax returns of Petsec (U.S.A.) Inc., the income tax provision has been
prepared as if the Company were a separate taxpayer. Income tax expense
attributable to income from continuing operations was $25,000, $3.5 million,
and $6.3 million for the years ended December 31, 1994, 1995 and 1996,
respectively, and differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to pretax income from continuing operations as a
result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense.......................................... $ 296 $ 3,573 $ 5,180
Increase (reduction) in income taxes resulting from:
Items not deductible (assessable) for tax........................... 53 78 550
State income taxes.................................................. 26 282 322
Other............................................................... -- -- 259
Change in the beginning of the year balance, of the valuation
allowance for deferred tax assets allocated to income
tax expense..................................................... (350) (396) --
------------- ------------ -------------
$ 25 $ 3,537 $ 6,311
============= ============ =============
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1996 are presented below.
<TABLE>
<CAPTION>
1995 1996
------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Financial provisions not currently deductible for tax purposes................... $ 219 $ 1,160
Net operating loss carryforwards................................................. 9,912 17,167
------------- --------------
Total gross deferred tax assets.............................................. 10,131 18,327
------------- --------------
Deferred tax liabilities:
Differences in depreciation and depletion of oil and gas assets.................. (13,668) (28,175)
------------- --------------
Net deferred tax liability................................................... $ (3,537) $ (9,848)
============= ==============
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of $45.2 million which are available to offset
future federal taxable income, if any, through 2011. Although realization is
not assured, management believes that it is more likely than not that all of
the deferred tax assets will be realized.
7. RELATED PARTY TRANSACTIONS
The Parent Company has advanced funds to Petsec Energy Inc. through its
wholly-owned subsidiaries, Petsec America Pty. Limited and Petsec (U.S.A.) Inc.
(Note 3). The funds were used to finance operations.
For the years ended December 31, 1994, 1995 and 1996, Petsec Energy Inc.
paid an amount of $733,000, $630,000 and $1.0 million to the Parent Company
principally for reimbursement of direct expenses incurred in connection with
the Company's operations.
F-9
<PAGE> 106
8. COMMITMENTS AND CONTINGENCIES
Future minimum lease commitments at December 31, 1996, applicable to
noncancelable operating leases with terms of one year or more are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997 $241
1998 170
1999 153
2000 51
----
$615
====
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996 was
$139,000, $239,000 and $281,000, respectively.
9. HEDGING ACTIVITIES
The Company has entered into forward swap contracts to reduce the price
volatility on the sale of oil and gas production. At December 31, 1996, the
Company had the following contracts maturing monthly:
-- through December 31, 1997 covering the net sale of 365,000
barrels of crude oil at an average price of $22.15 per barrel.
-- through November 1998 covering the net sale of 13,831,000 mmbtu
of gas at an average price of $2.035 per mmbtu.
The cost to the Company to terminate these contracts at December 31, 1996
is estimated to be $0.4 million for oil and $3.1 million for gas which
represents the fair market value of the Company's swap agreements at that date.
For the years ended December 31, 1995 and 1996, the Company recognized hedging
gains of $0.8 million and losses of $8.4 million respectively. The
counterparties to these contracts are major financial institutions.
The effect to the Company to terminate swap contracts at March 31, 1997
is estimated to be a gain of $1.4 million (unaudited) for oil and a cost of
$0.8 million (unaudited) for gas which represents the fair market value of
the Company's swap agreements at that date. For the three-months ended
March 31, 1996 and 1997, the Company recognized hedging losses of
$2.7 million (unaudited) and $1.5 million (unaudited) respectively.
Subsequent to December 31, 1996, the Company entered into additional swap
contracts. As of May 2, 1997 the Company had additional contracts as follows
(all amounts unaudited):
-- through May 2000 covering the net sale of 1,767,000 barrels of
crude oil at an average price of $20.47 per barrel.
-- through May 2000 covering the net sale of 5,480,000 mmbtu of gas
at an average price of $2.15 per mmbtu.
10. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $1.0 million, $2.3 million and $3.4 million for
the years ended December 31, 1994, 1995 and 1996 respectively. The Company has
not paid any cash for income taxes in these years.
11. LITIGATION
The Company is involved in certain lawsuits arising in the ordinary course
of business. While the outcome of any of these lawsuits cannot be predicted
with certainty, management expects these matters to have no material adverse
effect on the financial position, results of operations or liquidity of the
Company.
F-10
<PAGE> 107
PETSEC ENERGY INC.
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED
12. SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED
Users of this information should be aware that the process of estimating
quantities of "proved" and "proved developed" natural gas and crude oil
reserves is very complex, requiring significant subjective decisions in the
evaluation of all available geological, engineering and economic data for each
reservoir. The data for a given reservoir may also change substantially over
time as a result of numerous factors including, but not limited to, additional
development activity, evolving production history and continual reassessment of
the viability of production under varying economic conditions. Consequently,
material revisions to existing reserve estimates occur from time to time.
Although every reasonable effort is made to ensure that reserve estimates
reported represent the most accurate assessments possible, the significance of
the subjective decisions required and variances in available data for various
reservoirs make these estimates generally less precise than other estimates
presented in connection with financial statement disclosures.
Proved reserves are estimated quantities of natural gas, crude oil and
condensate that geological and engineering data demonstrate, with reasonable
certainty, to be recoverable in future years from known reservoirs under
existing economic and operating conditions.
Proved developed reserves are proved reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Prior to December 31, 1996 the Company had a June 30 fiscal year end. As
such, reserve data for December 31 was unavailable prior to 1995.
Estimates of proved and proved developed reserves at June 30, 1994 and
1995 and December 31, 1995 and 1996 were based on studies performed by Ryder
Scott Company.
No major discovery or other favorable or adverse event subsequent to
December 31, 1996 is believed to have caused a material change in the estimates
of proved or proved developed reserves as of that date.
F-11
<PAGE> 108
ESTIMATED NET QUANTITIES OF OIL AND GAS RESERVES
The following table sets forth the Company's net proved reserves,
including the changes therein, and proved developed reserves (all within the
United States) as estimated by Ryder Scott Company:
<TABLE>
<CAPTION>
CRUDE OIL NATURAL OIL
(MBBL) (MMCF)
--------------- ---------------
<S> <C> <C>
Proved developed and undeveloped reserves:
June 30, 1993.................................................................. 1,136 11,755
Revisions of previous estimates............................................ (39) 1,476
Extensions, discoveries and other additions................................ 1,908 3,658
Production................................................................. (355) (4,059)
--------------- ---------------
June 30, 1994.................................................................. 2,650 12,830
Revisions of previous estimates............................................ 2,861 293
Extensions, discoveries and other additions................................ 2,210 11,194
Production................................................................. (583) (3,556)
Sales of reserves in place................................................. (257) (434)
--------------- ---------------
June 30, 1995.................................................................. 6,881 20,327
Revisions of previous estimates............................................ (675) (482)
Extensions, discoveries and other additions................................ 1,624 35,783
Production................................................................. (658) (5,881)
--------------- ---------------
December 31, 1995.............................................................. 7,172 49,747
Revisions of previous estimates............................................ 211 2,297
Extensions, discoveries and other additions................................ 3,085 32,969
Production................................................................. (2,150) (11,722)
--------------- ---------------
December 31, 1996.............................................................. 8,318 73,291
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
CRUDE OIL NATURAL OIL
(MBBL) (MMCF)
--------- -----------
<S> <C> <C>
Proved developed reserves:
June 30, 1994.................................................................. 2,650 12,830
June 30, 1995.................................................................. 4,076 12,003
December 31, 1995.............................................................. 6,962 25,852
December 31, 1996.............................................................. 6,670 43,133
</TABLE>
Capitalized costs for oil and gas producing activities consist of the
following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------
1994 1995 1996
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Proved properties.................................................... $ 39,172 $ 86,082 $ 169,982
Unproved properties.................................................. 3,734 5,859 7,276
42,906 91,941 177,258
-------------- -------------- --------------
Accumulated depreciation, depletion and amortization................. (8,906) (15,484) (44,349)
-------------- -------------- --------------
Net capitalized costs........................................... $ 34,000 $ 76,457 $ 132,909
============== ============== ==============
</TABLE>
Costs incurred for oil and gas property acquisition, exploration and
development activities are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Lease acquisition.................................................... $ 2,785 $ 2,930 $ 6,699
Exploration.......................................................... 11,115 34,786 71,490
Development.......................................................... 6,344 12,925 14,187
--------------- --------------- ---------------
Total costs incurred............................................ $ 20,244 $ 50,641 $ 92,376
=============== =============== ===============
</TABLE>
F-12
<PAGE> 109
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS REVENUES
The following information has been developed utilizing procedures
prescribed by Statement of Financial Accounting Standards No. 69 "Disclosures
about Oil and Gas Producing Activities" (SFAS No. 69) and based on natural gas
and crude oil reserve and production volumes estimated by Ryder Scott Company.
It may be useful for certain comparative purposes, but should not be solely
relied upon in evaluating the Company or its performance. Further, information
contained in the following table should not be considered as representative of
realistic assessments of future cash flows, nor should the Standardized Measure
of Discounted Future Net Cash Flows be viewed as representative of the current
value of the Company.
The Company believes that the following factors should be taken into
account in reviewing the following information: (1) future costs and selling
prices will probably differ from those required to be used in these
calculations; (2) due to future market conditions and governmental regulations,
actual rates of production achieved in future years may vary significantly from
the rate of production assumed in the calculations; (3) selection of a 10%
discount rate is arbitrary and may be subject to different rates of income
taxation.
Under the Standardized Measure, future cash inflows were estimated by
applying period end oil and gas prices adjusted for fixed and determinable
escalations to the estimated future production of period-end proved reserves.
As of December 31, 1995, approximately 23.3 Bcf of the Company's future gas
production and 331 Mbls of oil were subject to open hedge positions. As of
December 31, 1996, approximately 13.8 Bcf of the Company's future gas
production and 1,036 MBls of oil were subject to such positions. Future cash
inflows were reduced by estimated future development, abandonment and
production costs based on period-end costs in order to arrive at net cash flow
before tax. Future income tax expense has been computed by applying period-end
statutory tax rates to aggregate future pretax net cash flows, reduced by the
tax basis of the properties involved and tax carryforwards. Use of a 10%
discount rate is required by SFAS No. 69.
Management does not rely solely upon the following information in making
investment and operating decisions. Such decisions are based upon a wide range
of factors, including estimates of probable as well as proved reserves and
varying price and cost assumptions considered more representative of a range of
possible economic conditions that may be anticipated.
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves is as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
--------------------------- ----------------------------
1994 1995 1995 1996
------------ ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Future cash inflows......................................... $ 74,657 $ 154,139 $ 251,971 $ 479,220
Future production costs................................ (26,185) (32,022) (36,163) (58,367)
Future development and abandonment costs............... (3,992) (19,600) (25,105) (47,873)
Future income tax expense.............................. (9,049) (21,143) (43,552) (102,669)
------------ ------------- ------------- -------------
Future net cash flows after income taxes.................... 35,431 81,374 147,151 270,311
10% annual discount for estimated timing of
cash flows............................................. (5,309) (16,238) (15,663) (46,930)
------------ ------------- ------------- -------------
Standardized measure of discounted future
net cash flows......................................... $ 30,122 $ 65,136 $ 131,488 $ 223,381
============ ============= ============= =============
</TABLE>
A summary of the changes in the standardized measure of discounted future
net cash flows applicable to proved oil and gas reserves is as follows:
F-13
<PAGE> 110
<TABLE>
<CAPTION>
SIX MONTHS YEAR
YEAR ENDED JUNE 30, ENDED ENDED
--------------------------- DEC. 31, DEC. 31,
1994 1995 1995 1996
------------ ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning of the period..................................... $ 21,509 $ 30,122 $ 65,136 $ 131,488
------------ ------------- ------------- -------------
Sales and transfers of oil and gas produced, net of
production costs....................................... (10,955) (12,482) (17,791) (60,764)
Net changes in prices and production costs.................. (862) 4,532 19,708 61,394
Extensions, discoveries and improved recoveries,
net of future production and development costs......... 24,168 76,642 88,947 145,494
Net changes due to revisions in quantity
estimates.............................................. 1,910 (1,220) 2,547 10,070
Development costs incurred during the period................ 391 -- 4,200 8,945
Sales of reserves in place.................................. -- (3,140) -- --
Change in estimated future development costs................ (173) (4,050) (10,355) (26,208)
Accretion of discount....................................... (2,088) (13,174) 1,505 12,079
Net change in income taxes.................................. (3,778) (12,094) (22,409) (59,117)
------------ ------------- ------------- -------------
Net increase................................................ 8,613 35,014 66,352 91,893
------------ ------------- ------------- -------------
End of period............................................... $ 30,122 $ 65,136 $ 131,488 $ 223,381
============ ============= ============= =============
</TABLE>
F-14
<PAGE> 111
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation (the "Articles") provide that
directors and officers of the Company shall not be liable to the Company or its
shareholders for damages for breach of fiduciary duty as a director or officer,
to the extent permitted by Nevada law.
The Articles and Bylaws provide that each person who was or is a party or
is threatened to be made a party to any action, suit, or proceeding whether
civil, criminal, administrative or investigative by reason of the fact that he
or she is or was a director, officer, employee or agent of the Company or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of the fact that he or she is or was a director,
officer or employee of the Company serving in any fiduciary capacity with
respect to any profit sharing, pension or other type of welfare plan or trust
for the benefit of employees of the Company or any subsidiary of the Company,
be indemnified and held harmless by the Company to the fullest extent
authorized by Nevada law and any other laws of the State of Nevada in effect
from time to time, against expense (including attorneys' fees, judgments, fines
and amounts paid in settlement) actually and reasonably incurred by such person
in connection with such action, suit or proceeding.
The Bylaws permit the Company to maintain insurance, at its expense, to
protect any director, officer, employee or agent of the Company or any person
serving at the request of the Company as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of the fact that he or she is or was a director,
officer or employee of the Company serving in any fiduciary capacity with
respect to any profit sharing, pension or other type of welfare plan or trust
for the benefit of employees of the Company or any subsidiary of the Company,
against any liability asserted against the person and incurred by the person in
any such capacity or arising out of the person's status as such, whether or not
the Company would have the power to indemnify such person against such
liability under Nevada law.
The Bylaws provide that the expenses incurred by a director, officer,
employee, or agent in defending a civil or criminal action, suit, or proceeding
may be paid by the Company in advance of its final disposition as authorized by
the Board of Directors in the specific case upon delivery to the Company of an
undertaking by or on behalf of such director, officer, employee, or agent to
repay all amounts so advanced unless it is ultimately determined that such
person is entitled to be indemnified by the Company under the Bylaws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES
The following instruments and documents are included as Exhibits to this
Registration Statement. Exhibits incorporated by reference are so indicated by
parenthetical information.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<S> <C> <C>
4.1 -- Articles of Incorporation of the Company
4.2 -- By-Laws of the Company
4.3 -- Indenture dated as of June 13, 1997 among the
Company, as issuer, and The Bank of New York, as
trustee
</TABLE>
II-1
<PAGE> 112
<TABLE>
<S> <C> <C>
4.4 -- Registration Rights Agreement dated June 13, 1997 by
and among the Company and Merrill Lynch & Co.,
Merrill, Lynch, Pierce, Fenner & Smith Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation
and Salomon Brothers Inc
5.1* -- Opinion of Sklar Warren & Sylvester Ltd.
10.1 -- Credit Agreement by and among Petsec Energy Inc. and
Chase Manhattan Bank and certain financial
institutions named therein as Lenders.
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Ryder Scott Company
23.3 -- Consent of Sklar Warren & Sylvester Ltd. (included in
Exhibit 5.1)
24.1 -- Power of Attorney (included on the signature pages of
this Registration Statement)
25.1 -- Statement of Eligibility of The Bank of New York
99.1 -- Form of Letter of Transmittal
</TABLE>
- ------------------
*To be filed by amendment.
II-2
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lafayette, the State of
Louisiana on July 17, 1997.
PETSEC ENERGY INC.
By: /s/ Jeffrey H. Warren
-----------------------------------
Jeffrey H. Warren
Vice President and Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey H. Warren, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent, or his substitutes, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Terrence N. Fern
- ----------------------------------------- Chairman and Chief Executive Officer July 17, 1997
Terrence N. Fern (Principal-Executive-Officer)
/s/ Alan H. Stevens
- ----------------------------------------- Director, President and Chief Operating July 17, 1997
Alan H. Stevens Officer
/s/ Jeffrey H. Warren
- ----------------------------------------- Director, Vice President and Secretary July 17, 1997
Jeffrey H. Warren
/s/ Anthony J. Walton
- ----------------------------------------- Director July 17, 1997
Anthony J. Walton
/s/ Ross A. Keogh
- ----------------------------------------- Financial Controller and Treasurer July 17, 1997
Ross A. Keogh
</TABLE>
II-3
<PAGE> 114
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<S> <C> <C>
4.1 -- Articles of Incorporation of the Company
4.2 -- By-Laws of the Company
4.3 -- Indenture dated as of June 13, 1997 among the
Company, as issuer, and The Bank of New York, as
trustee
4.4 -- Registration Rights Agreement dated June 13, 1997 by
and among the Company and Merrill Lynch & Co.,
Merrill, Lynch, Pierce, Fenner & Smith Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation
and Salomon Brothers Inc
5.1* -- Opinion of Sklar Warren & Sylvester Ltd.
10.1 -- Credit Agreement by and among Petsec Energy Inc. and
Chase Manhattan Bank and certain financial
institutions named therein as Lenders.
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Ryder Scott Company
23.3 -- Consent of Sklar Warren & Sylvester Ltd. (included in
Exhibit 5.1)
24.1 -- Power of Attorney (included on the signature pages of
this Registration Statement)
25.1 -- Statement of Eligibility of The Bank of New York
99.1 -- Form of Letter of Transmittal
</TABLE>
- ------------------
*To be filed by amendment.
<PAGE> 1
EXHIBIT 4.1
ARTICLES OF INCORPORATION
OF
PETSEC ENERGY INC.
I, the undersigned natural person, acting as the incorporator of a
corporation under the General Corporation Law of the State of Nevada, do hereby
adopt the following Articles of Incorporation for such corporation.
ARTICLE I
The name of the corporation is: PETSEC ENERGY INC.
ARTICLE II
The initial principal office of the corporation in the State of Nevada
is located at One East First Street, Reno, Washoe County, Nevada 89501. The
name of the initial resident agent at such address The Corporation Trust
Company of Nevada.
ARTICLE III
The purpose for which this corporation is organized is to transact all lawful
business of every kind and character for which corporations may be incorporated
under the General Corporation Law of the State of Nevada.
ARTICLE IV
The amount of the total authorized capital stock of the corporation is
One Million Dollars ($1,000,000) consisting of One Million (1,000,000) shares
of common stock of the par value of One Dollar ($1) each, to be designated
"Common Stock."
The shares of capital stock of the corporation, after the amount of
the subscription price therefor (which shall not be less than the aggregate par
value thereof) has been paid in full, shall be deemed fully paid shares of
capital stock of the corporation and shall not be subject to any further call
or assessment thereof, and the holders of such shares shall not be liable for
any further payments in respect of such shares or liable to pay the debts of
the corporation.
ARTICLE V
The governing board of this corporation shall be known as the Board of
Directors and the members of that Board shall be styled Directors. The number
of Directors may from time to time be increased or decreased in such manner as
shall be provided by the Bylaws of this corporation, provided that the number
of Directors shall not be reduced less than three (3), except that in cases
where all the shares of the corporation are owned beneficially and of record by
either one (1) or two (2) shareholders, the number of Directors may be less
than three (3) but not less than the number of shareholders. The initial
number of shareholders will be one (1).
<PAGE> 2
The number of Directors constituting the initial Board of Directs of
the corporation shall be three (3), the names and post office addresses of the
persons who are to serve as its Directors until the first annual meeting of its
shareholders, and until their respective successors are duly elected and
qualified, are as follows:
Name Address
Terrence N. Fern Level 2, 8-13 Bridge Street
Sydney, New South Wales
Australia 2000
Michael S. Druce Level 2, 8-13 Bridge Street
Sydney, New South Wales
Australia 2000
Ross A. Keough Level 2, 8-13 Bridge Street
Sydney, New South Wales
Australia 2000
ARTICLE VI
The period of duration of the corporation is perpetual.
ARTICLE VII
Meetings of the shareholders may be held outside the State of Nevada,
if the Bylaws so provide. The books of the corporation may be kept outside the
State of Nevada at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws of the corporation.
ARTICLE VIII
Cumulative voting for the election of Directors shall not be
permitted.
ARTICLE IX
Directors and officers of the corporation shall not be liable to the
corporation or its shareholders for damages for breach of fiduciary duty as a
Director or officer, to the extent permitted by Nevada law.
ARTICLE X
The corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation.
2
<PAGE> 3
ARTICLE XI
No contract or other transaction between the corporation and one or
more of its Directors or officers, or any other corporation, firm, association
or entity in which one or more of its Directors are directors or officers or
are financially interested shall be either void or voidable solely because of
such relationship or interest or solely because such directors are present at
the meeting of the Board of Directors of a committee thereof which authorizes,
approves or ratifies such contract or transaction or solely because their votes
are counted for such purpose. Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors of
a committee thereof which authorizes, approves or ratifies such contract or
transaction.
ARTICLE XII
The name of the incorporator of the corporation is Joseph K. Reynolds
and his address is 1600 Broadway, Suite 2400, Denver, Colorado 80202-4924.
IN WITNESS WHEREOF, I have executed these Articles of Incorporation
for the purpose of forming a corporation pursuant to the General Corporation
Law of the State of Nevada, hereby declaring and certifying that the facts
herein stated are true, on this 22nd___ Day of February, 1990.
/s/ Joseph K. Reynolds
-----------------------------
JOSEPH K. REYNOLDS
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
I, the undersigned Notary Public, do hereby certify that Joseph K.
Reynolds personally appeared before me, who, being by me first duly sworn,
declared that he is the person who signed the foregoing Articles of
Incorporation as incorporator, and that the statements therein contained are
true.
Witness my hand and official seal.
[SEAL]
My commission expires: 2-2-92
----------
/s/ Pamela S. Tilen
-----------------------------
Notary Public
3
<PAGE> 1
EXHIBIT 4.2
BYLAWS
OF
PETSEC ENERGY INC.
(A NEVADA CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE ONE
OFFICES
1. PRINCIPAL OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE TWO
STOCKHOLDERS' MEETINGS
1. ANNUAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. NOTICE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5. QUORUM OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. MANNER OF ACTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
7. VOTING OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
8. VOTING BY PROXY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
9. ACTION WITHOUT A MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE THREE
BOARD OF DIRECTORS
1. MANAGEMENT OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. NUMBER AND QUALIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. ELECTION AND TERM OF OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. FILLING OF VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. REMOVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6. PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. ANNUAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8. REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
10. QUORUM AND MANNER OF ACTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
11. RESIGNATION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
12. ACTION WITHOUT A MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
13. TELEPHONE MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
14. DIRECTORS' COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE FOUR
EXECUTIVE COMMITTEE
1. CONSTITUTION AND POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE FIVE
OTHER COMMITTEES OF THE BOARD OF DIRECTORS
ARTICLE SIX
NOTICES
1. MANNER OF GIVING NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE SEVEN
OFFICERS, EMPLOYEES AND AGENTS;
POWERS AND DUTIES
1. ELECTED OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2. ELECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. APPOINTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. TWO OR MORE OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5. COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. TERM OF OFFICE; REMOVAL; FILLING OF VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7. CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9. VICE PRESIDENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10. SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11. ASSISTANT SECRETARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12. TREASURER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
13. ASSISTANT TREASURERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
14. ADDITIONAL POWERS AND DUTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE EIGHT
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
1. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2. ADVANCEMENT OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE NINE
CERTIFICATES OF STOCK
1. CERTIFICATES REPRESENTING STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2. LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3. TRANSFERS OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. REGISTERED STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE TEN
GENERAL PROVISIONS
1. DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2. RESERVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3. SIGNATURE OF NEGOTIABLE INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5. SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE ELEVEN
AMENDMENTS
</TABLE>
<PAGE> 5
BYLAWS
OF
PETSEC ENERGY INC.
ARTICLE ONE
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the
Corporation shall be located in the City of Reno, County of Washoe, State of
Nevada.
SECTION 2. OTHER OFFICES. The Corporation may also
have, in addition to its principal office in the State of Nevada, such other
offices and places of business at such locations, both within and without the
State of Nevada, as the Board of Directors may from time to time determine or
the business and affairs of the Corporation may require.
ARTICLE TWO
STOCKHOLDERS' MEETINGS
SECTION 1. ANNUAL MEETINGS. An annual meeting of the
stockholders, commencing with the year 1991, shall be held within six (6)
months after the Corporation's fiscal year-end at such time and on such date as
shall be determined by the Board of Directors, at which time the shareholders
shall elect by a plurality vote a board of directors and transact such other
business as may properly be brought before the meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Articles of Incorporation or by these Bylaws, may be called
by the Chairman of the Board, the President, the Board of Directors, or the
holders of not less than a majority of all the capital stock of the Corporation
entitled to vote at the meetings.
SECTION 3. PLACE OF MEETINGS. Meetings of stockholders
shall be held at such places, within or without the State of Nevada, as may
from time to time be fixed by the Board of Directors or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
SECTION 4. NOTICE OF MEETINGS. Written or printed notice
signed by the President, a Vice President, the Secretary, an Assistant
Secretary or by such other person or persons as the directors may designate and
stating the place, day and hour of each meeting of the stockholders and the
purpose or purposes for which the meeting is called shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by prepaid mail, to each stock holder of record entitled
to vote at the meeting.
SECTION 5. QUORUM OF STOCKHOLDERS. The holders of a majority of
the stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall be requisite to and shall constitute a
quorum at each meeting of stockholders for the transaction of business, except
as otherwise provided by statute, by the Articles of Incorporation or by these
Bylaws. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be
<PAGE> 6
present or represented. At any such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. The stockholders present or
represented at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of some stockholders prior to
adjournment, but in no event shall a quorum consist of less than the majority
of the stock entitled to vote.
SECTION 6. MANNER OF ACTING. When a quorum is present at
any meeting, the vote of the holders of a majority of the stock entitled to
vote, and present in person or represented by proxy, shall be the act of the
stockholders' meeting, unless the vote of a greater number is required by
statute, by the Articles of Incorporation or by these Bylaws, in which case the
vote of such greater number shall be requisite to constitute the act of the
meeting.
SECTION 7. VOTING OF SHARES. Every stockholder of record
of the Corporation shall be entitled at each meeting of stockholders to one (1)
vote for each share of stock standing in his name on the books of the
Corporation, unless otherwise provided by statute, by the Articles of
Incorporation or by these Bylaws. Stockholders of the Corporation are
expressly prohibited from cumulating their votes in any election for directors
of the Corporation.
SECTION 8. VOTING BY PROXY. At any meeting of the
stockholders, every stockholder having the right to vote shall be entitled to
vote either in person or may be represented and vote by a proxy or proxies
appointed by an instrument in writing. In the event that any such instrument
in writing shall designate two (2) or more persons to act as proxies, then a
majority of such persons present at the meeting, or, if only one (1) shall be
present, then that one (1) shall have and may exercise all of the powers
conferred by such written instrument upon all of the persons so designated
unless the instrument shall otherwise provide. No such proxy shall be valid
after the expiration of six (6) months from the date of its execution, unless
coupled with an interest, or unless the person executing it specifies therein
the length of time for which it is to continue in force, which in no case shall
exceed seven (7) years from the date of its execution. Subject to the above,
any proxy duly executed is not revoked and continues in full force and effect
until an instrument revoking it or a duly executed proxy bearing a later date
is filed with the Secretary of the Corporation. Each proxy shall be revocable
unless expressly provided therein to be irrevocable.
SECTION 9. ACTION WITHOUT A MEETING. Any action, except
election of directors, which may be taken by the vote of stockholders at a
meeting, may be taken without a meeting if authorized by the written consent of
stockholders holding at least a majority of the voting power of the
Corporation, unless a greater proportion of voting power to authorize such
action is required by statute, by the Articles of Incorporation or by these
Bylaws, in which case such greater proportion of written consents shall be
required.
ARTICLE THREE
BOARD OF DIRECTORS
SECTION 1. MANAGEMENT OF THE CORPORATION. The business and
affairs of the Corporation shall be managed by its Board of Directors, which
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the
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<PAGE> 7
Articles of Incorporation or by these Bylaws directed or required to be
exercised and done by the stockholders.
SECTION 2. NUMBER OF QUALIFICATIONS. The number of
directors of the Corporation shall be not fewer than three (3) or more than
nine (9) as shall be established from time to time by resolution of the Board
of Directors of the Corporation, provided there where all of the shares of the
Corporation are owned beneficially and of record by either one (1) or two (2)
stockholders, the number of directors may be less than three (3) but not less
than the number of stockholders. The directors must be at least eighteen (18)
years of age. None of the directors need be stockholders of the Corporation or
citizens of the State of Nevada.
SECTION 3. ELECTION AND TERM OF OFFICE. At each annual
meeting of stockholders, the stockholders shall elect directors to hold office
until the next succeeding annual meeting. At each election, the persons
receiving the greatest number of votes shall be the directors. Each director
elected shall hold office for the term for which he is elected and until his
successor shall have been elected and qualified or until his earlier death,
resignation, retirement, disqualification or removal.
SECTION 4. FILLING OF VACANCIES. Any vacancies occurring in
the Board of Directors, including those caused by an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board of Directors. When one (1)
or more directors shall give notice of his or their resignation to the board of
Directors, effective at a future date, the Board of Directors shall have power
to fill such vacancy or vacancies to take effect when such resignation or
resignations shall become effective, each director so appointed to hold office
during the remainder of the term of office of the resigning director or
directors.
SECTION 5. REMOVAL. Any or all of the directors of the
Corporation may be removed or discharged, either for or without cause, by the
affirmative vote or written consent of stockholders representing not less than
two-thirds (2/3) of the issued and outstanding capital stock entitled to
voting power.
SECTION 6. PLACE OF MEETINGS. Meetings of the Board of
Directors, annual, regular or special, may be held either within or without the
State of Nevada.
SECTION 7. ANNUAL MEETINGS. The first meeting of each
newly elected Board of Directors shall be held for the purpose of organization
and the transaction of any other business, without notice, immediately
following the annual meeting of the stockholders, and at the same place, or at
such other time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors, or as
shall be specified in a written waiver signed by all of the directors.
SECTION 8. REGULAR MEETINGS. Regular meetings of the
Board of Directors, of which no notice shall be necessary, shall be held at
such times and places as may be fixed from time to time by resolution adopted
by the Board and communicated to all directors. Except as otherwise provided
by statute, the Articles of Incorporation, or by these Bylaws, any and all
business may be transacted at any regular meeting.
SECTION 9. SPECIAL MEETINGS. Special meetings of the
Board of Directors may be called by the Chairman of the Board or President on
twenty-four (24) hours' notice to each director, either personally or by mail
or by telegram. Special meetings shall be called by the
7
<PAGE> 8
President or Secretary in like manner and on like notice on the written request
of two (2) directors. Except as may be otherwise expressly provided by statute
or by the Articles of Incorporation or by these Bylaws, neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
SECTION 10. QUORUM AND MANNER OF ACTING. At all meetings of
the Board of Directors the presence of a majority of the number of directors
fixed by these Bylaws shall be necessary and sufficient to constitute a quorum
for the transaction of business except as otherwise provided by statute, by the
Articles of Incorporation or by these Bylaws. The act of a majority of the
directors presently at a meeting at which a quorum is present shall be the act
of the Board of Directors unless the act of a greater number is required by
statute, by the Articles of Incorporation or by these Bylaws, in which case the
act of such greater number shall be requisite to constitute the act of the
Board. If a quorum shall not be present at any meeting of the directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than adjournment at the meeting, until a quorum shall be present.
At any such adjourned meeting, any business may be transacted which might have
been transacted at the meeting as originally convened.
SECTION 11. RESIGNATION OF DIRECTORS. Any director may
resign at any time by mailing or delivering or by transmitting by telegram or
cable, written notice of his resignation to the Board of Directors, the
Chairman of the Board, the President, or to the Secretary of the Corporation;
and any such resignation shall take effect at the time specified therein or, if
no time is specified therein, then such resignation shall take effect
immediately upon the receipt thereof.
SECTION 12. ACTION WITHOUT A MEETING. Unless otherwise
restricted by statute, by the Articles of Incorporation or these Bylaws, any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting, if a
written consent thereto, setting forth in action so taken, is signed by all of
the members of the Board or of such committee, as the case may be. Such
consent shall have the same force and effect as a unanimous vote at a duly
called and constituted meeting of the Board or such committee. All such
written consents shall be filed with the minutes of the proceedings of the
Board or such committee.
SECTION 13. TELEPHONE MEETINGS. Unless otherwise restricted
by statute, by the Articles of Incorporation or these Bylaws, members of the
Board of Directors or members of any committee designated by such Board may
participate in a meeting of such Board or committee, as the case may be, by
means of a conference telephone network or a similar communications method by
which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section shall constitute presence
in person at such meeting. Each person participating in any such meeting shall
sign the minutes thereof. The minutes may be signed in counterparts.
SECTION 14. DIRECTORS' COMPENSATION. The Board of Directors
shall have authority to determine, from time to time, the amount of
compensation, if any, which shall be paid to its members for their services as
directors and as members of standing or special committees. The Board of
Directors shall also have power in its Discretion to provide for and to pay to
directors rendering services to the Corporation not ordinarily rendered by
directors as such, special compensation appropriate to the value of such
services as determined by the Board of Directors from time to time. Nothing
herein contained shall be construed to
8
<PAGE> 9
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE FOUR
EXECUTIVE COMMITTEE
SECTION 1. CONSTITUTION AND POWERS. The Board of Directors, by
resolution adopted by affirmative vote of a majority of the number of directors
fixed by these Bylaws, may designate two (2) or more directors (with such
alternates, if any, as may be deemed desirable) to constitute an Executive
Committee, which Executive Committee shall have and may exercise, when the
Board of Directors is not in session, all of the authority and powers of the
Board of Directors in the business and affairs of the Corporation, even though
such authority and powers be herein provided or directed to be exercised by a
designated officer of the Corporation; provided, that the foregoing shall not
be construed as authorizing action by the Executive Committee with respect to
any action which by statute, the Articles of Incorporation, or these Bylaws is
required to be taken by vote of a specified proportion of the number of
directors fixed by these Bylaws, or any other action required or specified by
the General Corporation Law of the State of Nevada or other applicable law or
by these Bylaws or by the Articles of Incorporation to be taken by the Board of
Directors, as such. The designation of the Executive Committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors or any member thereof of any responsibility imposed upon it or him by
law. So far as practicable, members of the Executive Committee and their
alternates (if any) shall be appointed by the Board of Directors at its first
meeting after each annual meeting of the shareholders and, unless sooner
discharged by affirmative vote of a majority of the number of directors fixed
by these Bylaws, shall hold office until their respective successors are
appointed and qualify or until their earlier respective deaths, resignations,
retirements or disqualifications.
SECTION 2. MEETINGS. Regular meetings of the Executive
Committee, of which no notice shall be necessary, shall be held at such times
and places as may be fixed from time to time by resolution adopted by
affirmative vote of a majority of the whole Committee and communicated to all
the members thereof. Special meetings of the Executive Committee may be called
by the Chairman of the Board, the President or any two (2) members thereof at
any time on twenty-four (24) hours' notice to each member, either personally or
by mail or telegram. Except as may be otherwise expressly provided by statute
or by the Articles of Incorporation or by these Bylaws, neither the business to
be transacted at, nor the purpose of, any meeting of the Executive Committee
need be specified in the notice or waiver of notice of such meeting. A
majority of the Executive Committee shall constitute a quorum for the
transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of the Executive
Committee. The members of the Executive Committee shall act only as a
committee, and the individual members shall have no power as such. The
Committee, at each meeting thereof, may designate one (1) of its members to act
as chairman and preside at the meeting or, in its discretion, may appoint a
chairman from among its members to preside at all its meetings held during such
period as the Committee may specify.
SECTION 3. RECORDS. The Executive Committee shall keep a
record if its acts and proceedings and shall report the same, from time to
time, to the board of Directors. The Secretary of the Corporation, or, in his
absence, an Assistant Secretary, shall act as
9
<PAGE> 10
secretary of the Executive Committee, or the Committee may, in its discretion,
appoint its own secretary.
SECTION 4. VACANCIES. Any vacancy in the Executive
Committee may be filled by affirmative vote of a majority of the number of
directors fixed by these Bylaws.
ARTICLE FIVE
OTHER COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors may, by resolution adopted by affirmative vote
of a majority of the number of directors fixed by these Bylaws, designate two
(2) or more directors (with such alternates, if any, as may be deemed
desirable) to constitute another committee or committees for any purpose;
provided, that any such other committee or committees shall have and may
exercise only the power of recommending action to the Board of Directors and
the Executive Committee and of carrying out and implementing any instructions
or any policies, plans and programs theretofore approved, authorized and
adopted by the Board of Directors or the Executive Committee.
ARTICLE SIX
NOTICES
SECTION 1. MANNER OF GIVING NOTICE. Whenever under the
provisions of the statutes or the Articles of Incorporation of these Bylaws,
notice is required to be given to any committee member, director or stockholder
of the Corporation, and no provision is made as to how such notice shall be
given, it shall not be construed to mean personal notice, but any such notice
may be given in writing by mail, postage prepaid, addressed to such member,
director or stockholder at his address as it appears on the records or (in the
case of a stockholder) the stock transfer books of the Corporation. Any notice
required or permitted to be given by mail shall be deemed to be delivered at
the time when the same shall be thus deposited in the United States mail as
aforesaid. Notice to directors may also be given by telegram, and shall be
deemed delivered when same shall be deposited at a telegraph office for
transmission and all appropriate fees therefor have been paid. Notice to
directors may also be given by telephone communication made personally to such
directors.
SECTION 2. WAIVER OF NOTICE. Whenever any notice is
required to be given to any committee member, director or stockholder of the
Corporation under the provisions of the statutes or the Articles of
Incorporation or of these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
Attendance of a director at a meeting of the Board of Directors shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting was not lawfully called or convened.
10
<PAGE> 11
ARTICLE SEVEN
OFFICERS, EMPLOYEES AND AGENTS;
POWERS AND DUTIES
SECTION 1. ELECTED OFFICERS. The elected officers of the
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents as may be determined from time to time by the Board (and in case of
each such Vice President, with such descriptive title, if any, as the Board of
Directors shall deem appropriate, a Secretary, a Treasurer and a Registered
Agent. None of the elected officers, with the exception of the Chairman of the
Board, need be a member of the Board of Directors.
SECTION 2. ELECTION. So far as is practicable, all
elected officers shall be elected by the Board of Directors at its first
meeting after each annual meeting of stockholders.
SECTION 3. APPOINTIVE OFFICERS. The Board of Directors may
also appoint one or more Assistant Secretaries and Assistant Treasurers and
such other officers and assistant officers and agents (none of whom need be a
member of the Board) as it shall from time to time deem necessary, who shall
exercise such powers and perform such duties as shall be set forth in these
bylaws or determined from time to time by the Board or by the Executive
Committee.
SECTION 4. TWO OR MORE OFFICES. Any two (2) or more
offices may be held by the same person.
SECTION 5. COMPENSATION. The compensation of all officers of
the Corporation shall be fixed from time to time by the Board of Directors or
the Executive Committee. The Board of Directors or the Executive Committee may
from time to time delegate to the President the authority to fix the
compensation of any or all of the officers of the Corporation.
SECTION 6. TERM OF OFFICE; REMOVAL; FILLING OF VACANCIES.
Each elected officer of the Corporation shall hold office until his successor
is chosen and qualified in his stead or until his earlier death, resignation,
retirement, disqualification or removal from office. Each appointive officer
shall hold office at the pleasure of the Board of Directors without the
necessity of periodic reappointment. Any officer or agent elected or appointed
by the Board of Directors may be removed at any time by the Board of Directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights. If the office of any officer
becomes vacant for any reason, the vacancy may be filled by the Board of
Directors.
SECTION 7. CHAIRMAN OF THE BOARD. The Chairman of the Board
shall preside when present at all meetings of the stockholders and the Board of
Directors. He shall advise and counsel the President and other officers of the
Corporation and shall exercise such powers and perform such duties as shall be
assigned to or required of him from time to time by the Board of Directors or
the Executive Committee.
SECTION 8. PRESIDENT. The President shall be the chief
executive officer of the Corporation and, subject to the provisions of these
Bylaws, shall have general supervision of the affairs of the Corporation and
shall have general and active control of all of its business. In the event of
the absence or disability of the Chairman of the Board, or if such officer
shall not have been elected or be serving, the President shall preside when
present at meetings of the stockholders and the Board of Directors. He shall
have general authority to execute bonds, deeds and contracts in the name of the
Corporation and to affix the
11
<PAGE> 12
corporate seal thereto; to sign stock certificates; to cause the employment or
appointment of such employees and agents of the Corporation as the proper
conduct of operations may require and to fix their compensation, subject to the
provisions of these Bylaws; to remove or suspend any employee or agent who
shall have been employed or appointed under his authority or under authority of
an officer subordinate to him; to suspend for cause, pending final action by
the authority which shall have elected or appointed him, any officer
subordinate to the President; and in general to exercise all of the powers
usually appertaining to the office of president of a corporation, except as
otherwise provided by statute, the Articles of Incorporation or these Bylaws.
In the event of the absence or disability of the President, his duties shall be
performed and his powers may be exercised by the Vice Presidents in the order
of their seniority, unless otherwise determined by the President, the Executive
Committee or the Board of Directors.
SECTION 9. VICE PRESIDENT. Each Vice President shall generally
assist the President and have such powers and shall perform such duties and
services as shall from time to time be prescribed or delegated to him by the
President, the Executive Committee or the Board of Directors.
SECTION 10. SECRETARY. The Secretary shall see that notice
is given of all meetings of the stockholders and special meetings of the Board
of Directors and shall keep and attest true records of all proceedings at all
meetings thereof. He shall have charge of the corporate seal and have
authority to attest any and all instruments or writings to which the same may
be affixed. He shall keep and account all books, documents, papers and records
of the Corporation except those for which some other officer or agent is
properly accountable. He shall have authority to sign stock certificates and
shall generally perform all duties usually appertaining to the office of
secretary of a corporation. In the event of the absence or disability of the
Secretary, his duties shall be performed and his powers may be exercised by the
Assistant Secretaries in the order of their seniority, unless otherwise
determined by the Secretary, the President, the Executive Committee or the
Board of Directors.
SECTION 11. ASSISTANT SECRETARIES. Each Assistant Secretary
shall generally assist the Secretary and shall have such powers and perform
such duties and services as shall from time to time be prescribed or delegated
to him by the Secretary, the President, the Executive Committee or the Board of
Directors.
SECTION 12. TREASURER. The Treasurer shall be the chief
accounting and financial officer of the Corporation and shall have active
control of and shall be responsible for all matters pertaining to the accounts
and finances of the Corporation. He shall audit all payrolls and vouchers of
the Corporation and shall direct the manner of certifying the same; shall
supervise the manner of keeping all vouchers for payments by the Corporation
and all other documents relating to such payments; shall receive, audit and
consolidate all operating and financial statements of the Corporation and its
various departments; shall have supervision of the books of account of the
Corporation, their arrangement and classification; shall supervise the
accounting and auditing practices of the Corporation and shall have charge of
all matters relating to taxation. The Treasurer shall have the care and
custody of all monies, funds and securities of the Corporation; shall deposit
or cause to be deposited all such funds in and with such depositories as the
Board of Directors or the Executive Committee shall from time to time direct or
as shall be selected in accordance with procedures established by the Board of
Directors or by the Executive Committee; shall advise upon all terms or credit
granted by the Corporation; shall be responsible for the
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<PAGE> 13
collection of all its accounts and shall cause to be kept full and accurate
accounts of all receipts and disbursements of the Corporation. He shall have
the power to endorse for deposit or collection or otherwise all checks, drafts,
notes, bills of exchange and other commercial paper payable to the Corporation
and to give proper receipts or discharges for all payments to the Corporation.
The Treasurer shall generally perform all duties usually appertaining to the
office of treasurer of a corporation. In the event of the absence or
disability of the Treasurer, his duties shall be performed and his powers may
be exercised by the Assistant Treasurers in the order of their seniority,
unless otherwise determined by the Treasurer, the President, the Executive
Committee or the Board of Directors.
SECTION 13. ASSISTANT TREASURERS. Each Assistant Treasurer
shall generally assist the Treasurer and shall have such powers and perform
such duties and services as shall from time to time be prescribed or delegated
to him by the Treasurer, the President, the Executive Committee or the Board of
Directors.
SECTION 14. ADDITIONAL POWERS AND DUTIES. In addition to the
foregoing especially enumerated duties, services and powers, the several
elected and appointed officers of the Corporation shall perform such other
duties and services and exercise such further powers as may be provided by
statute, the Articles of Incorporation or these Bylaws, or as the Board of
Directors of the Executive Committee may from time to time determine or as may
be assigned to them by any competent superior officer.
ARTICLE EIGHT
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
SECTION 1. INDEMNIFICATION. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of the fact that he is or was a director, officer or
employee of the Corporation serving in any fiduciary capacity with respect to
any profit sharing, pension or other type of welfare plan or trust for the
benefit of employees of the Corporation or any subsidiary of the Corporation,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the full extent permitted by the General
Corporation Law of the State of Nevada and any other laws of the Sate of Nevada
in effect from time to time. Such indemnification shall not exclude any other
rights to which a person seeking indemnification may be entitled under any
agreement, vote of stockholders or disinterested directors or otherwise.
SECTION 2. ADVANCEMENT OF EXPENSES. Expenses incurred by a
director, officer, employee or agent enumerated in Section 1 of this Article in
defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in the specific case, upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it is ultimately determined that he is
entitled to be indemnified by the Corporation as authorized in this Article.
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SECTION 3. INSURANCE. The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, or other enterprise, or
by reason of the fact that he is or was a director, officer or employee of the
Corporation serving in any fiduciary capacity with respect to any profit
sharing, pension or other type of welfare plan or trust for the benefit of
employees of the Corporation or any subsidiary of the Corporation, against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the General Corporation
Law of the State of Nevada and any other laws of the State of Nevada in effect
from time to time.
ARTICLE NINE
CERTIFICATES OF STOCK
SECTION 1. CERTIFICATES REPRESENTING STOCK. Certificates in
such form as may be determined by the Board of Directors and as shall conform
to the requirements of the statutes, the Articles of Incorporation and these
Bylaws shall be delivered representing all shares to which stockholders are
entitled. Such certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued. Each certificate
shall state on the face thereof that the Corporation is organized under the
laws of the State of Nevada, the holder's name, the number and class of shares,
and the par value of such shares or a statement that such shares are with par
value. Each certificate shall be signed by the President or a Vice President
and the Secretary or an Assistant Secretary and may be sealed with the seal of
the Corporation or a facsimile thereof. If any certificate is countersigned or
otherwise authenticated by a transfer agent or transfer clerk, and by a
registrar which is other than the Corporation, the signature of any such
officers may be facsimile.
SECTION 2. LOST CERTIFICATES. The Board of Directors, the
Executive Committee, the President or such other officer or officers or any
agent of the Corporation as the Board of Directors may from time to time
designate, in its or his discretion, may direct a new certificate representing
shares to be issued in place of any certificate theretofore issued by the
Corporation and alleged to have been lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors, the
Executive Committee, the President or such other officer or agent in its or his
discretion and as a condition precedent to the issuance thereof may require the
owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as it or he shall require
and/or give the Corporation a bond in such form, in such sum and with such
surety or sureties as it or he may direct, as indemnity against any claim that
may be made against the Corporation with respect to the certificate alleged to
have been lost, stolen or destroyed.
SECTION 3. TRANSFERS OF STOCK. Shares of the Corporation
shall be transferred only on the books of the Corporation by the holder thereof
in person or by his duly authorized attorney. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation or the transfer agent of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
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SECTION 4. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE.
For the purpose of determining stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of stockholders
for any other proper purposes, the Board of Directors may provide that the
stock transfer books of the Corporation shall be closed for a stated period but
not to exceed, in any case, sixty (60) days prior to the date on which the
particular action requiring such determination of stockholders is to be taken.
If the stock transfer books shall be closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders,
such books shall be closed for at least ten (10) days immediately preceding
such meeting. In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than sixty
(60) days, and, in case of a meeting of stockholders, not less than ten (10)
days, prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record
date for such determination of stockholders. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this Section, such determination shall apply to any adjournment
thereof except where the determination has been made through the closing of
stock transfer books and the stated period of closing has expired.
SECTION 5. REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Nevada.
ARTICLE TEN
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends on the outstanding capital
stock of the Corporation, subject to the provisions of the statutes and of the
Articles of Incorporation, may be declared by the Board of Directors at any
regular or special meeting. Dividends may be declared and paid in cash, in
property, or in shares of the capital stock of the Corporation, or in any
combination thereof.
SECTION 2. RESERVES. There may be created from time to
time by resolution of the Board of Directors such reserve or reserves as the
directors from time to time in their discretion think proper to provide for
contingencies, or to equalize dividends or to repair or maintain any property
of the Corporation, or for such other purpose as the directors shall think
beneficial to the Corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
SECTION 3. SIGNATURE OF NEGOTIABLE INSTRUMENTS. All bills,
notes, checks or other instruments for the payment of money shall be signed or
countersigned by
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such officer, officers, agent or agents, and in such manner, as are permitted
by these Bylaws and as from time to time may be prescribed by resolution
(whether general or special) of the Board of Directors or the Executive
Committee.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed by the resolution of the Board of Directors.
SECTION 5. SEAL. The seal of the Corporation shall be in such
form and shall be adopted and approved from time to time by the Board of
Directors. The seal may be used by causing it, or a facsimile thereof, to be
impressed, affixed, imprinted or in any manner reproduced.
ARTICLE ELEVEN
AMENDMENTS
These Bylaws may be altered, amended or repealed or new bylaws may be
adopted, by the affirmative vote of a majority of the directors present at any
meeting of the Board of Directors at which a quorum is present or by the
unanimous written consent of all the directors.
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EXHIBIT 4.3
Execution Copy
________________________________________________________________________________
PETSEC ENERGY INC.
AND
THE BANK OF NEW YORK
Trustee
______________________
Indenture
Dated as of June 13, 1997
______________________
$100,000,000
9 1/2% Series A Senior Subordinated Notes due 2007
and
9 1/2% Series B Senior Subordinated Notes due 2007
________________________________________________________________________________
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 1.3 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 1.4 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE II
THE SECURITIES
SECTION 2.1 Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.2 Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.3 Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.4 Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.5 Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 2.6 Security Register and Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 2.7 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 2.8 Additional Provisions for Global Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 2.9 Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 2.10 Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 2.11 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 2.12 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 2.13 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 2.14 CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE III
SATISFACTION AND DISCHARGE
SECTION 3.1 Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 3.2 Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
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ARTICLE IV
REMEDIES
SECTION 4.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 4.2 Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 4.3 Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . . . . . 53
SECTION 4.4 Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 4.5 Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . . . . . . . . . 54
SECTION 4.6 Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 4.7 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 4.8 Unconditional Right of Holders to Receive Principal, Premium and Interest . . . . . . . . . . . . 56
SECTION 4.9 Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 4.10 Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 4.11 Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 4.12 Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 4.13 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 4.14 Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 4.15 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE V
THE TRUSTEE
SECTION 5.1 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 5.2 Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 5.3 Trustee Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . . . . . 60
SECTION 5.4 May Hold Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 5.5 Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 5.6 Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 5.7 Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 5.8 Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 5.9 Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 5.10 Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 5.11 Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . . . . 63
SECTION 5.12 Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE VI
HOLDERS' LISTS AND REPORTS BY TRUSTEE
SECTION 6.1 Disclosure of Names and Addresses of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 6.2 Reports By Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
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ARTICLE VII
MERGER, CONSOLIDATION AND SALE OF ASSETS, ETC.
SECTION 7.1 Company May Consolidate, etc., Only on Certain Terms . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 7.2 Successor Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE VIII
SUPPLEMENTAL INDENTURES
SECTION 8.1 Supplemental Indentures without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 8.2 Supplemental Indentures with Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 8.3 Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 8.4 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 8.5 Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 8.6 Reference in Securities to Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 8.7 Notice of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE IX
COVENANTS
SECTION 9.1 Payment of Principal, Premium, if any, and Interest . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 9.2 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 9.3 Money for Security Payments to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 9.4 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 9.5 Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 9.6 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 9.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 9.8 Statement by Officers as to Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 9.9 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 9.10 Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 9.11 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 9.12 Limitation on Non-Guarantor Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 9.13 Limitation on Issuances and Sales of Restricted Subsidiary Stock . . . . . . . . . . . . . . . . 80
SECTION 9.14 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 9.15 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 9.16 Limitation on Disposition of Proceeds of Asset Sales . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 9.17 Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 9.18 Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries . . . . 85
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SECTION 9.19 Limitation on Other Senior Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 9.20 Limitation on Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 9.21 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 9.22 Waiver of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
ARTICLE X
REDEMPTION OF SECURITIES
SECTION 10.1 Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 10.2 Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 10.3 Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 10.4 Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 10.5 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 10.6 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 10.7 Securities Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 10.8 Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
ARTICLE XI
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 11.1 Company's Option to Effect Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . 90
SECTION 11.2 Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 11.3 Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 11.4 Conditions to Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 11.5 Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 11.6 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
ARTICLE XII
GUARANTEES
SECTION 12.1 Unconditional Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 12.2 Subsidiary Guarantors May Consolidate, etc. on Certain Terms . . . . . . . . . . . . . . . . . . 95
SECTION 12.3 Release of a Subsidiary Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 12.4 Limitation of Subsidiary Guarantor's Liability . . . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 12.5 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 12.6 Execution and Delivery of Notation of Subsidiary Guarantee . . . . . . . . . . . . . . . . . . . 97
SECTION 12.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
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SECTION 12.8 Subsidiary Guarantees Subordinated to Guarantor Senior Indebtedness 97
SECTION 12.9 Subsidiary Guarantors Not to Make Payments with Respect to Subsidiary Guarantees in
Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 12.10 Subsidiary Guarantees Subordinated to Prior Payment of All Guarantor Senior Indebtedness
upon Dissolution, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
SECTION 12.11 Holders to be Subrogated to Rights of Holders of Guarantor Senior Indebtedness . . . . . . . . . 101
SECTION 12.12 Obligations of the Subsidiary Guarantors Unconditional . . . . . . . . . . . . . . . . . . . . . 101
SECTION 12.13 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice . . . . . . . . . . . . . 102
SECTION 12.14 Application by Trustee of Money Deposited with It . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 12.15 Subordination Rights Not Impaired by Acts or Omissions of Subsidiary Guarantors or
Holders of Guarantor Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SECTION 12.16 Holders Authorize Trustee to Effectuate Subordination of Subsidiary Guarantees . . . . . . . . . 103
SECTION 12.17 Right of Trustee to Hold Guarantor Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . 104
SECTION 12.18 Article XII Not to Prevent Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 12.19 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
ARTICLE XIII
SUBORDINATION OF SECURITIES
SECTION 13.1 Securities Subordinate to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 13.2 Payment Over of Proceeds upon Dissolution, etc . . . . . . . . . . . . . . . . . . . . . . . . . 105
SECTION 13.3 Suspension of Payment When Senior Indebtedness in Default . . . . . . . . . . . . . . . . . . . . 107
SECTION 13.4 Trustee's Relation to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
SECTION 13.5 Subrogation to Rights of Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . 108
SECTION 13.6 Provisions Solely To Define Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
SECTION 13.7 Trustee To Effectuate Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
SECTION 13.8 No Waiver of Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
SECTION 13.9 Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
SECTION 13.10 Reliance on Judicial Order or Certificate of Liquidating Agent . . . . . . . . . . . . . . . . . 111
SECTION 13.11 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights . . . . . . 111
SECTION 13.12 Article Applicable to Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
SECTION 13.13 No Suspension of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
</TABLE>
-v-
<PAGE> 7
<TABLE>
<S> <C> <C>
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
SECTION 14.2 Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
SECTION 14.3 Acts of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
SECTION 14.4 Notices, etc. to Trustee, Company and Subsidiary Guarantors . . . . . . . . . . . . . . . . . . . 114
SECTION 14.5 Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
SECTION 14.6 Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
SECTION 14.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
SECTION 14.8 Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
SECTION 14.9 Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
SECTION 14.10 Governing Law; Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
SECTION 14.11 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
SECTION 14.12 No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
SECTION 14.13 Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
SECTION 14.14 No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 117
EXHIBIT A FORM OF SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B FORM OF NOTATION RELATING TO SUBSIDIARY GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF SECURITIES . . . . . . . . C-1
EXHIBIT D TRANSFEREE LETTER OF REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
</TABLE>
NOTE: THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE
DEEMED TO BE A PART OF THE INDENTURE.
-vi-
<PAGE> 8
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of June 13, 1997
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7, 5.8
Section 312(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
Section 313 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.8(a)
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1
Section 315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1
Section 316(a) (last
sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 ("Outstanding")
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2, 4.12
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.13
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.3(d)
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.10(b)
</TABLE>
Note: This reconciliation and tie shall not, for any purpose,
be deemed to be a part of the Indenture.
-vii-
<PAGE> 9
INDENTURE, dated as of June 13, 1997 between PETSEC ENERGY INC., a
Nevada corporation (hereinafter called the "Company") and THE BANK OF NEW YORK,
a New York banking corporation, trustee (hereinafter called the "Trustee").
RECITALS OF THE COMPANY
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of the Company's 9 1/2% Series
A Senior Subordinated Notes due 2007 (the "Series A Securities") and the
Company's 9 1/2% Series B Senior Subordinated Notes due 2007 (the "Series B
Securities" and, collectively with the Series A Securities, the "Securities" or
each, a "Security").
This Indenture is subject to the provisions of the Trust Indenture Act
of 1939, as amended, that are required to be part of this Indenture and shall,
to the extent applicable, be governed by such provisions.
All things necessary have been done to make the Securities, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company, and to make this
Indenture a valid agreement of the Company and the Trustee, in accordance with
their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 Definitions.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person, (b) outstanding at the
time such Person becomes a Subsidiary of any other Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such Person becoming such a Subsidiary) or (c) any renewals,
extensions, substitutions, refinancings or replacements (each, for purposes of
this clause, a "refinancing") by the Company of any Indebtedness described in
clause (a) or (b) of this definition, including any successive refinancings, so
long as (A) any such new Indebtedness shall be in a principal amount that does
not exceed the principal amount (or, if such Indebtedness being
1
<PAGE> 10
refinanced provides for an amount less than the principal amount thereof to be
due and payable upon a declaration of acceleration thereof, such lesser amount
as of the date of determination) so refinanced plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing, plus the
amount of expenses of the Company incurred in connection with such refinancing,
and (B) in the case of any refinancing of Subordinated Indebtedness, such new
Indebtedness is made subordinate to the Securities at least to the same extent
as the Indebtedness being refinanced and (C) such new Indebtedness has an
Average Life longer than the Average Life of the Securities and a final Stated
Maturity later than the final Stated Maturity of the Securities.
"Act," when used with respect to any Holder, has the meaning specified
in Section 14.3.
"Adjusted Consolidated Net Tangible Assets" means (without
duplication), as of the date of determination, (a) the sum of (i) discounted
future net revenues from proved oil and gas reserves of the Company and its
Restricted Subsidiaries calculated in accordance with SEC guidelines before any
state or federal income taxes, as estimated by a nationally recognized firm of
independent petroleum engineers in a reserve report prepared as of the end of
the Company's most recently completed fiscal year, 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 the date of 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 the date of such
year-end reserve report 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 the date of such year-end reserve report and (D) estimated oil and gas
reserves attributable to downward revisions of estimates of proved oil and gas
reserves since the date of such year-end reserve report due to changes in
geological conditions or other factors which would, in accordance with standard
industry practice, cause such revisions, in each case calculated in accordance
with SEC guidelines (utilizing the prices utilized in such year-end reserve
report); provided that, in the case of each of the determinations made pursuant
to clauses (A) through (D), such increases and decreases shall be as estimated
by the Company's petroleum engineers, unless in the event that there is a
Material Change as a result of such acquisitions, dispositions or revisions,
then the discounted future net revenues utilized for purposes of this clause
(a)(i) shall be confirmed in writing by a nationally recognized firm of
independent petroleum engineers, (ii) the capitalized costs that are
attributable to oil and gas properties of the Company and its Restricted
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 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 statements or (B) the appraised value, as estimated by
independent appraisers, of other tangible assets (including, without
duplication, Investments in unconsolidated Restricted Subsidiaries) of the
2
<PAGE> 11
Company and its Restricted Subsidiaries, as of the date no earlier than the
date of the Company's latest audited financial statements, minus (b) the sum of
(i) minority interests (other than a minority interest in a Subsidiary that is
a business trust or similar entity formed for the primary purpose of issuing
preferred securities the proceeds of which are loaned to the Company or a
Restricted Subsidiary), (ii) any net gas balancing liabilities of the Company
and its Restricted 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 obligations of the Company and its Restricted Subsidiaries
with respect to Volumetric Production Payments on 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 in (a)(i) above, would be necessary to fully satisfy the
payment obligations of the Company and its Restricted Subsidiaries with respect
to Dollar-Denominated Production Payments on the schedules specified with
respect thereto. If the Company changes its method of accounting from the
successful efforts method to the full cost method or a similar method of
accounting, "Adjusted Consolidated Net Tangible Assets" will continue to be
calculated as if the Company was still using the successful efforts method of
accounting.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean
the amount by which the fair value of the Properties of such Subsidiary
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Subsidiary Guarantee, of such Subsidiary Guarantor at
such date.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or 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 this definition, beneficial ownership of 10% or more
of the voting common equity (on a fully diluted basis) or options or warrants
to purchase such equity (but only if exercisable at the date of determination
or within 60 days thereof) of a Person shall be deemed to constitute control of
such Person. No Person shall be deemed an Affiliate of an oil and gas royalty
trust solely by virtue of ownership of units of beneficial interest in such
trust.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or any Restricted Subsidiary shall be merged
with or into the Company or any Restricted Subsidiary or (b) the acquisition by
the Company or any Restricted Subsidiary of the assets of any Person which
3
<PAGE> 12
constitute all or substantially all of the assets of such Person or any
division or line of business of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by means of a Sale/Leaseback
Transaction or by way of merger or consolidation) (collectively, for purposes
of this definition, a "transfer"), directly or indirectly, in one or a series
of related transactions, of (a) any Capital Stock of any Restricted Subsidiary
held by the Company or any Restricted Subsidiary; (b) all or substantially all
of the properties and assets of any division or line of business of the Company
or any of its Restricted Subsidiaries; or (c) any other properties or assets of
the Company or any of its Restricted Subsidiaries other than a disposition of
hydrocarbons or other mineral products in the ordinary course of business. For
the purposes of this definition, the term "Asset Sale" shall not include (i)
any transfer of properties or assets that is governed by, and made in
accordance with, the provisions of Article VII hereof; (ii) a Permitted
Investment or Restricted Payment, if permitted under Section 9.10 hereof; (iii)
any trade or exchange of oil and gas Properties or shares of Capital Stock in
any corporation in the Oil and Gas Business owned by the Company or any
Restricted Subsidiary for oil and gas properties owned or held by another
Person provided that (x) the Fair Market Value of the Properties or shares
traded or exchanged by the Company or such Restricted Subsidiary (including any
cash or Cash Equivalents, not to exceed 15% of such Fair Market Value, to be
delivered by the Company or such Restricted Subsidiary) is reasonably
equivalent to the Fair Market Value of the Properties (together with any cash
or Cash Equivalents, not to exceed 15% of such Fair Market Value) to be
received by the Company or such Restricted Subsidiary as determined in good
faith by (A) any officer of the Company if such Fair Market Value is less than
$5,000,000 and (B) the Board of Directors of the Company as certified by a
certified resolution delivered to the Trustee if such Fair Market Value is
equal to or in excess of $5,000,000, provided that if such resolution indicates
that such Fair Market Value is equal to or in excess of $10,000,000 such
resolution shall be accompanied by a written appraisal by a nationally
recognized investment banking firm or appraisal firm, in each case specializing
or having a speciality in oil and gas Properties, and (y) such exchange is
approved by a majority of the Disinterested Directors of the Company; (iv) the
abandonment, farm-out, lease or sublease of developed or undeveloped oil and
gas properties in the ordinary course of business; (v) the sale or transfer of
surplus or obsolete equipment in the ordinary course of business; or (vi) any
transfer of Properties having a Fair Market Value of less than $750,000.
"Attributable Indebtedness" means, with respect to any particular
lease under which any Person is at the time liable and at any date as of which
the amount thereof is to be determined, the present value of the total net
amount of rent required to be paid by such Person under the lease during the
primary term thereof, without giving effect to any renewals at the option of
the lessee, discounted from the respective due dates thereof to such date of
determination at the rate of interest per annum implicit in the terms of the
lease. As used in the preceding sentence, the "net amount of rent" under any
lease for any such period shall mean the sum of rental and other payments
required to be paid with respect to such period by the lessee thereunder,
excluding any amounts required to be paid by such lessee on account of
maintenance and repairs, insurance, taxes, assessments, water
4
<PAGE> 13
rates or similar charges. In the case of any lease which is terminable by the
lessee upon payment of a penalty, such net amount of rent shall also include
the amount of such penalty, but no rent shall be considered as required to be
paid under such lease subsequent to the first date upon which it may be so
terminated.
"Average Life" means, with respect to any Indebtedness, as at any date
of determination, the quotient obtained by dividing (a) the sum of the products
of (i) the number of years (and any portion thereof) from the date of
determination to the date or dates of each successive scheduled principal
payment (including, without limitation, any sinking fund or mandatory
redemption payment requirements) of such Indebtedness multiplied by (ii) the
amount of each such principal payment by (b) the sum of all such principal
payments.
"Bank Agent" means Chase Manhattan Bank, as agent or any successor or
replacement agents under the Credit Agreement.
"Board of Directors" means, with respect to the Company, either the
board of directors of the Company or any duly authorized committee of such
board of directors, and, with respect to any Restricted Subsidiary, either the
board of directors of such Restricted Subsidiary or any duly authorized
committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
its Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee, and with respect to a Restricted
Subsidiary, a copy of a resolution certified by the Secretary or an Assistant
Secretary of such Restricted Subsidiary to have been duly adopted by its Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the Borough of
Manhattan, The City of New York, New York, or the city in which the Trustee's
Corporate Trust Office is located, are authorized or obligated by law or
executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents in the equity
interests (however designated) in such Person, and any rights (other than debt
securities convertible into an equity interest), warrants or options
exercisable for, exchangeable for or convertible into such an equity interest
in such Person.
"Capitalized Lease Obligation" means any obligation to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
any property (whether real, personal or mixed) that is required to be
classified and accounted for as a capital lease obligation under GAAP, and, for
the purpose of this Indenture, the amount of such obligation at any date shall
be the capitalized amount thereof at such date, determined in accordance with
GAAP.
5
<PAGE> 14
"Cash Equivalents" means (a) any evidence of Indebtedness with a
maturity of 365 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (b) demand and time deposits and certificates of
deposit or acceptances with a maturity of 365 days or less of any financial
institution that is a member of the Federal Reserve System, or a United States
branch of a commercial bank with its principal offices located in Australia, in
each case having combined capital and surplus and undivided profits of not less
than $500,000,000; (c) commercial paper with a maturity of 365 days or less
issued by a corporation that is not an Affiliate of the Company and is
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by S&P or at least P-1 by Moody's; (d)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (a) above entered into with any
commercial bank meeting the specifications of clause (b) above; and (e)
overnight bank deposits and bankers' acceptances at any commercial bank meeting
the qualifications specified in clause (b) above.
"Change of Control" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections
13(d)(3) or 14(d)(2) of the Exchange Act) other than the Exempt Interest is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of more than (i) 50% of the total voting power of
the outstanding Voting Stock of the Parent or (ii) 50% of the total voting
power of outstanding Voting Stock of the Company; (b) the Parent or the Company
is merged with or into or consolidated with another Person and, immediately
after giving effect to the merger or consolidation, (i) less than 50% of the
total voting power of the outstanding Voting Stock of the surviving or
resulting Person is then "beneficially owned" (within the meaning of Rule 13d-3
under the Exchange Act) in the aggregate by (A) the stockholders of the Parent
or the Company immediately prior to such merger or consolidation, or (B) if a
record date has been set to determine the stockholders of the Parent or the
Company entitled to vote with respect to such merger or consolidation, the
stockholders of the Parent or the Company as of such record date and (ii) any
"person" or "group" (as such terms are used in Sections 13(d)(3) or 14(d)(2) of
the Exchange Act) has become the direct or indirect "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total
voting power of the Voting Stock of the surviving or resulting Person; (c) the
Company, either individually or in conjunction with one or more Restricted
Subsidiaries, sells, conveys, transfers or leases, or the Restricted
Subsidiaries sell, convey, transfer or lease, all or substantially all of the
assets of the Company and the Restricted Subsidiaries, taken as a whole (either
in one transaction or a series of related transactions), including Capital
Stock of the Restricted Subsidiaries, to any Person (other than the Company or
a Wholly Owned Subsidiary that is a Restricted Subsidiary); (d) during any
consecutive two-year period, (i) individuals who at the beginning of such
period constituted the Board of Directors of the Parent or (ii) in the event
the Parent is not the beneficial owner, directly or indirectly of 50% of the
total voting power of the outstanding Voting Stock of the Company, individuals
who at the beginning of such two year period constituted the Board of Directors
of the Company (in each case, together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders of
Parent or the Company, as the case may be, was approved by a vote of a
majority of the directors then still in office who were either directors
6
<PAGE> 15
at the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority of
the Board of Directors of the Parent or the Company, as the case may be, then
in office; or (e) the liquidation or dissolution of the Company. For purposes
of this definition only, "Parent" shall also include any Subsidiary of Parent
that holds, directly or indirectly, more than 50% of the total voting power of
the outstanding Voting Stock of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended, as
now or hereafter in effect, together with all regulations, rulings and
interpretations thereof or thereunder issued by the Internal Revenue Service.
"Commission" or "SEC" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution
of assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Exploration Expense" means all exploration expenses of
the Company and Restricted Subsidiaries to the extent deducted in calculating
Consolidated Net Income.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the
ratio of (a) the sum of Consolidated Net Income, Consolidated Interest Expense,
Consolidated Income Tax Expense, Consolidated Exploration Expense and
Consolidated Non-cash Charges deducted in computing Consolidated Net Income, in
each case, for such period, of the Company and its Restricted Subsidiaries on a
consolidated basis, all determined in accordance with GAAP, decreased (to the
extent included in determining Consolidated Net Income) by 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, to (b) the sum of
such Consolidated Interest Expense for such period; provided that (i) in making
such computation, the Consolidated Interest Expense attributable to interest on
any Indebtedness required to be
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<PAGE> 16
computed on a pro forma basis in accordance with clause (x) of Section 9.11
hereof and bearing a floating interest rate shall be computed as if the rate in
effect on the date of computation had been the applicable rate for the entire
period, (ii) in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness under a revolving credit facility
required to be computed on a pro forma basis in accordance with clause (x) of
Section 9.11 hereof shall be computed based upon the average daily balance of
such Indebtedness during the applicable period, provided that such average
daily balance shall be reduced by the amount of any repayment of Indebtedness
under a revolving credit facility during the applicable period, which repayment
permanently reduced the commitments or amounts available to be reborrowed under
such facility, (iii) notwithstanding clauses (i) and (ii) of this proviso,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Interest Rate Protection
Obligations, shall be deemed to have accrued at the rate per annum resulting
after giving effect to the operation of such agreements and (iv) in making such
calculation, Consolidated Interest Expense shall exclude interest attributable
to Dollar-Denominated Production Payments.
"Consolidated Income Tax Expense" means, for any period, the provision
for federal, state, local and foreign income taxes of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP, including, without limitation, (i) any amortization of
debt discount, (ii) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing and (v) all accrued interest, in each case to the extent attributable
to such period, (b) to the extent any Indebtedness of any Person (other than
the Company or a Restricted Subsidiary) is guaranteed by the Company or any
Restricted Subsidiary, the aggregate amount of interest paid or accrued by such
other Person during such period attributable to any such Indebtedness, in each
case to the extent attributable to that period, (c) the aggregate amount of the
interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and its Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with
GAAP and (d) the aggregate amount of dividends paid or accrued on Redeemable
Capital Stock or Preferred Stock of the Company and its Restricted
Subsidiaries, to the extent such Redeemable Capital Stock or Preferred Stock is
owned by Persons other than Restricted Subsidiaries.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto),
(b) net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) the net income (or net loss) of any Person
(other than the Company or any of its Restricted Subsidiaries), in which the
Company or any of its Restricted Subsidiaries has
8
<PAGE> 17
an ownership interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or its Restricted Subsidiaries in
cash by such other Person during such period (regardless of whether such cash
dividends, distributions or interest on indebtedness is attributable to net
income (or net loss) of such Person during such period or during any prior
period), (d) net income (or net loss) of any Person combined with the Company
or any of its Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (e) the net income
of any Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary is not at the
date of determination permitted, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (f) income resulting from transfers of assets
received by the Company or any Restricted Subsidiary from an Unrestricted
Subsidiary, (g) any write- downs of non-current assets; provided, however, that
any ceiling limitation write-downs under SEC guidelines shall be treated as
capitalized costs, as if such write-downs had not occurred and (h) any
cumulative effect of a change in accounting principles..
"Consolidated Net Worth" means, at any date, the consolidated
stockholders' equity of the Company less the amount of such stockholders'
equity attributable to Redeemable Capital Stock or treasury stock of the
Company and its Restricted Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization, impairment, stock compensation and other
non-cash expenses of the Company and its Restricted Subsidiaries reducing
Consolidated Net Income for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such non-cash charge which requires an
accrual of or reserve for cash charges for any future period).
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 101 Barclay Street, Floor 21 West, New York, New York 10286,
Attention: Corporate Trust Administration.
"Credit Agreement" means the Credit Agreement dated April 25, 1996, as
amended, among the Company and Chase Manhattan Bank, as agent, and the other
lenders party thereto from time to time, as such agreement may be further
amended, modified, supplemented, extended, restated, replaced (including
replacement after the termination of such agreement), restructured, increased,
renewed or refinanced from time to time in one or more credit agreements, loan
agreements, instruments or similar agreements, as such may be further amended,
modified, supplemented, extended, restated, replaced (including replacement
after the termination of such agreement), restructured, increased, renewed or
refinanced from time to time.
"Credit Agreement Obligations" means all monetary obligations of every
nature of the Company or a Restricted Subsidiary, including without limitation,
obligations to pay principal and
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<PAGE> 18
interest, reimbursement obligations in connection with letters of credit, fees,
expenses, indemnities and other amounts, from time to time owed to the lenders
or any agent under or in respect of the Credit Agreement or any note, mortgage
or other agreement, instrument or document executed at any time in connection
with or pursuant to the Credit Agreement.
"Default" means any event, act or condition that is, or after notice
or passage of time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 2.10 hereof.
"Definitive Securities" means Securities that are in the form set
forth in Exhibit A attached hereto (but without including the text referred to
in footnote 1 and footnote 2 thereto).
"Depositary" means with respect to the Securities issuable or issued
in whole or in part in global form, the Person specified in Section 2.6 hereof
as the Depositary with respect to the Securities, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Designated Guarantor Senior Indebtedness" means, with respect to a
Subsidiary Guarantor, (a) all Guarantor Senior Indebtedness of such Subsidiary
Guarantor constituting Credit Agreement Obligations and (b) any other Guarantor
Senior Indebtedness which (i) at the time of incurrence equals or exceeds
$10,000,000 in aggregate principal amount and (ii) is specifically designated
by such Subsidiary Guarantor in the instrument evidencing such Guarantor Senior
Indebtedness as "Designated Guarantor Senior Indebtedness" for purposes of this
Indenture.
"Designated Senior Indebtedness" means (a) all Senior Indebtedness
constituting Credit Agreement Obligations and (b) any other Senior Indebtedness
which (i) at the time of incurrence equals or exceeds $10,000,000 in aggregate
principal amount and (ii) is specifically designated by the Company in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of this Indenture.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors of the
Company is required to deliver a resolution of the Board of Directors under
this Indenture, a member of the Board of Directors of the Company who does not
have any material direct or indirect financial interest (other than an interest
arising solely from the beneficial ownership of Capital Stock of the Company,
the Parent or an Affiliate of Parent or the Company) in or with respect to such
transaction or series of transactions.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
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"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and all rules, regulations, rulings and
interpretations thereof issued by the Internal Revenue Service or the
Department of Labor thereunder.
"ERISA Affiliate" shall mean any subsidiary or trade or business
(whether or not incorporated) which is a member of a group of which the Company
is a member and which is under common control within the meaning of Section 414
of the Code (such rules and regulations shall also be deemed to apply to
foreign corporations and entities).
"Event of Default" has the meaning specified in Section 4.1 hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor act thereto.
"Exchange Offer" means the offer by the Company to the Holders of all
outstanding Transfer Restricted Securities to exchange all such outstanding
Transfer Restricted Securities held by such Holders for Series B Securities, in
an aggregate principal amount equal to the aggregate principal amount of the
Transfer Restricted Securities tendered in such exchange offer by such Holders.
"Exempt Interest" means, collectively, (a) Terrence N. Fern, his
spouse, lineal descendants and ascendants, heirs, executors or other legal
representatives and any trusts established for the benefit of the foregoing,
(b) any company, corporation or other business entity a majority of the
outstanding Voting Stock of which is owned beneficially and of record by a
Person described in clause (a) of this definition or (c) a Subsidiary of the
Parent provided that such Subsidiary shall constitute an Exempt Interest only
for so long as a majority of the outstanding Voting Stock is "beneficially
owned" (within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, by the Parent.
"Fair Market Value" means the fair market value of a Property
(including shares of Capital Stock) or Redeemable Capital Stock as determined
by a Board Resolution of the Company adopted in good faith, which determination
shall be conclusive for purposes of this Indenture; provided, however, that
unless otherwise specified herein, the Board of Directors shall be under no
obligation to obtain any valuation or assessment from any investment banker,
appraiser or other third party.
"Federal Bankruptcy Code" means the United States Bankruptcy Code of
Title 11 of the United States Code, as amended from time to time.
"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States of America, which are applicable as of the date of this Indenture.
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"Global Security" means a Security that is issued in global form in
the name of Cede & Co. or such other name as may be requested by an authorized
representative of the Depositary, and that contains the paragraph referred to
in footnote 1 and the additional schedule referred to in footnote 2 to the form
of Security attached hereto as Exhibit A.
"Guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. When used as a verb,
"guarantee" shall have a corresponding meaning.
"Guarantor Senior Indebtedness" means all Indebtedness of a Subsidiary
Guarantor (including Indebtedness of a Subsidiary Guarantor under any guarantee
of Indebtedness under the Credit Agreement) created, incurred, assumed or
guaranteed by such Subsidiary Guarantor (and all renewals, substitutions,
refinancings or replacements thereof) (including the principal of, interest on
and fees, premiums, expenses (including costs of collection), indemnities and
other amounts payable in connection with such Indebtedness) (and including, in
the case of the Credit Agreement, interest accruing after the filing of a
petition by or against such Subsidiary Guarantor under any bankruptcy law, in
accordance with and at the rate, including any default rate, specified with
respect to such indebtedness, whether or not a claim for such interest is
allowed as a claim after such filing in any proceeding under such bankruptcy
law), unless the instrument governing such Indebtedness expressly provides that
such Indebtedness is not senior in right of payment to its Subsidiary
Guarantee. Notwithstanding the foregoing, Guarantor Senior Indebtedness of a
Subsidiary Guarantor will not include (a) Indebtedness of such Subsidiary
Guarantor evidenced by its Subsidiary Guarantee, (b) Indebtedness of such
Subsidiary Guarantor that is expressly subordinated or junior in right of
payment to any Guarantor Senior Indebtedness of such Subsidiary Guarantor or
its Subsidiary Guarantee, (c) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11 United States Code,
is by its terms without recourse to such Subsidiary Guarantor, (d) any
repurchase, redemption or other obligation in respect of Redeemable Capital
Stock of such Subsidiary Guarantor, (e) to the extent it might constitute
Indebtedness, any liability for federal, state, local or other taxes owed or
owing by such Subsidiary Guarantor, (f) Indebtedness of such Subsidiary
Guarantor to the Company or any of the Company's other Subsidiaries or any
other Affiliate of the Company or any of such Affiliate's Subsidiary, and (g)
that portion of any Indebtedness of such Subsidiary Guarantor which at the time
of issuance is issued in violation of this Indenture (but, as to any such
Indebtedness, no such violation shall be deemed to exist for purposes of this
clause (g) if the holder(s) of such Indebtedness or their representative or
such Subsidiary Guarantor shall have furnished to the Trustee an Opinion of
Counsel unqualified in all material respects of independent legal counsel,
addressed to the Trustee (which legal counsel may, as to matters of fact, rely
upon a certificate of such Subsidiary Guarantor) to the effect that the
incurrence of such Indebtedness does not violate the provisions of such
Indenture); provided that the foregoing exclusions shall not affect the
priorities of any Indebtedness arising solely by operation
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<PAGE> 21
of law in any case or proceeding or similar event described in clause (a), (b)
or (c) of the definition of "Insolvency or Liquidation Proceedings."
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, without duplication,
(a) all liabilities of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade accounts payable
and other accrued current liabilities incurred in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person under any letters of credit, bankers' acceptance or
other similar credit transaction and in connection with any agreement to
purchase, redeem, exchange, convert or otherwise acquire for value any Capital
Stock of such Person, or any warrants, rights or options to acquire such
Capital Stock, now or hereafter outstanding, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (b) all obligations of such Person evidenced
by bonds, notes, debentures or other similar instruments, if, and to the
extent, any of the foregoing would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, (c) all Indebtedness of such
Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (d) all
Capitalized Lease Obligations of such Person, (e) the Attributable Indebtedness
(in excess of any related Capitalized Lease Obligations) related to any
Sale/Leaseback Transaction of such Person, (f) all Indebtedness referred to in
the preceding clauses of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (g) all guarantees by such Person of Indebtedness
referred to in this definition (including, with respect to any Production
Payment, any warranties or guaranties of production or payment by such Person
with respect to such Production Payment but excluding other contractual
obligations of such Person with respect to such Production Payment), (h) all
Redeemable Capital Stock of such Person valued at the greater of its voluntary
or involuntary maximum fixed repurchase price plus accrued dividends, (i) all
obligations of such Person under or in respect of currency exchange contracts
and Interest Rate Protection Obligations and (j) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of
such Person of the types referred to in clauses (a) through (i) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to this Indenture, and if such price is
based upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock,
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<PAGE> 22
provided, however, that if such Redeemable Capital Stock is not at the date of
determination permitted or required to be repurchased, the "maximum fixed
repurchase price" shall be the book value of such Redeemable Capital Stock.
Subject to clause (g) of the first sentence of this definition, neither
Dollar-Denominated Production Payments nor Volumetric Production Payments shall
be deemed to be Indebtedness.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Purchasers" means Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and Salomon Brothers Inc, as initial purchasers in the Offering.
"Insolvency or Liquidation Proceeding" means, with respect to any
Person, (a) an insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization proceeding or other similar case or
proceeding in connection therewith, relating to such Person or to its
creditors, as such, or its assets, (b) any liquidation, dissolution or other
winding-up of such Person, whether voluntary or involuntary, or (c) any
assignment for the benefit of creditors or any other marshaling of assets and
liabilities of such Person.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate Protection Obligations" means the obligations of any
Person pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
Person calculated by applying a fixed or a floating rate of interest on the
same notional amount and includes, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to
protect against or manage such Person's and any of its Subsidiaries' exposure
to fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or
capital contribution to (by means of any transfer of cash or other property or
assets to others (other than Capital Stock of the Company) or any payment for
property, assets or services for the account or use of others), or any purchase
or acquisition by such Person of any Capital Stock, bonds, notes, debentures or
other securities (including derivatives) or evidences of Indebtedness issued
by, any other Person. In addition, the Fair Market Value of the net assets of
any Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary shall be deemed to be an "Investment"
made by the Company in such Unrestricted Subsidiary at such time. "Investments"
shall exclude (a) extensions of trade credit on commercially reasonable terms
in accordance with normal trade
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practices and (b) Interest Rate Protection Obligations entered into in the
ordinary course of business or as required by any Permitted Indebtedness or any
Indebtedness incurred in compliance with Section 9.11 hereof, but only to the
extent that the notional principal amount of such Interest Rate Protection
Obligations does not exceed 105% of the principal amount of such Indebtedness
to which such Interest Rate Protection Obligations relate, (c) bonds, notes,
debentures or other securities received as a result of Asset Sales permitted
under Section 9.16 hereof and (d) endorsements of negotiable instruments and
documents in the ordinary course of business.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
any agreement to give or grant a Lien or any lease, conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing) upon or with respect to any property of any kind. A Person
shall be deemed to own subject to a Lien any property which such Person has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Material Change" means an increase or decrease (excluding changes
that result solely from changes in prices) of more than 10% during a fiscal
quarter in the estimated discounted future net cash flows from proved oil and
gas reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (a) (i) of the definition of Adjusted Consolidated Net
Tangible Assets; provided, however, that the following will be excluded from
the calculation of Material Change: (a) any acquisitions during the quarter of
oil and gas reserves that have been estimated by a nationally recognized firm
of independent petroleum engineers and on which a report or reports exist and
(b) any disposition of properties held at the beginning of such quarter that
have been disposed of as provided in Section 9.16 hereof.
"Maturity" means, with respect to any Security, the date on which any
principal of such Security becomes due and payable as provided therein or
herein, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (a)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel and investment banks) related to such Asset Sale, (b)
provisions for all taxes payable as a result of such Asset Sale, (c) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the assets subject to the Asset
Sale, (d) amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under any credit facility)
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<PAGE> 24
secured by a Lien on the assets that were the subject of such Asset Sale and
(e) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with GAAP
consistently applied against any liabilities associated with such Asset Sale
and retained by the Company or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee; provided, however, that any amounts remaining after adjustments,
revaluations or liquidations of such reserves shall constitute Net Cash
Proceeds.
"Net Working Capital" means (a) all current assets of the Company and
its Restricted Subsidiaries, minus (b) all current liabilities of the Company
and its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.
"Non-payment Default" means, for purposes of Article XIII hereof, any
event (other than a Payment Default) the occurrence of which entitles one or
more Persons to act to accelerate the maturity of any Designated Senior
Indebtedness.
"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
or assets and as to which (a) the holders of such Indebtedness agree that they
will look solely to the property or assets so acquired and securing such
Indebtedness for payment on or in respect of such Indebtedness and (b) no
default with respect to such Indebtedness would permit (after notice or passage
of time or both), according to the terms thereof, any holder of any
Indebtedness of the Company or a Restricted Subsidiary to declare a default on
such Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity.
"Note Obligations" means any principal of, premium, if any, and
interest on, and any other amounts (including, without limitation, any payment
or purchase obligations with respect to the Securities as a result of any Asset
Sale, Change of Control or redemption) owing in respect of, the Securities
payable pursuant to the terms of the Securities or this Indenture or upon
acceleration of the Securities, in each case whether now or hereafter existing.
"Offering" means the Offering of the Series A Securities pursuant to
the Offering Memorandum.
"Offering Memorandum" means the Offering Memorandum of the Company,
dated June 6, 1997, relating to the Offering.
"Officer" means, with respect to any Person, the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer or the
Treasurer of such Person.
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<PAGE> 25
"Officers' Certificate" means a certificate signed by the Chairman,
the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and
delivered to the Trustee.
"Oil and Gas Business" means (a) the acquisition, exploration,
development, operation and disposition of interests in oil, gas and other
hydrocarbon properties including properties producing other minerals and
products in association with hydrocarbon production, (b) the gathering,
marketing, treating, processing, storage, refining, selling and transporting of
any production of oil, gas and other minerals produced in association therewith
from such interests or Properties, (c) any business relating to or arising from
exploration for or development, production, treatment, processing, storage,
refining, transportation or marketing of oil, gas and other minerals and
products produced in association therewith, and (d) any activity necessary,
appropriate or incidental to the activities described in the foregoing clauses
(a) through (c) of this definition.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company (or any Subsidiary Guarantor, if applicable), including
an employee of the Company (or any Subsidiary Guarantor, if applicable), and
who shall be reasonably acceptable to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Securities or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited with
the Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to the Trustee
has been made;
(c) Securities, except to the extent provided in Sections
11.2 and 11.3 hereof, with respect to which the Company has effected defeasance
and/or covenant defeasance as provided in Article XI hereof; and
(d) Securities which have been paid pursuant to Section
2.9 hereof or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the Trustee
proof satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands the Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or
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waiver hereunder, and for the purpose of making the calculations required by
TIA Section 313, Securities owned by the Company, any Subsidiary Guarantor, or
any other obligor upon the Securities or any Affiliate of the Company, any
Subsidiary Guarantor, or such other obligor shall be disregarded and deemed not
to be Outstanding, except that, in determining whether the Trustee shall be
protected in making such calculation or in relying upon any such request,
demand, authorization, direction, consent, notice or waiver, only Securities
which a Responsible Officer of the Trustee actually knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction
of the Trustee the pledgee's right so to act with respect to such Securities
and that the pledgee is not the Company, any Subsidiary Guarantor, or any other
obligor upon the Securities or any Affiliate of the Company, any Subsidiary
Guarantor, or such other obligor.
"Parent" means Petsec Energy Ltd, an Australian public limited
company, or its successor, or if the foregoing entity ceases to beneficially
own, directly or indirectly, 50% of the Voting Stock of the Company, "Parent"
shall mean such ultimate parent corporation, limited company or other business
entity that beneficially owns, directly or indirectly, more than 50% of the
Voting Stock of the Company.
"Pari Passu Indebtedness" means any Indebtedness of the Company that
is pari passu in right of payment to the Securities.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium,
if any, on) or interest on any Securities on behalf of the Company.
"Payment Default" means any default in the payment when due (whether
at Stated Maturity, upon scheduled repayment, upon acceleration or otherwise)
of principal of or premium, if any, or interest on, or of unreimbursed amounts
under drawn letter of credit or fees relating to letter of credit constituting,
any Designated Senior Indebtedness.
"Permitted Guarantor Junior Securities" means with respect to any
Subsidiary Guarantor, so long as the effect of any exclusion employing this
definition is not to cause such Subsidiary Guarantee to be treated in any case
or proceeding or similar event described in clause (a), (b) or (c) of the
definition of Insolvency or Liquidation Proceeding as part of the same class of
claims as Guarantor Senior Indebtedness of such Subsidiary Guarantor or any
class of claims pari passu with, or senior to, Guarantor Senior Indebtedness of
such Subsidiary Guarantor, for any payment or distribution, debt or equity
securities of such Subsidiary Guarantor or any successor corporation provided
for or by a plan of reorganization or readjustment that are subordinated at
least to the same extent that such Subsidiary Guarantee is subordinated to the
payment of all Guarantor Senior Indebtedness of such Subsidiary Guarantor when
outstanding; provided that (i) if a new corporation results from such
reorganization or readjustment, such corporation assumes any Guarantor Senior
Indebtedness of such Subsidiary Guarantor not paid in full in cash or cash
equivalents in connection with such reorganization or readjustment and (ii) the
rights of the holders of such Guarantor Senior
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<PAGE> 27
Indebtedness are not, without the consent of such holders, altered by such
reorganization or readjustment.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Company under one or more credit
or revolving credit facilities, including Indebtedness of the Company under the
Credit Agreement, (which may also include credit or revolving credit facilities
provided by an Affiliate of the Company provided that such facility and
borrowings thereunder comply with Section 9.17 hereof) in an aggregate
principal amount at any one time outstanding not to exceed the greater of (i)
$85 million and (ii) an amount equal to the sum of (A) $25 million and (B) 20%
of Adjusted Consolidated Net Tangible Assets determined as of the date of the
incurrence of such Indebtedness (such greater amount being referred to as the
"Adjusted Maximum Credit Amount") (plus interest and fees under such
facilities), less any amounts derived from Asset Sales and applied to the
required permanent reduction of Senior Indebtedness (and a permanent reduction
of the related commitment to lend or amount available to be reborrowed in the
case of a revolving credit facility) under such credit facilities as
contemplated by Section 9.16(b)(i) (the "Maximum Credit Amount") (with the
Maximum Credit Amount to be an aggregate maximum amount for the Company and all
Restricted Subsidiaries, pursuant to clause (a) of the definition of "Permitted
Subsidiary Indebtedness"), and any renewals, amendments, extensions,
supplements, modifications, deferrals, refinancings or replacements (each, for
purposes of this clause, a "refinancing") thereof by the Company, including any
successive refinancings thereof by the Company, so long as the aggregate
principal amount of any such new Indebtedness, together with the aggregate
principal amount of all other Indebtedness outstanding pursuant to this clause
(a) (and clause (a) of the definition of "Permitted Subsidiary Indebtedness"),
shall not at any one time exceed the Maximum Credit Amount;
(b) Indebtedness of the Company under the Securities;
(c) Indebtedness of the Company outstanding on the date
of this Indenture (and not repaid or defeased with the proceeds of the
Offering) provided that the aggregate principal amount of such Indebtedness for
borrowed money shall not exceed $50,000,000, and provided further that if such
Indebtedness is payable to an Affiliate of the Company, such Indebtedness (i)
shall be subordinate in right of payment to the Securities and all other
Indebtedness of the Company, at least to the same extent as the Securities are
subordinated in right of payment to the Senior Indebtedness and (ii) shall not
be subject to maturity or any mandatory principal or sinking fund payment or
mandatory repurchase right prior to 91 days after the stated Maturity of the
Securities;
(d) obligations of the Company pursuant to Interest Rate
Protection Obligations, but only to the extent such obligations do not exceed
105% of the aggregate principal amount of the Indebtedness covered by such
Interest Rate Protection Obligations; obligations under currency exchange
contracts entered into in the ordinary course of business; and hedging
arrangements that the Company enters into in the ordinary course of business
for the purpose of protecting its production against fluctuations in oil or
natural gas prices;
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<PAGE> 28
(e) Indebtedness of the Company to any Restricted
Subsidiaries;
(f) in-kind obligations relating to net gas balancing
positions arising in the ordinary course of business and consistent with past
practice;
(g) Indebtedness in respect of bid, performance or surety
bonds issued for the account of the Company or any Restricted Subsidiary in the
ordinary course of business, including guarantees and letters of credit
supporting such bid, performance, surety or other reimbursement obligations (in
each case other than for an obligation for money borrowed);
(h) any renewals, extensions, substitutions, refinancings
or replacements (each, for purposes of this clause, a "refinancing") by the
Company of any Indebtedness of the Company other than Indebtedness incurred
pursuant to clauses (d), (f) and (g) of this definition, including any
successive refinancings by the Company, so long as (i) any such new
Indebtedness shall be in a principal amount that does not exceed the principal
amount (or, if such Indebtedness being refinanced provides for an amount less
than the principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination) so
refinanced plus the amount of any premium required to be paid in connection
with such refinancing pursuant to the terms of the Indebtedness refinanced or
the amount of any premium reasonably determined by the Company as necessary to
accomplish such refinancing, plus the amount of expenses of the Company
incurred in connection with such refinancing, and (ii) in the case of any
refinancing of Subordinated Indebtedness, such new Indebtedness is made
subordinate to the Securities at least to the same extent as the Indebtedness
being refinanced and (iii) such new Indebtedness has an Average Life equal to
or longer than the Average Life of the Indebtedness being refinanced and a
final Stated Maturity equal to or later than the final Stated Maturity of the
Indebtedness being refinanced;
(i) Subordinated Indebtedness of the Company to
Affiliates, provided, however, that all such Indebtedness (i) shall be incurred
solely for cash loaned or advanced to the Company, (ii) shall have a principal
amount equal to the amount of cash so loaned or advanced, (iii) shall be
subordinate in right of payment to the Securities and all other Indebtedness of
the Company, at least to the same extent as the Securities are subordinated in
right of payment to the Senior Indebtedness, (iv) shall not be subject to
maturity or any mandatory principal or sinking fund payment, or mandatory
repurchase right prior to 91 days after the Stated Maturity of the Securities,
and (v) the aggregate principal amount of Indebtedness incurred pursuant to
this clause (i) shall not exceed the aggregate interest payments made by the
Company after the date of this Indenture in respect of all Subordinated
Indebtedness of the Company to Affiliates;
(j) Non-Recourse Indebtedness;
(k) Indebtedness consisting of obligations in respect of
purchase price adjustments, indemnities or guarantees incurred in connection
with the acquisition or disposition of assets; and
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<PAGE> 29
(l) other Indebtedness of the Company in an aggregate
principal amount which, when taken together with all outstanding Indebtedness
incurred pursuant to clause (h) of this definition in respect of Indebtedness
previously incurred pursuant to this clause (l), does not exceed $25,000,000 at
any one time outstanding.
"Permitted Investments" means any of the following: (a) Investments in
Cash Equivalents; (b) Investments in the Company or any of its Restricted
Subsidiaries; (c) Investments in an amount not to exceed $15 million determined
as of the date of the making or incurrence of such Permitted Investment at any
one time outstanding; (d) Investments by the Company or any of its Restricted
Subsidiaries in another Person, if as a result of such Investment (i) such
other Person becomes a Restricted Subsidiary of the Company or (ii) such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a Restricted Subsidiary; (e)
entry into operating agreements, joint ventures, partnership agreements,
working interests; royalty interests, mineral leases, processing agreements,
farm-out agreements, farm-in agreements, contracts for the sale, transportation
or exchange of oil and natural gas, unitization agreements, pooling
arrangements, area of mutual interest agreements, production sharing agreements
or other similar or customary agreements, transactions, properties, interests
or arrangements, and Investments and expenditures in connection therewith or
pursuant thereto, in each case made or entered into in the ordinary course of
the Oil and Gas Business, excluding, however, Investments in corporations; (f)
entry into any hedging arrangements in the ordinary course of business for the
purpose of protecting the Company's or any Restricted Subsidiary's production
against fluctuations in oil or natural gas prices; (g) Investments in units of
any oil and gas royalty trust; (h) entry into a joint venture or partnership
agreement in connection with ownership and operation of office and building
real estate and related assets owned by the Company or any Restricted
Subsidiary and contribution of such assets to such entity; (i) Investments in
the form of securities received from Asset Sales, provided that such Asset
Sales are made in compliance with Section 9.16 hereof or (j) Investment in
shares of Capital Stock or other securities received in settlement of debts
owed to the Company or any of its Restricted Securities as a result of
foreclosure, perfection or enforcement of any Lien or Indebtedness or in
connection with any good faith settlement of a bankruptcy proceeding.
"Permitted Junior Securities" means, so long as the effect of any
exclusion employing this definition is not to cause the Securities to be
treated in any case or proceeding or similar event described in clause (a), (b)
or (c) of the definition of Insolvency or Liquidation Proceeding as part of the
same class of claims as Senior Indebtedness or any class of claims pari passu
with, or senior to, Senior Indebtedness, for any payment or distribution, debt
or equity securities of the Company or any successor corporation provided for
or by a plan of reorganization or readjustment that are subordinated at least
to the same extent that the Securities are subordinated to the payment of all
Senior Indebtedness when outstanding; provided that (i) if a new corporation
results from such reorganization or readjustment, such corporation assumes any
Senior Indebtedness not paid in full in cash or cash equivalents in connection
with such reorganization or readjustment and (ii) the rights of the holders of
such Senior Indebtedness are not, without the consent of such holders, altered
by such reorganization or readjustment.
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"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date the Securities are
first issued;
(b) Liens securing the Securities;
(c) Liens in favor of the Company or a Subsidiary
Guarantor;
(d) Liens securing Senior Indebtedness or Guarantor
Senior Indebtedness;
(e) Liens for taxes, assessments and governmental charges
or claims either (i) not delinquent or (ii) contested in good faith by
appropriate proceedings and as to which the Company or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be required
pursuant to GAAP;
(f) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary course of business;
(g) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the payment or
performance of tenders, statutory or regulatory obligations, surety and appeal
bonds, bids, leases, government contracts and leases, performance and return of
money bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money but including lessee or operator obligations under
statutes, governmental regulations or instruments related to the ownership,
exploration and production of oil, gas and minerals on state, federal or
foreign lands or waters);
(h) judgment Liens not giving rise to an Event of Default
so long as any appropriate legal proceedings which may have been duly initiated
for the review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have expired;
(i) easements, rights-of-way, restrictions and other
similar charges or encumbrances not interfering in any material respect with
the ordinary conduct of the business of the Company or any of its Restricted
Subsidiaries;
(j) any interest or title of a lessor under any
Capitalized Lease Obligation or operating lease;
(k) 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 the Subsidiaries;
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<PAGE> 31
(l) Liens securing obligations under hedging agreements
that the Company or any Restricted Subsidiary enters into in the ordinary
course of business for the purpose of protecting its production against
fluctuations in oil or natural gas prices;
(m) Liens upon specific items of inventory or other goods
and proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other goods;
(n) Liens securing reimbursement obligations with respect
to commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(o) Liens encumbering property or assets under
construction arising from progress or partial payments by a customer of the
Company or its Restricted Subsidiaries relating to such property or assets;
(p) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(q) Liens securing Interest Rate Protection Obligations
which Interest Rate Protection Obligations relate to Indebtedness that is
secured by Liens otherwise permitted under this Indenture;
(r) Liens on, or related to, properties or assets to
secure all or part of the costs incurred in the ordinary course of business for
the acquisition, exploration, drilling, development or operation thereof;
(s) Liens on pipeline or pipeline facilities which arise
out of operation of law;
(t) Liens arising under operating agreements, joint
venture agreements, partnership agreements, oil and gas leases, farm-out
agreements, farm-in agreements, division orders, contracts for the sale,
transportation or exchange of oil and natural gas, unitization and pooling
declarations and agreements, area of mutual interest agreements and other
agreements which are customary in the Oil and Gas Business;
(u) Liens reserved in oil and gas mineral leases for
bonus or rental payments and for compliance with the terms of such leases;
(v) Liens constituting survey exceptions, encumbrances,
easements, or reservations of, or rights to others for, rights-of-way, zoning
or other restrictions as to the use of real properties, and minor defects of
title which, in the case of any of the foregoing, were not incurred
23
<PAGE> 32
or created to secure the payment of borrowed money or the deferred purchase
price of Property or services, and in the aggregate do not materially adversely
affect the value of Property of the Company and the Restricted Subsidiaries,
taken as a whole, or materially impair the use of such Properties for the
purposes for which such Properties are held by the Company or any Restricted
Subsidiaries;
(w) 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 and assets acquired by the Company with the proceeds of such
Non-Recourse Indebtedness;
(x) Liens securing Attributable Indebtedness with respect
to any Sale/Leaseback Transaction permitted by this Indenture;
(y) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company and Liens on property
or assets of a Subsidiary existing at the time it became a Subsidiary, provided
that such Liens were in existence prior to the contemplation of the acquisition
and do not extend to any assets other than the acquired property;
(z) Liens on the Capital Stock of Unrestricted
Subsidiaries;
(aa) Liens to secure any permitted extension, renewal,
refinancing, refunding or exchange (or successive extensions, renewals,
refinancings, refundings or exchanges), in whole or in part, of or for any
Indebtedness secured by Liens referred to in clauses (b), (p), and (y) of this
definition; 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, the committed amount of the Indebtedness
secured by Liens described under clauses (b), (p), and (y) of this definition
at the time the original Lien became a Lien permitted in accordance with this
Indenture and (B) an amount necessary to pay any fees and expenses, including
premiums, related to such refinancing, refunding, extension, renewal or
exchange; and
(ab) other Liens that are incurred in the ordinary course
of business of the Company or any Restricted Subsidiary with respect to
obligations that do not exceed $5.0 million at any one time outstanding.
Notwithstanding anything in clauses (a) through (aa) of this definition, the
term "Permitted Liens" does not include any Liens resulting from the creation,
incurrence, issuance, assumption or guarantee of any Production Payments other
than Production Payments that are created, incurred, issued, assumed or
guaranteed in connection with the financing of, and within 30 days after, the
acquisition of the properties or assets that are subject thereto.
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<PAGE> 33
"Permitted Subsidiary Indebtedness" means any of the following:
(a) Indebtedness of any Restricted Subsidiary under one
or more credit or revolving credit facilities, including Indebtedness of any
Restricted Subsidiary under the Credit Agreement, (which may also include
credit or revolving credit facilities provided by an Affiliate of the Company
provided that such facility and borrowings thereunder comply with Section 9.17
hereof) (and "refinancings" thereof) in an amount at any one time outstanding
not to exceed the Maximum Credit Amount (in the aggregate for all Restricted
Subsidiaries and the Company, pursuant to clause (a) of the definition of
"Permitted Indebtedness");
(b) obligations of any Restricted Subsidiary pursuant to
Interest Rate Protection Obligations, but only to the extent such obligations
do not exceed 105% of the aggregate principal amount of the Indebtedness
covered by such Interest Rate Protection Obligations; and hedging arrangements
that any Restricted Subsidiary enters into in the ordinary course of business
for the purpose of protecting its production against fluctuations in oil or
natural gas prices;
(c) any Subsidiary Guarantees (and any assumption of the
obligations guaranteed thereby);
(d) Indebtedness of any Restricted Subsidiary relating to
guarantees by such Restricted Subsidiary of Permitted Indebtedness pursuant to
clause (a) of the definition of "Permitted Indebtedness;"
(e) in-kind obligations relating to net gas balancing
positions arising in the ordinary course of business and consistent with past
practice;
(f) Indebtedness in respect of bid, performance or surety
bonds or other reimbursement obligations issued for the account of any
Restricted Subsidiary in the ordinary course of business, including guarantees
and letters of credit supporting such bid, performance, surety bonds or other
reimbursement obligations (in each case other than for an obligation for money
borrowed);
(g) Indebtedness of any Restricted Subsidiary to any
other Restricted Subsidiary or to the Company;
(h) Indebtedness relating to guarantees by any Restricted
Subsidiary permitted to be incurred pursuant to Section 9.12(a) hereof;
(i) Non-Recourse Indebtedness; and
(j) any renewals, extensions, substitutions, refinancings
or replacements (each, for purposes of this clause, a "refinancing") by any
Restricted Subsidiary of any Indebtedness of such Restricted Subsidiary other
than Indebtedness incurred pursuant to clauses (b), (d) and (e) of this
definition, including any successive refinancings by such Restricted
Subsidiary, so long as (i)
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<PAGE> 34
any such new Indebtedness shall be in a principal amount that does not exceed
the principal amount (or, if such Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) so refinanced plus the amount of any premium required to be paid
in connection with such refinancing pursuant to the terms of the Indebtedness
refinanced or the amount of any premium reasonably determined by such
Restricted Subsidiary as necessary to accomplish such refinancing, plus the
amount of expenses of such Subsidiary incurred in connection with such
refinancing and (ii) such new Indebtedness has an Average Life equal to or
longer than the Average Life of the Indebtedness being refinanced and a final
Stated Maturity equal to or later than the final Stated Maturity of the
Indebtedness being refinanced.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 2.9 hereof in exchange for a
mutilated security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock, whether now outstanding or issued
after the date of this Indenture, including, without limitation, all classes
and series of preferred or preference stock of such Person.
"Production Payments" means, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.
"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, without limitation, Capital Stock in any
other Person.
"Public Equity Offering" means (a) an underwritten public offering for
cash by the Company of its Qualified Capital Stock pursuant to a registration
statement that has been declared effective by the Commission (other than a
registration statement on Form S-8 or any successor form or otherwise relating
to equity securities issuable under any employee benefit plan of the Company)
or (b) a public offering for cash by Parent of its Qualified Capital Stock
(including without limitation an offering of American depository shares) but
only to the extent that the net cash proceeds of such public offering of Parent
are advanced to the Company by Parent or it subsidiaries as an equity
contribution within 30 days of the completion of such offering.
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<PAGE> 35
"Public Market" exists at any time with respect to the Qualified
Capital Stock of the Company if such Qualified Capital Stock of the Company is
then (a) registered with the Securities and Exchange Commission pursuant to
Section 12(b) or 12(g) of the Exchange Act and (b) traded either on a national
securities exchange or on the NASDAQ Stock Market.
"Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed
prior to 91 days after the final Stated Maturity of the Securities or is
redeemable at the option of the holder thereof at any time prior to 91 days
after such final Stated Maturity, or is convertible into or exchangeable for
debt securities at any time prior to 91 days after such final Stated Maturity.
"Redemption Date," when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registrable Securities" shall have the meaning assigned to such term
in the Registration Rights Agreement.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of June 13, 1997, among the Company and the Initial
Purchasers.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the June 1 or December 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Reportable Event" shall mean any event described in Section 4043
(excluding subsections (b)(7) and (b)(9)) of ERISA and the regulations issued
thereunder (other than a Reportable Event not subject to the provision for
thirty-day notice to the PBGC under such regulations).
"Responsible Officer," when used with respect to the Trustee, means
any officer in the corporate trust department of the Trustee, and also means,
with respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.
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"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of this Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of this Indenture.
"S&P" means Standard and Poor's Corporation and its successors.
"Sale/Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which properties or assets are sold
or transferred by such Person or a Subsidiary of such Person and are thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries.
"Securities" means the Series A Securities and the Series B Securities
treated as a single class of Securities. For purposes of this Indenture, the
term "Securities" shall, except where the context otherwise requires, include
the Subsidiary Guarantees, if any.
"Securities Act" means the Securities of 1933, as amended, and any
successor statute.
"Security Custodian" means the Trustee, as custodian with respect to
the Securities in global form, or any successor entity thereto.
"Security Register" and "Securities Registrar" shall have the meanings
specified in Section 2.6 hereof.
"Senior Indebtedness" means the principal of, premium, if any, and
interest on any Indebtedness of the Company (including all Indebtedness of the
Company under the Credit Agreement (which includes reimbursement obligations in
connection with letters of credit thereunder) and, in the case of the Credit
Agreement, interest accruing after the filing of a petition by or against the
Company under any bankruptcy law, in accordance with and at the rate, including
any default rate, specified with respect to such indebtedness, whether or not a
claim for such interest is allowed as a claim after such filing in any
proceeding under such bankruptcy law), whether outstanding on the date of this
Indenture or thereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Securities.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the Securities, (b) Indebtedness that is expressly
subordinate or junior in right of payment to any Senior Indebtedness of the
Company, (c) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11 United States Code, is by its terms
without recourse to the Company, (d) any repurchase, redemption or other
obligation in respect of Redeemable Capital Stock of the Company, (e) to the
extent it might constitute Indebtedness, any liability for federal, state,
local or other taxes owed or owing by the Company, (f) Indebtedness of the
Company to a Subsidiary of the Company, to any other Affiliate of the Company
(other than a lender under the Credit Agreement) or to any of such Affiliate's
Subsidiaries (other than a lender under the Credit Agreement), and (g) that
portion of any Indebtedness of the
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Company which at the time of issuance is issued in violation of this Indenture
(but, as to any such Indebtedness, no such violation shall be deemed to exist
for purposes of this clause (g) if the holder(s) of such Indebtedness or their
representative or the Company shall have furnished to the Trustee an Opinion of
Counsel unqualified in all material respects of independent legal counsel,
addressed to the Trustee (which legal counsel may, as to matters of fact, rely
upon a certificate of the Company) to the effect that the incurrence of such
Indebtedness does not violate the provisions of such Indenture); provided that
the foregoing exclusions shall not affect the priorities of any Indebtedness
arising solely by operation of law in any case or proceeding or similar event
described in clause (a), (b) or (c) of the definition of "Insolvency or
Liquidation Proceeding."
"Senior Representative" means the Bank Agent or any other
representatives designated in writing to the Trustee of the holders of any
class or issue of Designated Senior Indebtedness; provided that, in the absence
of a representative of the type described above, any holder or holders of a
majority of the principal amount outstanding of any class or issue of
Designated Senior Indebtedness may collectively act as Senior Representative
for such class or issue, subject to the provisions of any agreements relating
to such Designated Senior Indebtedness.
"Series A Securities" means the Company's 9 1/2% Series A Senior Notes
due 2007 to be issued pursuant to this Indenture.
"Series B Securities" means the Company's 9 1/2% Series B Senior Notes
due 2007 to be issued pursuant to this Indenture in the Exchange Offer.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 2.10 hereof.
"Stated Maturity" means, when used with respect to any Security or any
installment of interest thereon, the date specified in such Security as the
fixed date on which the principal of such Security or such installment of
interest is due and payable, and, when used with respect to any other
Indebtedness or any installment of interest thereon, means the date specified
in the instrument evidencing or governing such Indebtedness as the fixed date
on which the principal of such Indebtedness or such installment of interest is
due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to the Note Obligations.
"Subsidiary" means, with respect to any Person, (a) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (b) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person performing
similar functions).
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<PAGE> 38
"Subsidiary Guarantee" means any guarantee of the Securities by any
Subsidiary Guarantor in accordance with the provisions of Section 12.1 hereof.
"Subsidiary Guarantor" means (a) each of the Company's Restricted
Subsidiaries that becomes a guarantor of the Securities in compliance with the
provisions of Section 9.12 or Section 12.1 hereof and (b) each of the
Company's Subsidiaries executing a supplemental indenture in which such
Subsidiary agrees to be bound by the terms of this Indenture and to guarantee
on an unsubordinated basis the payment of the Securities pursuant to the
provisions of Article XII hereof.
"Transfer Restricted Securities" means the Registrable Securities
under the Registration Rights Agreement.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended and in force at the date as of which this Indenture was executed,
except as provided in Section 8.5 hereof.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company that
at the time of determination will be designated an Unrestricted Subsidiary by
the Board of Directors of the Company as provided below and (b) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors of the Company may
designate any Subsidiary of the Company as an Unrestricted Subsidiary so long
as (i) neither the Company nor any Restricted Subsidiary is directly or
indirectly liable pursuant to the terms of any Indebtedness of such Subsidiary,
(ii) no default with respect to any Indebtedness of such Subsidiary would
permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default
on such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity, (iii) neither the Company nor any
Restricted Subsidiary has made an Investment in such Subsidiary unless such
Investment was made pursuant to, and in accordance with, Section 9.10 hereof
(other than Investments of the type described in clause (d) of the definition
of Permitted Investments), and (iv) such designation shall not result in the
creation or imposition of any Lien on any of the Properties of the Company or
any Restricted Subsidiary (other than any Permitted Lien or any Lien the
creation or imposition of which shall have been in compliance with Section 9.14
hereof); provided, however, that with respect to clause (i), the Company or a
Restricted Subsidiary may be liable for Indebtedness of an Unrestricted
Subsidiary if (A) such liability constituted a Permitted Investment or a
Restricted Payment permitted by Section 9.10 hereof, in each case at the time
of incurrence, or (B) the liability would be a Permitted Investment at the time
of designation of such Subsidiary as an Unrestricted Subsidiary. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing a Board Resolution with the Trustee giving effect to such
designation. The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving
effect to such designation, (x) no Default or Event of Default shall have
occurred and be continuing, (y) the
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Company could incur $1.00 of additional Indebtedness (not including the
incurrence of Permitted Indebtedness) under Section 9.11(a) hereof and (z) if
any of the Properties of the Company or any of its Restricted Subsidiaries
would upon such designation become subject to any Lien (other than a Permitted
Lien), the creation or imposition of such Lien shall have been in compliance
with Section 9.14 hereof.
"Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"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" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock
of any other class or classes shall have, or might have, voting power by reason
of the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
to the extent all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company.
"Wholly Owned Subsidiary" means, with respect to any Person, any
Subsidiary of such Person to the extent all of the Capital Stock or other
ownership interests in such Subsidiary, other than any directors qualifying
shares mandated by applicable law, is owned directly or indirectly by such
Person.
SECTION 1.2 Other Definitions.
<TABLE>
<CAPTION>
Defined
Term in Section
---- ----------
<S> <C>
"Agent Members" . . . . . . . . . . . . . . . . . 2.8(b)
"Change of Control Notice" . . . . . . . . . . . 9.15(c)
"Change of Control Offer" . . . . . . . . . . . . 9.15(a)
"Change of Control Purchase Date" . . . . . . . . 9.15(c)
"Change of Control Purchase Price" . . . . . . . 9.15(a)
"Defaulted Interest" . . . . . . . . . . . . . . 2.10
"Funding Guarantor" . . . . . . . . . . . . . . . 12.5
"Excess Proceeds" . . . . . . . . . . . . . . . . 9.16(b)
"Net Proceeds Deficiency" . . . . . . . . . . . . 9.16(c)
</TABLE>
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<PAGE> 40
<TABLE>
<S> <C>
"Net Proceeds Offer" . . . . . . . . . . . . . . 9.16(c)
"Net Proceeds Payment Date" . . . . . . . . . . . 9.16(c)
"Offered Price" . . . . . . . . . . . . . . . . . 9.16(c)
"Pari Passu Indebtedness Amount" . . . . . . . . 9.16(c)
"Pari Passu Offer" . . . . . . . . . . . . . . . 9.16(c)
"Payment Amount" . . . . . . . . . . . . . . . . 9.16(b)
"Payment Blockage Notice" . . . . . . . . . . . . 13.3(b)
"Payment Blockage Period" . . . . . . . . . . . 13.3(b)
"Permitted Payments" . . . . . . . . . . . . . . 9.10(b)
"Purchase Notice" . . . . . . . . . . . . . . . . 9.16(c)
"Restricted Payment" . . . . . . . . . . . . . . 9.10(a)
"Subsidiary Guarantor Non-payment Default" . . . 12.9(b)
"Subsidiary Guarantor Payment Default" . . . . . 12.9(a)
"Subsidiary Guarantor Payment Notice" . . . . . . 12.9(b)
"Surviving Entity" . . . . . . . . . . . . . . . 7.1(a)
"Trigger Date" . . . . . . . . . . . . . . . . . 9.16(c)
"U.S. Government Obligations" . . . . . . . . . . 11.4(a)
</TABLE>
SECTION 1.3 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities,
"indenture security holder" means a Holder,
"indenture to be qualified" means this Indenture,
"indenture trustee" or "institutional trustee" means the Trustee, and
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
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<PAGE> 41
SECTION 1.4 Rules of Construction.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) The terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP;
(c) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(d) unless the context otherwise requires, the word "or"
is not exclusive;
(e) provisions apply to successive events and
transactions; and
(f) references to agreements and other instruments
include subsequent amendments and waivers but only to the extent not prohibited
by this Indenture.
ARTICLE II
THE SECURITIES
SECTION 2.1 Forms Generally.
The Definitive Securities shall be printed, lithographed or engraved
on steel-engraved borders or may be produced in any other manner, all as
determined by the officers executing such Securities or notations of Subsidiary
Guarantees, as the case may be, as evidenced by their execution of such
Securities or notations of Subsidiary Guarantees, as the case may be.
Securities (including the notations thereon relating to the Subsidiary
Guarantees and the Trustees certificate of authentication) bought and sold
shall be issued initially in the form of one or more permanent Global
Securities substantially in the form set forth in Exhibit A attached hereto
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. Subject
to the limitation set forth in Section 2.2, the principal amount of the Global
Securities may be increased or decreased from time to time by adjustments made
on the records of the Trustee as custodian for the Depositary, as hereinafter
provided.
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Securities (including the notations thereon relating to any Subsidiary
Guarantees and the Trustees certificate of authentication) offered and sold
other than as described in the preceding paragraph shall be issued in the form
of Definitive Securities in registered form in substantially the form set forth
in Exhibit A.
The Securities, the notations thereon relating to any Subsidiary
Guarantees and the Trustee's certificate of authentication shall be in
substantially the forms set forth in Exhibit A attached hereto, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon
as may be required to comply with the rules of any securities exchange or as
may, consistently herewith, be determined by the officers executing such
Securities or notations of Subsidiary Guarantees, as the case may be, as
evidenced by their execution of the Securities or notations of Subsidiary
Guarantees, as the case may be. Any portion of the text of any Security may be
set forth on the reverse thereof, with an appropriate reference thereto on the
face of the Security. The Securities may also have set forth on the reverse
side thereof a form of assignment and forms to elect purchase by the Company
pursuant to Sections 9.15 and 9.16 hereof.
SECTION 2.2 Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $100,000,000
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section
2.5, 2.7, 2.9, 8.6, 9.15, 9.16 or 10.8 hereof.
The Securities shall be known and designated as the "9 1/2% Series A
Senior Subordinated Notes due 2007" and the "9 1/2% Series B Senior
Subordinated Notes due 2007" of the Company. Their Stated Maturity shall be
June 15, 2007, and they shall bear interest at the rate of 9 1/2% per annum
from April 13, 1997, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, payable semiannually on June 15th
and December 15th in each year, commencing December 15, 1997, and at said
Stated Maturity, until the principal thereof is paid or duly provided for.
The principal of (and premium, if any, on) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in the City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; provided, however, that, at
the option of the Company, interest may be paid (i) by check mailed to
addresses of the Persons entitled thereto as such addresses shall appear on the
Security Register, or (ii) with respect to any Holder owning Securities in the
principal amount of $500,000 or more, by wire transfer to an account maintained
by the Holder located in the United States, as specified in a written notice to
the Trustee, received prior to the relevant Regular Record Date, by any such
Holder requesting payment by wire transfer and specifying the account to which
transfer is requested.
The Securities shall be redeemable as provided in Article X hereof.
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<PAGE> 43
The Securities shall be subject to defeasance at the option of the
Company as provided in Article XI hereof.
The Securities may be guaranteed by the Subsidiary Guarantors as
provided in Article XII hereof.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIII hereof.
SECTION 2.3 Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 2.4 Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
Chairman, its President or one of its Vice Presidents, under its corporate seal
reproduced thereon (which may be by facsimile) and attested by its Secretary or
one of its Assistant Secretaries. The signature of any of these officers on
the Securities may be manual or facsimile signatures of the present or any
future such authorized officer and may be imprinted or otherwise reproduced on
the Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company and,
if guaranteed by a Subsidiary Guarantor, having the notation of Subsidiary
Guarantees executed by the Subsidiary Guarantors to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee in accordance with such Company
Order shall authenticate and deliver such Securities with the notation of
Subsidiary Guarantees, if any, thereon as provided in this Indenture.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
duly executed by the Trustee by manual signature of an authorized signatory,
and such certificate upon any Security shall be conclusive evidence, and the
only evidence, that such Security has been duly authenticated and delivered
hereunder and is entitled to the benefits of this Indenture.
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<PAGE> 44
In case the Company, pursuant to and in compliance with Article VII
hereof, shall be consolidated or merged with or into any other Person or shall
convey, transfer, lease or otherwise dispose of its Properties substantially as
an entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article VII hereof, any of the
Securities authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of
a successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such new name.
SECTION 2.5 Temporary Securities.
Pending the preparation of Definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the Definitive Securities in lieu of which they are issued and having
the notations of Subsidiary Guarantees, if any, thereon and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities and notations of Subsidiary Guarantees may
determine, as conclusively evidenced by their execution of such Securities and
notations of Subsidiary Guarantees.
If temporary Securities are issued, the Company will cause Definitive
Securities to be prepared without unreasonable delay. After the preparation of
Definitive Securities, the temporary Securities shall be exchangeable for
Definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 9.2
hereof, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Securities, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
Definitive Securities of authorized denominations having notations of
Subsidiary Guarantees, if any, thereon. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as Definitive Securities.
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<PAGE> 45
SECTION 2.6 Security Register and Depositary.
The Company shall cause to be kept at the Corporate Trust Office a
register (the register maintained in such office and in any other office or
agency designated pursuant to Section 9.2 hereof being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be
in written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times and during normal business
hours, the Security Register shall be open to inspection by the Trustee. The
Trustee is hereby initially appointed as security registrar (the "Security
Registrar") for the purpose of registering Securities and transfers of
Securities as herein provided.
The Company initially appoints The Depository Trust Company to act as
Depositary with respect to the Global Security.
SECTION 2.7 Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities. When
Definitive Securities are presented to the Securities Registrar with the
request:
(x) to register the transfer of the Definitive
Securities, or
(y) to exchange such Definitive Securities for an
equal principal amount of Definitive Securities of other
authorized denominations,
the Securities Registrar shall register the transfer or make the exchange as
requested if its requirement for such transactions are met; provided, however,
that the Definitive Securities presented or surrendered for registration of
transfer or exchange:
(i) shall be duly endorsed or accompanied by a
written instrument of transfer in form satisfactory to the Securities
Registrar duly executed by the Holder thereof or by his attorney, duly
authorized in writing; and
(ii) in the case of Transfer Restricted Securities
that are Definitive Securities, shall be accompanied by the following
additional information and documents, as applicable, upon which the
Securities Registrar may conclusively rely:
(A) if such Transfer Restricted
Securities are being delivered to the Registrar by a Holder
for registration in the name of such Holder, without transfer,
a certification from such Holder to that effect (in
substantially the form of Exhibit C hereto); or
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<PAGE> 46
(B) if such Transfer Restricted
Securities are being transferred (1) to a "qualified
institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the
Securities Act or (2) pursuant to an exemption from
registration in accordance with Rule 144 under the Securities
Act (and based upon an Opinion of Counsel if the Company or
the Trustee so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a
certification to that effect from such Holder (in
substantially the form of Exhibit C hereto); or
(C) if such Transfer Restricted
Securities are being transferred to an institutional
"accredited investor," within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act pursuant to a private
placement exemption from the registration requirements of the
Securities Act (and based upon an Opinion of Counsel if the
Company or the Trustee so requests), a certification to that
effect from such Holder (in substantially the form of Exhibit
C hereto) and a certification from the applicable transferee
(in substantially the form of Exhibit D hereto); or
(D) if such Transfer Restricted
Securities are being transferred in reliance on another
exemption from the registration requirements of the Securities
Act (and based upon an Opinion of Counsel if the Company or
the Trustee so requests), a certification to that effect from
such Holder (in substantially the form of Exhibit C hereto).
(b) Restriction on Transfer of a Definitive Security for
a Beneficial Interest in a Global Security. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Trustee, together with:
(i) if such Definitive Security is a Transfer
Restricted Security, certification, substantially in the form of
Exhibit C hereto, upon which the Trustee may conclusively rely, that
such Definitive Security is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities
Act) in accordance with Rule 144A under the Securities Act; or
(ii) whether or not such Definitive Security is a
Transfer Restricted Security, written instructions directing the
Trustee to make, or direct the Security Custodian to make, an
endorsement on the Global Security to reflect an increase in the
aggregate principal amount of the Securities represented by the Global
Security;
then the Trustee shall cancel such Definitive Security in accordance with
Section 2.12 hereof and cause, or direct the Security Custodian to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Security Custodian, the aggregate principal
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<PAGE> 47
amount of Securities represented by the Global Security to be increased
accordingly. If no Global Securities are then outstanding, the Company shall
issue and the Trustee shall authenticate a new Global Security in the
appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The
transfer and exchange of Global Securities or beneficial interests therein
shall be effected through the Depositary, in accordance with this Indenture
(including the restrictions on transfer set forth herein) and the procedures of
the Depositary therefor, which shall include restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act.
(d) Transfer of a Beneficial Interest in a Global
Security for a Definitive Security.
(i) Any Person having a beneficial interest in a
Global Security may upon request exchange such beneficial interest for
a Definitive Security. Upon receipt by the Trustee of written
instructions or such other form of instructions as is customary for
the Depositary, from the Depositary or its nominee on behalf of any
Person having a beneficial interest in a Global Security, and in the
case of a Transfer Restricted Security, the following additional
information and documents (all of which may be submitted by
facsimile), upon which the Trustee may conclusively rely:
(A) if such beneficial interest is being
transferred to the Person designated by the Depositary as
being the beneficial owner, a certification from such Person
to that effect (in substantially the form of Exhibit C
hereto); or
(B) if such beneficial interest is being
transferred (1) to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in accordance
with Rule 144A under the Securities Act or (2) pursuant to an
exemption from registration in accordance with Rule 144 under
the Securities Act (and based upon an Opinion of Counsel if
the Company or the Trustee so requests) or (3) pursuant to an
effective registration statement under the Securities Act, a
certification to that effect from the transferor (in
substantially the form of Exhibit C hereto); or
(C) if such beneficial interest is being
transferred to an institutional "accredited investor," within
the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement exemption from
the registration requirements of the Securities Act (and based
upon an Opinion of Counsel if the Company or the Trustee so
requests), a certification to that effect from such transferor
(in substantially the form of Exhibit C hereto) and a
certification from the applicable transferee (in substantially
the form of Exhibit D hereto); or
(D) if such beneficial interest is being
transferred in reliance on another exemption from the
registration requirements of the Securities Act (and
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<PAGE> 48
based upon an Opinion of Counsel if the Company so requests),
a certification to that effect from such transferor (in
substantially the form of Exhibit C hereto);
the Trustee or the Security Custodian, at the direction of the Trustee, shall,
in accordance with the standing instructions and procedures existing between
the Depositary and the Security Custodian, cause the aggregate principal amount
of Global Securities to be reduced accordingly and, following such reduction,
the Company shall execute and the Trustee shall authenticate and deliver to the
transferee a Definitive Security in the appropriate principal amount.
(ii) Definitive Securities issued in exchange for
a beneficial interest in a Global Security pursuant to this Section
2.7(d) shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Definitive Securities to the
Persons in whose names such Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global
Securities. Notwithstanding any other provisions of this Indenture (other than
the provisions set forth in subsection (f) of this Section 2.7), a Global
Security may not be transferred as a whole except by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary
or another nominee of the Depositary or by the Depositary or any such nominee
to a successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Securities in Absence of
Depositary. If at any time:
(i) the Depositary for the Securities notifies
the Company that the Depositary is unwilling or unable to continue as
Depositary for the Global Securities and a successor Depositary for
the Global Securities is not appointed by the Company within 90 days
after delivery of such notice;
(ii) an Event of Default has occurred and is
continuing and the Security Registrar has received a request from the
Depositary to issue Definitive Securities in lieu of all or a portion
of the Global Security (in which case the Company shall deliver
Definitive Securities within 30 days of such request); or
(iii) the Company, at its sole discretion, notifies
the Trustee in writing that it elects to cause the issuance of
Definitive Securities under this Indenture,
then the Company will execute, and the Trustee will authenticate and deliver
Definitive Securities, in an aggregate principal amount equal to the principal
amount of the Global Securities, in exchange for such Global Securities and
registered in such names as the Depositary shall instruct the Trustee or the
Company in writing.
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(g) Legends.
(i) Except as permitted by the following
paragraph (ii), each Security certificate evidencing the Global
Securities and the Definitive Securities (and all Securities issued in
exchange therefor or substitution thereof) shall bear a legend in
substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DAY ON WHICH PETSEC ENERGY INC.
(THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION
DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR
(7) OF RULE 501 UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR")
THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
ANOTHER INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE
COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i)
PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF
A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
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Each Security certificate evidencing the Global Securities also shall bear the
paragraph referred to in footnote 1 in the form of Security attached hereto as
Exhibit A.
(ii) Upon any sale or transfer of a Transfer
Restricted Security (including any Transfer Restricted Security
represented by a Global Security) pursuant to Rule 144 under the
Securities Act or an effective registration statement under the
Securities Act:
(A) in the case of any Transfer
Restricted Security that is a Definitive Security, the
Registrar shall permit the Holder thereof to exchange such
Transfer Restricted Security for a Definitive Security that
does not bear the legend set forth in (i) above and rescind
any restriction on the transfer of such Transfer Restricted
Security; and
(B) in the case of any Transfer
Restricted Security represented by a Global Security, such
Transfer Restricted Security shall not be required to bear the
legend set forth in (i) above if all other interests in such
Global Security have been or are concurrently being sold or
transferred pursuant to Rule 144 under the Securities Act or
pursuant to an effective registration statement under the
Securities Act, but such Transfer Restricted Security shall
continue to be subject to the provisions of Section 2.7(c)
hereof; provided, however, that with respect to any request
for an exchange of a Transfer Restricted Security that is
represented by a Global Security for a Definitive Security
that does not bear a legend set forth in (i) above, which
request is made in reliance upon Rule 144 under the Securities
Act, the Holder thereof shall certify in writing to the
Registrar that such request is being made pursuant to Rule 144
under the Securities Act (such certification to be
substantially in the form of Exhibit C hereto).
(iii) Notwithstanding the foregoing, upon
consummation of the Exchange Offer, the Company shall issue and, upon
receipt of an authentication order in accordance with Section 2.4
hereof, the Trustee shall authenticate Series B Securities in exchange
for Series A Securities accepted for exchange in the Exchange Offer,
which Series B Securities shall not bear the legend set forth in (i)
above, and the Registrar shall rescind any restriction on the transfer
of such Securities, in each case unless the Holder of such Series A
Securities is either (A) a broker-dealer, (B) a Person participating
in the distribution of the Series A Securities or (C) a Person who is
an affiliate (as defined in Rule 144 under the Securities Act) of the
Company. The Company shall identify to the Trustee such Holders of
the Securities in a written certification signed by an Officer of the
Company and, absent certification from the Company to such effect, the
Trustee shall assume that there are no such Holders.
(h) Cancellation and/or Adjustment of Global Security.
At such time as all beneficial interests in a Global Security have either been
exchanged for Definitive Securities, redeemed, repurchased or canceled, such
Global Security shall be returned to or retained and
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cancelled by the Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Security is exchanged for Definitive
Securities, redeemed, repurchased or cancelled, the principal amount of
Securities represented by such Global Security shall be reduced and an
endorsement shall be made on such Global Security, by the Trustee or the
Security Custodian, at the direction of the Trustee to reflect such reduction.
(i) General Provisions with respect to Transfer and
Exchanges.
(i) To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall
authenticate Definitive Securities and Global Securities at the
Registrar's request.
(ii) No service charge shall be made to a Holder
for any registration of transfer or exchange or redemption of
Securities (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection therewith
(other than such transfer tax or similar governmental charge payable
upon exchanges pursuant to the last paragraph of Section 2.4 or
Sections 2.5, 8.6 or 10.8 hereof).
(iii) The Trustee shall authenticate Definitive
Securities and Global Securities in accordance with the provisions of
Section 2.4 hereof.
(iv) Notwithstanding any other provisions of this
Indenture to the contrary, the Company shall not be required to
register the transfer or exchange of a Security between the record
date and the next succeeding Interest Payment Date.
(v) Neither the Company nor the Trustee will have
any responsibility or liability for any aspect of the records relating
to, or payments made on account of, Securities by the Depositary, or
for maintaining, supervising or reviewing any records of the
Depositary relating to such Securities. Neither the Company nor the
Trustee shall be liable for any delay by the related Global Security
Holder or the Depositary in identifying the beneficial owners of the
related Securities and each such Person may conclusively rely on, and
shall be protected in relying on, instructions from such Global
Security Holder or the Depositary for all purposes (including with
respect to the registration and delivery, and the respective principal
amounts, of the Securities to be issued).
(vi) Neither the Trustee, the Security Registrar
nor the Company shall be required (a) to issue, register the transfer
of or exchange any Security during a period beginning at the opening
of business 15 days before the mailing of a notice of redemption of
Securities selected for redemption under Section 10.4 hereof and
ending at the close of business on the day of such mailing of the
relevant notice of redemption, or (b) to register the transfer of or
exchange any Security so selected for redemption in whole or in part,
except the unredeemed portion of any Security being redeemed in part.
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(vii) All Securities and the Subsidiaries
Guarantees, if any, noted thereon issued upon any registration of
transfer or exchange of Securities shall be the valid obligations of
the Company and the respective Subsidiary Guarantors, if any,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of
transfer or exchange.
(viii) Each Holder of a Security agrees to indemnify
the Company and the Trustee against any liability that may result from
the transfer, exchange or assignment of such Holder's Security in
violation of any provision of this Indenture and/or applicable federal
or state securities law.
(ix) The Trustee shall have no obligation or duty
to monitor, determine or inquire as to compliance with any
restrictions on transfer imposed under this Indenture or under
applicable law with respect to any transfer of any interest in any
Security other than to require delivery of such certificates and other
documentation or evidence as are expressly required by, and to do so
if and when expressly required by the terms of, this Indenture, and to
examine the same to determine substantial compliance as to form with
the express requirements hereof.
SECTION 2.8 Additional Provisions for Global Securities.
(a) The Global Security initially shall be registered in
the name of the Depositary for such Global Security or the nominee of such
Depositary and be delivered to the Trustee as custodian for such Depositary.
(b) Members of, or participants in, the Depositary
("Agent Members") shall have no rights under this Indenture with respect to any
Global Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under the Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee, from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or shall impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a Holder of any
Security.
(c) The registered Holder of the Global Security may
grant proxies and otherwise authorize any Person, including Agent Members and
Persons that may hold interests through Agent Members, to take any action which
a Holder is entitled to take under this Indenture or the Securities.
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SECTION 2.9 Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee or (b) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them
to save each of them harmless, then, in the absence of notice to the Company or
the Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute, any Subsidiary Guarantors shall execute the notations of
Subsidiary Guarantees, and upon Company Order the Trustee shall authenticate
and deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, having the notations of Subsidiary Guarantees, if any, thereon bearing
a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company and the respective Subsidiary
Guarantors, if any, whether or not the mutilated, destroyed, lost or stolen
Security shall be at any time enforceable by anyone, and shall be entitled to
all benefits of this Indenture equally and proportionately with any and all
other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.10 Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
9.2 hereof.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease
to be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent
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lawful) interest on such defaulted interest at the rate borne by the Securities
(such defaulted interest and interest thereon herein collectively called
"Defaulted Interest") may be paid by the Company, at its election in each case,
as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in writing
of the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited shall be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company of such Special Record Date, and
in the name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor to be given in the manner provided for in Section 14.5 hereof, not
less than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 2.11 Persons Deemed Owners.
Prior to the due presentment of a Security for registration of
transfer, the Company, the Subsidiary Guarantors, if any, the Security
Registrar, the Trustee and any agent of the Company, the Subsidiary Guarantors
or the Trustee may treat the Person in whose name such Security is registered
as the owner of such Security for the purpose of receiving payment of principal
of (and premium, if any, on) and (subject to Section 2.10 hereof) interest on
such Security and for all other purposes
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whatsoever, whether or not such Security be overdue, and none of the Company,
the Subsidiary Guarantors, if any, the Security Registrar, the Trustee or any
agent of the Company, the Subsidiary Guarantors or the Trustee shall be
affected by notice to the contrary.
SECTION 2.12 Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it.
The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as
provided in this Section, except as expressly permitted by this Indenture. All
cancelled Securities held by the Trustee shall be delivered to the Company.
SECTION 2.13 Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
SECTION 2.14 CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be
affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the CUSIP numbers.
ARTICLE III
SATISFACTION AND DISCHARGE
SECTION 3.1 Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange
of Securities, as expressly provided for in this Indenture) as to all
Outstanding Securities, and the Trustee, at the expense of the Company, shall,
upon payment of all amounts due the Trustee under Section 5.6 hereof, execute
proper instruments acknowledging satisfaction and discharge of this Indenture
when
(a) either
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(i) all Securities theretofore authenticated and
delivered (other than (A) Securities which have been mutilated,
destroyed, lost or stolen and which have been replaced or paid as
provided in Section 2.9 hereof and (B) Securities for whose payment
money or United States governmental obligations of the type described
in clause (a) of the definition of Cash Equivalents has theretofore
been deposited in trust with the Trustee or any Paying Agent or
segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section 9.3
hereof) have been delivered to the Trustee for cancellation, or
(ii) all such Securities not theretofore delivered
to the Trustee for cancellation
(A) have become due and payable, or
(B) will become due and payable at their
Stated Maturity within one year, or
(C) are to be called for redemption
within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company,
and the Company, in the case of (ii)(A), (ii)(B) or (ii)(C) above, has
irrevocably deposited or caused to be deposited with the Trustee as trust funds
in trust for the purpose an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest to the date of
such deposit (in the case of Securities which have become due and payable) or
to the Stated Maturity or Redemption Date, as the case may be, together with
instructions from the Company irrevocably directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be;
(b) the Company has paid or caused to be paid all other
sums payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each satisfactory in form to the Trustee,
which, taken together, state that all conditions precedent herein relating to
the satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 5.6 hereof and, if
money shall have been deposited with the Trustee pursuant to subclause (B) of
clause (a)(i) of this Section, the obligations of the Trustee under Section 3.2
hereof and the last paragraph of Section 9.3 hereof shall survive.
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SECTION 3.2 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 9.3 hereof,
all money deposited with the Trustee pursuant to Section 3.1 hereof shall be
held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whose payment such money has been deposited
with the Trustee.
ARTICLE IV
REMEDIES
SECTION 4.1 Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) default in the payment of the principal of or
premium, if any, on any of the Securities, whether such payment is due at
maturity, upon redemption, upon repurchase pursuant to a Change of Control
Offer or a Net Proceeds Offer, upon acceleration or otherwise; or
(b) default in the payment of any installment of interest
on any of the Securities, when it becomes due and payable, and the continuance
of such default for a period of 30 days; or
(c) default in the performance or breach of the
provisions of Article VII hereof, the failure to make or consummate a Change of
Control Offer in accordance with Section 9.15 hereof or the failure to make or
consummate a Net Proceeds Offer in accordance with the provisions of Section
9.16 hereof; or
(d) the Company or any Subsidiary Guarantor shall fail to
perform or observe any other term, covenant or agreement contained in the
Securities, any Subsidiary Guarantee or this Indenture (other than a default
specified in (a), (b) or (c) above) for a period of 60 days after written
notice of such failure requiring the Company to remedy the same shall have been
given (i) to the Company by the Trustee or (ii) to the Company and the Trustee
by the Holders of at least 25% in aggregate principal amount of the Securities
then Outstanding; or
(e) the occurrence and continuation beyond any applicable
grace period of any default in the payment of the principal of (or premium, if
any, on) or interest on any Indebtedness of the Company (other than the
Securities) or any Restricted Subsidiary for money borrowed when due, or any
other default causing acceleration of any Indebtedness of the Company or any
Restricted
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Subsidiary for money borrowed; provided that the aggregate principal amount of
such Indebtedness shall exceed $5,000,000; provided further that if any such
default is cured or waived or any such acceleration rescinded, or such debt is
repaid, within a period of 10 days from the continuation of such default beyond
the applicable grace period or the occurrence of such acceleration, as the case
may be, such Event of Default under this Indenture and any consequential
acceleration of the Securities shall be automatically rescinded, so long as
such rescission does not conflict with any judgment or decree; or
(f) any Subsidiary Guarantee shall for any reason cease
to be, or be asserted by the Company or any Subsidiary Guarantor, as
applicable, not to be, in full force and effect, enforceable in accordance with
its terms (except pursuant to the release of any such Subsidiary Guarantee in
accordance with this Indenture); or
(g) final judgments or orders rendered against the
Company or any Restricted Subsidiary that are unsatisfied and that require the
payment in money, either individually or in an aggregate amount, that is more
than $5,000,000 over the coverage under applicable insurance policies and
either (i) commencement by any creditor of an enforcement proceeding upon such
judgment (other than a judgment that is stayed by reason of pending appeal or
otherwise) or (ii) the occurrence of a 60-day period during which a stay of
such judgment or order, by reason of pending appeal or otherwise, was not in
effect; or
(h) the entry of a decree or order by a court having
jurisdiction in the premises (i) for relief in respect of the Company or any
Restricted Subsidiary in an involuntary case or proceeding under the Federal
Bankruptcy Code or any other applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or (ii) adjudging the Company
or any Restricted Subsidiary bankrupt or insolvent, or approving a petition
seeking reorganization, arrangement, adjustment or composition of the Company
or a Restricted Subsidiary under the Federal Bankruptcy Code or any other
applicable federal or state law, or appointing under any such law a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Company or any Subsidiary Guarantor or any other Restricted Subsidiary
or of a substantial part of their consolidated assets, or ordering the winding
up or liquidation of their affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect for a
period of 60 consecutive days; or
(i) the commencement by the Company or any Restricted
Subsidiary of a voluntary case or proceeding under the Federal Bankruptcy Code
or any other applicable federal or state bankruptcy, insolvency, reorganization
or other similar law or any other case or proceeding to be adjudicated bankrupt
or insolvent, or the consent by the Company or any Subsidiary Guarantor or any
other Restricted Subsidiary to the entry of a decree or order for relief in
respect thereof in an involuntary case or proceeding under the Federal
Bankruptcy Code or any other applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by the
Company or any Subsidiary Guarantor or any other Restricted Subsidiary of a
petition or consent seeking
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reorganization or relief under any applicable federal or state law, or the
consent by it under any such law to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or other similar official) of any of the
Company or any Subsidiary Guarantor or any other Restricted Subsidiary or of
any substantial part of their consolidated assets, or the making by it of an
assignment for the benefit of creditors under any such law, or the admission by
it in writing of its inability to pay its debts generally as they become due or
taking of corporate action by the Company or any Subsidiary Guarantor or any
other Restricted Subsidiary in furtherance of any such action.
SECTION 4.2 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 4.1(h) or (i) hereof) shall occur and be continuing, the Trustee, by
written notice to the Company, or the Holders of at least 25% in aggregate
principal amount of the Securities then Outstanding, by notice to the Trustee
and the Company, may declare all unpaid principal of, premium, if any, and
accrued interest on all of the Securities to be due and payable immediately,
upon which declaration all amounts payable in respect of the Securities shall
be immediately due and payable. If an Event of Default specified in Section
4.1(h) or (i) occurs and is continuing, then the principal of, premium, if any,
and accrued interest on all of the Securities shall ipso facto become and be
immediately due and payable without any declaration, notice or other act on the
part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in aggregate principal amount of the Securities Outstanding, by written notice
to the Company and the Trustee, may rescind such declaration and its
consequences if
(a) the Company or any Subsidiary Guarantor has paid or
deposited with the Trustee a sum sufficient to pay
(i) all sums paid or advanced by the Trustee
under this Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel,
(ii) all overdue interest on all Outstanding
Securities,
(iii) all unpaid principal of (and premium, if any,
on) any Outstanding Securities which has become due otherwise than by
such declaration of acceleration including any securities required to
have been purchased on a Change of Control Date or Net Proceeds
Payment Date pursuant to a Change of Control Offer or a Net Proceeds
Offer, as applicable, and interest on such unpaid principal at the
rate borne by the Securities, and
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(iv) to the extent that payment of such interest
is lawful, interest upon overdue interest and overdue principal at the
rate borne by the Securities which has become due otherwise than by
such declaration of acceleration (without duplication of any amount
deposited pursuant to clauses (ii) and (iii) above);
(b) the rescission would not conflict with any judgment
or decree of a court of competent jurisdiction; and
(c) all Events of Default, other than the nonpayment of
principal of (or premium, if any, on), and interest on Securities that has
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 4.13 hereof.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the foregoing, in the event of a declaration of
acceleration in respect of the Securities because of an Event of Default
specified in (A) Section 4.1(e) hereof shall have occurred and be continuing,
such declaration of acceleration and any consequential acceleration shall be
automatically rescinded if the Indebtedness that is the subject of such Event
of Default has been repaid, or if the default relating to such Indebtedness is
waived or cured and if such Indebtedness has been accelerated, then the holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness (provided, in each case, that such repayment, waiver, cure or
rescission is effected within a period of 10 days from the continuation of such
default beyond the applicable grace period or the occurrence of such
acceleration), and written notice of such repayment, or cure or waiver and
rescission, as the case may be, shall have been given to the Trustee by the
Company and countersigned by the holders of such Indebtedness or a trustee,
fiduciary or agent for such holders or other evidence satisfactory to the
Trustee of such events is provided to the Trustee, within 30 days after such
declaration of acceleration in respect of the Securities, and no other Event of
Default has occurred during such 30-day period which has not been cured or
waived during such period, and so long as such recision of the declaration of
acceleration of the Securities does not conflict with any judgement or decree
as certified to the Trustee by the Company.
SECTION 4.3 Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(a) default is made in the payment of any installment of
interest on any Security when such interest becomes due and payable and such
default continues for a period of 30 days, or
(b) default is made in the payment of the principal of
(or premium, if any, on) any Security at the Maturity thereof or with respect
to any Security required to have been purchased by the Company on the Change of
Control Purchase Date or the Net Proceeds Payment Date pursuant to a Change of
Control Offer or a Net Proceeds Offer, as applicable,
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the Company will, upon demand of the Trustee, pay to the Trustee for the
benefit of the Holders of such Securities, the whole amount then due and
payable on such Securities for principal (and premium, if any) and interest,
and interest on any overdue principal (and premium, if any) and, to the extent
that payment of such interest shall be legally enforceable, upon any overdue
installment of interest, at the rate borne by the Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the Property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in any provision of the Securities,
this Indenture or the Registration Rights Agreement in aid of the exercise of
any power granted therein or herein, or to enforce any other proper remedy.
SECTION 4.4 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, any Subsidiary Guarantor or any
other obligor upon the Securities or the Property of the Company, any
Subsidiary Guarantor or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Securities shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company, any Subsidiary
Guarantor or such other obligor for the payment of overdue principal, premium,
if any, or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in respect of the
Securities and to file such other papers or documents and take any other
actions including participation as a full member of any creditor or other
committee as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of the
Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other Property
payable or deliverable on any such claims and to distribute the same;
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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 5.6 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or any Subsidiary Guarantees or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 4.5 Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
or any Subsidiary Guarantees may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the production thereof in
any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name and as trustee of an express trust,
and any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Holders of the
Securities in respect of which such judgment has been recovered.
SECTION 4.6 Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in the case of the distribution of such money on account of principal (or
premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
5.6 hereof;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any, on) and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal (and premium, if any) and
interest, respectively; and
THIRD: The balance, if any, to the Company.
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SECTION 4.7 Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount
of the Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(d) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 4.8 Unconditional Right of Holders to Receive Principal, Premium
and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article XI
hereof) and in such Security of the principal of (and premium, if any, on) and
(subject to Section 2.10 hereof) interest on, such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption, on
the Redemption Date) and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder.
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SECTION 4.9 Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, any Subsidiary Guarantors, the
Trustee and the Holders shall be restored severally and respectively to their
former positions hereunder and thereunder and all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 4.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 2.9 hereof, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 4.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 4.12 Control by Holders.
The Holders of not less than a majority in principal amount of the
Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that
(a) such direction shall not be in conflict with any rule
of law or with this Indenture,
(b) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction, and
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(c) the Trustee need not take any action which might
involve it in personal liability or be unduly prejudicial to the Holders not
joining therein.
SECTION 4.13 Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities may on behalf of the Holders of all the
Securities waive any existing Default or Event of Default hereunder and its
consequences, except a Default or Event of Default
(a) in respect of the payment of the principal of,
premium, if any, or interest on any Security, or
(b) in respect of a covenant or provision hereof which
under Article VIII hereof cannot be modified or amended without the consent of
the Holder of each Outstanding Security affected.
Upon any such waiver, such Default or Event of Default shall cease to
exist for every purpose under this Indenture, but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any right
consequent thereon.
SECTION 4.14 Waiver of Stay, Extension or Usury Laws.
The Company covenants, and each Subsidiary Guarantor shall covenant,
(to the extent that each may lawfully do so) that it will not at any time
insist upon, plead or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension, or usury law or other law, which would
prohibit or forgive the Company or any Subsidiary Guarantor from paying all or
any portion of the principal of (premium, if any, on) and/or interest on the
Securities as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance of
this Indenture; and (to the extent that it may lawfully do so) the Company
hereby expressly waives, and each Subsidiary Guarantor shall expressly waive
all benefit or advantage of any such law, and the Company covenants and each
subsidiary Guarantor shall covenant that it will not hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been
enacted.
SECTION 4.15 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorney's fees and expenses, against any party litigant in the suit, having
due regard to the merits and good faith of the claims or defenses made by the
party litigant. This Section 4.15 does not apply to a suit by the
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Trustee, a suit by a Holder pursuant to Section 4.8 hereof, or a suit by
Holders of more than 10% in principal amount of the then Outstanding
Securities.
ARTICLE V
THE TRUSTEE
SECTION 5.1 Notice of Defaults.
Within 60 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder known to the Trustee, unless such
Default shall have been cured or waived; provided, however, that, except in the
case of a Default in the payment of the principal of (or premium, if any, on)
or interest on any Security, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders; and provided, further, that in the case of any Default of the
character specified in Section 4.1(e) hereof, no such notice to Holders shall
be given until at least 60 days after the occurrence thereof.
SECTION 5.2 Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(a) the Trustee may conclusively rely and shall be
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its
selection, and the advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon;
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(e) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(h) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Indenture;
and
(i) the Trustee shall not be deemed to have notice of any
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of the
Trustee, and such notice references the Securities and this Indenture.
The Trustee shall not be required to advance, expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
SECTION 5.3 Trustee Not Responsible for Recitals or Issuance of
Securities.
The recitals contained herein and in the Securities and the notations
of Subsidiary Guarantees thereon, except for the Trustee's certificates of
authentication, shall be taken as the statements of the Company or the
Subsidiary Guarantors, as the case may be, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities, except
that the Trustee represents that it is duly authorized to execute and deliver
this Indenture, authenticate the Securities and perform its obligations
hereunder, and that the statements made by it in a Statement of Eligibility on
Form T-1 supplied to the Company are true and accurate, subject to the
qualifications set forth herein. The
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Trustee shall not be accountable for the use or application by the Company of
Securities or the proceeds thereof.
SECTION 5.4 May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company, any Subsidiary Guarantor or of the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Securities
and, subject to TIA Sections 310(b) and 311, may otherwise deal with the
Company and any Subsidiary Guarantor with the same rights it would have if it
were not the Trustee, Paying Agent, Security Registrar or such other agent.
SECTION 5.5 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Company or any Subsidiary Guarantor.
SECTION 5.6 Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Trustee from time to time such
compensation as shall be agreed in writing from time to time between the
Company and the Trustee for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel, except any such expense,
disbursement or advance as may be attributable to the Trustee's negligence or
bad faith); and
(c) to indemnify the Trustee or any predecessor Trustee
for, and to hold it harmless against, any and all loss, liability, damage,
claim or expense, including taxes (other than taxes based on the income of the
Trustee) incurred without negligence or bad faith on its part, (i) arising out
of or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder or (ii) in connection with enforcing this indemnification
provision.
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The obligations of the Company under this Section 5.6 to compensate
the Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture or any other termination under any Insolvency or
Liquidation Proceeding. As security for the performance of such obligations of
the Company, the Trustee shall have a claim and lien prior to the Securities
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for payment of principal of (and premium, if any, on) or
interest on particular Securities. Such lien shall survive the satisfaction
and discharge of this Indenture or any other termination under any Insolvency
or Liquidation Proceeding.
When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in paragraphs (h) or (i) of Section
4.1 of this Indenture, such expenses and the compensation for such services are
intended to constitute expenses of administration under any Insolvency or
Liquidation Proceeding.
SECTION 5.7 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a
combined capital and surplus of at least $50,000,000. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of federal, state, territorial or District of Columbia supervising
or examining authority, then for the purposes of this Section 5.7, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
SECTION 5.8 Conflicting Interests.
The Trustee shall comply with the provisions of Section 310(b) of the
Trust Indenture Act.
SECTION 5.9 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 5.10 hereof.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 5.10 hereof shall not have been delivered to the
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition, at the expense of the Company, any court of
competent jurisdiction for the appointment of a successor Trustee.
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(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company. If the instrument of
acceptance by a successor Trustee required by Section 5.10 shall not have been
delivered to the Trustee within 30 days after the giving of such notice of
removal, the Trustee being removed may petition, at the expense of the Company,
any court of competent jurisdiction for the appointment of a successor Trustee.
(d) If at any time:
(i) the Trustee shall fail to comply with the
provisions of TIA Section 310(b) after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Security
for at least six months, or
(ii) the Trustee shall cease to be eligible under
Section 5.7 hereof and shall fail to resign after written request
therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(iii) the Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent or a receiver of the
Trustee or of its property shall be appointed or any public officer
shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (A) the Company, by a Board Resolution, may remove the
Trustee, or (B) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a Security
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee. Such successorship may, but need not be, evidenced by a
supplemental indenture.
(f) The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner
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provided for in Section 13.5 hereof. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 5.10 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts and duties of the retiring Trustee; but, on request of the Company or
the successor Trustee, such retiring Trustee shall, upon payment of all amounts
due it under Section 5.6 hereof, execute and deliver an instrument transferring
to such successor Trustee all the rights, powers and trusts of the retiring
Trustee and shall duly assign, transfer and deliver to such successor Trustee
all property and money held by such retiring Trustee hereunder. Upon request
of any such successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 5.11 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities;
and in case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee;
and in all such cases such certificates shall have the full force which it is
anywhere in the Securities or in this Indenture; provided, however, that the
right to adopt the certificate of authentication of any predecessor Trustee or
to authenticate Securities in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
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SECTION 5.12 Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor under the Securities), the Trustee shall be subject to
the provisions of the Trust Indenture Act regarding the collection of claims
against the Company or any such other obligor.
ARTICLE VI
HOLDERS' LISTS AND REPORTS BY TRUSTEE
SECTION 6.1 Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the same, agrees
with the Company, the Subsidiary Guarantors, if any, the Security Registrar and
the Trustee that none of the Company, the Subsidiary Guarantors, the Security
Registrar or the Trustee, or any agent of either of them, shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the Holders in accordance with TIA Section 312, regardless of
the source from which such information was derived, and that the Trustee shall
not be held accountable by reason of mailing any material pursuant to a request
made under TIA Section 312(b).
SECTION 6.2 Reports By Trustee.
Within 60 days after May 15 of each year commencing with May 15, 1998,
the Trustee shall transmit by mail to the Holders, as their names and addresses
appear in the Security Register, a brief report dated as of such May 15 in
accordance with and to the extent required under TIA Section 313(a). The
Trustee shall also comply with TIA Sections 313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or automatic quotation system.
A copy of each Trustee's report, at the time of its mailing to Holders
of Securities, shall be mailed to the Company and filed with the Commission and
each stock exchange, if any, on which the Securities are listed.
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ARTICLE VII
MERGER, CONSOLIDATION AND SALE OF ASSETS, ETC.
SECTION 7.1 Company May Consolidate, etc., Only on Certain Terms.
The Company shall not, in any single transaction or a series of
related transactions, merge or consolidate with or into any other Person, or
sell, assign, convey, transfer or lease or otherwise dispose of all or
substantially all its Properties to any Person or group of Affiliated Persons,
and the Company may not permit any of its Restricted Subsidiaries to enter into
any such transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of the
Properties of the Company and its Restricted Subsidiaries on a consolidated
basis to any other Person or group of Affiliated Persons, unless at the time
and after giving affect thereto:
(a) either (i) if the transaction or transactions is a
merger or consolidation, the Company shall be the surviving Person of such
merger or consolidation, or (ii) the Person (if other than the Company) formed
by such consolidation or into which the Company or such Restricted Subsidiary
is merged or to which the Properties of the Company or such Restricted
Subsidiary, as the case may be, are sold, assigned, conveyed, transferred,
leased or otherwise disposed of (any such surviving Person or transferee Person
being the "Surviving Entity") shall be a corporation organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia and shall, in either case, expressly assume by a
supplemental indenture to this Indenture executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company for the
due and punctual payment of the principal of (and premium, if any, on) and
interest on all the Securities and the performance and observance of every
covenant of this Indenture on the part of the Company to be performed or
observed, and this Indenture shall remain in full force and effect;
(b) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma basis (and
treating any Indebtedness not previously an obligation of the Company or any of
its Restricted Subsidiaries which becomes the obligation of the Company or any
of its Restricted Subsidiaries in connection with or as a result of such
transaction or transactions as having been incurred at the time of such
transaction or transactions), no Default or Event of Default shall have
occurred and be continuing;
(c) except in the case of the consolidation or merger of
any Restricted Subsidiary with or into the Company, immediately after giving
effect to such transaction or transactions on a pro forma basis, the
Consolidated Net Worth of the Company (or the Surviving Entity if the Company
is not the continuing obligor under this Indenture) is at least equal to the
Consolidated Net Worth of the Company immediately before such transaction or
transactions (calculated in each case, in accordance with GAAP);
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(d) except in the case of the consolidation or merger of
any Restricted Subsidiary with or into the Company or any Wholly Owned
Restricted Subsidiary, immediately before and after giving effect to such
transaction or transactions on a pro forma basis (on the assumption that the
transaction or transactions occurred on the first day of the period of four
full fiscal quarters ending immediately prior to the consummation of such
transaction or transactions with the appropriate adjustments with respect to
the transaction or transactions being included in such pro forma calculation)
the Company (or the Surviving Entity if the Company is not the continuing
obligor under this Indenture) could incur $1.00 of additional Indebtedness
(excluding Permitted Indebtedness) under Section 9.11(a) hereof;
(e) each Subsidiary Guarantor unless it is the party to
the transactions described above, shall have by supplemental indenture
confirmed that its Subsidiary Guarantee shall apply to such Person's
obligations under this Indenture and the Securities;
(f) if any of the Properties of the Company or any of its
Restricted Subsidiaries would upon such transaction or series of related
transactions become subject to any Lien (other than a Permitted Lien), the
creation or imposition of such Lien shall have been in compliance with Section
9.14 hereof; and
(g) the Company or such Person shall have delivered to
the Trustee (i) an Officers' Certificate in form and substance reasonably
acceptable to the Trustee, stating that such consolidation, merger, conveyance,
transfer, lease or other disposition and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
complies with this Indenture and that all conditions precedent herein relating
to such transaction or transactions have been satisfied and (ii) an Opinion of
Counsel stating that the requirements of Section 7.1(a) hereof have been
complied with.
SECTION 7.2 Successor Substituted.
Upon any consolidation of the Company with or merger of the Company
with or into any other corporation or any sale, assignment, lease, conveyance,
transfer or other disposition of all or substantially all of the Properties of
the Company to any Person in accordance with Section 7.1 hereof, the successor
Person formed by such consolidation or into which the Company is merged or to
which such sale, assignment, conveyance, transfer or other disposition (other
than by lease) is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and in the event of any such sale, assignment, lease, conveyance, transfer or
other disposition, the Company (which term shall for this purpose mean the
Person named as the "Company" in the first paragraph of this Indenture or any
successor Person which shall theretofore become such in the manner described in
Section 7.1 hereof), except in the case of a lease, shall be discharged of all
obligations and covenants under this Indenture and the Securities and the
Company may be dissolved and liquidated and such dissolution and liquidation
shall not cause a Change of Control under clause (e) of the definition thereof
to occur unless the merger, or the sale, assignment,
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lease, conveyance, transfer or other disposition of all or substantially all of
the Properties of the Company to any Person otherwise results in a Change of
Control.
ARTICLE VIII
SUPPLEMENTAL INDENTURES
SECTION 8.1 Supplemental Indentures without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, any Subsidiary Guarantors, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the
Company contained herein and in the Securities; or
(b) to add to the covenants of the Company for the
benefit of the Holders or to surrender any right or power herein conferred upon
the Company; or
(c) to add any additional Events of Default; or
(d) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee pursuant to the requirements of
Sections 5.9 and 5.10 hereof; or
(e) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to qualify, or maintain the qualification of, this
Indenture under the TIA or to make any other provisions with respect to matters
or questions arising under this Indenture or the Registration Rights Agreement;
provided that such action shall not adversely affect the interests of the
Holders in any material respect; or
(f) to secure the Securities pursuant to the requirements
of Section 9.14 hereof or otherwise; or
(g) to add any Person as a Subsidiary Guarantor as
provided in Section 12.1 hereof or as contemplated by the definition of
"Permitted Subsidiary Indebtedness" to evidence the succession of another
Person to any Subsidiary Guarantor and the assumption by any such successor of
the covenants and agreements of such Subsidiary Guarantor contained herein, in
the Securities and in the Subsidiary Guarantee; or
(h) to release a Subsidiary Guarantor from its Subsidiary
Guarantee pursuant to Section 9.12 hereof; or
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(i) to provide for uncertificated Securities in addition
to or in place of certificated Securities.
SECTION 8.2 Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, any Subsidiary Guarantors, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(a) change the Stated Maturity of the principal of, or
any installment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any Security or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date); or
(b) reduce the percentage of aggregate principal amount
of the Outstanding Securities, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required for
any waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture; or
(c) modify any of the provisions of this Section or
Sections 4.13 and 9.22 hereof, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security affected
thereby;
(d) modify Section 9.12 hereof or any provisions of this
Indenture relating to any Subsidiary Guarantees in a manner adverse to the
Holders thereof; or
(e) amend, change or modify the obligation of the Company
to make and consummate a Change of Control Offer in the event of a Change of
Control, or to make and consummate a Net Proceeds Offer with respect to any
Asset Sale or modify any of the provisions or definitions with respect thereto.
It shall not be necessary for any Act of the Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
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SECTION 8.3 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 8.4 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 8.5 Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 8.6 Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company, with the notations of Subsidiary Guarantees thereon
executed by the Subsidiary Guarantors, if any, and authenticated and delivered
by the Trustee in exchange for Outstanding Securities.
SECTION 8.7 Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 8.2 hereof, the
Company shall give notice thereof to the Holders of each Outstanding Security
affected, in the manner provided for in Section 14.5 hereof, setting forth in
general terms the substance of such supplemental indenture.
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ARTICLE IX
COVENANTS
SECTION 9.1 Payment of Principal, Premium, if any, and Interest.
The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any, on) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture. The Company shall pay interest (including post-petition
interest in any proceeding under the Federal Bankruptcy Code or any similar
state bankruptcy law) on overdue principal, and premium, if any, at the rate
borne by the Securities to the extent lawful; and it shall pay interest
(including post-petition interest in any proceeding under the Federal
Bankruptcy Code or any similar state bankruptcy law) on overdue installments of
interest (without regard to any applicable grace period) at the same rate to
the extent lawful. All references to interest in this Indenture shall for all
purposes be deemed to include any additional interest payable pursuant to
Section 2(e) of the Registration Rights Agreement.
SECTION 9.2 Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency where Securities may be presented or surrendered
for payment, where Securities may be surrendered for registration of transfer
or exchange and where notices and demands to or upon the Company in respect of
the Securities, the Subsidiary Guarantees and this Indenture may be served.
The office of The Bank of New York, located at 101 Barclay Street, Floor 21
West, New York, New York 10286, Attention: Corporate Trust Administration
shall be such office or agency of the Company, unless the Company shall
designate and maintain some other office or agency for one or more of such
purposes. The Company will give prompt written notice to the Trustee of any
change in the location of any such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the aforementioned
office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of the City of New York) where the
Securities may be presented or surrendered for any or all such purposes and may
from time to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, the
City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and any change in
the location of any such other office or agency.
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SECTION 9.3 Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it
shall, on or before each due date of the principal of (and premium, if any, on)
or interest on any of the Securities, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due until such sums shall be paid
to such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will, on or before 11:00 A.M., New York City time, on each due
date of the principal of (and premium, if any, on), or interest on, any
Securities, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due, such sum to be held in trust
for the benefit of the Persons entitled to such principal, premium or interest,
and (unless such Paying Agent is the Trustee) the Company shall promptly notify
the Trustee of such action or any failure so to act.
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the
principal of (and premium, if any, on) or interest on Securities in trust for
the benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company
(or any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(c) at any time during the continuance of any such
default, upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any, on) or interest on any Security and remaining unclaimed for two years
after such principal (and premium, if any) or interest has become due and
payable shall be paid to the Company on Company Request, or (if then held by
the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the
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Trustee or such Paying Agent with respect to such trust money, and all
liability of the Company as trustee thereof, shall thereupon cease; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such repayment, may at the expense of the Company cause to be published
once, in a newspaper published in the English language, customarily published
on each Business Day and of general circulation in the Borough of Manhattan,
the City of New York, notice that such money remains unclaimed and that, after
a date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining will be
repaid to the Company.
SECTION 9.4 Corporate Existence.
Except as expressly permitted by Article VII hereof, Section 9.16
hereof or other provisions of this Indenture, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Restricted Subsidiary; provided, however, that the Company
shall not be required to preserve any such existence of its Restricted
Subsidiaries, right or franchise, if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Restricted Subsidiaries, taken as a whole, and
that the loss thereof is not disadvantageous in any material respect to the
Holders.
SECTION 9.5 Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or Property of the Company or any
Restricted Subsidiary and (b) all lawful claims for labor, materials and
supplies, which, if unpaid, might by law become a Lien upon the Property of the
Company or any Restricted Subsidiary; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which
appropriate provision has been made in accordance with GAAP.
SECTION 9.6 Maintenance of Properties.
The Company shall cause all material Properties owned by the Company
or any Restricted Subsidiary and used or held for use in the conduct of its
business or the business of any Restricted Subsidiary to be maintained and kept
in good condition, repair and working order (ordinary wear and tear excepted),
all as in the judgment of the Company may be necessary so that its business may
be properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
maintenance of any of such Properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business or the
business of any Restricted Subsidiary and not disadvantageous in any material
respect to the Holders. Notwithstanding the foregoing, nothing contained in
this Section 9.6 shall limit or impair
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in any way the right of the Company and its Restricted Subsidiaries to sell,
divest and otherwise to engage in transactions that are otherwise permitted by
this Indenture.
SECTION 9.7 Insurance.
The Company shall at all times keep all of its and its Restricted
Subsidiaries' Properties which are of an insurable nature insured with
insurers, believed by the Company to be responsible, against loss or damage to
the extent that property of similar character is usually so insured by
corporations similarly situated and owning like properties.
The Company may adopt such other plan or method of protection, in lieu
of or supplemental to insurance with insurers, whether by the establishment of
an insurance fund or reserve to be held and applied to make good losses from
casualties, or otherwise, conforming to the systems of self-insurance
maintained by corporations similarly situated and owning like properties, as
may be determined by the Board of Directors.
SECTION 9.8 Statement by Officers as to Default.
(a) The Company shall deliver to the Trustee, within 90
days after the end of each fiscal year of the Company and within 45 days of the
end of each of the first, second and third quarters of each fiscal year of the
Company, an Officers' Certificate, one of the signers of which shall be the
principal executive officer, principal financial officer or principal
accounting officer of the Company, stating that a review of the activities of
the Company and its Subsidiaries during the preceding fiscal quarter or fiscal
year, as applicable, has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
such Officer's knowledge the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which such Officer may
have knowledge and what action the Company is taking or proposes to take with
respect thereto). Such Officers' Certificate shall comply with TIA Section
314(a)(4). For purposes of this Section 9.8(a), such compliance shall be
determined without regard to any period of grace or requirement of notice under
this Indenture.
(b) The Company and any Subsidiary Guarantors shall, so
long as any of the Securities are Outstanding, deliver to the Trustee forthwith
upon any Officer becoming aware of any Default or Event of Default or default
in the performance of any covenant, agreement or condition contained in this
Indenture, an Officers' Certificate specifying such Default or Event of Default
and what action the Company or any Subsidiary Guarantor proposes to take with
respect thereto within 10 days of its occurrence.
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SECTION 9.9 Reports.
The Company and any Subsidiary Guarantors shall file on a timely basis
with the Commission, to the extent such filings are accepted by the Commission
and whether or not the Company has a class of securities registered under the
Exchange Act, the annual reports, quarterly reports and other documents that
the Company would be required to file if it were subject to Section 13 or 15(d)
of the Exchange Act). The Company (and the Subsidiary Guarantors, if
applicable) will also be required (a) to file with the Trustee, and provide to
each Holder of Securities, without cost to such Holder, copies of such reports
and documents within 15 days after the date on which the Company files such
reports and documents with the Commission or the date on which the Company (and
any Subsidiary Guarantors, if applicable) would be required to file such
reports and documents if the Company (and any Subsidiary Guarantors, if
applicable) were so required, and (b) if filing such reports and documents with
the Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to furnish at the Company's cost copies of such reports and
documents to any Holder of Securities promptly upon written request. The
Company is obligated to make available, upon request, to any Holder of
Securities the information required by Rule 144A(d)(4) under the Securities
Act, during any period in which the Company is not subject to Section 13 or
15(d) of the Exchange Act and, for so long as any Transfer Restricted
Securities remain outstanding, the Company shall furnish to all Holders and
prospective purchasers of the Securities designated by the Holders of Transfer
Restricted Securities, promptly upon their request, the information required to
be delivered pursuant to Rule 144A(d)(4) of the Securities Act. The Company
and each Subsidiary Guarantor also shall comply with other provisions of TIA
Section 314(a).
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 9.10 Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, take the following actions:
(i) declare or pay any dividend on, or make any
distribution to holders of, any shares of the Company's Capital Stock
(other than dividends or distributions payable solely in shares of
Qualified Capital Stock of the Company, options, warrants or other
rights to purchase Qualified Capital Stock of the Company);
(ii) purchase, redeem or otherwise acquire or
retire for value (other than solely for shares of Qualified Capital
Stock of the Company, options, warrants or other rights to purchase
Qualified Capital Stock of the Company) any Capital Stock of the
Company or
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any Affiliate thereof (other than any Wholly Owned Restricted
Subsidiary of the Company) or any options, warrants or other rights to
acquire such Capital Stock;
(iii) make any principal payment on or repurchase,
redeem, defease or otherwise acquire or retire for value (other than
solely for the shares of Qualified Capital Stock of the Company,
options, warrants or other rights to purchase Qualified Capital Stock
of the Company), prior to any scheduled principal payment, scheduled
sinking fund payment or maturity, any Subordinated Indebtedness;
(iv) declare or pay any dividend on, or make any
distribution to the holders of, any shares of Capital Stock of any
Restricted Subsidiary of the Company (other than to the Company or any
of its Wholly Owned Restricted Subsidiaries) or purchase, redeem or
otherwise acquire or retire for value any Capital Stock of any
Restricted Subsidiary or any options, warrants or other rights to
acquire any such Capital Stock (other than with respect to any such
Capital Stock held by the Company or any Wholly Owned Restricted
Subsidiary of the Company);
(v) make any Investment (other than a Permitted
Investment); or
(vi) incur any guarantee of Indebtedness of any
Affiliate (other than (A) guarantees of Indebtedness of any Restricted
Subsidiary by the Company or (B) guarantees of Indebtedness of the
Company by any Restricted Subsidiary, in each case in accordance with
the terms of this Indenture);
(such payments or other actions described in (but not excluded from)
clauses (i) through (vi) are collectively referred to as "Restricted
Payments"), unless at the time of and after giving effect to the
proposed Restricted Payment (with the amount of any such Restricted
Payment, if other than cash, being the amount determined by the Board
of Directors of the Company, whose determination shall be conclusive
and evidenced by a Board Resolution), (1) no Default or Event of
Default shall have occurred and be continuing, (2) the Company could
incur $1.00 of additional Indebtedness (excluding Permitted
Indebtedness) in accordance with Section 9.11 hereof and (3) the
aggregate amount of all Restricted Payments declared or made after the
date of this Indenture shall not exceed the sum (without duplication)
of the following:
(I) 50% of the aggregate cumulative
Consolidated Net Income of the Company accrued on a
cumulative basis during the period beginning on the first
day of the first month after the date of this Indenture and
ending on the last day of the Company's last fiscal quarter
ending prior to the date of such proposed Restricted Payment
(or, if such aggregate cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss), plus
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(II) the aggregate net cash proceeds
received after the date of this Indenture by the Company
either (i) from the issuance or sale (other than to any of
its Restricted Subsidiaries) of shares of Qualified Capital
Stock of the Company or any options, warrants or rights to
purchase such shares of Qualified Capital Stock of the
Company or (ii) as an equity contribution from the holder of
all of the outstanding Qualified Capital Stock of the
Company provided that at the time of such equity
contribution such holder delivers an Officers' Certificate
to the Company and the Trustee designating such equity
contribution, plus
(III) the aggregate net cash proceeds
received after the date of this Indenture by the Company
(other than from any of its Restricted Subsidiaries) upon
the exercise of any options, warrants or rights to purchase
shares of Qualified Capital Stock of the Company, plus
(IV) the aggregate net cash proceeds
received after the date of this Indenture by the Company
from the issuance or sale (other than to any of its
Restricted Subsidiaries) of debt securities or shares of
Redeemable Capital Stock that have been converted into or
exchanged for Qualified Capital Stock of the Company to the
extent such debt securities were originally sold for cash,
together with the aggregate cash received by the Company at
the time of such conversion or exchange, plus
(V) to the extent not otherwise included
in the Company's Consolidated Net Income, the net reduction
in Investments in Unrestricted Subsidiaries resulting from
the payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of
assets, in each case to the Company or a Restricted
Subsidiary after the date of this Indenture from any
Unrestricted Subsidiary or from the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary (valued
in each case as provided in the definition of "Investment"),
not to exceed in the case of any Unrestricted Subsidiary the
total amount of Investments (other than Permitted
Investments) in such Unrestricted Subsidiary made by the
Company and its Restricted Subsidiaries in such Unrestricted
Subsidiary after the date of this Indenture, plus
(VI) $5,000,000.
(b) Notwithstanding paragraph (a) above, the Company and
its Restricted Subsidiaries may take the following actions so long as (in the
case of clauses (ii), (iii) and (iv) below) no Default or Event of Default
shall have occurred and be continuing:
(i) the payment of any dividend within 60 days
after the date of declaration thereof, if at such declaration date
such declaration complied with the provisions of paragraph (a) above
(and such payment shall be deemed to have been paid on such date
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of declaration for purposes of any calculation required by the
provisions of paragraph (a) above);
(ii) the repurchase, redemption or other
acquisition or retirement of any shares of any class of Capital Stock
of the Company or any Restricted Subsidiary, in exchange for, or out
of the aggregate net cash proceeds of, a substantially concurrent
issue and sale (other than to a Restricted Subsidiary) of shares of
Qualified Capital Stock of the Company;
(iii) the purchase, redemption, repayment,
defeasance or other acquisition or retirement for value of any
Subordinated Indebtedness (other than Redeemable Capital Stock) in
exchange for or out of the aggregate net cash proceeds of a
substantially concurrent (A) issue and sale (other than to a
Restricted Subsidiary) by the Company of shares of Qualified Capital
Stock of the Company or (B) equity contribution to the Company by the
holder of all of the Qualified Capital Stock of the Company; and
(iv) the purchase, redemption, repayment,
defeasance or other acquisition or retirement for value of
Subordinated Indebtedness (other than Redeemable Capital Stock) in
exchange for, or out of the aggregate net cash proceeds of, a
substantially concurrent incurrence (other than to a Restricted
Subsidiary) of Subordinated Indebtedness of the Company so long as (A)
the principal amount of such new Indebtedness does not exceed the
principal amount (or, if such Subordinated Indebtedness being
refinanced provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration
thereof, such lesser amount as of the date of determination) of the
Subordinated Indebtedness being so purchased, redeemed, repaid,
defeased, acquired or retired, plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms
of the Subordinated Indebtedness refinanced or the amount of any
premium reasonably determined by the Company as necessary to
accomplish such refinancing, plus the amount of expenses of the
Company incurred in connection with such refinancing, (B) such new
Subordinated Indebtedness is subordinated to the Securities at least
to the same extent as such Subordinated Indebtedness so purchased,
redeemed, repaid, defeased, acquired or retired, (C) such new
Subordinated Indebtedness has an Average Life to Stated Maturity that
is longer than the Average Life to Stated Maturity of the Securities
and such new Subordinated Indebtedness has a Stated Maturity for its
final scheduled principal payment that is at least 91 days later than
the Stated Maturity for the final scheduled principal payment of the
Securities;
The actions described in clauses (i), (ii) and (iii) of this paragraph
(b) shall be permitted to be taken in accordance with this paragraph
(b) but to the extent such actions otherwise constitute Restricted
Payments under this covenant, such actions shall reduce the amount
that would otherwise be available for Restricted Payments under clause
(3) of paragraph (a) (provided that any dividend paid pursuant to
clause (i) of this paragraph (b) shall reduce the amount that would
otherwise be available under clause (3) of paragraph (a) when
declared,
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but not also when subsequently paid pursuant to such clause (i)), and
the actions described in clause (iv) of this paragraph (b) shall be
permitted to be taken in accordance with this paragraph and shall not
reduce the amount that would otherwise be available for Restricted
Payments under clause (3) of paragraph (a).
(c) In computing Consolidated Net Income of the Company
under paragraph (a) above, (i) the Company shall use audited financial
statements for the portions of the relevant period for which audited financial
statements are available on the date of determination and unaudited financial
statements and other current financial data based on the books and records of
the Company for the remaining portion of such period and (ii) the Company shall
be permitted to rely in good faith on the financial statements and other
financial data derived from the books and records of the Company that are
available on the date of determination. If the Company makes a Restricted
Payment which, at the time of the making of such Restricted Payment, would in
the good faith determination of the Company be permitted under the requirements
of this Indenture, such Restricted Payment shall be deemed to have been made in
compliance with this Indenture notwithstanding any subsequent adjustments made
in good faith to the Company's financial statements affecting Consolidated Net
Income of the Company for any period.
(d) Notwithstanding paragraph (a) above, payments by the
Company or any Restricted Subsidiary to an Affiliate of the Company described
in clauses (vi) and (vii) of the proviso to Section 9.17 hereof shall not
constitute Restricted Payments.
SECTION 9.11 Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any
Restricted Subsidiary to, create, incur, issue, assume, guarantee or in any
manner become directly or indirectly liable for the payment of (collectively
"incur") any Indebtedness (including any Acquired Indebtedness), other than
Permitted Indebtedness and Permitted Subsidiary Indebtedness, as the case may
be; provided, however, that the Company and its Restricted Subsidiaries that
are Subsidiary Guarantors may incur Indebtedness if (i) the Company's
Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters
immediately preceding the incurrence of such Indebtedness (and for which
financial statements are available), taken as one period (at the time of such
incurrence, after giving pro forma effect to: (x) the incurrence of such
Indebtedness and (if applicable) the application of the net proceeds therefrom,
including to refinance other Indebtedness or to acquire producing oil and gas
Properties, as if such Indebtedness had been incurred and the application of
such proceeds had occurred at the beginning of such four-quarter period; (y)
the incurrence, repayment or retirement of any other Indebtedness (including
Permitted Indebtedness) by the Company or its Restricted Subsidiaries since the
first day of such four-quarter period (including any other Indebtedness to be
incurred concurrent with the incurrence of such Indebtedness) as if such
Indebtedness had been incurred, repaid or retired at the beginning of such
four-quarter period; and (z) notwithstanding clause (d) of the definition of
Consolidated Net Income, the acquisition (whether by purchase, merger or
otherwise) or disposition (whether by sale, merger or otherwise) of any Person
acquired, or to be acquired, or disposed, or to be disposed of, by the Company
or its Restricted Subsidiaries,
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as the case may be, since the first day of such four-quarter period, as if such
acquisition or disposition had occurred at the beginning of such four-quarter
period and the pro forma effect to consolidated results of operations of the
Company were reflected for such period), would have been equal to at least 2.5
to 1.0 and (ii) no Default or Event of Default shall have occurred and be
continuing at the time such additional Indebtedness is incurred or would occur
as a consequence of the incurrence of the additional Indebtedness.
SECTION 9.12 Limitation on Non-Guarantor Restricted Subsidiaries.
(a) The Company shall not permit any Restricted
Subsidiary that is not a Subsidiary Guarantor to incur any Indebtedness for
borrowed money or guarantee the payment of any Indebtedness of the Company or
any other Restricted Subsidiary unless (i)(A) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to this Indenture
providing for a Subsidiary Guarantee of the Securities by such Restricted
Subsidiary which Subsidiary Guarantee will be subordinated to Guarantor Senior
Indebtedness (but no other Indebtedness) to the same extent that the Securities
are subordinated to Senior Indebtedness and (B), with respect to any guarantee
of Subordinated Indebtedness by a Restricted Subsidiary, any such guarantee
shall be subordinated to such Restricted Subsidiary's Subsidiary Guarantee at
least to the same extent as such Subordinated Indebtedness is subordinated to
the Securities; (ii) such Restricted Subsidiary waives, and agrees not in any
manner whatsoever to claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee until such time as the
obligations guaranteed thereby are paid in full; and (iii) such Restricted
Subsidiary shall deliver to the Trustee an Opinion of Counsel to the effect
that such Subsidiary Guarantee has been duly executed and authorized and
constitutes a valid, binding and enforceable obligation of such Restricted
Subsidiary, except insofar as enforcement thereof may be limited by bankruptcy,
insolvency or similar laws (including, without limitation, all laws relating to
fraudulent transfers) and except insofar as enforcement thereof is subject to
general principles of equity; provided that this paragraph (a) shall not be
applicable to any guarantee of any Restricted Subsidiary that (1) existed at
the time such Person became a Restricted Subsidiary of the Company and (2) was
not incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary of the Company.
(b) Notwithstanding the foregoing and the other
provisions of this Indenture, any Subsidiary Guarantee incurred by a Restricted
Subsidiary pursuant to this Section 9.12 shall provide by its terms that it
shall be automatically and unconditionally released and discharged upon (i) any
sale, exchange or transfer, to any Person that is not an Affiliate of the
Company, of all of the Company's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by this Indenture), (ii) the merger of such Restricted
Subsidiary into the Company or any other Restricted Subsidiary (provided the
surviving Restricted Subsidiary assumes the Subsidiary Guarantee) or the
liquidation and dissolution of such Restricted Subsidiary (in each case to the
extent not prohibited by this Indenture), or (iii) (x) the release or discharge
of all guarantees by such Restricted Subsidiary of any Indebtedness other than
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Note Obligations, except a discharge or release by or as a result of payment
under such guarantees and (y) after giving effect to the proposed release and
discharge, the aggregate total combined assets of all Restricted Subsidiaries
that are not Subsidiary Guarantors do not exceed 5% of Adjusted Consolidated
Net Tangible Assets.
SECTION 9.13 Limitation on Issuances and Sales of Restricted Subsidiary
Stock.
The Company (a) shall not permit any Restricted Subsidiary to issue
any Preferred Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) shall not permit any Person (other than the Company and/or
one or more Wholly Owned Restricted Subsidiaries) to own any Capital Stock of
any Restricted Subsidiary; provided, however, that this covenant shall not
prohibit (i) the issuance and sale of all, but not less than all, of the issued
and outstanding Capital Stock of any Restricted Subsidiary owned by the Company
or any of its Restricted Subsidiaries in compliance with the other provisions
of this Indenture, or (ii) the ownership by directors of directors' qualifying
shares or the ownership by foreign nationals of Capital Stock of any Restricted
Subsidiary, to the extent mandated by applicable law.
SECTION 9.14 Limitation on Liens.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume, affirm or suffer to exist or
become effective any Lien of any kind, except for Permitted Liens, on or with
respect to any of its property or assets, whether owned at the date of this
Indenture or thereafter acquired, or any income, profits or proceeds therefrom,
or assign or otherwise convey any right to receive income thereon, unless (a)
in the case of any Lien securing Subordinated Indebtedness, the Securities are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Lien and (b) in the case of any other Lien, the Securities are
directly secured equally and ratably with the obligation or liability secured
by such Lien.
SECTION 9.15 Change of Control.
(a) Upon the occurrence of a Change of Control, the
Company shall be obligated to make an offer to purchase (a "Change of Control
Offer") all of the then Outstanding Securities, in whole or in part, from the
Holders of such Securities in integral multiples of $1,000, at a purchase price
(the "Change of Control Purchase Price") equal to 101% of the aggregate
principal amount of such Securities, plus accrued and unpaid interest, if any,
to the Change of Control Purchase Date (as defined below), in accordance with
the procedures set forth in paragraphs (b), (c) and (d) of this Section. The
Company shall, subject to the provisions described below, be required to
purchase all Securities properly tendered into the Change of Control Offer and
not withdrawn. The Company will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer at the same purchase price, at the same times and otherwise in
substantial compliance with the requirements applicable to a Change of Control
Offer made by the Company and purchases all Securities validly tendered and not
withdrawn under such Change of Control Offer.
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(b) The Change of Control Offer is required to remain
open for at least 20 Business Days and until the close of business on the fifth
Business Day prior to the Change of Control Purchase Date (as defined below).
(c) Not later than the 30th day following any Change of
Control, the Company shall give to the Trustee in the manner provided in
Section 14.4 and each Holder of the Securities in the manner provided in
Section 14.5, a notice (the "Change of Control Notice") stating:
(1) that a Change in Control has
occurred and that such Holder has the right to require the
Company to repurchase such Holder's Securities, or portion
thereof, at the Change of Control Purchase Price;
(2) any information regarding such
Change of Control required to be furnished pursuant to Rule
14e-1 under the Exchange Act and any other securities laws
and regulations thereunder;
(3) a purchase date (the "Change of
Control Purchase Date") which shall be on a Business Day and
no earlier than 30 days nor later than 70 days from the date
the Change of Control occurred;
(4) that any Security, or portion
thereof, not tendered or accepted for payment will continue
to accrue interest;
(5) that unless the Company defaults in
depositing money with the Paying Agent in accordance with
the last paragraph of clause (d) of this Section 9.15, or
payment is otherwise prevented, any Security, or portion
thereof, accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the
Change of Control Purchase Date; and
(6) the instructions a Holder must
follow in order to have its Securities repurchased in
accordance with paragraph (d) of this Section.
(d) Holders electing to have Securities purchased will be
required to surrender such Securities to the Company at the address specified
in the Change of Control Notice at least five Business Days prior to the Change
of Control Purchase Date. Holders will be entitled to withdraw their election
if the Company receives, not later than three Business Days prior to the Change
of Control Purchase Date, a facsimile transmission or letter setting forth the
name of the Holder, the certificate number(s) and principal amount of the
Securities delivered for purchase by the Holder as to which his election is to
be withdrawn and a statement that such Holder is withdrawing his election to
have such Securities purchased. Holders whose Securities are purchased only in
part will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered.
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SECTION 9.16 Limitation on Disposition of Proceeds of Asset Sales.
(a) The Company shall not, and shall not permit any
Restricted Subsidiary to, engage in any Asset Sale unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the
Properties sold or otherwise disposed of pursuant to the Asset Sale (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a board resolution) and (ii) at least 75% of the
consideration received by the Company or the Restricted Subsidiary, as the case
may be, in respect of such Asset Sale consists of cash, Cash Equivalents or the
assumption by the purchaser of liabilities of the Company (other than
liabilities of the Company that are by their terms subordinated to the
Securities) or any Restricted Subsidiary as a result of which the Company and
its remaining Restricted Subsidiaries are no longer liable.
(b) If the Company or any Restricted Subsidiary engages
in an Asset Sale, the Company may either (i) apply the Net Cash Proceeds
thereof to permanently reduce Senior Indebtedness or to permanently reduce
Guarantor Senior Indebtedness, or (ii) invest all or any part of the Net Cash
Proceeds thereof, within 365 days after such Asset Sale, in Properties which
replace the Properties that were the subject of the Asset Sale or in Properties
that will be used in the business of the Company or its Restricted
Subsidiaries, as the case may be ("Replacement Assets"). The amount of such Net
Cash Proceeds not applied or invested as provided in this paragraph constitutes
"Excess Proceeds," subject to disposition as provided below.
(c) When the aggregate amount of Excess Proceeds equals
or exceeds $15,000,000 (the "Trigger Date") the Company shall make an offer to
purchase, from all Holders of the Securities and any then outstanding Pari
Passu Indebtedness required to be repurchased or repaid on a permanent basis in
connection with an Asset Sale, an aggregate principal amount of Securities and
any then outstanding Pari Passu Indebtedness equal to such Excess Proceeds as
follows:
(i) (A) No later than the 30th day following the
Trigger Date, the Company shall give to the Trustee in the manner
provided in Section 14.4 hereof and each Holder of the Securities in
the manner provided in Section 14.5 hereof, notice (a "Purchase
Notice") offering to purchase (a "Net Proceeds Offer") from all
Holders of the Securities the maximum principal amount (expressed as a
multiple of $1,000) of Securities that may be purchased out of an
amount (the "Payment Amount") equal to the product of such Excess
Proceeds multiplied by a fraction, the numerator of which is the
outstanding principal amount of the Securities and the denominator of
which is the sum of the outstanding principal amount of the Securities
and such Pari Passu Indebtedness, if any (subject to proration in the
event such amount is less than the aggregate Offered Price (as defined
herein) of all Securities tendered), and (B) to the extent required by
such Pari Passu Indebtedness and provided there is a permanent
reduction in the principal amount of such Pari Passu Indebtedness, the
Company shall make an offer to purchase Pari Passu
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Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu
Indebtedness Amount") equal to the excess of the Excess Proceeds over
the Payment Amount.
(ii) The offer price for the Securities shall be
payable in cash in an amount equal to 100% of the principal amount of
the Securities tendered pursuant to a Net Proceeds Offer, plus accrued
and unpaid interest, if any, to the date such Net Proceeds Offer is
consummated (the "Offered Price"), in accordance with paragraph (d) of
this Section. To the extent that the aggregate Offered Price of the
Securities tendered pursuant to a Net Proceeds Offer is less than the
Payment Amount relating thereto or the aggregate amount of the Pari
Passu Indebtedness that is purchased or repaid pursuant to the Pari
Passu Offer is less than the Pari Passu Indebtedness Amount (such
shortfall constituting a "Net Proceeds Deficiency"), the Company may
use such Net Proceeds Deficiency, or a portion thereof, for general
corporate purposes, subject to the limitations of Section 9.10 hereof.
(iii) If the aggregate Offered Price of Securities
validly tendered and not withdrawn by Holders thereof exceeds the
Payment Amount, Securities to be purchased will be selected on a pro
rata basis. Upon completion of such Net Proceeds Offer and Pari Passu
Offer, the amount of Excess Proceeds shall be reset to zero.
(iv) The Purchase Notice shall set forth a
purchase date (the "Net Proceeds Payment Date"), which shall be on a
Business Day no earlier than 30 days nor later than 70 days from the
Trigger Date. The Purchase Notice shall also state (i) that a Trigger
Date with respect to one or more Asset Sales has occurred and that
such Holder has the right to require the Company to repurchase such
Holders Securities at the Offered Price, subject to the limitations
described in the forgoing paragraph (3), (ii) any information
regarding such Net Proceeds Offer required to be furnished pursuant to
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder, (iii) that any Security, or portion thereof,
not tendered or accepted for payment will continue to accrue interest,
(iv) that, unless the Company defaults in depositing money with the
Paying Agent in accordance with the last paragraph of clause (d) of
this Section 9.16, or payment is otherwise prevented, any Security, or
portion thereof, accepted for payment pursuant to the Net Proceeds
Offer shall cease to accrue interest after the Net Proceeds Payment
Date, and (v) the instructions a Holder must follow in order to have
its Securities repurchased in accordance with paragraph (d) of this
Section.
(d) Holders electing to have Securities purchased will be
required to surrender such Securities to the Company at the address specified
in the Purchase Notice at least five Business Days prior to the Net Proceeds
Payment Date. Holders will be entitled to withdraw their election if the
Company receives, not later than three Business Days prior to the Net Proceeds
Payment Date, a facsimile transmission or letter setting forth the name of the
Holder, the certificate number(s) and principal amount of the Securities
delivered for purchase by the Holder as to which his election is to be
withdrawn and a statement that such Holder is withdrawing his election to have
such Securities
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purchased. Holders whose Securities are purchased only in part will be issued
new Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
On the Net Proceeds Payment Date, the Company shall (i) accept for
payment Securities or portions thereof tendered pursuant to a Net Proceeds
Offer in an aggregate principal amount equal to the Payment Amount or such
lesser amount of Securities as has been tendered, (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Securities or portions
thereof so tendered in an aggregate principal amount equal to the Payment
Amount or such lesser amount and (iii) deliver or cause to be delivered to the
Trustee the Securities so accepted. The Paying Agent shall promptly mail or
deliver to Holders of the Securities so accepted payment in an amount equal to
the purchase price, and the Company shall execute and the Trustee will promptly
authenticate and mail or make available for delivery to such Holders a new
Security equal in principal amount to any unpurchased portion of the Security
which any such Holder did not surrender for purchase. Any Securities not so
accepted will be promptly mailed or delivered to the Holder thereof. The
Company shall announce the results of a Net Proceeds Offer on or as soon as
practicable after the Net Proceeds Payment Date. For purposes of this Section
9.16, the Trustee will act as the Paying Agent.
SECTION 9.17 Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or the rendering of any
services) with, or for the benefit of, any Affiliate of the Company other than
a Restricted Subsidiary (each, other than a Restricted Subsidiary, being an
"Interested Person"), unless (a) such transaction or series of transactions is
on terms that are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that would be available in a
comparable arm's length transaction with unrelated third parties who are not
Interested Persons, (b) except with respect to loans from Affiliates, with
respect to any one transaction or series of transactions involving aggregate
payments in excess of $1,000,000, the Company delivers an Officer's Certificate
to the Trustee certifying that such transaction or series of transactions
complies with clause (a) above and such transaction or series of transactions
has been approved by the Board of Directors of the Company and (c) except with
respect to loans from Affiliates, with respect to any one transaction or series
of transactions involving aggregate payments in excess of $10,000,000, the
Officer's Certificate referred to in clause (b) above also certifies that such
transaction or series of transactions has been approved by a majority of the
Disinterested Directors or, in the event there are no such Disinterested
Directors, that the Company has obtained a written opinion from an independent
nationally recognized investment banking firm or appraisal firm, in either case
specializing or having a specialty in the type and subject matter of the
transaction or series of transactions at issue, which opinion shall be to the
effect set forth in clause (a) above or shall state that such transaction or
series of transactions is fair from a financial point of view to the Company or
such Restricted Subsidiary; provided, however, that this covenant will not
restrict the Company from (i) paying reasonable and customary regular
compensation and fees to directors of the Company who are not employees of the
Company or any Restricted Subsidiary, (ii) entering into and making payments
under any
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employment or secondment agreement entered into in the ordinary course of its
business and consistent with past practices, (iii) paying dividends on, or
making distributions with respect to, shares of Capital Stock of the Company on
a pro rata basis to the extent permitted by Section 9.10 hereof, (iv) other
transactions permitted by Section 9.10 hereof, (v) effecting transactions
pursuant to agreements with Affiliates existing on the date or entering into
any amendment thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto) in any replacement agreement thereto, so
long as any such amendment or replacement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on the
date of this Indenture, (vi) making payments to Affiliates in reimbursement for
direct expenses incurred for the benefit of the Company or any Restricted
Subsidiary, including without limitation, compensation, consulting services,
insurance, communications, travel, legal and audit expenses, to the extent such
costs and expenses are reasonably allocable to the Company and any Restricted
Subsidiaries plus a mark-up on such costs and expenses but only to the extent
permitted under international transfer pricing regulations, rules and
procedures applicable to the Company and such Affiliates for tax purposes,
(vii) any payment to an Affiliate under any parent-subsidiary or consolidated
group tax sharing agreement, whether existing or entered in the future provided
that the obligations of the Company and any Restricted Subsidiaries thereunder
shall be no greater than their aggregate separate return liability if the
Company and the Restricted Subsidiaries filed separate tax returns or separate
consolidated tax returns with taxing authorities, (viii) repayment of any
Indebtedness to an Affiliate of the Company which, when incurred or entered
into, complied with clause (a) of this Section 9.17, and (ix) indemnities of
officers, directors and employees of the Company or any Subsidiary pursuant to
bylaw or statutory provisions.
SECTION 9.18 Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock to the Company or any Restricted Subsidiary, (b) pay any Indebtedness
owed to the Company or any Restricted Subsidiary, (c) make an Investment in the
Company or any Restricted Subsidiary or (d) transfer any of its properties or
assets to the Company or any Restricted Subsidiary, except for such
encumbrances or restrictions under or by reason of (i) any agreement in effect
or entered into on the date of this Indenture (including the Credit Agreement),
(ii) any agreement or other instrument of a Person acquired by the Company or
any Restricted Subsidiary in existence at the time of such acquisition (but not
created in contemplation thereof), which encumbrance or restriction is not
applicable to any other Person, or the properties or assets of any other
Person, other than the Person, or the property or assets of the Person, so
acquired, (iii) any agreement that extends, renews, refinances or replaces the
agreements containing the restrictions in the foregoing clauses (i) and (ii),
provided that the terms and conditions of any such restrictions are not
materially less favorable to the Holders of the Securities than those under or
pursuant to the agreement evidencing the Indebtedness so extended, renewed,
refinanced or replaced, (iv) this Indenture and the Securities,
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(v) applicable law, (vi) customary non-assignment provisions in leases, and
customary provisions in other agreements that restrict assignment of such
agreements or rights thereunder, (vii) customary restrictions contained in
asset sale agreements limiting the transfer of such assets pending the closing
of such sale or (viii) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (d) above on the property so acquired.
SECTION 9.19 Limitation on Other Senior Subordinated Indebtedness.
The Company shall not incur, directly or indirectly, any Indebtedness
which is expressly subordinate or junior in right of payment in any respect to
Senior Indebtedness unless such Indebtedness ranks pari passu in right of
payment with the Securities, or is expressly subordinated in right of payment
to the Securities; provided, however, that the foregoing limitations will not
apply to distinctions between categories of Indebtedness that exist by reason
of any Liens arising or created in respect of some but not all such
Indebtedness.
SECTION 9.20 Limitation on Conduct of Business.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in the conduct of any business other than the Oil and
Gas Business.
SECTION 9.21 Registration Rights Agreement.
The Company shall perform its obligations under the Registration
Rights Agreement and shall comply in all material respects with the terms and
conditions contained therein including, without limitation, the payment of
additional interest as described in Section 2(e) of the Registration Rights
Agreement.
SECTION 9.22 Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Sections 9.5 through 9.11, Sections
9.13 and 9.14 and Sections 9.17 through 9.20 hereof if, before or after the
time for such compliance, the Holders of at least a majority in principal
amount of the Outstanding Securities and the Subsidiary Guarantors, by act of
such Holders and written agreement of the Subsidiary Guarantors, waive such
compliance in such instance with such term, provision or condition, but no such
waiver shall extend to or affect such term, provision or condition except to
the extent so expressly waived, and, until such waiver shall become effective,
the obligations of the Company and the duties of the Trustee in respect of any
such term, provision or condition shall remain in full force and effect.
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ARTICLE X
REDEMPTION OF SECURITIES
SECTION 10.1 Right of Redemption.
The Securities may be redeemed, at the option of the Company, in whole
or in part, at any time on or after June 15, 2002, upon not less than 30 or
more than 60 days' notice to each Holder of Securities to be redeemed, subject
to the conditions and at the Redemption Prices (expressed as percentages of
principal amount) specified in the form of Security, together with accrued and
unpaid interest, if any, to the Redemption Date. In addition, at any time and
from time to time prior to June 15, 2000, the Company may, at its option,
redeem Securities in an amount in the aggregate equal to up to 33 1/3% of the
aggregate principal amount of Securities originally issued under this Indenture
with the cash proceeds of one or more Public Equity Offerings at a Redemption
Price (expressed as a percentage of principal amount) of 109.5%, plus accrued
and unpaid interest, if any, to the applicable Redemption Date (subject to the
right of Holders of Securities on the relevant record date to receive interest
due on the relevant Interest Payment Date); provided, however, that at least
$66,600,000 aggregate principal amount of the Securities must remain
Outstanding after each such redemption. In order to effect the foregoing
redemption, the Company must mail notice of redemption under Section 10.5
hereof no later than 60 days after the related Public Equity Offering and must
consummate such redemption within 90 days of the closing of the Public Equity
Offering.
SECTION 10.2 Applicability of Article.
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 10.3 Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
Section 10.1 hereof shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice
shall be satisfactory to the Trustee), notify the Trustee of such Redemption
Date and of the principal amount of Securities to be redeemed and shall deliver
to the Trustee such documentation and records as shall enable the Trustee to
select the Securities to be redeemed pursuant to Section 10.4 hereof. Any
election to redeem Securities shall be revocable until the Company gives a
notice of redemption pursuant to Section 10.5 hereof to the Holders of
Securities to be redeemed.
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SECTION 10.4 Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not less than 30 days nor more than
60 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities not previously called for redemption, pro rata, by lot or by any
other method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions of the principal of
Securities; provided, however, that any such partial redemption shall be in
integral multiples of $1,000.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security which has been or is to be
redeemed.
SECTION 10.5 Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 14.5 hereof not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed.
All notices of redemption shall identify the Securities to be redeemed
(including CUSIP number) and shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be
redeemed, the identification (and, in the case of a partial redemption, the
principal amounts) of the particular Securities to be redeemed;
(d) that on the Redemption Date the Redemption Price
(together with accrued interest, if any, to the Redemption Date payable as
provided in Section 10.7 hereof) will become due and payable upon each such
Security, or the portion thereof, to be redeemed, and that, unless the Company
shall default in the payment of the Redemption Price and any applicable accrued
interest, interest thereon will cease to accrue on and after said date; and
(e) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.
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Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. Failure to give such
notice by mailing to any Holder of Securities or any defect therein shall not
affect the validity of any proceedings for the redemption of other Securities.
SECTION 10.6 Deposit of Redemption Price.
On or before 11:00 A.M., New York City time, on any Redemption Date,
the Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 9.3 hereof) an amount of money sufficient to pay the
Redemption Price of, and accrued and unpaid interest on, all the Securities
which are to be redeemed on such Redemption Date.
SECTION 10.7 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued and unpaid interest,
if any, to the Redemption Date), and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued and
unpaid interest) such Securities shall cease to bear interest. Upon surrender
of any such Security for redemption in accordance with said notice, such
Security shall be paid by the Company at the Redemption Price, together with
accrued and unpaid interest, if any, to the Redemption Date; provided, however,
that installments of interest whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
2.10 hereof.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.
SECTION 10.8 Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered
at the office or agency of the Company maintained for such purpose pursuant to
Section 9.2 hereof (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal amount of the Security so
surrendered.
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ARTICLE XI
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 11.1 Company's Option to Effect Defeasance or Covenant Defeasance.
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 11.2 or Section 11.3
hereof be applied to all Outstanding Securities upon compliance with the
conditions set forth below in this Article XI.
SECTION 11.2 Defeasance and Discharge.
Upon the Company's exercise under Section 11.1 hereof of the option
applicable to this Section 11.2, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth in Section 11.4 hereof are satisfied
(hereinafter, "legal defeasance"). For this purpose, such legal defeasance
means that the Company and the Subsidiary Guarantors shall be deemed (a) to
have paid and discharged their respective obligations under the Outstanding
Securities; provided, however that the Securities shall continue to be deemed
to be "Outstanding" for purposes of Section 11.5 hereof and the other Sections
of this Indenture referred to in clauses (i) and (ii) below, and (b) to have
satisfied all their other obligations under such Securities and this Indenture
insofar as such Securities are concerned (and the Trustee, at the expense of
the Company, shall execute proper instruments acknowledging the same), except
for the following which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of Outstanding Securities to receive,
solely from the trust fund described in Section 11.4 hereof and as more fully
set forth in such Section, payments in respect of the principal of (and
premium, if any, on) and interest on such Securities when such payments are due
(or at such time as the Securities would be subject to redemption at the option
of the Company in accordance with this Indenture), (ii) the respective
obligations of the Company and any Subsidiary Guarantors under Sections 2.4,
2.5, 2.6, 2.7, 2.8, 2.9, 4.8, 4.14, 5.6, 5.9, 5.10, 9.1, 9.2, 9.3, 9.4, 12.1
(to the extent it relates to the foregoing Sections and Article XI hereof),
12.4 and 12.5 hereof, (iii) the rights, powers, trusts, duties and immunities
of the Trustee hereunder, and (iv) the obligations of the Company and any
Subsidiary Guarantors under this Article XI. Subject to compliance with this
Article XI, the Company may exercise its option under this Section 11.2
notwithstanding the prior exercise of its option under Section 11.3 hereof with
respect to the Securities.
SECTION 11.3 Covenant Defeasance.
Upon the Company's exercise under Section 11.1 hereof of the option
applicable to this Section 11.3, the Company shall be released from its
obligations under any covenant contained in Article VII and in Sections 9.6
through 9.20 hereof with respect to the Outstanding Securities on and after the
date the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction,
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waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such
covenant defeasance means that, with respect to the Outstanding Securities, the
Company may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such covenant
or by reason of any reference in any such covenant to any other provision
herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Sections 4.1(c) or 4.1(d)
hereof, but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby.
SECTION 11.4 Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
11.2 or Section 11.3 hereof to the Outstanding Securities:
(a) The Company or any Subsidiary Guarantor shall
irrevocably have deposited or caused to be deposited with the Trustee (or
another trustee satisfying the requirements of Section 5.7 hereof who shall
agree to comply with the provisions of this Article XI applicable to it) as
trust funds in trust for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the benefit of
the Holders of such Securities, (i) cash in U.S. Dollars in an amount, or (ii)
U.S. Government Obligations (as defined below) which through the scheduled
payment of principal and interest in respect thereof in accordance with their
terms will provide, not later than one day before the due date of any payment,
money in an amount, or (iii) a combination thereof, sufficient, in the opinion
of a nationally recognized firm of independent public accountants expressed in
a written certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, the principal of (and premium, if any, on) and interest on the
Outstanding Securities on the Stated Maturity (or Redemption Date, if
applicable) of such principal (and premium, if any) or installment of interest;
provided that the Trustee shall have been irrevocably instructed in writing by
the Company to apply such money or the proceeds of such U.S. Government
Obligations to said payments with respect to the Securities. Before such a
deposit, the Company may give to the Trustee, in accordance with Section 10.3
hereof, a notice of its election to redeem all of the Outstanding Securities at
a future date in accordance with Article X hereof, which notice shall be
irrevocable. Such irrevocable redemption notice, if given, shall be given
effect in applying the foregoing. For this purpose, "U.S. Government
Obligations" means securities that are (x) direct obligations of the United
States of America for the timely payment of which its full faith and credit is
pledged or (y) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States of America the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository
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receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of principal of or interest
on the U.S. Government Obligation evidenced by such depository receipt.
(b) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Section 4.1(h) or 4.1(i) hereof is
concerned, at any time in the period ending on the 91st day after the date of
the deposit.
(c) Such legal defeasance or covenant defeasance shall
not cause the Trustee to have a conflicting interest under this Indenture or
the Trust Indenture Act with respect to any securities of the Company.
(d) Such legal defeasance or covenant defeasance shall
not result in a breach or violation of, or constitute a default under any other
material agreement or instrument to which the Company or any Subsidiary
Guarantor is a party or by which it is bound, as evidenced to the Trustee in an
Officers' Certificate delivered to the Trustee concurrently with such deposit.
(e) In the case of an election under Section 11.2 hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel stating
that (i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (ii) since the date of this Indenture
there has been a change in the applicable Federal income tax laws; in either
case providing that the Holders of the Outstanding Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such legal defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such legal defeasance had not occurred (it being understood that (x) such
Opinion of Counsel shall also state that such ruling or applicable law is
consistent with the conclusions reached in such Opinion of Counsel and (y) the
Trustee shall be under no obligation to investigate the basis of correctness of
such ruling).
(f) In the case of an election under Section 11.3 hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the Outstanding Securities will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such covenant defeasance had not occurred.
(g) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the legal defeasance under
Section 11.2 hereof or the covenant defeasance under Section 11.3 (as the case
may be) have been complied with.
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SECTION 11.5 Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 9.3 hereof,
all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee--collectively for
purposes of this Section 11.5, the "Trustee") pursuant to Section 11.4 hereof
in respect of the Outstanding Securities shall be held in trust and applied by
the Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 11.4 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the Outstanding
Securities.
Anything in this Article XI to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 11.4 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent legal defeasance or
covenant defeasance, as applicable, in accordance with this Article.
SECTION 11.6 Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 11.5 hereof by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's and any Subsidiary Guarantors' obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to Section 11.2 or 11.3 hereof, as the
case may be, until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with Section 11.5 hereof; provided, however,
that if the Company or any Subsidiary Guarantor makes any payment of principal
of (or premium, if any, on) or interest on any Security following the
reinstatement of its obligations, the Company or such Subsidiary Guarantor
shall be subrogated to the rights of the Holders of such Securities to receive
such payment from the money held by the Trustee or Paying Agent.
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ARTICLE XII
GUARANTEES
SECTION 12.1 Unconditional Guarantee.
Any future Restricted Subsidiary that becomes a Subsidiary Guarantor
shall unconditionally, jointly and severally, guarantee (each such guarantee to
be referred to herein as a "Subsidiary Guarantee," with all such guarantees
being referred to herein as the "Subsidiary Guarantees") to each Holder of
Securities authenticated and delivered by the Trustee and to the Trustee and
its successors and assigns, the full and prompt performance of the Company's
obligations under this Indenture and the Securities and that:
(a) the principal of (or premium, if any, on) and
interest on the Securities will be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest on the overdue
principal of and interest on the Securities, if any, to the extent lawful, and
all other obligations of the Company to the Holders or the Trustee hereunder or
thereunder will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and
(b) in case of any extension of time of payment or
renewal of any Securities or of any such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at Stated Maturity, by acceleration or otherwise;
subject, however, in the case of clauses (a) and (b) above, to the limitations
set forth in Section 12.4 hereof.
Failing payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Subsidiary Guarantors will
be jointly and severally obligated to pay the same immediately. The
obligations of each Subsidiary Guarantor hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of the Securities or
this Indenture, the absence of any action to enforce the same, any waiver or
consent by any Holder of the Securities with respect to any provisions hereof
or thereof, the recovery of any judgment against the Company, any action to
enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. Each Subsidiary
Guarantor shall waive diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company, protest, notice
and all demands whatsoever and shall covenant that its Subsidiary Guarantee
will not be discharged except by complete performance of the obligations
contained in the Securities, this Indenture and in the Subsidiary Guarantee.
If any Holder or the Trustee is required by any court or otherwise to return to
the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or
other similar official acting in relation to the Company or any Subsidiary
Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the
Trustee or such Holder, the Subsidiary Guarantee, to
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the extent theretofore discharged, shall be reinstated in full force and
effect. No Subsidiary Guarantor shall be entitled to any right of subrogation
in relation to the Holders in respect of any obligations guaranteed by the
Subsidiary Guarantee until payment in full of all obligations guaranteed
thereby. Each Subsidiary Guarantor shall further agree that, as between each
Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (i) the maturity of the obligations guaranteed by the Subsidiary
Guarantee may be accelerated as provided in Article IV hereof for the purposes
of the Subsidiary Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed by the Subsidiary Guarantee, and (ii) in the event of any
acceleration of such obligations as provided in Article IV hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Subsidiary Guarantor for the purpose of the Subsidiary
Guarantee.
SECTION 12.2 Subsidiary Guarantors May Consolidate, etc. on Certain Terms.
(a) Except as set forth in Articles VII and IX hereof,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Subsidiary Guarantor with or into the Company
or another Subsidiary Guarantor or shall prevent any sale or conveyance of the
assets of a Subsidiary Guarantor as an entirety or substantially as an
entirety, to the Company or another Subsidiary Guarantor.
(b) Except as set forth in Articles VII and IX hereof,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Subsidiary Guarantor with or into a
corporation or corporations other than the Company or a Subsidiary Guarantor
(whether or not affiliated with the Subsidiary Guarantor), or successive
consolidations or mergers in which a Subsidiary Guarantor or its successor or
successors shall be a party or parties, or shall prevent any sale or conveyance
of the Properties of a Subsidiary Guarantor as an entirety or substantially as
an entirety, to a corporation other than the Company or another Subsidiary
Guarantor (whether or not Affiliated with the Subsidiary Guarantor) authorized
to acquire and operate the same; provided, however, that, subject to Sections
12.2(a) and 12.3 hereof, (A) immediately after such transaction, and giving
effect thereto, no Default or Event of Default shall have occurred as a result
of such transaction and be continuing, (B) such transaction shall not violate
any of the covenants in Sections 9.1 through 9.19 hereof, and (C) each
Subsidiary Guarantor shall covenant and agree that, upon any such
consolidation, merger, sale or conveyance, such Subsidiary Guarantor's
Subsidiary Guarantee set forth in this Article XII and in a notation to the
Securities, and the due and punctual performance and observance of all of the
covenants and conditions of this Indenture to be performed by such Subsidiary
Guarantor, shall be expressly assumed (in the event that the Subsidiary
Guarantor is not the surviving corporation in the merger), by supplemental
indenture satisfactory in form to the Trustee, executed and delivered to the
Trustee, by such corporation formed by such consolidation, or into which the
Subsidiary Guarantor shall have merged, or by the corporation that shall have
acquired such Property (except to the extent the following Section 12.3 would
result in the release of such Subsidiary Guarantee in which case such surviving
corporation does not have to execute any such supplemental indenture). In the
case of any such consolidation, merger, sale or conveyance and upon the
assumption by the successor corporation, by supplemental
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indenture executed and delivered to the Trustee and satisfactory in form to the
Trustee of the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Subsidiary Guarantor, such
successor corporation shall succeed to and be substituted for the Subsidiary
Guarantor with the same effect as if it had been named herein as a Subsidiary
Guarantor.
SECTION 12.3 Release of a Subsidiary Guarantor.
The Subsidiary Guarantee of any Restricted Subsidiary may be released
upon the terms and subject to the conditions set forth in Section 9.12 (b)
hereof. Each Subsidiary Guarantor that is designated as an Unrestricted
Subsidiary in accordance with the provisions of this Indenture shall be
released from all of its Subsidiary Guarantee and related obligations set forth
in this Indenture for so long as it remains an Unrestricted Subsidiary. The
Trustee shall deliver an appropriate instrument evidencing such release upon
receipt of a Company Request accompanied by an Officers' Certificate and an
Opinion of Counsel certifying that such sale or other disposition was made by
the Company in accordance with the provisions of this Indenture. Any
Subsidiary Guarantor not so released remains liable for the full amount of
principal of (and premium, if any, on) and interest on the Securities as
provided in this Article XII.
SECTION 12.4 Limitation of Subsidiary Guarantor's Liability.
Each Subsidiary Guarantor shall confirm, and by its acceptance hereof
each Holder hereby confirms, that it is the intention of all such parties that
the Guarantee by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee
not constitute a fraudulent transfer or conveyance for purposes of any federal
or state law. To effectuate the foregoing intention, the Holders hereby
irrevocably agree, and each Subsidiary Guarantor shall irrevocably agree, that
the obligations of each Subsidiary Guarantor under its Subsidiary Guarantee
shall be limited to the maximum amount as will, after giving effect to all
other contingent and fixed liabilities (including, but not limited to,
Guarantor Senior Indebtedness) of such Subsidiary Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under its Subsidiary Guarantee or pursuant to Section 12.5 hereof,
result in the obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. This Section 12.4 is for the benefit of the creditors of
each Subsidiary Guarantor.
SECTION 12.5 Contribution.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors shall agree, inter se, that in
the event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under its Subsidiary Guarantee, such Funding Guarantor
shall be entitled to a contribution from each other Subsidiary Guarantor (if
any) in a pro rata amount based on the Adjusted Net Assets of each Subsidiary
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in
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discharging the Company's obligations with respect to the Securities or any
other Subsidiary Guarantor's obligations with respect to its Subsidiary
Guarantee.
SECTION 12.6 Execution and Delivery of Notation of Subsidiary Guarantee.
To evidence the Subsidiary Guarantee set forth in Section 12.1 hereof,
the Company shall cause each Subsidiary Guarantor to execute the notation of
Subsidiary Guarantee in substantially the form set forth in Exhibit B attached
hereto to be endorsed on each Security ordered to be authenticated and
delivered by the Trustee, and shall cause this Indenture or a supplemental
indenture to be executed on behalf of each Subsidiary Guarantor by its
President or one of its Vice Presidents and attested to by one of its
Secretaries or Assistant Secretaries. Each Subsidiary Guarantor shall agree
that its Subsidiary Guarantee set forth in Section 12.1 hereof shall remain in
full force and effect notwithstanding any failure to endorse on each Security a
notation of such Subsidiary Guarantee. Each such notation of Subsidiary
Guarantee shall be signed on behalf of each Subsidiary Guarantor by two
Officers, or an Officer and an Assistant Secretary or one Officer shall sign
and one Officer or an Assistant Secretary (each of whom shall, in each case,
have been duly authorized by all requisite corporate actions) shall attest to
such notation of Subsidiary Guarantee prior to the authentication of the
Security on which it is endorsed, and the delivery of such Security by the
Trustee, after the authentication thereof hereunder, shall constitute due
delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of
the Subsidiary Guarantors. Such signatures upon the notation of Subsidiary
Guarantee may be by manual or facsimile signature of such officers and may be
imprinted or otherwise reproduced on the Subsidiary Guarantee, and in case any
such officer who shall have signed the notation of Subsidiary Guarantee shall
cease to be such officer before the Security on which such notation of
Subsidiary Guarantee is endorsed shall have been authenticated and delivered by
the Trustee or disposed of by the Company, such Security nevertheless may be
authenticated and delivered or disposed of as though the Person who signed the
notation of Subsidiary Guarantee had not ceased to be such officer of the
Subsidiary Guarantor.
SECTION 12.7 Severability.
In case any provision of the Subsidiary Guarantee shall be invalid,
illegal or unenforceable, that portion of such provision that is not invalid,
illegal or unenforceable shall remain in effect, and the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 12.8 Subsidiary Guarantees Subordinated to Guarantor Senior
Indebtedness.
Each Subsidiary Guarantor shall covenant and agree, and each Holder of
a Security, by his acceptance of the Subsidiary Guarantees, covenants and
agrees, for the benefit of the holders, from time to time, of Guarantor Senior
Indebtedness, that the payments by such Subsidiary Guarantor in respect of its
Subsidiary Guarantee are subordinated and subject in right of payment, to the
extent and in the manner provided in this Article XII, to the prior payment in
full of all Guarantor Senior Indebtedness of such Subsidiary Guarantor, whether
outstanding on the date of this Indenture or
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thereafter created, incurred, assumed or guaranteed; provided, however, that
the Subsidiary Guarantees of the Subsidiary Guarantors, the Indebtedness
represented thereby and the payment of the principal of (and premium, if any,
on) and the interest on the Securities pursuant to the Subsidiary Guarantees in
all respects shall rank pari passu with, or prior to, all existing and future
unsecured indebtedness (including, without limitation, Indebtedness) of the
Subsidiary Guarantors that is subordinated to the Guarantor Senior
Indebtedness.
This Article XII shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Guarantor Senior Indebtedness, and such provisions are made for the benefit of
the holders of Guarantor Senior Indebtedness, and such holders are made
obligees hereunder and any of them may enforce such provisions.
SECTION 12.9 Subsidiary Guarantors Not to Make Payments with Respect to
Subsidiary Guarantees in Certain Circumstances.
(a) No payment or distribution of any Property of any
Subsidiary Guarantor of any kind or character (other than Permitted Guarantor
Junior Securities) may be made by such Subsidiary Guarantor in respect of its
Subsidiary Guarantee upon the happening of any default in respect of the
payment or required prepayment of any of its Guarantor Senior Indebtedness when
the same becomes due and payable (a "Subsidiary Guarantor Payment Default"),
unless and until such Subsidiary Guarantor Payment Default shall have been
cured or waived in writing or shall have ceased to exist or such Guarantor
Senior Indebtedness shall have been paid in full or otherwise discharged, after
which such Subsidiary Guarantor shall resume making any and all required
payments in respect of its Subsidiary Guarantee, including any missed payments.
(b) Upon the happening of any event (other than a
Subsidiary Guarantor Payment Default) the occurrence of which entitles one or
more Persons to accelerate the maturity of any Designated Guarantor Senior
Indebtedness (a "Subsidiary Guarantor Non-payment Default"), and receipt by the
applicable Subsidiary Guarantor and a Responsible Officer of the Trustee, on
behalf of the Trustee, of written notice thereof from one or more of the
holders of such Designated Guarantor Senior Indebtedness or their
representative (a "Subsidiary Guarantor Payment Notice"), then, unless and
until such Subsidiary Guarantor Non-payment Default shall have been cured or
waived in writing or such Designated Guarantor Senior Indebtedness is paid in
full or otherwise discharged or the holders (or a representative of the
holders) of such Designated Guarantor Senior Indebtedness give their written
approval, no payment or distribution shall be made by such Subsidiary Guarantor
in respect of its Subsidiary Guarantee (other than Permitted Guarantor Junior
Securities); provided, however, that these provisions will not prevent the
making of any payment for more than 179 days after a Subsidiary Guarantor
Payment Notice shall have been given after which, subject to Section 12.9(a),
such Subsidiary Guarantor will resume making any and all required payments in
respect of its Subsidiary Guarantee, including any missed payments.
Notwithstanding any other provision of this Indenture, only one Subsidiary
Guarantor Payment Notice shall be given with respect to any Subsidiary
Guarantee within any 360 consecutive day period. No Subsidiary Guarantor
Non-payment Default with respect to Designated Guarantor Senior Indebtedness
that
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existed or was continuing on the date of any Subsidiary Guarantor Payment
Notice with respect to the Designated Guarantor Senior Indebtedness initiating
such Subsidiary Guarantor Payment Notice shall be, or can be, made the basis
for the commencement of a subsequent Subsidiary Guarantor Payment Notice with
respect to such Subsidiary Guarantee, whether or not within a period of 360
consecutive days, unless such default shall have been cured or waived in
writing for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenant for a period commencing after the date of commencement of such
Subsidiary Guarantor Payment Notice, that, in either case, would give rise to a
Subsidiary Guarantor Non-payment Default pursuant to any provision under which
a Subsidiary Guarantor Non-payment Default previously existed or was continuing
shall constitute a new Subsidiary Guarantor Non-payment Default for this
purpose; provided that, in the case of a breach of a particular financial
covenant, such Subsidiary Guarantor shall have been in compliance for at least
one full 90 consecutive day period commencing after the date of commencement of
such Subsidiary Guarantor Payment Notice). In no event shall a Subsidiary
Guarantor Payment Notice extend beyond 179 days from the date of its receipt
and there must be a 181 consecutive day period in any 360 consecutive day
period during which no Subsidiary Guarantor Payment Notice is in effect with
respect to such Subsidiary Guarantee.
(c) In the event that, notwithstanding the foregoing, a
Subsidiary Guarantor shall make any payment in respect of its Subsidiary
Guarantee to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section 12.9, then and in such event such payment
shall be paid over and delivered forthwith to the holders of the Guarantor
Senior Indebtedness. In the event that a Subsidiary Guarantor shall make any
payment in respect of its Subsidiary Guarantee to the Trustee and a Responsible
Officer of the Trustee, on behalf of the Trustee, shall receive written notice
of a Subsidiary Guarantor Payment Default or a Subsidiary Guarantor Non-payment
Default from one or more of the holders of Guarantor Senior Indebtedness (or
their representative) prior to making any payment to Holders in respect of the
Subsidiary Guarantee and prior to 11:00 a.m. Eastern Time on the date which is
two Business Days prior to the date upon which by the terms hereof any money
may become payable for any purpose, such payments shall be paid over by the
Trustee and delivered forthwith to the holders of the Guarantor Senior
Indebtedness. Each Subsidiary Guarantor shall give prompt written notice to
the Trustee of any default under any of its Guarantor Senior Indebtedness or
under any agreement pursuant to which its Guarantor Senior Indebtedness may
have been issued.
SECTION 12.10 Subsidiary Guarantees Subordinated to Prior Payment of All
Guarantor Senior Indebtedness upon Dissolution, etc.
Upon any distribution of Properties of any Subsidiary Guarantor or
payment on behalf of a Subsidiary Guarantor in the event of any Insolvency or
Liquidation Proceeding with respect to such Subsidiary Guarantor:
(a) the holders of such Subsidiary Guarantor's Guarantor
Senior Indebtedness shall be entitled to receive payment in full of such
Guarantor Senior Indebtedness before the Holders
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are entitled to receive any direct or indirect payment or distribution of any
kind or character, whether in cash, property or securities (other than
Permitted Guarantor Junior Securities), on account of any payment in respect of
such Subsidiary Guarantor's Subsidiary Guarantee;
(b) any direct or indirect payment or distribution of
Properties of such Subsidiary Guarantor of any kind or character, whether in
cash, property or securities (other than a payment or distribution in the form
of Permitted Guarantor Junior Securities), by set-off or otherwise, to which
the Holders or the Trustee, on behalf of the Holders, would be entitled except
for the provisions of this Article XII, shall be paid by the Subsidiary
Guarantor or by any liquidating trustee or agent or other Person making such
payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of such Guarantor
Senior Indebtedness or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments evidencing
any of such Guarantor Senior Indebtedness may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of such
Guarantor Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full of all such Guarantor Senior Indebtedness,
after giving effect to any concurrent payment or distribution to the holders of
such Guarantor Senior Indebtedness;
(c) in the event that, notwithstanding the foregoing
provisions of this Section 12.10, any direct or indirect payment or
distribution of Properties of such Subsidiary Guarantor of any kind or
character, whether in cash, property or securities (other than a payment or
distribution in the form of Permitted Guarantor Junior Securities), shall be
received by the Trustee or the Holders before all such Guarantor Senior
Indebtedness is paid in full or otherwise discharged, such Properties shall be
received and held in trust for and shall be paid over to the holders of such
Guarantor Senior Indebtedness remaining unpaid or their representatives, for
application to the payment of such Guarantor Senior Indebtedness until all such
Guarantor Senior Indebtedness shall have been paid or provided for in full,
after giving effect to any concurrent payment or distribution to the holders of
such Guarantor Senior Indebtedness;
(d) to the extent any payment of or distribution in
respect of Guarantor Senior Indebtedness (whether by or on behalf of the
Company or any Subsidiary Guarantor, as proceeds of security or enforcement of
any right of setoff or otherwise) is declared to be fraudulent or preferential,
set aside or required to be paid to any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person under any bankruptcy,
insolvency, receivership, fraudulent conveyance or similar law, then if such
payment or distribution is recovered by, or paid over to, such receiver,
trustee in bankruptcy, liquidating trustee, agent or other similar Person, the
Senior Indebtedness or part thereof originally intended to be satisfied shall
be deemed to be reinstated and outstanding as if such payments and
distributions had not occurred; and
(e) to the extent that the obligation to repay any Senior
Indebtedness is declared to be fraudulent, invalid or otherwise set aside under
any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then the obligation so declared fraudulent, invalid or otherwise set aside (and
all other amounts that would come due with respect thereto had such obligation
not
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been so affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes hereof as if such declaration, invalidity or
setting aside had not occurred.
The Company or a Subsidiary Guarantor shall give prompt written notice
to a Responsible Officer of the Trustee, on behalf of the Trustee, of the
occurrence of any Insolvency or Liquidation Proceeding with respect to such
Subsidiary Guarantor.
The expressions "payment in full," "paid in full," or "paid in full in
cash" or any similar term or phrase when used in this Article XII with respect
to Guarantor Senior Indebtedness shall mean the payment in full of all such
Guarantor Senior Indebtedness in cash or cash equivalents or, in the case of
contingent obligations in respect of letters of credit or other contingent
obligations that constitute Guarantor Senior Indebtedness, the making of
provisions to assure the payment thereof that are acceptable to the holders of
such Guarantor Senior Indebtedness.
SECTION 12.11 Holders to be Subrogated to Rights of Holders of Guarantor
Senior Indebtedness.
After the payment in full of all Guarantor Senior Indebtedness of a
Subsidiary Guarantor, the Holders shall be subrogated (equally and ratably with
the holders of all other Indebtedness of such Subsidiary Guarantor which by its
express terms is subordinated to such Guarantor Senior Indebtedness to
substantially the same extent as such Subsidiary Guarantee is so subordinated
and which is entitled to like rights of subrogation as a result of payments
made to the holders of such Guarantor Senior Indebtedness) to the rights of the
holders of such Guarantor Senior Indebtedness to receive payments or
distributions of cash, property and securities of such Subsidiary Guarantor
applicable to such Guarantor Senior Indebtedness until all amounts owing on the
Securities shall be paid in full, and for the purpose of such subrogation no
payments or distributions to the holders of such Guarantor Senior Indebtedness
by or on behalf of such Subsidiary Guarantor or by or on behalf of the Holders
by virtue of this Article XII which otherwise would have been made to the
Holders shall, as between such Subsidiary Guarantor, its creditors other than
the holders of Guarantor Senior Indebtedness, and the Holders of the
Securities, be deemed to be a payment or distribution by such Subsidiary
Guarantor to or on account of such Guarantor Senior Indebtedness, it being
understood that the subordination provisions of this Article XII are, and are
intended solely for, the purpose of defining the relative rights of the
Holders, on the one hand, and the holders of Guarantor Senior Indebtedness, on
the other hand.
SECTION 12.12 Obligations of the Subsidiary Guarantors Unconditional.
Nothing contained in this Article XII or elsewhere in this Indenture
or in any Security is intended to or shall impair, as between Subsidiary
Guarantors and the Holders, the obligation of the Subsidiary Guarantors under
the Subsidiary Guarantees, or is intended to or shall affect the relative
rights of the Holders and creditors of the Subsidiary Guarantors, nor shall
anything herein or therein prevent the Trustee or any Holder from exercising
all remedies otherwise permitted by applicable law upon Default under this
Indenture subject to the rights, if any, under this Article XII of the holders
of Guarantor Senior Indebtedness in respect of cash, property or securities of
any Subsidiary
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Guarantor received upon the exercise of any such remedy. Upon any distribution
of Properties of a Subsidiary Guarantor referred to in this Article XII, the
Trustee, subject to the provisions of Section 5.2 hereof, and the Holders of
the Securities shall be entitled to rely upon any order or decree made by any
court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of a
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, or agent or other Person making any distribution to
the Trustee or to the Holders of the Securities, for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of the related Guarantor Senior Indebtedness and other indebtedness of
such Subsidiary Guarantor, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article XII.
SECTION 12.13 Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts that would prohibit the making of any payment to or by
the Trustee, unless a Responsible Officer of the Trustee, on behalf of the
Trustee, shall have received at the Corporate Trust Office written notice
thereof from a Subsidiary Guarantor or from one or more holders of Guarantor
Senior Indebtedness or Designated Guarantor Senior Indebtedness, in the case of
a Subsidiary Guarantor Non-payment Default, or from any representative thereof;
and, prior to the receipt of any such written notice, the Trustee, subject to
TIA Sections 315(a) through 315(d), shall be entitled to assume conclusively
that no such facts exist. The Trustee shall be entitled to rely on the
delivery to it of a written notice by a Person representing himself to be a
holder of Guarantor Senior Indebtedness or Designated Guarantor Senior
Indebtedness, in the case of a Subsidiary Guarantor Non-payment Default (or a
representative on behalf of such holder), to establish that such notice has
been given by a holder of Guarantor Senior Indebtedness or Designated Guarantor
Senior Indebtedness, in the case of a Subsidiary Guarantor Non-payment Default,
or a representative on behalf of any such holder or holders.
SECTION 12.14 Application by Trustee of Money Deposited with It.
Except as provided in Article XIV, any deposit of money by a
Subsidiary Guarantor with the Trustee or any Paying Agent (whether or not in
trust) for any payment in respect of the related Subsidiary Guarantee shall be
subject to the provisions of Sections 12.8, 12.9, 12.10 and 12.11 hereof except
that, if prior to 11:00 a.m. Eastern time on the date which is two Business
Days prior to the date on which by the terms of this Indenture any such money
may become payable for any purpose, the Trustee or, in the case of any such
deposit of money with a Paying Agent, the Paying Agent shall not have received
with respect to such money the notice provided for in Section 12.13 hereof,
then the Trustee or such Paying Agent, as the case may be, shall have full
power and authority to receive such money and to apply the same to the purpose
for which it was received, and shall not be affected by any notice to the
contrary which may be received by it on or after 11:00 a.m., Eastern time, two
Business Days prior to such payment date. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as
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a holder of Guarantor Senior Indebtedness to participate in any payment or
distribution pursuant to this Article XII, the Trustee may request such Person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Guarantor Senior Indebtedness held by such Person, the extent to
which such Person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such Person under this Article
XII, and if such evidence is not furnished, the Trustee may defer any payment
to such Person pending judicial determination as to the right of such Person to
receive such payment.
The Trustee, however, shall not be deemed to owe any fiduciary duty to
the holders of Guarantor Senior Indebtedness but shall have only such
obligations to such holders as are expressly set forth in this Article XII.
SECTION 12.15 Subordination Rights Not Impaired by Acts or Omissions of
Subsidiary Guarantors or Holders of Guarantor Senior
Indebtedness.
No right of any present or future holders of any Guarantor Senior
Indebtedness of a Subsidiary Guarantor to enforce subordination as provided
herein shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of such Subsidiary Guarantor or by any act or
failure to act by any such holder, or by any noncompliance by such Subsidiary
Guarantor with the terms of this Indenture, regardless of any knowledge thereof
which any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the preceding paragraph
of this Section, the holders of Guarantor Senior Indebtedness may, at any time
and from time to time, without the consent of or notice to the Trustee or the
Holders of the Securities, without incurring responsibility to the Holders of
the Securities and without impairing or releasing the subordination or other
benefits provided in this Article, or the obligations hereunder of the Holders
of the Securities to the holders of Guarantor Senior Indebtedness, do any one
or more of the following: (a) change the manner, place or terms of payment or
extend the time of payment of, or renew, exchange, amend, increase or alter,
Guarantor Senior Indebtedness or the term of any instrument evidencing the same
or any agreement under which Guarantor Senior Indebtedness is outstanding or
any liability of any obligor thereon (unless such change, extension or
alteration results in such Indebtedness no longer being Guarantor Senior
Indebtedness as defined in this Indenture); (b) sell, exchange, release or
otherwise deal with any Property pledged, mortgaged or otherwise securing
Guarantor Senior Indebtedness; (c) settle or compromise any Guarantor Senior
Indebtedness or any liability of any obligor thereon or release any Person
liable in any manner for the collection of Guarantor Senior Indebtedness; and
(d) exercise or refrain from exercising any rights against the Company and any
other Person.
SECTION 12.16 Holders Authorize Trustee to Effectuate Subordination of
Subsidiary Guarantees.
Each Holder, by his acceptance thereof, authorizes and expressly
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article XII and
appoints the Trustee as his attorney-in-fact for such purpose,
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including, in the event of any Insolvency or Liquidation Proceeding with
respect to any Subsidiary Guarantor, the immediate filing of a claim for the
unpaid balance of his Securities pursuant to the related Subsidiary Guarantee
in the form required in said proceedings and the causing of said claim to be
approved.
SECTION 12.17 Right of Trustee to Hold Guarantor Senior Indebtedness.
The Trustee shall be entitled to all of the rights set forth in this
Article XII in respect of any Guarantor Senior Indebtedness at any time held by
it to the same extent as any other holder of Guarantor Senior Indebtedness, and
nothing in this Indenture shall be construed to deprive the Trustee of any of
its rights as such holder.
SECTION 12.18 Article XII Not to Prevent Events of Default.
The failure to make a payment on account of the Subsidiary Guarantees
by reason of any provision in this Article XII shall not be construed as
preventing the occurrence of an Event of Default under this Indenture.
SECTION 12.19 Payment.
For purposes of this Article XII, a payment with respect to any
Subsidiary Guarantee or with respect to principal of or interest on any
Security or any Subsidiary Guarantee shall include, without limitation, payment
of principal of and interest on any Security, any depositing of funds under
Article IV hereof, any payment on account of any repurchase or redemption of
any Security and any payment or recovery on any claim (whether for rescission
or damages and whether based on contract, tort, duty imposed by law, or any
other theory of liability) relating to or arising out of the offer, sale or
purchase of any Security.
ARTICLE XIII
SUBORDINATION OF SECURITIES
SECTION 13.1 Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by
his acceptance thereof, likewise covenants and agrees for the benefit of the
holders, from time to time, of Senior Indebtedness, that, to the extent and in
the manner hereinafter set forth in this Article XIII, the Indebtedness
represented by the Securities and the payment and distributions of or with
respect to the Note Obligations are hereby expressly made subordinate and
subject in right of payment as provided in this Article XIII to the prior
payment in full in cash or cash equivalents of all amounts payable under all
existing and future Senior Indebtedness which includes, without limitation, all
Credit Agreement Obligations of the Company.
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This Article XIII shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold
Senior Indebtedness; and such provisions are made for the benefit of the
holders of Senior Indebtedness; and such holders are made obligees hereunder
and they or each of them may enforce such provisions.
The expressions "payment in full," "paid in full," or "paid in full in
cash" or any similar term or phrase when used in this Article XIII with respect
to Senior Indebtedness shall mean the payment in full of all such Senior
Indebtedness in cash or cash equivalents or, in the case of contingent
obligations in respect of letters of credit or other contingent obligations
that constitute Senior Indebtedness, the making of provisions to assure the
payment thereof that are acceptable to the Senior Representative for such
Senior Indebtedness.
SECTION 13.2 Payment Over of Proceeds upon Dissolution, etc.
In the event of an Insolvency or Liquidation Proceeding with respect
to the Company:
(i) the holders of all Senior Indebtedness shall
be entitled to receive payment in full in cash or cash equivalents of
all Senior Indebtedness before the Holders of the Securities are
entitled to receive any direct or indirect payment or distribution
whether in cash, property or securities (excluding Permitted Junior
Securities of the Company and payments made from the trust established
in compliance with Article XI hereof) on account of the Note
Obligations or on account of the purchase or redemption or other
acquisition of any Note Obligations;
(ii) any direct or indirect payment or
distribution of properties or assets of the Company of any kind or
character, whether in cash, property or securities (excluding
Permitted Junior Securities of the Company and payments made from the
trust established in compliance with Article XI hereof), by set-off or
otherwise, to which the Holders or the Trustee would be entitled but
for the provisions of this Article XIII shall be paid by the
liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued,
ratably according to the aggregate amounts remaining unpaid on account
of the Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full in cash or cash equivalents of all
Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior
Indebtedness;
(iii) in the event that, notwithstanding the
foregoing provisions of this Section 13.2, the Trustee or the Holder
of any Security shall have received any payment or distribution of
properties or assets of the Company of any kind or character, whether
in cash, property or securities, by set off or otherwise, in respect
of any Note Obligations before all
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Senior Indebtedness is paid or provided for in full, then and in such
event such payment or distribution (excluding Permitted Junior
Securities of the Company and payments made from the trust established
in compliance with Article XI hereof) shall be received and held in
trust for the holders of the Senior Indebtedness and shall be paid
over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person making
payment or distribution of assets of the Company for application to
the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full, after giving effect
to any concurrent payment or distribution to or for the holders of
Senior Indebtedness;
(iv) to the extent any payment of or distribution
in respect of Senior Indebtedness (whether by or on behalf of the
Company or any Subsidiary Guarantor, as proceeds of security or
enforcement of any right of setoff or otherwise) is declared to be
fraudulent or preferential, set aside or required to be paid to any
receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then if such payment or
distribution is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar Person, the
Senior Indebtedness or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such
payments and distributions had not occurred; and
(v) to the extent that the obligation to repay
any Senior Indebtedness is declared to be fraudulent, invalid or
otherwise set aside under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then the obligation so declared
fraudulent, invalid or otherwise set aside (and all other amounts that
would come due with respect thereto had such obligation not been so
affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes hereof as if such declaration,
invalidity or setting aside had not occurred.
The consolidation of the Company with, or the merger of the Company
with or into, another Person or the liquidation or dissolution of the Company
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another Person upon the terms and conditions
set forth in Article VII hereof shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshalling of assets and liabilities of the Company for the purposes of this
Article if the Person formed by such consolidation or the surviving entity of
such merger or the Person which acquires by conveyance, transfer or lease such
properties and assets substantially as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance, transfer or lease, comply
with the conditions set forth in such Article VII hereof to the extent
applicable.
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SECTION 13.3 Suspension of Payment When Senior Indebtedness in Default.
(a) Upon the occurrence of a Payment Default, no direct
or indirect payment or distribution of any assets of the Company of any kind or
character shall be made by or on behalf of the Company on account of the Note
Obligations or on account of the purchase or redemption or other acquisition of
any Note Obligations unless and until such Payment Default shall have been
cured or waived in writing or such Designated Senior Indebtedness shall have
been discharged or paid in full in cash in cash equivalents, after which,
subject to Section 13.2 and Section 13.3(b) hereof (if applicable), the Company
shall resume making any and all required payments in respect of the Securities
and the other Note Obligations, including any missed payments.
(b) Upon (i) the occurrence of a Non-payment Default and
(ii) receipt by the Trustee from a Senior Representative of written notice (a
"Payment Blockage Notice") of such occurrence stating that such notice is a
Payment Blockage Notice pursuant to this Section 13.3(b) of this Indenture, no
payment or distribution of any assets of the Company of any kind or character
shall be made by or on behalf of the Company on account of any Note Obligations
or on account of the purchase or redemption or other acquisition of Note
Obligations for a period ("Payment Blockage Period") commencing on the date of
receipt by the Trustee of such notice unless and until the earlier to occur of
the following events (subject to any blockage of payments that may then be in
effect under Section 13.2 hereof or subsection (a) of this Section 13.3 hereof)
(w) 179 days shall have elapsed since receipt of such written notice by the
Trustee, (x) the date, as set forth in a written notice to the Company or the
Trustee from the Senior Representative initiating such Payment Blockage Period,
on which such Non-payment Default shall have been cured or waived in writing
(provided that no other Payment Default or Non-Payment Default has occurred and
is then continuing after giving effect to such cure or waiver), (y) such
Designated Senior Indebtedness shall have been discharged or paid in full in
cash or cash equivalents or (z) such Payment Blockage Period shall have been
terminated by written notice to the Company or the Trustee from the Senior
Representative initiating such Payment Blockage Period, after which, subject to
Sections 13.2 and 13.3(a) hereof (if applicable), the Company shall promptly
resume making any and all required payments in respect of the Note Obligations,
including any missed payments. Notwithstanding any other provision of this
Indenture, only one Payment Blockage Period may be commenced within any 360
consecutive day period. No Non-payment Default with respect to Designated
Senior Indebtedness that existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or can
be, made the basis for the commencement of a second Payment Blockage Period,
whether or not within a period of 360 consecutive days, unless such default
shall have been cured or waived in writing for a period of not less than 90
consecutive days (it being acknowledged that any subsequent action, or any
breach of any financial covenant for a period commencing after the date of
commencement of such Payment Blockage Period, that, in either case, would give
rise to a Non-payment Default pursuant to any provision under which a
Non-payment Default previously existed or was continuing shall constitute a new
Non-payment Default for this purpose; provided, however, that, in the case of a
breach of a particular financial covenant, the Company shall have been in
compliance for at least one full 90 consecutive day period commencing
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after the date of commencement of such Payment Blockage Period). In no event
shall a Payment Blockage Period extend beyond 179 days from the date of the
receipt of the notice referred to in clause (ii) hereof and there must be a 181
consecutive day period in any 360 consecutive day period during which no
Payment Blockage Period is in effect pursuant to this Section 13.3(b).
(c) In the event that, notwithstanding the foregoing, the
Trustee or the Holder of any Security shall have received any payment or
distribution prohibited by the foregoing provisions of this Section 13.3, then
and in such event such payment or distribution shall be received and held in
trust for the holders of the Designated Senior Indebtedness and shall be paid
over and delivered forthwith to the Senior Representatives or as a court of
competent jurisdiction shall direct for application to the payment of any due
and unpaid Designated Senior Indebtedness, to the extent necessary to pay all
such due and unpaid Designated Senior Indebtedness in cash or cash equivalents,
after giving effect to any concurrent payment to or for the holders of
Designated Senior Indebtedness.
SECTION 13.4 Trustee's Relation to Senior Indebtedness.
With respect to the holders of Senior Indebtedness, notwithstanding
any other provisions of this Indenture, the Trustee undertakes to perform or to
observe only such of its covenants and obligations as are specifically set
forth in this Article XIII, and no implied covenants or obligations with
respect to the holders of Senior Indebtedness shall be read into this Indenture
against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty
to the holders of Senior Indebtedness and the Trustee shall not be liable to
any holder of Senior Indebtedness if it shall mistakenly (but without
negligence, willful misconduct or bad faith) pay over or deliver to Holders,
the Company or any other Person moneys or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article XIII or otherwise.
SECTION 13.5 Subrogation to Rights of Holders of Senior Indebtedness.
Upon the payment in full of cash or cash equivalents of all Senior
Indebtedness, the Holders of the Securities shall be subrogated (equally and
ratably with the holders of all indebtedness of the Company which by its
express terms is subordinated to Senior Indebtedness to substantially the same
extent as the Securities are so subordinated and which is entitled to like
rights of subrogation as a result of the payments made to the holders of Senior
Indebtedness) to the rights of the holders of such Senior Indebtedness to
receive payments and distributions of cash, property and securities applicable
to the Senior Indebtedness until the principal of, premium, if any, and
interest on the Securities shall be paid in full in cash or cash equivalents.
For purposes of such subrogation, no payments or distributions to the holders
of Senior Indebtedness of any cash, property or securities to which the Holders
of the Securities or the Trustee would be entitled except for the provisions of
this Article XIII, and no payments over pursuant to the provisions of this
Article XIII to the holders of Senior Indebtedness by Holders of the Securities
or the Trustee shall, as among the Company, its creditors other than holders of
Senior Indebtedness, and the Holders of the Securities, be deemed to be payment
or distribution by the Company to or on account of the Senior Indebtedness.
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If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article XIII shall have been
applied, pursuant to the provisions of this Article XIII, to the payment of all
amounts payable under the Senior Indebtedness of the Company and such payments
or distributions received by such holders of such Senior Indebtedness shall be
in excess of the amount sufficient to pay all amounts payable under or in
respect of such Senior Indebtedness in full in cash or cash equivalents, then
and in such case the Holders shall be entitled to receive the amount of such
excess from the Company upon and to the extent of any return of such excess by
the holders of such Senior Indebtedness.
SECTION 13.6 Provisions Solely To Define Relative Rights.
The provisions of this Article XIII are and are intended solely for
the purpose of defining the relative rights of the Holders of the Securities on
the one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article XIII or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of, premium, if any, and
interest on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the
Company of the Holders of the Securities and creditors of the Company other
than the holders of the Senior Indebtedness; or (c) prevent the Trustee or the
Holder of any Security from exercising all remedies otherwise permitted by
applicable law upon a Default or an Event of Default under this Indenture,
subject to the rights, if any, under this Article XIII of the holders of Senior
Indebtedness.
The failure to make a payment on account of any Note Obligations by
reason of any provision of this Article XIII shall not be construed as
preventing the occurrence of a Default or an Event of Default hereunder.
SECTION 13.7 Trustee To Effectuate Subordination.
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article XIII and
appoints the Trustee his attorney-in-fact for any and all such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company whether in bankruptcy, insolvency, receivership
proceedings, or otherwise, the timely filing of a claim for the unpaid balance
of the Indebtedness of the Company owing to such Holder in the form required in
such proceedings and the causing of such claim to be approved. If the Trustee
does not file such a claim prior to 30 days before the expiration of the time
to file such a claim, the holders of Senior Indebtedness, or any Senior
Representative, may file such a claim on behalf of Holders of the Securities.
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SECTION 13.8 No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any
Senior Indebtedness to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any non-compliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof any such
holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of
this Section 13.8, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Trustee or the Holders of
the Securities, without incurring responsibility to the Holders of the
Securities and without impairing or releasing the subordination provided in
this Article XIII or the obligations hereunder of the Holders of the Securities
to the holders of Senior Indebtedness, do any one or more of the following:
(1) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, Senior Indebtedness or any instrument evidencing the
same or any agreement under which Senior Indebtedness is outstanding or any
liability of any obligor thereon; (2) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Indebtedness;
(3) settle or compromise any Senior Indebtedness or any liability of any
obligor thereon or release any Person liable in any manner for the collection
or payment of Senior Indebtedness; and (4) exercise or refrain from exercising
any rights against the Company and any other Person; provided, however, that in
no event shall any such actions limit the right of the Holders of the
Securities to take any action to accelerate the maturity of the Securities
pursuant to Article IV hereof or to pursue any rights or remedies hereunder or
under applicable laws if the taking of such action does not otherwise violate
the terms of this Indenture.
SECTION 13.9 Notice to Trustee.
(a) The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would prohibit the making of any
payment to or by the Trustee in respect of the Securities. Notwithstanding the
provisions of this Article XIII or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until a Responsible Officer of the Trustee, on behalf of
the Trustee, shall have received written notice thereof from the Company or a
holder of Senior Indebtedness or from any trustee, fiduciary or agent therefor;
and, prior to the receipt of any such written notice, the Trustee, subject to
the provisions of this Section 13.9, shall be entitled in all respects to
assume that no such facts exist; provided, however, that if the Trustee shall
not have received the notice provided for in this Section 13.9 at least two
Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose under this Indenture (including, without
limitation, the payment of the principal of, premium, if any, or interest on
any Security), then, anything herein contained to the contrary notwithstanding
but without limiting the rights and remedies of the holders of Senior
Indebtedness or any trustee, fiduciary or agent thereof, the Trustee shall have
full power
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and authority to receive such money and to apply the same to the purpose for
which such money was received and shall not be affected by any notice to the
contrary which may be received by it within two Business Days prior to such
date; nor shall the Trustee be charged with knowledge of the curing of any such
default or the elimination of the act or condition preventing any such payment
unless and until the Trustee shall have received an Officers' Certificate to
such effect.
(b) Subject to TIA Sections 315(a) through 315(d), the
Trustee shall be entitled to rely on the delivery to it of a written notice to
a Responsible Officer of the Trustee, on behalf of the Trustee, by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor). In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article XIII, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article XIII, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
SECTION 13.10 Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Company referred to
in this Article XIII, the Trustee, subject to TIA Sections 315(a) through
315(d), and the Holders, shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other Indebtedness of the Company, the amount thereof
or payable thereof, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article XIII.
SECTION 13.11 Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XIII with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder. Nothing in this Article XIII shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 5.6 hereof.
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SECTION 13.12 Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article XIII shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article XIII in addition to or in place of the Trustee; provided,
however, that Section 13.11 hereof shall not apply to the Company or any
Affiliate of the Company if it or such Affiliate acts as Paying Agent.
SECTION 13.13 No Suspension of Remedies.
Nothing contained in this Article XIII shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article IV hereof or to pursue any
rights or remedies hereunder or under applicable law, subject to the rights, if
any, under this Article XIII of the holders, from time to time, of Senior
Indebtedness.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Compliance Certificates and Opinions.
Upon any application or request by the Company and/or any Subsidiary
Guarantor to the Trustee to take any action under any provision of this
Indenture, the Company and/or such Subsidiary Guarantor, as the case may be,
shall furnish to the Trustee such certificates and opinions as may be required
under the Trust Indenture Act or this Indenture. Each such certificate and
each such opinion shall be in the form of an Officers' Certificate or an
Opinion of Counsel, as applicable, and shall comply with the requirements of
this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope
of the examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
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(iv) a statement as to whether, in the opinion of
each such individual, such condition or covenant has been complied
with.
The certificates and opinions provided pursuant to this Section 14.1
and the statements required by this Section 14.1 shall comply in all respects
with TIA Sections 314(c) and (e).
SECTION 14.2 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such Officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such Opinion of Counsel may be based, insofar as it relates to
factual matters, upon an Officers' Certificate of an Officer or Officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate with respect to such matters
is erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 14.3 Acts of Holders.
(a) Any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this Indenture to be given
or taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in Person or by agents
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
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(b) The fact and date of the execution by any Person of
any such instrument or writing may be proved by the affidavit of a witness of
such execution or by a certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the execution
thereof. Where such execution is by a signer acting in a capacity other than
his individual capacity, such certificate or affidavit shall also constitute
sufficient proof of authority. The fact and date of the execution of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership, principal amount and serial numbers of
Securities held by any Person, and the date of holding the same, shall be
proved by the Security Register.
(d) If the Company shall solicit from the Holders of
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do
so. Notwithstanding TIA Section 316(c), such record date shall be the record
date specified in or pursuant to such Board Resolution, which shall be a date
not earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such solicitation
is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close
of business on such record date shall be deemed to be Holders for the purposes
of determining whether Holders of the requisite proportion of Outstanding
Securities have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for that
purpose the Outstanding Securities shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders on
such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after
the record date.
(e) Any request, demand, authorization, direction,
notice, consent, waiver or other Act of the Holder of any Security shall bind
every future Holder of the same Security and the Holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
SECTION 14.4 Notices, etc. to Trustee, Company and Subsidiary Guarantors.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
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(i) the Trustee by any Holder or by the Company
or any Subsidiary Guarantor shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing and delivered
in Person or mailed by certified or registered mail (return receipt
requested) to the Trustee at its Corporate Trust Office; or
(ii) the Company or any Subsidiary Guarantor by
the Trustee or by any Holder shall be sufficient for every purpose
hereunder (unless otherwise herein expressly provided) if in writing
and delivered in Person or mailed by certified or registered mail
(return receipt requested) to the Company addressed to it or a
Subsidiary Guarantor, as applicable, at the Company's principal office
located at 143 Ridgeway Drive, Suite 113, Lafayette, LA 70503-3402, or
at any other address otherwise furnished in writing to the Trustee by
the Company.
SECTION 14.5 Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders. Any
notice mailed to a Holder in the manner herein prescribed shall be conclusively
deemed to have been received by such Holder, whether or not such Holder
actually receives such notice. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
SECTION 14.6 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
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SECTION 14.7 Successors and Assigns.
All covenants and agreements in this Indenture by the Company and any
Subsidiary Guarantors shall bind their respective successors and assigns,
whether so expressed or not. All agreements of the Trustee in this Indenture
shall bind its successor.
SECTION 14.8 Separability Clause.
In case any provision in this Indenture or in the Securities or the
Subsidiary Guarantees shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim therefore
against any party hereto.
SECTION 14.9 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person (other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder, the Holders, the holders
of Senior Indebtedness, the holders of Guarantor Senior Indebtedness and, to
the extent set forth in Section 12.4 hereof, creditors of Subsidiary
Guarantors) any benefit or any legal or equitable right, remedy or claim under
this Indenture.
SECTION 14.10 Governing Law; Trust Indenture Act Controls.
(a) THIS INDENTURE, THE SUBSIDIARY GUARANTEES, IF ANY,
AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS. THE COMPANY IRREVOCABLY SUBMITS AND WILL CAUSE EACH SUBSIDIARY GUARANTOR
TO IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, THE CITY
OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE, THE SECURITIES OR A SUBSIDIARY GUARANTEE, AND THE COMPANY
IRREVOCABLY AGREES AND WILL CAUSE EACH SUBSIDIARY GUARANTOR TO IRREVOCABLY
AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED BY ANY SUCH COURT.
(b) This Indenture is subject to the provisions of the
Trust Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
If and to the extent that any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by Sections 310 and 318, inclusive, of the
Trust Indenture Act, or conflicts with any provision (an "incorporated
provision") required by or deemed to be included in this Indenture by operation
of such Trust Indenture Act sections, such imposed
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duties or incorporated provision shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act that
may be so modified or excluded, the latter provision shall be deemed to apply
to this Indenture as so modified or excluded, as the case may be.
SECTION 14.11 Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, or
Stated Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities or
any Subsidiary Guarantees) payment of interest or principal (and premium, if
any) need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date, Redemption Date or at the Stated Maturity or Maturity; provided that no
interest shall accrue for the period from and after such Interest Payment Date,
Redemption Date, Stated Maturity or Maturity, as the case may be.
SECTION 14.12 No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder, by accepting any of
the Securities, waives and releases all such liability to the extent permitted
by applicable law.
SECTION 14.13 Duplicate Originals.
The parties may sign any number of copies or counterparts of this
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
SECTION 14.14 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
117
<PAGE> 126
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
ISSUER:
PETSEC ENERGY INC.
a Nevada corporation
By: /s/ JEFFREY H. WARREN
-----------------------------------
Name: Jeffrey H. Warren
-----------------------------
Title: Vice President
----------------------------
TRUSTEE:
THE BANK OF NEW YORK
as Trustee
By: /s/ TIMOTHY J. SHEA
-----------------------------------
Name: TIMOTY J. SHEA
-----------------------------
Title: Assistant Treasurer
----------------------------
Signature Page to Indenture
<PAGE> 127
EXHIBIT A
FORM OF SECURITY
PETSEC ENERGY INC.
9 1/2% SERIES [A/B] SENIOR SUBORDINATED NOTE DUE 2007
[FORM OF FACE]
No. _____ $__________
CUSIP No. ________________
Petsec Energy Inc., a Nevada corporation (herein called the "Company,"
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to
________________________ or registered assigns the principal sum of
_______________ Dollars on ________, 2007, at the office or agency of the
Company referred to below, and to pay interest thereon, commencing on December
15, 1997 and continuing semiannually thereafter, on June 15 and December 15 of
each year, from June 13, 1997, or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, at the rate of 9 1/2% per
annum, until the principal hereof is paid or duly provided for, and (to the
extent lawful) to pay on demand, interest on any overdue interest at the rate
borne by the Securities from the date on which such overdue interest becomes
payable to the date payment of such interest has been made or duly provided
for. The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the June 1 or December 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to
be payable to the Holder on such Regular Record Date, and such defaulted
interest, and (to the extent lawful) interest on such defaulted interest at the
rate borne by the Securities, may be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
not less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture. Interest on the Securities shall be computed on the basis of a
360-day year comprised of twelve 30-day months. All references herein to
interest shall include additional interest, if any, payable pursuant to the
Registration Rights Agreement referred to in the Indenture.
Payment of the principal of, premium, if any, and interest on this
Security will be made at the office or agency of the Company maintained for
that purpose in the City of New York, or at such other office or agency of the
Company as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of
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<PAGE> 128
public and private debts; provided however, that payment of interest may be
made at the option of the Company (i) by check mailed to the registered Holders
of the Securities at their respective addresses as shown on the Security
Register or (ii) with respect to any Holder owning Securities in the principal
amount of $500,000 or more, by wire transfer to an account maintained by the
Holder located in the United States, as specified in a written notice to the
Trustee (received prior to the relevant record date) by any such Holder
requesting payment by wire transfer and specifying the account to which
transfer is requested.
[Unless and until it is exchanged in whole or in part for Securities
in definitive form, this Security may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary. The Depository Trust Company shall act as the Depositary until a
successor shall be appointed by the Company and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository
Trust Company (55 Water Street, New York, New York) ("DTC"), to the issuer or
its agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or such other name
as may be requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.](1)
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DAY ON WHICH PETSEC ENERGY INC.
(THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION
DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED
__________________________________
(1) This paragraph should be included only if the Security is issued in
global form.
A-2
<PAGE> 129
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR") THAT IS ACQUIRING SUCH
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL
ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE COMPANY'S
AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT
TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii)
IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN
THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
A-3
<PAGE> 130
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
PETSEC ENERGY INC.
[SEAL] By:
------------------------------------
Name:
Title:
Attest:
-------------------------------------
Secretary
Dated:
-----------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
The Bank of New York, as Trustee, certifies that this is one of the 9 1/2%
Series [A/B] Senior Subordinated Notes due 2007 referred to in the
within-mentioned Indenture.
THE BANK OF NEW YORK
By:
-----------------------------------
Authorized Signatory
A-4
<PAGE> 131
FORM OF REVERSE OF SECURITY
PETSEC ENERGY INC.
9 1/2% SERIES [A/B] SENIOR SUBORDINATED NOTE DUE 2007
This Security is one of a duly authorized issue of securities of the
Company designated as its 9 1/2% [Series A/B] Senior Subordinated Notes due
2007 (herein called the "Securities"), limited (except as otherwise provided in
the Indenture referred to below) in aggregate principal amount to $100,000,000,
which may be issued under an indenture (herein called the "Indenture") dated as
of June 13, 1997, between the Company and The Bank of New York, as trustee
(herein called the "Trustee," which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
The Indebtedness evidenced by the Securities is, to the extent and in
the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness (as defined in
the Indenture) and this Security is issued subject to such provisions. Each
Holder of this Security, by accepting the same, (i) agrees to and shall be
bound by such provisions, (ii) authorizes and directs the Trustee on his behalf
to take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (iii) appoints the Trustee as
his attorney-in-fact for such purpose.
The Securities are subject to redemption at the option of the Company,
in whole or in part, at any time on or after June 15, 2002, upon not less than
30 or more than 60 days notice at the following Redemption Prices (expressed as
percentages of principal amount) set forth below, if redeemed during the
12-month period beginning on June 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PRICE
---- -----
<S> <C>
2002 . . . . . . . . . . . . . . 104.750%
2003 . . . . . . . . . . . . . . 103.167%
2004 . . . . . . . . . . . . . . 101.583%
2005 and thereafter . . . . . . . 100.000%
</TABLE>
together in the case of any such redemption with accrued and unpaid interest,
if any, to the Redemption Date (subject to the right of Holders of record on
the relevant Regular Record Date to receive interest due on an Interest Payment
Date that is on or prior to the Redemption Date), all as provided in the
Indenture.
At any time and from time to time prior to June 15, 2000, the Company
may, at its option, redeem Securities in an amount in the aggregate equal to up
to 33 1/3% of the aggregate principal
A-5
<PAGE> 132
amount of Securities originally issued under the Indenture with the proceeds of
one or more Public Equity Offerings by the Company at a redemption price
(expressed as a percentage of principal amount) of 109.5% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the applicable
Redemption Date (subject to the right of Holders of Securities on the relevant
record date to receive interest due on the relevant Interest Payment Date);
provided, however, that at least $66,600,000 aggregate principal amount of the
Securities must remain Outstanding after each such redemption. In order to
effect the foregoing redemption, the Company must mail notice of redemption no
later than 60 days after the related Public Equity Offering and must consummate
such redemption within 90 days of the closing of the Public Equity Offering.
In the case of any redemption of Securities, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Securities, or one or more Predecessor Securities, of
record at the close of business on the relevant Record Date referred to on the
face hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the Redemption Date. In the event of redemption or purchase of
this Security in part only, a new Security or Securities for the unredeemed or
unpurchased portion hereof shall be issued in the name of the Holder hereof
upon the cancellation hereof.
The Securities do not have the benefit of any sinking fund
obligations.
In the event of a Change of Control of the Company, and subject to
certain conditions and limitations provided in the Indenture, the Company will
be obligated to make an offer to purchase, on a Business Day not more than 70
or less than 30 days following the occurrence of a Change of Control of the
Company, all of the then Outstanding Securities validly tendered at a purchase
price equal to 101% of the principal amount thereof, together with accrued and
unpaid interest to the Change of Control Purchase Date, all as provided in the
Indenture.
In the event of Asset Sales, under certain circumstances, the Company
will be obligated to make a Net Proceeds Offer to purchase all or a specified
portion of each Holder's Securities at a purchase price equal to 100% of the
principal amount of the Securities, together with accrued and unpaid interest
to the Net Proceeds Payment Date.
As set forth in the Indenture, an Event of Default is generally (a)
failure to pay principal upon maturity, redemption or otherwise (including
pursuant to a Change of Control Offer or a Net Proceeds Offer); (b) default
for 30 days in payment of interest on any of the Securities; (c) default in
the performance of agreements relating to mergers, consolidations and sales of
all or substantially all assets or the failure to make or consummate a Change
of Control Offer or a Net Proceeds Offer; (d) failure for 60 days after notice
to comply with any other covenants in the Indenture or the Securities; (e)
certain payment defaults under, the acceleration prior to the maturity of, and
the exercise of certain enforcement rights with respect to, certain
Indebtedness of the Company or any Restricted Subsidiary in an aggregate
principal amount in excess of $5,000,000; (f) the failure of any Subsidiary
Guarantee to be in full force and effect or otherwise to be enforceable (except
as
A-6
<PAGE> 133
permitted by the Indenture); (g) certain final judgments against any
Restricted Subsidiary in an aggregate amount of $5,000,000 or more which remain
unsatisfied and either become subject to commencement of enforcement
proceedings or remain unstayed for a period of 60 days; and (h) certain events
of bankruptcy, insolvency or reorganization of the Company or any Restricted
Subsidiary. If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of the Outstanding
Securities may declare the principal amount of all the Securities to be due and
payable immediately, except that (i) in the case of an Event of Default arising
from certain events of bankruptcy, insolvency or reorganization of the Company
or any Restricted Subsidiary, the principal amount of the Securities will
become due and payable immediately without further action or notice, and (ii)
in the case of an Event of Default which relates to certain payment defaults,
acceleration or the exercise of certain enforcement rights with respect to
certain Indebtedness, any acceleration of the Securities will be automatically
rescinded if any such Indebtedness is repaid or if the default relating to such
Indebtedness is cured or waived and if the holders thereof have accelerated
such Indebtedness then such holders have rescinded their declaration of
acceleration or if in certain circumstances the proceedings or enforcement
action with respect to the Indebtedness that is the subject of such Event of
Default is terminated or rescinded. No Holder may pursue any remedy under the
Indenture unless the Trustee shall have failed to act after notice of an Event
of Default and written request by Holders of at least 25% in principal amount
of the Outstanding Securities, and the offer to the Trustee of indemnity
reasonably satisfactory to it; however, such provision does not affect the
right to sue for enforcement of any overdue payment on a Security by the Holder
thereof. Subject to certain limitations, Holders of a majority in principal
amount of the Outstanding Securities may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders notice of any
continuing default (except default in payment of principal, premium or
interest) if it determines in good faith that withholding the notice is in the
interest of the Holders. The Company is required to file quarterly reports
with the Trustee as to the absence or existence of defaults.
The Indenture contains provisions for defeasance at any time of (i)
the entire indebtedness of the Company on this Security and (ii) certain
restrictive covenants and the related Defaults and Events of Default, upon
compliance by the Company with certain conditions set forth therein, which
provisions apply to this Security.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and any Subsidiary Guarantors and the rights of the Holders under the
Indenture at any time by the Company, any Subsidiary Guarantors and the Trustee
with the consent of the Holders of a majority in aggregate principal amount of
the Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount
of the Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by or on behalf of the Holder of this Security shall
be conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof
A-7
<PAGE> 134
whether or not notation of such consent or waiver is made upon this Security.
Without the consent of any Holder, the Company, any Subsidiary Guarantors and
the Trustee may amend or supplement the Indenture or the Securities to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Securities in
addition to or in place of Definitive Securities and to make certain other
specified changes and other changes that do not adversely affect the rights of
any Holder.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any,
on) and interest on this Security at the times, place, and rate, and in the
coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registerable on the
Security Register of the Company, upon surrender of this Security for
registration of transfer at the office or agency of the Company maintained for
such purpose in the City of New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to
the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
A director, officer, incorporator, or stockholder of the Company or
any Subsidiary Guarantor, as such, shall not have any personal liability under
this Security or the Indenture by reason of his or its status as such director,
officer, incorporator or stockholder. Each Holder, by accepting this Security
with or without the notation of Subsidiary Guarantee endorsed hereon, waives
and releases all such liability. Such waiver and release are part of the
consideration for the issuance of this Security with the notation of Subsidiary
Guarantee endorsed hereon.
Prior to the time of due presentment of this Security for registration
of transfer, the Company, any Subsidiary Guarantors, the Trustee and any agent
of the Company or the Trustee may treat the Person in whose name this Security
is registered as the owner hereof for all purposes, whether or not this
Security is overdue, and neither the Company, the Subsidiary Guarantors, if
any, the Trustee nor any agent shall be affected by notice to the contrary.
A-8
<PAGE> 135
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture. The Company will
furnish to any Holder upon written request and without charge a copy of the
Indenture. Requests may be made to the Company, 143 Ridgeway Drive, Suite 113,
Lafayette, LA 70503-3402.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders thereof. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identifying information
printed hereon.
This Security shall be governed by and construed in accordance with
the laws of the State of New York, without regard to conflicts of law
principles.
A-9
<PAGE> 136
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to ______________________________________________________
(Insert assignee's social security or tax I.D. number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
as agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
________________________________________________________________________________
Date: ___________________ Your Signature:_____________________________________
(Sign exactly as your name appears on
the face of this Security)
Signature Guarantee:
____________________________________________________________
(Participant in a Recognized Signature
Guaranty Medallion Program)
A-10
<PAGE> 137
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Security purchased by the Company pursuant
to Section 9.15 or Section 9.16 of the Indenture, check the appropriate box:
Section 9.15 [ ] Section 9.16 [ ]
If you want to have only part of this Security purchased by the
Company pursuant to Section 9.15 or Section 9.16 of the Indenture, state the
amount in integral multiples of $1,000:
$________________
Date: ___________________ Your Signature:_____________________________________
(Sign exactly as your name appears on
the other side of this Security)
Signature Guarantee:____________________________________________________________
(Participant in a Recognized Signature
Guaranty Medallion Program)
A-11
<PAGE> 138
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITY(2)
The following exchanges of a part of this Global Security for Definitive
Securities have been made:
Principal Amount
<TABLE>
<CAPTION>
Principal Amount
Amount of Amount of of this Global Signature of
decrease in increase in Security following authorized signatory
Principal Amount Principal Amount such decrease of Trustee or
Date of Exchange of this Global Security of this Global Security (or increase) Security Custodian
- ---------------- ----------------------- ----------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
</TABLE>
__________________________________
(2) This should be included only if the Security is issued in global form.
A-12
<PAGE> 139
EXHIBIT B
FORM OF NOTATION RELATING TO SUBSIDIARY GUARANTEES
The form of notation to be set forth on each Security relating to the
Subsidiary Guarantees shall be in substantially the following form:
SUBSIDIARY GUARANTEE
Subject to the limitations set forth in the Indenture, the Subsidiary
Guarantors (as defined in the Indenture referred to in the Security upon which
this notation is endorsed and each hereinafter referred to as a "Subsidiary
Guarantor," which term includes any successor or additional Subsidiary
Guarantor under the Indenture) have, jointly and severally, unconditionally
guaranteed (a) the due and punctual payment of the principal (and premium, if
any) of and interest on the Securities, whether at maturity, acceleration,
redemption or otherwise, (b) the due and punctual payment of interest on the
overdue principal of and interest on the Securities, if any, to the extent
lawful, (c) the due and punctual performance of all other obligations of the
Company to the Holders or the Trustee, all in accordance with the terms set
forth in the Indenture, and (d) in case of any extension of time of payment or
renewal of any Securities or any of such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at Stated Maturity, by acceleration or otherwise.
The obligations of each Subsidiary Guarantor are limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities and after giving effect to any collections from or payments made by
or on behalf of any other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to
its contribution obligations under the Indenture, result in the obligations of
such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Subsidiary Guarantor that makes a payment or distribution under a Subsidiary
Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Subsidiary Guarantor.
The obligations of the Subsidiary Guarantors to the Holders or the
Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly
subordinate to all Guarantor Senior Indebtedness to the extent set forth in
Article XII of the Indenture and reference is made to such Indenture for the
precise terms of such subordination.
No stockholder, officer, director or incorporator, as such, past,
present or future, of the Subsidiary Guarantors shall have any Personal
liability under the Subsidiary Guarantee by reason of his or its status as such
stockholder, officer, director or incorporator.
Any Subsidiary Guarantor shall be automatically and unconditionally
released and discharged from its Subsidiary Guarantee upon (a) any sale,
exchange or transfer, to any Person that
B-1
<PAGE> 140
is not an Affiliate of the Company, of all of the Company's Capital Stock in,
or all or substantially all the assets of, such Restricted Subsidiary (which
sale, exchange or transfer is not prohibited by the Indenture), (b) the merger
of such Restricted Subsidiary into the Company or any other Restricted
Subsidiary (provided the surviving Restricted Subsidiary assumes the Subsidiary
Guarantee) or the liquidation and dissolution of such Restricted Subsidiary (in
each case to the extent not prohibited by the Indenture), or (c) (i) the
release or discharge of all guarantees by such Restricted Subsidiary of any
Indebtedness other than the Note Obligations, except a discharge or release by
or as a result of payment under such guarantees and (ii) after giving effect to
the proposed release and discharge, the aggregate total combined assets of all
Restricted Subsidiaries that are not Subsidiary Guarantors do not exceed 5% of
Adjusted Consolidated Net Tangible Assets.
All terms used in this notation of Subsidiary Guarantee which are
defined in the Indenture referred to in this Security upon which this notation
of Subsidiary Guarantee is endorsed shall have the meanings assigned to them in
such Indenture.
The Subsidiary Guarantee shall be binding upon each Subsidiary
Guarantor and its successors and assigns and shall inure to the benefit of the
Trustee and the Holders and, in the event of any transfer or assignment of
rights by any Holder or the Trustee, the rights and privileges herein conferred
upon that party shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof and in the
Indenture.
The Subsidiary Guarantee shall not be valid or obligatory for any
purpose until it has been executed by the manual or facsimile signature of an
authorized officer of each Subsidiary Guarantor and the certificate of
authentication on the Security upon which this Subsidiary Guarantee is noted
shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
[SUBSIDIARY GUARANTOR]
Date: By:
---------------------------- ------------------------------------
Name:
-------------------------------
Title:
------------------------------
Attest:
--------------------------
Secretary
B-2
<PAGE> 141
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 9 1/2% Series [A/B] Senior Subordinated Notes due 2007 of Petsec Energy Inc.
This Certificate relates to $_____ principal amount of
Securities held in(3) ______ book-entry or *______ definitive form by
_____________________ (the "Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver in
exchange for its beneficial interest in the Global Securities held by the
Depositary, a Security or Securities in definitive registered form equal to its
beneficial interest in such Global Securities (or the portion thereof indicated
above); or
[ ] has requested the Trustee by written order to exchange or
register the transfer of a Security or Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Indenture relative to the above captioned Securities and that the
transfer of this Security does not require registration under the Securities
Act (as defined below) because:*
[ ] Such Security is being acquired for the Transferor's own
account without transfer (in satisfaction of Section 2.07(a)(ii)(A) or Section
2.07(d)(i)(A) of the Indenture).
[ ] Such Security is being transferred (i) to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act of 1933,
as amended (the "Securities Act")), in reliance on Rule 144A under the
Securities Act.
[ ] Such Security is being transferred (i) in accordance with Rule
144 under the Securities Act (and based on an Opinion of Counsel if the Company
so requests) or (ii) pursuant to an effective registration statement under the
Securities Act.
[ ] Such Security is being transferred to an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act pursuant to a private placement
__________________________________
(3) Check appropriate box.
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<PAGE> 142
exemption from the registration requirements of the Securities Act (and based
on an Opinion of Counsel if the Company so requests) together with a
certification in substantially the form of Exhibit D to the Indenture.
[ ] Such Security is being transferred in reliance on and in
compliance with another exemption from the registration requirements of the
Securities Act (and based on an Opinion of Counsel if the Company so requests).
---------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
------------------------------------
Name:
Title:
Address:
Date:
---------------------------
C-2
<PAGE> 143
EXHIBIT D
TRANSFEREE LETTER OF REPRESENTATIONS
Petsec Energy Inc.
c/o The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attn: Corporate Trust Administration
Dear Sirs and Madams:
In connection with our proposed purchase of $_________ aggregate
principal amount of 9 1/2% Senior Subordinated Notes due 2007 (the
"Securities") of Petsec Energy Inc., a Nevada corporation (the "Company"):
1. We understand that the Securities have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any other
applicable securities laws, and may not be sold except as permitted in the
following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing the Securities to offer, sell or otherwise
transfer such Securities prior to the date which is two years after the later
of the date of original issue and the last date on which the Company or any
affiliate of the Company was the owner of such Securities, or any predecessor,
thereto (the "Resale Restriction Termination Date") only (a) to the Company,
(b) pursuant to a registration statement that has been declared effective by
the Securities and Exchange Commission (the "SEC"), (c) for so long as the
Securities are eligible for resale pursuant to Rule 144A under the Securities
Act, to a person we reasonably believe is a qualified institutional buyer under
Rule 144A (a "QIB") that purchases for its own account or for the account of a
QIB to whom notice is given that the transfer is being made in reliance on Rule
144A, (d) to an institutional "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act (an
"Institutional Accredited Investor") that is acquiring the Securities for its
own account or for the account of another Institutional Accredited Investor for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution thereof in violation of the regulations of the
Securities Act and any other applicable securities laws or (e) pursuant to any
other available exemption from the registration requirements of the Securities
Act, subject in each of the foregoing cases to any requirement of law that the
disposition of our property and the property of such investor account or
accounts be at all times within our or their control. The foregoing
restrictions on resale will not apply subsequent to the Resale Restriction
Termination Date. If any resale or other transfer of the Securities is
proposed to be made pursuant to clause (d) above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from the
transferee substantially in the form of this letter to the Trustee, which shall
provide, among other things, that
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<PAGE> 144
the transferee is an Institutional Accredited Investor and that it is acquiring
such Securities for investment purposes and not for distribution in violation
of the Securities Act. We acknowledge that the Company and the Trustee reserve
the right prior to any offer, sale or other transfer pursuant to clause (d) or
pursuant to clause (f) prior to the Resale Restriction Termination Date of the
Securities to require the delivery of an Opinion of Counsel, certifications
and/or other information satisfactory to the Company and the Trustee.
2. We are an Institutional Accredited Investor purchasing for our own
account or for the account of another Institutional Accredited Investor.
3. We are acquiring the Securities purchased by us for our own account,
or for one or more accounts as to each of which we exercise sole investment
discretion, for investment purposes and not with a view to, or for offer or
sale in connection with any distribution in violation of, the Securities Act.
We have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of investment in the Securities,
we invest in securities similar to the Securities in the normal course of our
business and we, and all accounts for which we are acting, are able to bear the
economic risks of investment in the Securities.
4. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy thereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
By:
------------------------------------
(Name of Purchaser)
Upon transfer, the Securities should be registered in the name of the
new beneficial owner as follows:
Name:
--------------------------------------------
Address:
--------------------------------------------
--------------------------------------------
--------------------------------------------
Taxpayer ID No:
--------------------------------------------
D-2
<PAGE> 1
EXHIBIT 4.4
Execution Copy
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered as of June 13, 1997, among PETSEC ENERGY INC., a Nevada corporation
(the "Company"), and MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION and SALOMON
BROTHERS INC (the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated June
6, 1997 among the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchasers of an aggregate of $100,000,000 principal amount of the Company's 9
1/2% Series A Senior Subordinated Notes due 2007 (the "Debt Securities"). In
order to induce the Initial Purchasers to enter into the Purchase Agreement,
the Company has agreed to provide to the Initial Purchasers and their direct
and indirect transferees the registration rights set forth in this Agreement.
The execution of this Agreement is a condition to the closing under the
Purchase Agreement.
In consideration of the foregoing, the parties hereto agree, and all
other Holders (as defined below) of Registrable Securities (as defined below)
from time to time, by their acceptance thereof, shall be conclusively deemed to
have agreed, as follows:
SECTION 1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from time
to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Agreement" shall have the meaning set forth in the preamble.
"Closing Date" shall mean the date on which the Closing Time (as
defined in the Purchase Agreement) occurs.
"Company" shall have the meaning set forth in the preamble and also
includes the Company's successors.
"Debt Securities" shall have the meaning set forth in the preamble.
<PAGE> 2
"Depositary" shall mean the Trustee, or any other exchange agent
appointed by the Company.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the 1933
Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form), and all amendments and supplements to such registration statement, in
each case including the Prospectus contained therein and all exhibits thereto.
"Exchange Securities" shall mean 9 1/2% Series B Senior Subordinated
Notes due 2007 issued by the Company under the Indenture containing terms
identical in all material respects to the Debt Securities (except that (i)
interest on the Exchange Securities shall accrue from the last date on which
interest was paid or duly provided for on the Debt Securities or, if no such
interest has been paid, from June 13, 1997, (ii) the transfer restrictions on
the Debt Securities shall be eliminated and (iii) certain provisions relating
to an increase in the stated rate of interest on the Debt Securities shall be
eliminated), to be offered to Holders of Debt Securities in exchange for Debt
Securities pursuant to the Exchange Offer.
"Holders" shall mean each of the Initial Purchasers, for so long as
they own any Registrable Securities, and each of its successors, assigns and
direct and indirect transferees who shall at the time be owners of Registrable
Securities under the Indenture; provided, however, that the term Holder shall
exclude any underwriter who purchased Registrable Securities for distribution
in an underwritten public offering pursuant to an effective Registration
Statement.
"Indenture" shall mean the Indenture relating to the Debt Securities
dated as of June 13, 1997 between the Company and The Bank of New York, as
trustee, as the same may be amended from time to time in accordance with the
terms thereof.
"Initial Purchasers" shall have the meaning set forth in the preamble.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities; provided,
however, that whenever the consent or approval of Holders of a specified
percentage of Registrable Securities is required hereunder, Registrable
Securities directly or indirectly held by the Company shall be disregarded in
determining whether such consent or approval was given by the Holders of such
required percentage or amount; and provided, further, that whenever the consent
or approval of Holders of Registrable Securities is required hereunder with
regard to matters related to a registered underwritten or similar offering or
with regard to matters pertaining to a Registration Statement, Registrable
Securities held by Holders
-2-
<PAGE> 3
not participating in such registered underwritten or similar offering, or
Registrable Securities not registered pursuant to such Registration Statement
(or, at any time prior to the filing of a Subject Registration Statement and
after the determination to file such Subject Registration Statement is made,
Registrable Securities whose Holders have not requested that such Registrable
Securities be included in such Subject Registration Statement), as the case may
be, shall be disregarded in determining whether such consent or approval was
given by the Holders of such required percentage or amount.
"Merrill Lynch" shall mean Merrill Lynch, Pierce, Fenner & Smith
Incorporated, on behalf of the Initial Purchasers.
"Person" shall mean an individual, partnership, corporation, trust,
unincorporated organization, limited liability company, joint stock company,
joint venture, charitable foundation or other entity, or a government or any
agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Subject Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendment.
"Purchase Agreement" shall have the meaning set forth in the preamble.
"Purchaser Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company pursuant to the provisions of Section
2(b)(iii) of this Agreement with respect to offers and sales of Registrable
Securities held by any or all of the Initial Purchasers (except Registrable
Securities which the Initial Purchasers have elected not to include in such
Purchaser Shelf Registration Statement or the Initial Purchasers of which have
not complied with their obligations under the penultimate paragraph of Section
3 hereof or under the penultimate sentence of Section 2(b) hereof) after
completion of the Exchange Offer on an appropriate form under Rule 415 under
the 1933 Act, or any similar rule that may be adopted by the SEC, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein and all exhibits thereto.
"Registrable Securities" shall mean the Debt Securities; provided,
however, that any Debt Securities shall cease to be Registrable Securities when
(i) a Registration Statement with respect to such Debt Securities shall have
been declared effective under the 1933 Act and such Debt Securities shall have
been disposed of pursuant to such Registration Statement, (ii) such Debt
Securities shall have been sold to the public pursuant to Rule 144 (or any
similar provision then in force, but not Rule 144A) under the 1933 Act, (iii)
such Debt Securities shall have become eligible for resale pursuant to Rule
144(k) under the 1933 Act, (iv) such Debt Securities shall have ceased to be
outstanding or (v) such Debt Securities have been exchanged for Exchange
Securities upon consummation of the Exchange Offer.
-3-
<PAGE> 4
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC or National Association of Securities Dealers,
Inc. ("NASD") registration and filing fees, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
(including reasonable fees and disbursements of one firm of legal counsel for
any underwriters and Holders in connection with blue sky qualification of any
of the Exchange Securities or Registrable Securities), (iii) all expenses of
printing and distributing any Registration Statement, any Prospectus and any
amendments or supplements thereto, (iv) all rating agency fees, (v) the fees
and disbursements of counsel(s) for the Company and of the independent public
accountants of the Company, including the expenses of "cold comfort" letters
required by this Agreement, (vi) the fees and expenses of the Trustee, and any
escrow agent or custodian, (vii) all fees and expenses incurred in connection
with listing the Debt Securities or the Exchange Securities, as the case may
be, on any securities exchange or on any securities quotation system and (viii)
the reasonable fees and expenses of any special experts retained by the Company
in connection with any Registration Statement, but excluding fees of counsel to
the underwriters or the Holders and underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of Registrable
Securities by a Holder.
"Registration Statement" shall mean any registration statement of the
Company which covers any of the Exchange Securities or Registrable Securities
pursuant to the provisions of this Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein and all
exhibits thereto.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b)(i) or (ii)
of this Agreement which covers all of the Registrable Securities (except
Registrable Securities which the Holders have elected not to include in such
Shelf Registration Statement or the Holders of which have not complied with
their obligations under the penultimate paragraph of Section 3 hereof or under
the penultimate sentence of Section 2(b) hereof) on an appropriate form under
Rule 415 under the 1933 Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein and all exhibits thereto.
"Subject Registration Statement" shall mean a Shelf Registration
Statement or a Purchaser Shelf Registration Statement or both (as the context
requires).
"Trustee" shall mean the trustee with respect to the Debt Securities
under the Indenture.
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<PAGE> 5
SECTION 2. Registration Under the 1933 Act.
(a) Exchange Offer Registration. To the extent not
prohibited by law (including, without limitation, any applicable interpretation
of the staff of the SEC), the Company shall use its best efforts (i) to file
within 60 days after the Closing Date an Exchange Offer Registration Statement
covering the offer by the Company to the Holders to exchange all of the
Registrable Securities (except Registrable Securities held by an Initial
Purchaser and acquired directly from the Company if such Initial Purchaser is
not permitted, in the opinion of counsel to the Initial Purchasers, pursuant to
applicable law or SEC interpretation, to participate in the Exchange Offer) for
Exchange Securities, (ii) to cause such Exchange Offer Registration Statement
to be declared effective by the SEC within 120 days after the Closing Date,
(iii) to cause such Exchange Offer Registration Statement to remain effective
until the closing of the Exchange Offer and (iv) to consummate the Exchange
Offer within 180 days following the Closing Date. The Exchange Securities will
be issued under the Indenture. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Exchange Offer,
it being the objective of such Exchange Offer to enable each Holder (other than
Participating Broker-Dealers (as defined in Section 3(f) hereof) and
broker-dealers who purchased Debt Securities directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the 1933
Act) eligible and electing to exchange Registrable Securities for Exchange
Securities (assuming that such Holder is not an affiliate of the Company,
acquires the Exchange Securities in the ordinary course of such Holder's
business and has no arrangements or understandings with any person to
participate in the distribution (within the meaning of the 1933 Act) of
Exchange Securities) to trade or sell such Exchange Securities from and after
their receipt without any limitations or restrictions under the registration
requirement of the 1933 Act.
In connection with the Exchange Offer, the Company shall:
(A) mail to each Holder a copy of the
Prospectus forming part of the Exchange Offer Registration
Statement, together with an appropriate letter of transmittal
and related documents;
(B) keep the Exchange Offer open for not
less than 30 days after the date notice thereof is mailed to
the Holders (or longer if required by applicable law);
(C) use the services of the Depositary
for the Exchange Offer;
(D) permit Holders to withdraw tendered
Registrable Securities at any time prior to the close of
business, New York City time, on the last business day on
which the Exchange Offer shall remain open, by sending to the
institution specified in the notice, a telegram, telex,
facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Registrable Securities
delivered for
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<PAGE> 6
exchange and a statement that such Holder is withdrawing his
election to have such Debt Securities exchanged; and
(E) otherwise comply in all respects
with all applicable laws relating to the Exchange Offer.
As soon as practicable after the close of the Exchange
Offer, the Company shall:
(x) accept for exchange
Registrable Securities duly tendered and not validly withdrawn
pursuant to the Exchange Offer in accordance with the terms of
the Exchange Offer Registration Statement and the letter of
transmittal which is an exhibit thereto;
(y) deliver, or cause to be
delivered, to the Trustee for cancellation all Registrable
Securities so accepted for exchange by the Company; and
(z) cause the Trustee promptly to
authenticate and deliver Exchange Securities to each Holder of
Registrable Securities equal in amount to the Registrable
Securities of such Holder so accepted for exchange.
Interest on each Exchange Security will accrue from the last date on
which interest was paid or duly provided for on the Registrable Securities
surrendered in exchange therefor or, if no interest has been paid on the
Registrable Securities, from June 13, 1997. The Exchange Offer shall not be
subject to any conditions, other than (1) that the Exchange Offer, or the
making of any exchange by a Holder, does not violate applicable law or any
applicable interpretation of the staff of the SEC, (2) that no action or
proceeding shall have been instituted or threatened in any court or by or
before any governmental agency or body with respect to the Exchange Offer, (3)
that there shall not have been adopted or enacted any law, statute, rule or
regulation prohibiting or limiting the Exchange Offer, (4) that there shall not
have been declared by United States federal, New York or Texas state
authorities a banking moratorium, (5) that trading on the New York Stock
Exchange or generally in the United States over-the-counter market shall not
have been suspended by order of the SEC or any other governmental authority and
(6) such other conditions as may be reasonably acceptable to Merrill Lynch
which, in the Company's judgment, would reasonably be expected to impair the
ability of the Company to proceed with the Exchange Offer. In addition, each
Holder of Registrable Securities (other than Participating Broker-Dealers) who
wishes to exchange such Registrable Securities for Exchange Securities in the
Exchange Offer will be required to represent that (I) it is not an affiliate of
the Company, (II) any Exchange Securities to be received by it were acquired in
the ordinary course of business and (III) it is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with any person to
participate in, the distribution (within the meaning of the 1933 Act) of the
Exchange Securities. Each Participating Broker-Dealer shall be required to make
such representations as, in the reasonable judgment of the Company, may be
necessary under applicable SEC rules, regulations or interpretations or
customary in connection with
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<PAGE> 7
similar exchange offers. Each Holder (including Participating Broker-Dealers)
shall be required to make such other representations as may be reasonably
necessary under applicable SEC rules, regulations or interpretations to render
the use of Form S-4 or another appropriate form under the 1933 Act available
and will be required to agree to comply with their agreements and covenants set
forth in this Agreement. The Exchange Offer shall be subject to the further
condition that no stop order, injunction or similar order shall have been
issued or obtained by the SEC or any state securities authority suspending the
effectiveness of the Exchange Offer Registration Statement and no proceedings
shall have been initiated or, to the knowledge of the Company, threatened for
that purpose. To the extent permitted by law, the Company shall, upon written
request of Merrill Lynch, inform the Initial Purchasers of the names and
addresses of the Holders to whom the Exchange Offer is made, and the Initial
Purchasers shall have the right to, and, if requested by the Company, shall,
contact such Holders and otherwise facilitate the tender of Registrable
Securities in the Exchange Offer.
Prior to effectiveness of the Exchange Offer Registration Statement,
the Company shall, if requested by the staff of the SEC, provide a supplemental
letter to the SEC (aa) stating that the Company is registering the Exchange
Offer in reliance on the position of the SEC enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988) and Morgan Stanley and Co., Inc.
(available June 5, 1991) and (bb) including a representation that the Company
has not entered into any arrangement or understanding with any Person to
distribute the Exchange Securities and that, to the best of the Company's
information and belief, each Holder participating in the Exchange Offer is
acquiring the Exchange Securities in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the distribution
of the Exchange Securities received in the Exchange Offer.
If in the opinion of counsel to the Company there is a question as to
whether the Exchange Offer is permitted by applicable law, the Company hereby
agrees to seek a no-action letter or other favorable decision from the SEC
allowing the Company to consummate the Exchange Offer. The Company hereby
agrees to pursue the issuance of such a decision to the SEC staff level, but
shall not be required to take action to effect a change of stated or recognized
SEC policy. The Company hereby agrees, however, to (xx) participate in
telephonic conferences with the SEC and the staff of the SEC, (yy) deliver to
the staff of the SEC an analysis prepared by counsel to the Company setting
forth the legal bases, if any, upon which such counsel has concluded that the
Exchange Offer should be permitted and (zzz) diligently pursue a resolution
(which need not be favorable) by the staff of the SEC of such submission.
(b) Shelf Registration. (i) If, because of any change in
law or applicable interpretations thereof by the staff of the SEC, the Company
is not permitted to effect the Exchange Offer as contemplated by Section 2(a)
hereof, or (ii) if for any other reason the Exchange Offer Registration
Statement is not declared effective within 120 days after the Closing Date or
the Exchange Offer is not consummated within 180 days after the Closing Date,
or (iii) upon the request of Merrill Lynch (but only with respect to any
Registrable Securities which the Initial Purchasers acquired directly from the
Company) following the consummation of the Exchange Offer if any of
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<PAGE> 8
the Initial Purchasers shall hold Registrable Securities which such Initial
Purchaser acquired directly from the Company and if such Initial Purchaser is
not permitted, in the opinion of counsel to the Initial Purchasers, pursuant to
applicable law or applicable interpretation of the staff of the SEC to
participate in the Exchange Offer, then the Company shall, at its cost:
(A) in the event clause (i) or (ii) is
applicable, as promptly as practicable (but in no event (x)
more than 30 days from the date on which the Company
determined that it is not permitted to effect the Exchange
Offer as contemplated by Section 2(a) hereof in the case of
clause (i) or (y) on the 150th day after the Closing Date in
the case of clause (ii)), use its best efforts to file with
the SEC a Shelf Registration Statement relating to the offer
and sale of the Registrable Securities (other than Registrable
Securities owned by Holders who have elected not to include
such Registrable Securities in such Shelf Registration
Statement or who have not complied with their obligations
under the penultimate paragraph of Section 3 hereof or under
the penultimate sentence of this Section 2(b)) by the Holders
from time to time in accordance with the methods of
distribution elected by the Majority Holders of such
Registrable Securities and set forth in such Shelf
Registration Statement, and use its best efforts to cause such
Shelf Registration Statement to be declared effective by the
SEC by the 180th day after the Closing Date. In the event that
the Company is required to file a Purchaser Shelf Registration
Statement upon the request of Merrill Lynch pursuant to clause
(iii) above, the Company shall use its best efforts (unless
clause (i) or (ii) above is applicable) to file and have
declared effective by the SEC an Exchange Offer Registration
Statement pursuant to Section 2(a) with respect to all
Registrable Securities (other than Registrable Securities
acquired directly from the Company and held by the Initial
Purchasers) and use its best efforts to file, promptly after
any such request from Merrill Lynch, and have declared
effective, a Purchaser Shelf Registration Statement (which may
be a combined Registration Statement with the Exchange Offer
Registration Statement or, if clause (i) or (ii) above is
applicable, a combined Registration Statement with the Shelf
Registration Statement);
(B) use its best efforts to keep the
relevant Subject Registration Statement continuously effective
in order to permit the Prospectus forming part thereof to be
usable by Holders for a period of two years from the date a
Shelf Registration Statement is declared effective by the SEC
(or, in the case of a Purchaser Shelf Registration Statement,
one year from the date a Purchaser Shelf Registration
Statement is declared effective) or in each case such shorter
period which will terminate when all of the Registrable
Securities covered by the relevant Subject Registration
Statement have been sold pursuant to such Subject Registration
Statement or otherwise are no longer Registrable Securities;
and
(C) notwithstanding any other provisions
hereof, use its best efforts to ensure that (x) any Subject
Registration Statement and any amendment
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<PAGE> 9
thereto and any Prospectus forming part thereof and any
supplement thereto complies in all material respects with the
1933 Act and the rules and regulations thereunder, (y) any
Subject Registration Statement and any amendment thereto does
not, when it becomes effective, contain an untrue statement of
a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein
not misleading and (z) any Prospectus forming part of any
Subject Registration Statement, and any supplement to such
Prospectus (as amended or supplemented from time to time),
does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements, in light of the circumstances under which they
were made, not misleading.
To the extent permitted by law, the Company further agrees, if
necessary, to supplement or amend the Shelf Registration Statement (if
reasonably requested by one firm of legal counsel selected by the Majority
Holders) or the Purchaser Shelf Registration Statement (if reasonably requested
by Merrill Lynch), as the case may be, with respect to information relating to
the Holders or the Initial Purchasers, respectively, and otherwise as required
by Section 3(b) below, to use its best efforts to cause any such amendment to
become effective and such Subject Registration Statement to become usable as
soon as thereafter practicable and to furnish to the Holders of Registrable
Securities registered thereby or the relevant Initial Purchasers, as the case
may be, copies of any such supplement or amendment promptly after its being
used or filed with the SEC. The Company may require, as a condition to
including the Registrable Securities of any Holder in any Subject Registration
Statement, that such Holder shall have furnished to the Company a written
agreement to the effect that such Holder agrees to comply with and be bound by
the provisions of this Agreement. For further clarity, the Company shall have
no obligation to keep the Shelf Registration Statement effective after
consummation of the Exchange Offer, and the Company's obligations to use its
best efforts to file a Shelf Registration Statement and to keep such Shelf
Registration Statement effective shall immediately terminate upon effectiveness
of the Exchange Offer Registration Statement (regardless of when such
effectiveness shall occur).
(c) Expenses. The Company (i) shall pay all Registration
Expenses in connection with the registration pursuant to Section 2(a) or 2(b)
and (ii) in connection with the Exchange Offer Registration Statement and the
Shelf Registration Statement, shall reimburse the Holders of Registrable
Securities being tendered in the Exchange Offer and/or resold pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement
or registered pursuant to the Shelf Registration Statement, as applicable (or
to the extent such fees and disbursements are paid to such counsel by the
Initial Purchasers, the Initial Purchasers), for the reasonable fees and
disbursements of not more than one counsel, to be chosen by the Holders of a
majority in principal amount of the Registrable Securities for whose benefit
such Registration Statement is being prepared. Each Holder (including each
Initial Purchaser) shall pay all expenses of its counsel other than as set
forth in the preceding sentence, underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to any Subject Registration Statement or the
exchange of its Registrable Securities pursuant to any Exchange Offer
Registration Statement. Notwithstanding anything in this Agreement to the
contrary,
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<PAGE> 10
the Company shall not be required to pay the fees and disbursements of legal
counsel for any Holders (including Initial Purchasers) except (A) as provided
in clause (ii) of the first sentence of this paragraph, (B) to the extent such
fees and disbursements constitute Registration Expenses which the Company is
required to pay pursuant to the other provisions of this Agreement and (C) to
the extent required by Section 5 hereof.
(d) Effective Registration Statement. (i) The Company
will be deemed not to have used its best efforts to cause the Exchange Offer
Registration Statement or any Subject Registration Statement, as the case may
be, to become, or to remain, effective during the requisite period if the
Company voluntarily takes any action that would result in any such Registration
Statement not being declared effective or in the Holders of Registrable
Securities covered thereby not being able to exchange or offer and sell such
Registrable Securities during that period unless such action is, in the
reasonable judgment of the Company, required by applicable law (including,
without limitation, any interpretation of the SEC).
(ii) An Exchange Offer Registration Statement
pursuant to Section 2(a) hereof or a Subject Registration Statement
pursuant to Section 2(b) hereof will not be deemed to have become
effective unless it has been declared effective by the SEC; provided,
however, that if, after it has been declared effective, the offering
of Registrable Securities pursuant to such Subject Registration
Statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or any other governmental agency or
court, such Subject Registration Statement will be deemed not to have
been effective during the period of such interference, until the
offering of Registrable Securities pursuant to such Subject
Registration Statement may legally resume.
(e) Increase in Interest Rate. In the event that (i) the
Exchange Offer Registration Statement is not filed with the SEC on or prior to
the 60th calendar day after the Closing Date, (ii) the Exchange Offer
Registration Statement is not declared effective by the SEC on or prior to the
120th calendar day after the Closing Date or (iii) the Exchange Offer is not
consummated or a Shelf Registration Statement required to be filed is not
declared effective by the SEC on or prior to the 180th calendar day after the
Closing Date, the interest rate borne by the Debt Securities shall be increased
by 0.50% per annum, as liquidated damages, following such 60th day in the case
of clause (i) above, such 120th day in the case of clause (ii) above, or such
180th day in the case of clause (iii) above; provided, however, that the
aggregate amount of any such increase in such interest rate will in no event
exceed 1.50% per annum; and provided, further that if the Exchange Offer
Registration Statement is not declared effective by the SEC on or prior to the
120th day following the Closing Date, then Debt Securities owned by Persons who
do not comply in all material respects with their obligations under the
penultimate paragraph of Section 3 will not be entitled to any such increase in
the interest rate for any day after the 180th day following the Closing Date.
Upon (A) the filing of the Exchange Offer Registration Statement after the 60th
day described in clause (i) above, (B) the effectiveness of the Exchange Offer
Registration Statement after the 120th day described in clause (ii) above or
(C) the consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be, after the 180th day described in
clause (iii) above, the
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<PAGE> 11
interest rate borne by the Debt Securities from the date of such filing,
effectiveness or consummation (effective immediately preceding such
consummation), as the case may be, will be reduced to the original interest
rate; provided, however, that the interest rate borne by the Debt Securities
will be reduced to the original interest rate only if there is not then
continuing a default with respect to any of the events set forth in the
immediately preceding sentence causing the interest rate borne by the Debt
Securities to increase.
(f) Specific Enforcement. Without limiting the remedies
available to the Initial Purchasers and the Holders, the Company acknowledges
that any failure by the Company to comply with its obligations under Section
2(a) and Section 2(b) hereof may result in material irreparable injury to the
Initial Purchasers or the Holders for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injuries precisely and
that, in the event of any such failure, the Initial Purchasers or any Holder
may, to the extent permitted by law, obtain such relief as may be required to
specifically enforce the Company's obligations under Section 2(a) and Section
2(b) hereof.
SECTION 3. Registration Procedures.
In connection with the obligations of the Company with respect to the
Registration Statements pursuant to Sections 2(a) and 2(b) hereof, but only so
long as the Company shall have an obligation under this Agreement to keep a
Registration Statement effective, the Company shall:
(a) use its best efforts to prepare and file with the SEC
a Registration Statement, within the relevant time period specified in Section
2, on the appropriate form under the 1933 Act, which form (i) shall be selected
by the Company, (ii) shall, in the case of a Shelf Registration, be available
for the sale of the Registrable Securities by the selling Holders thereof and
(iii) shall comply as to form in all material respects with the requirements of
the applicable form and include all financial statements required by the SEC to
be filed therewith, and use its best efforts to cause such Registration
Statement to become effective and use its best efforts to cause such
Registration Statement to remain effective in accordance with Section 2 hereof;
(b) to the extent permitted by law, use its best efforts
to (i) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under applicable
law to keep such Registration Statement effective for the applicable period,
(ii) cause each Prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed (if required) pursuant to Rule
424 under the 1933 Act, and (iii) comply with the provisions of the 1933 Act
with respect to the disposition of all securities covered by each Registration
Statement during the applicable period in accordance with the intended method
or methods of distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each
Holder of Registrable Securities, at least ten business days prior to filing,
that the Shelf Registration Statement with respect to the Registrable
Securities is being filed and advising such Holders that the distribution of
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<PAGE> 12
Registrable Securities will be made in accordance with the method elected by
the Majority Holders; and (ii) furnish to each Holder of Registrable Securities
registered under the Shelf Registration Statement, to a single firm of legal
counsel for the Holders (including the Initial Purchasers) and to the managing
underwriters of an underwritten offering of Registrable Securities, if any, and
their counsel, without charge, as many copies of each Prospectus, including
each preliminary prospectus, and any amendment or supplement thereto as such
Holder, counsel or underwriters may reasonably request and, if the Holder so
requests, all exhibits thereto in order to facilitate the public sale or other
disposition of the Registrable Securities; and (iii) subject to Section 3(k)
hereof and the last paragraph of this Section 3, hereby consent to the use of
the Prospectus or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities in connection with the offering and sale of
the Registrable Securities covered by the Prospectus or any amendment or
supplement thereto but only during the period of time that the Company is
required to keep the Shelf Registration Statement effective pursuant to this
Agreement;
(d) use its best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue sky" laws
of such jurisdictions in the United States as the Majority Holders of
Registrable Securities covered by a Registration Statement and the managing
underwriter of an underwritten offering of Registrable Securities shall
reasonably request prior to the time the applicable Registration Statement is
declared effective by the SEC, to cooperate with the Holders in connection with
any filings required to be made with the NASD, and do any and all other acts
and things which may be reasonably necessary or advisable to enable such Holder
to consummate the disposition of such Registrable Securities in the
jurisdiction of such Holder pursuant to such Registration Statement; provided,
however, that the Company shall not be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d) or (ii) take any
action that would subject it to general service of process or taxation in any
such jurisdiction if it is not then so subject;
(e) in the case of a Subject Registration Statement,
promptly notify a single firm of legal counsel for the Holders of Registrable
Securities registered thereby (including any Initial Purchasers) and Merrill
Lynch and, if requested by such counsel or Merrill Lynch, promptly confirm such
advice in writing (by notice to such counsel or to Merrill Lynch) (i) when such
Registration Statement has become effective and when any post-effective
amendments thereto become effective, (ii) of any request by the SEC or any
state securities authority for post-effective amendments and supplements to
such Registration Statement and the related Prospectus or for additional
information after such Registration Statement has become effective, (iii) of
the issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of such Registration Statement or the initiation
of any proceedings for that purpose, (iv) if, between the effective date of
such Registration Statement and the closing of any sale of Registrable
Securities covered thereby pursuant to an underwriting agreement to which the
Company is a party, the representations and warranties of the Company contained
in such underwriting agreement cease to be true and correct in all material
respects, (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Registrable Securities covered by
such Registration Statement for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (vi) upon the
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<PAGE> 13
Company becoming aware thereof, of the happening of any event or the discovery
of any facts during the period such Registration Statement is effective which
(A) makes any statement made in such Registration Statement or the related
Prospectus untrue in any material respect or (B) causes such Registration
Statement or the related Prospectus to omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(f) (i) in the case of the Exchange Offer, (A)
include in the Exchange Offer Registration Statement a "Plan of Distribution"
section covering the use of the Prospectus included in the Exchange Offer
Registration Statement by Participating Broker-Dealers (as defined below) who
have exchanged their Registrable Securities for Exchange Securities for the
resale of such Exchange Securities, (B) furnish to each Participating
Broker-Dealer who notifies the Company in writing that it desires to
participate in the Exchange Offer, without charge, as many copies of each
Prospectus included in the Exchange Offer Registration Statement, including any
preliminary prospectus, and any amendment or supplement thereto, as such
broker-dealer may reasonably request, (C) include in the Exchange Offer
Registration Statement a statement that any broker-dealer who holds Registrable
Securities acquired for its own account as a result of market-making activities
or other trading activities (a "Participating Broker-Dealer"), and who receives
Exchange Securities for Registrable Securities pursuant to the Exchange Offer,
may be a statutory underwriter and must deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of such Exchange
Securities, (D) subject to Section 3(k) hereof and the last paragraph of this
Section 3, hereby consent to the use of the Prospectus forming part of the
Exchange Offer Registration Statement or any amendment or supplement thereto by
any Participating Broker-Dealer in connection with the sale or transfer of the
Exchange Securities covered by the Prospectus or any amendment or supplement
thereto for a period ending 180 days following consummation of the Exchange
Offer or, if earlier, when all Exchange Securities received by such
Participating Broker-Dealer in exchange for Registrable Securities acquired for
their own account as a result of market-making or other trading activities have
been disposed of by such Participating Broker-Dealer, and (E) include in the
letter of transmittal or similar documentation to be executed by an exchange
offeree in order to participate in the Exchange Offer a provision substantially
in the following form (or such similar provision as is reasonably acceptable to
counsel for the Initial Purchasers and as, in the reasonable opinion of the
Company, may at the time be required by applicable law or SEC interpretation):
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to
engage in, a distribution of Exchange Securities. If the
undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Registrable
Securities, it represents that the Registrable Securities to
be exchanged for Exchange Securities were acquired by it as a
result of market-making activities or other trading activities
and acknowledges that it will deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of
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<PAGE> 14
such Exchange Securities pursuant to the Exchange Offer;
however, by so acknowledging and by delivering a prospectus,
the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the 1933 Act"; and
(ii) to the extent any Participating Broker-Dealer
participates in the Exchange Offer, the Company shall use its best
efforts to cause to be delivered at the request of an entity
representing the Participating Broker-Dealers (which entity shall be
Merrill Lynch or another Initial Purchaser) (A) a "cold comfort"
letter addressed to the Participating Broker-Dealers from the
Company's independent certified public accountants with respect to the
Prospectus in the Exchange Offer Registration Statement in the form
existing on the last date for which exchanges are accepted pursuant to
the Exchange Offer and (B) an opinion of counsel to the Company
addressed to the Participating Broker-Dealers in customary form
relating to the Exchange Securities; and
(iii) to the extent any Participating Broker-Dealer
participates in the Exchange Offer and notifies the Company or causes
the Company to be notified in writing that it is a Participating
Broker-Dealer, the Company shall use its best efforts to maintain the
effectiveness of the Exchange Offer Registration Statement for a
period of 180 days following the last date on which exchanges are
accepted pursuant to the Exchange Offer, or, if earlier, when all
Exchange Securities received by Participating Broker-Dealers in
exchange for Registrable Securities acquired for their own account as
a result of market-making or other trading activities have been
disposed of by such Participating Broker-Dealers; and
(iv) not be required, however, to amend or
supplement the Prospectus contained in the Exchange Offer Registration
Statement as would otherwise be contemplated by Section 3(b) hereof,
or take any other action as a result of this Section 3(f), at any time
after 180 days after the last date for which exchanges are accepted
pursuant to the Exchange Offer (or such earlier date referred to in
Paragraph (C) above), and Participating Broker-Dealers shall not be
authorized by the Company to, and shall not, deliver such Prospectus
after such period in connection with resales contemplated by this
Section 3 or otherwise;
it being understood that, notwithstanding anything in this Agreement
to the contrary, the Company shall not be required to comply with any provision
of this Section 3(f) or any other provision of this Agreement relating to the
distribution of Exchange Securities by Participating Broker-Dealers, to the
extent that the Company reasonably concludes (with the consent of Merrill
Lynch, not to be unreasonably withheld) that compliance with such provision is
no longer required by applicable law or interpretation of the staff of the SEC;
(g) in the case of an Exchange Offer, furnish to one firm
of legal counsel for the Initial Purchasers and (ii) in the case of a Shelf
Registration, furnish to one firm of legal counsel for the Holders of
Registrable Securities covered thereby copies of any request received by or on
behalf
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<PAGE> 15
of the Company, from the SEC or any state securities authority for amendments
or supplements to the relevant Registration Statement and Prospectus or for
additional information;
(h) make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of a Registration Statement as soon
as practicable and provide prompt notice to one firm of legal counsel for the
Holders of the withdrawal of any such order;
(i) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities registered thereby, without charge, at least
one conformed copy of each Registration Statement and any post-effective
amendment thereto (without exhibits thereto, unless requested);
(j) in the case of a Shelf Registration, cooperate with
the selling Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any restrictive legend (except any customary legend
borne by securities held through The Depository Trust Company or any similar
depository); and cause such Registrable Securities to be in such denominations
(consistent with the provisions of the Indenture) and registered in such names
as the selling Holders or the underwriters, if any, may request at least two
business days prior to the closing of any sale of Registrable Securities;
(k) in the case of a Shelf Registration, upon the Company
becoming aware of the occurrence of any event or the discovery of any facts,
each as contemplated by Section 3(e)(vi) hereof, use its best efforts to
prepare a supplement or post-effective amendment to the relevant Registration
Statement or the related Prospectus or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Securities,
such Prospectus will not contain at the time of such delivery any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Company agrees to notify each Holder of Registrable
Securities registered under the relevant Subject Registration Statement to
suspend use of the Prospectus as promptly as practicable after the Company
becomes aware of the occurrence of such an event, and each Holder of
Registrable Securities registered under the relevant Subject Registration
Statement hereby agrees to suspend use of the Prospectus after receipt of such
notice until the Company has amended or supplemented the Prospectus to correct
such misstatement or omission or has advised such Holders that use of such
Prospectus may be resumed. At such time as such public disclosure is otherwise
made or the Company determines that such disclosure is not necessary, in each
case to correct any misstatement of a material fact or to include any omitted
material fact, or the Company otherwise determines that use of such Prospectus
may be resumed, the Company agrees promptly to notify each Holder of
Registrable Securities registered under the relevant Subject Registration
Statement of such determination and (if applicable) to furnish each such Holder
such numbers of copies of the Prospectus, as amended or supplemented, as such
Holder may reasonably request;
(l) obtain a CUSIP number for all Exchange Securities, or
Registrable Securities, as the case may be, not later than the effective date
of a Registration Statement, and provide the Trustee with printed certificates
for the Exchange Securities or the Registrable Securities, as the case
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<PAGE> 16
may be, in a form eligible for deposit with The Depository Trust Company;
provided, however, that the Company shall not be required to provide printed
certificates for any Exchange Securities or Registrable Securities to be
so-called "book-entry only" securities;
(m) unless the Indenture, as it relates to the Exchange
Securities or the Registrable Securities, as the case may be, has already been
so qualified, use its best efforts to (i) cause the Indenture to be qualified
under the Trust Indenture Act of 1939, as amended (the "TIA"), in connection
with the registration of the Exchange Securities or Registrable Securities, as
the case may be, (ii) cooperate with the Trustee and the Holders to effect such
changes to the Indenture as may be required for the Indenture to be so
qualified in accordance with the terms of the TIA and (iii) execute, and use
its best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents required to
be filed with the SEC to enable the Indenture to be so qualified in a timely
manner;
(n) in the case of a Shelf Registration, take all
customary and appropriate actions reasonably required (including those
reasonably requested by the Majority Holders) in order to expedite or
facilitate the disposition of the Registrable Securities registered thereby.
If requested as set forth below, the Company agrees that it will in good faith
negotiate the terms of an Underwriting Agreement, which shall be in form and
scope as is customary for similar offerings of debt securities with similar
credit ratings (including, without limitation, representations and warranties
to the underwriters) and shall otherwise be reasonably satisfactory to the
Company and the managing underwriters; and:
(i) if requested by the managing underwriters,
obtain opinions of counsel to the Company (which counsel shall be
reasonably satisfactory to the managing underwriters) addressed to
such underwriters, covering the matters customarily covered in
opinions requested in underwritten sales of securities in
substantially the forms specified in the Underwriting Agreement;
(ii) if requested by the managing underwriters,
obtain a "cold comfort" letter and an update thereto not later than
two weeks after the date of the original letter (or if not available
under applicable accounting pronouncements or standards, a single
"procedures" letter and a single update thereto) from the Company's
independent certified public accountants addressed to the underwriters
named in the Underwriting Agreement and use its best efforts to have
such letter addressed to the selling Holders of Registrable Securities
(provided, however, that such letter need not be addressed to any
Holders to whom, in the reasonable opinion of the Company's
independent certified public accountants, addressing such letter is
not permissible under applicable accounting standards), such letters
to be in customary form and covering matters of the type customarily
covered in "cold comfort" (or "procedures") letters to underwriters in
connection with similar underwritten offerings; and
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<PAGE> 17
(iii) deliver such documents and certificates as
may be reasonably requested and as are customarily delivered in
similar underwritten offerings.
Notwithstanding anything herein to the contrary, the Company shall
have no obligation to enter into any underwriting agreement or permit an
underwritten offering of Registrable Securities unless a request therefor shall
have been received from the Majority Holders of all Registrable Securities then
outstanding within ten business days of the date of the notice from the Company
as required by Section 3(c). In the case of such a request for an underwritten
offering, the Company shall provide reasonable advance written notice to the
Holders of all Registrable Securities of such proposed underwritten offering.
Such notice shall (A) offer each such Holder the right to participate in such
underwritten offering (but may indicate that whether or not all Registrable
Securities are included will be at the discretion of the underwriters), (B)
specify a date, which shall be no earlier than ten business days following the
date of such notice, by which such Holder must inform the Company of its intent
to participate in such underwritten offering and (C) include the instructions
such Holder must follow in order to participate in such underwritten offering;
(o) in the case of a Shelf Registration, and to the
extent customary in connection with a "due diligence" investigation for an
offering of debt securities with a similar credit rating to that of the
Registrable Securities, make available for inspection by representatives
appointed by the Majority Holders and any underwriters participating in any
disposition pursuant to a Shelf Registration Statement and one firm of legal
counsel retained for all Holders participating in such Shelf Registration, and
one firm of legal counsel to the underwriters, if any, all financial and other
records, pertinent corporate documents and properties of the Company reasonably
requested by any such persons, and cause the respective officers, employees and
any other agents of the Company to supply all information reasonably requested
by any such representative, underwriters or counsel in connection with the
Shelf Registration Statement; provided, however, that, if any such records,
documents or other information relates to pending or proposed acquisitions or
dispositions, or otherwise relates to matters reasonably considered by the
Company to constitute sensitive or proprietary information, the Company need
not provide such records, documents or information unless the foregoing parties
enter into a confidentiality agreement in customary form and reasonably
acceptable to such parties and the Company;
(p) (i) a reasonable time prior to the filing of any
Exchange Offer Registration Statement, any Prospectus forming a part thereof,
any amendment to an Exchange Offer Registration Statement or amendment or
supplement to such Prospectus, provide copies of such document to the Initial
Purchasers, and make such changes in any such document prior to the filing
thereof as Merrill Lynch or one firm of legal counsel to the Initial Purchasers
may reasonably request; (ii) in the case of a Shelf Registration, a reasonable
time prior to filing any Shelf Registration Statement, any Prospectus forming a
part thereof, any amendment to such Shelf Registration Statement or amendment
or supplement to such Prospectus, provide copies of such document to Merrill
Lynch, one firm of legal counsel appointed by the Majority Holders to represent
the Holders participating in such Shelf Registration, the managing underwriters
of an underwritten offering of Registrable Securities, if any, and their
counsel, and make such changes in any such
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<PAGE> 18
document prior to the filing thereof as Merrill Lynch, such one firm of legal
counsel for the Holders, such managing underwriters or their counsel may
reasonably request; and (iii) cause the representatives of the Company to be
available for discussion of such document as shall be reasonably requested by
Merrill Lynch, one firm of legal counsel to the Holders, the managing
underwriters and their counsel; and shall not at any time make any filing of
any such document of which Merrill Lynch, one firm of legal counsel to the
Holders, the managing underwriters and their counsel shall not have previously
been advised and furnished a copy or to which Merrill Lynch, one firm of legal
counsel to the Holders, the managing underwriters and their counsel shall
reasonably object;
(q) in the case of a Shelf Registration and if requested
by the managing underwriters, if any, or the Majority Holders, (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information or revisions to information therein relating to such
Underwriters or selling Holders as the managing underwriters, if any, or such
Holders or their counsel reasonably request to be included or made therein,
(ii) make all required filings of such prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such prospectus supplement or
post-effective amendment and (iii) if required, supplement or make amendments
to such Shelf Registration Statement;
(r) upon delivery of the Registrable Securities by
Holders to the Company (or to such other Person as directed by the Company) in
exchange for the Exchange Securities, the Company shall mark, or cause to be
marked, on such Registrable Securities that such Registrable Securities are
being canceled in exchange for the Exchange Securities; in no event shall such
Registrable Securities be marked as paid or otherwise satisfied;
(s) use its best efforts to cause the Exchange
Securities, if applicable, and, in the event of a Shelf Registration, the Debt
Securities to be rated with not more than two rating agencies selected by the
Company, if so requested by the Majority Holders or by the managing
underwriters of an underwritten offering of Registrable Securities, if any,
unless the Exchange Securities or the Registrable Securities, as the case may
be, are already so rated or unless the Company has obtained such ratings for
its long-term debt securities generally;
(t) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make available to its security
holders, as soon as practicable, an earnings statement covering at least 12
months which shall satisfy the provisions of Section 11(a) of the 1933 Act and
Rule 158 thereunder; and
(u) cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence investigation by
any managing underwriters and their counsel.
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<PAGE> 19
In the case of a Subject Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) (i) require
each Holder of Registrable Securities to furnish to the Company such
information regarding such Holder and the proposed distribution by such Holder
of such Registrable Securities as the Company may from time to time reasonably
request in writing and such other information as, in the reasonable opinion of
the Company, is required for inclusion in the Subject Registration Statement,
and (ii) further require each Holder of Registrable Securities, through one
firm of legal counsel on behalf of all such Holders, to furnish to the Company
any comments on the Subject Registration Statement and the Prospectus included
therein or any amendment or supplement to any of the foregoing not later than
such times as the Company reasonably may request.
In the case of a Subject Registration Statement, each Holder agrees
and, in the case of the Exchange Offer Registration Statement, each
Participating Broker-Dealer agrees that, upon receipt of any notice from the
Company of the happening of any event or the discovery of any facts, each of
the kind described in Section 3(e)(ii)-(vi) or Section 3(k) hereof (it being
understood and agreed that, for purposes of this paragraph, all references in
Sections 3(e)(ii)-(vi) and Section 3(k) to a "Subject Registration Statement",
a "Shelf Registration Statement" or a "Registration Statement" shall be deemed
to mean and include the Shelf Registration Statement, the Purchaser Shelf
Registration Statement or the Exchange Offer Registration Statement or all or
any combination thereof (as the context requires), mutatis mutandis), such
Holder or Participating Broker-Dealer, as the case may be, will forthwith
discontinue disposition of Registrable Securities pursuant to such Registration
Statement and discontinue use of the Prospectus included therein until such
Holder's or Participating Broker-Dealer's receipt, as the case may be, of (A)
copies of the supplemented or amended Prospectus contemplated by Section 3(k)
hereof or (B) notice from the Company that the sale of the Registrable
Securities may be resumed, and, if so directed by the Company, such Holder or
Participating Broker-Dealer, as the case may be, will deliver to the Company
(at its expense) all copies in its possession, other than permanent file copies
then in its possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. If the Company shall give any
such notice to suspend the disposition of Registrable Securities pursuant to a
Registration Statement as a result of the happening of any event or the
discovery of any facts, each of the kind described in Section 3(e) (ii)-(vi) or
3(k) hereof, the Company shall be deemed to have used its best efforts to keep
such Registration Statement effective during such period of suspension,
provided that the Company shall use its best efforts to file and have declared
effective (if an amendment) as soon as practicable an amendment or supplement
to such Registration Statement or the related Prospectus and shall extend the
period during which such Registration Statement shall be maintained effective
pursuant to this Agreement by the number of days during the period from and
including the date of the giving of such notice to and including the date when
the Holders shall have received copies of the supplemented or amended
Prospectus necessary to resume such dispositions or the date on which the
Company has given notice that the sale of Registrable Securities may be
resumed, as the case may be. Each Holder of Registrable Securities hereby
agrees that it will at all times use the then most current Prospectus, as then
amended or supplemented, which has been provided to it by the Company in
connection with the resale or transfer of any Registrable Securities pursuant
to a Registration Statement or Prospectus.
-19-
<PAGE> 20
SECTION 4. Underwritten Registrations.
If any of the Registrable Securities covered by the Shelf Registration
Statement are to be sold in an underwritten offering, the underwriter or
underwriters and manager or managers that will manage the offering will be
selected by the Company and shall be reasonably acceptable to the Majority
Holders of such Registrable Securities included in such offering.
No Holder of Registrable Securities may participate in any
underwritten offering hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
SECTION 5. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Initial Purchaser, each Holder and each Person, if any, who controls any such
Person within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act as follows:
(i) against any and all losses, liabilities,
claims, damages and expenses whatsoever, as incurred, arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto)
pursuant to which Exchange Securities or Registrable Securities were
registered under the 1933 Act, including the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out
of any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement thereto)
or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all losses, liabilities,
claims, damages and expenses whatsoever, as incurred, to the extent of
the aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 5(e) below)
any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expenses whatsoever, as
incurred (including (subject to Section 5(c) below) the fees and
disbursements of counsel chosen by Merrill Lynch or, in the event that
Merrill Lynch is not an indemnified party, by a majority of the
indemnified parties), reasonably incurred in investigating, preparing
or defending against any
-20-
<PAGE> 21
litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid
under subparagraph (i) or (ii) of this Section 5(a);
provided, however, that this indemnity does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of any Initial Purchaser, any Holder or any underwriter expressly for
use in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto); and provided, further, that this
indemnity agreement with respect to any Prospectus shall not inure to the
benefit of any Initial Purchaser or Holder from whom the person asserting any
such losses, claims, damages or liabilities purchased Registrable Securities or
Exchange Securities (or any person who controls such Initial Purchaser or
Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act) if a copy of the Prospectus (as then amended or supplemented and
furnished by the Company to such Initial Purchaser or Holder, as the case may
be) was not sent or given by or on behalf of such Initial Purchaser or Holder,
as the case may be, to such person at or prior to the sale of such Registrable
Securities or Exchange Securities and if the Prospectus (as so amended or
supplemented) would have corrected any untrue statement or omission, or alleged
untrue statement or omission, giving rise to such loss, liability, claim,
damage or expense (provided the Company has delivered the Prospectus (as then
amended or supplemented) to the several Initial Purchasers or Holders in
requisite quantity on a timely basis to permit such delivery or sending).
(b) In the case of a Shelf Registration, each Holder
agrees, severally and not jointly, to indemnify and hold harmless the Company,
each Initial Purchaser, each underwriter who participates in an offering of
Registrable Securities and the other Holders and each of their respective
directors and officers (including each officer of the Company who signed the
Registration Statement in question) and each Person, if any, who controls the
Company, any Initial Purchaser, any underwriter or any other Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against
any and all losses, liabilities, claims, damages and expenses described in the
indemnity contained in Section 5(a) hereof, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such
Holder expressly for use in the Registration Statement (or any amendment
thereto) or the Prospectus (or any amendment or supplement thereto); provided,
however, that no such Holder shall be liable for any claims hereunder in excess
of the amount of net proceeds received by such Holder from the sale of
Registrable Securities pursuant to such Registration Statement.
(c) Each indemnified party shall give notice as promptly
as reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such
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<PAGE> 22
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have other than on account of this indemnity
agreement or the contribution agreement set forth in Section 5(d) below. In the
case of parties indemnified pursuant to Section 5(a) above, counsel to the
indemnified parties shall be selected by Merrill Lynch (or, in the event that
Merrill Lynch is not an indemnified party, by a majority in interest of the
indemnified parties), and, in the case of parties indemnified pursuant to
Section 5(b) above, counsel to the indemnified parties shall be selected by the
Company. Notwithstanding the foregoing, in case any action or proceeding shall
be instituted and the indemnified party shall notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate therein, and, after written notice from the indemnifying party to
such indemnified party, to assume the defense thereof with counsel of its
choice reasonably acceptable to the indemnified parties in such action.
Notwithstanding the election of the indemnifying party to assume defense of
such action or proceeding, the indemnified party shall have the right, at its
own expense, to employ one additional firm as separate counsel and to
participate in the defense of the action or proceeding; provided that the
indemnifying party shall pay the reasonable fees and expenses of such separate
counsel reasonably satisfactory to the indemnifying party if (i) the
indemnifying party shall have failed to employ counsel to represent the
indemnified party in a reasonably timely manner or (ii) the defendants in any
such action or proceeding include both the indemnified party and the
indemnifying party and counsel to the indemnified party shall have concluded
and notified the indemnifying party that in its reasonable judgment
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them. In no event shall the
indemnifying parties be liable for the fees and expenses of more than one
counsel (in addition to any local counsel) (which counsels shall be selected by
Merrill Lynch or, in the event that Merrill Lynch is not an indemnified party,
by a majority in interest of the indemnified parties) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 5 (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.
(d) In order to provide for just and equitable
contribution in circumstances in which any of the indemnity provisions set
forth in this Section 5 are for any reason held to be unenforceable by the
indemnified parties although applicable in accordance with its terms, the
Company, the Initial Purchasers and the Holders shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company, the Initial
Purchasers and the Holders, as incurred; provided, however, that no person
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<PAGE> 23
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any Person that was not
guilty of such fraudulent misrepresentation. As between the Company, the
Initial Purchasers and the Holders, such parties shall contribute to such
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement in such proportion as shall be
appropriate to reflect the relative fault of the Company on the one hand, the
Initial Purchasers on another hand, and the Holders on another hand, with
respect to the statements or omissions which resulted in such loss, liability,
claim, damage or expense, or action in respect thereof, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand, the Initial Purchasers on another hand, and the Holders on another hand
shall be determined to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
Initial Purchasers or by the Holders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue or alleged untrue statement or omission. The Company, the Initial
Purchasers and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the relevant equitable considerations. For purposes of this Section 5(d), each
Person, if any, who controls an Initial Purchaser or a Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as such Initial Purchaser or such Holder, and
each director of the Company, each officer of the Company who signed the
Registration Statement in question, and each Person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company.
(e) If at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for fees and
expenses of counsel, such indemnifying party agrees that it shall be liable for
any settlement of the nature contemplated by Section 5(a)(ii) effected without
its written consent if (i) such settlement is entered into more than 45 days
after receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement
at least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
SECTION 6. Miscellaneous.
(a) Rule 144 and Rule 144A. Until the earliest of (i) the
completion of the Exchange Offer, (ii) two years following the Closing Date (or
such shorter period as may be specified in Rule 144(k) as then amended) and
(iii) the date when all Registrable Securities have been sold pursuant to the
Subject Registration Statement or are no longer Registrable Securities, the
Company covenants that it will file the reports required to be filed by it
under Section 13(a) or 15(d) of the 1934 Act and the rules and regulations
adopted by the SEC thereunder for so long as the Company is subject to the
reporting requirements of Section 13 or 15 of the 1934 Act, and if the Company
ceases to be so required to file such reports, it will upon the request of any
Holder of
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<PAGE> 24
Registrable Securities (i) make publicly available such information as is
necessary to permit sales pursuant to Rule 144 under the 1933 Act, (ii) deliver
such information to a prospective purchaser as is necessary to permit sales
pursuant to Rule 144A under the 1933 Act and (iii) take such further action
that is reasonable in the circumstances, in each case, to the extent required
from time to time to enable such Holder to sell its Registrable Securities
without registration under the 1933 Act within the limitation of the exemptions
provided by (A) Rule 144 under the 1933 Act, as such Rule may be amended from
time to time, (B) Rule 144A under the 1933 Act, as such Rule may be amended
from time to time or (C) any similar rules or regulations hereafter adopted by
the SEC (provided that the obligations of the Company under any such similar
rules or regulations shall not be more burdensome in any substantial respect
than those referred to in clauses (A) or (B)). Upon the request of any Holder
of Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
(b) No Inconsistent Agreements. The Company has not
entered into nor will the Company on or after the date of this Agreement enter
into any agreement which is inconsistent with the rights granted to the Holders
of Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any
way conflict with and are not inconsistent with the rights granted to the
holders of the Company's other issued and outstanding securities under any such
agreements.
(c) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given unless the Company has obtained the written
consent of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or departure; provided, however, that to the extent any
provision of this Agreement relates to the Purchaser Shelf Registration
Statement or otherwise to the Initial Purchasers, such provision may be
amended, modified or supplemented, and waivers or consents to departures from
such provisions thereof may be given, by Merrill Lynch; and provided, further,
that no amendment, modification, supplement or waiver or consent to any
departure from the provisions of Section 5 hereof shall be effective as against
any Holder of Registrable Securities unless consented to in writing by such
Holder. Notwithstanding anything in this Agreement to the contrary, this
Agreement may be amended, modified or supplemented, and waivers and consents to
departures from the provisions hereof may be given, by written agreement signed
by the Company and Merrill Lynch to the extent that any such amendment,
modification, supplement, waiver or consent is, in their reasonable judgment,
necessary or appropriate to comply with applicable law (including any
interpretation of the staff of the SEC) or any change therein.
(d) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered or certified first-class mail, telex, telecopier or any courier
providing overnight delivery (i) if to a Holder, at its address appearing in
the register of the Debt Securities and/or Exchange Securities kept by the
Registrar (as defined in the Indenture) or at such other address as shall have
been given by such Holder to the Company by
-24-
<PAGE> 25
means of a notice given in accordance with the provisions of this Section 6(d),
which address initially is, with respect to the Initial Purchasers, the address
care of Merrill Lynch set forth in the Purchase Agreement, and (ii) if to the
Company initially at or in care of the Company's address set forth in the
Purchase Agreement, or in each case to such other address notice of which is
given in accordance with the provisions of this Section 6(d).
All such notices and communications shall be deemed
to have been duly given: at the time delivered by hand, if personally
delivered; five business days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt is
acknowledged, if telecopied; and on the next business day if timely delivered
to an air courier providing overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided, however, that nothing herein
shall be deemed to permit any assignment, transfer or other disposition of
Registrable Securities in violation of the terms hereof or of the Purchase
Agreement, the Indenture or the Offering Memorandum dated June 6, 1997; and
provided, further, that Holders of Registrable Securities may not assign their
rights under this Agreement except in connection with the permitted transfer of
Registrable Securities and then only insofar as relates to such Registrable
Securities. If any transferee of any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities, such Person
shall be conclusively deemed to have agreed to be bound by and to perform all
of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement and, if applicable, the Purchase Agreement,
and such Person shall be entitled to receive the benefits hereof.
(f) Third-Party Beneficiary. The Holders from time to
time shall each be a third-party beneficiary to the agreements made hereunder
between the Company, on the one hand, and the Initial Purchasers, on the other
hand, and Merrill Lynch shall have the right to enforce such agreements
directly to the extent it deems such enforcement necessary or advisable to
protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE> 26
(j) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
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<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
PETSEC ENERGY INC.
By: /s JEFFREY H. WARREN
-------------------------------------
Name: Jeffrey H. Warren
Title: Vice President
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: /s/ IRA H. GREEN, JR.
-------------------------------------
Name: Ira H. Green, Jr.
Title: Director
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ TOWNES G. PRESSLER, JR.
-------------------------------------
Name: Townes G. Pressler, Jr.
Title: Vice President
SALOMON BROTHERS INC
By: /s/ M. SCOTT VAN BERGH
-------------------------------------
Name: M. Scott Van Bergh
Title: Managing Director
Registration Rights Agreement Signature Page
<PAGE> 1
EXHIBIT 10.1
CREDIT AGREEMENT
Dated as of April 25, 1996
Among
PETSEC ENERGY, INC.
as Borrower
and
THE BANKS
NAMED HEREIN
as Banks
and
THE CHASE MANHATTAN BANK, N.A.
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1.04. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND LETTERS OF CREDIT
Section 2.01. The Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.02. Making the Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.03. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.04. Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.05. Repayment of the Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.06. Interest on Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.07. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.08. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.09. Increased Costs and Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.11. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.12. Conversion of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.13. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.14. Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE III CONDITIONS
Section 3.01. Condition Precedent to Initial Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3.02. Conditions Precedent to Each Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.03. Conditions Precedent to Each Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IV REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrower . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V COVENANTS OF THE BORROWER
Section 5.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 5.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE VI EVENTS OF DEFAULT
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE VII THE AGENT
Section 7.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 7.02. Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 7.03. Chase and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 7.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 7.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.06. Successor Agent and Issuing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE VIII MISCELLANEOUS
Section 8.01. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 8.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 8.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 8.04. Expenses and Taxes; Compensation; Indemnification; Arranger . . . . . . . . . . . . . . . . 59
Section 8.05. Limitation and Adjustment of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.06. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.07. Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.08. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 8.09. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 8.10. JURISDICTION; DAMAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 8.11. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 8.12. Hedging Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 8.13. Special Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>
-ii-
<PAGE> 4
EXHIBITS:
Exhibit A Form of Note
Exhibit B Original Properties
Exhibit C Form of Notice of Borrowing
Exhibit D Form of Mortgage
Exhibit E Form of Opinion of Counsel to the Borrower
Exhibit F Form of Opinion of Special Counsel to the Agent
Exhibit G Form of Notice of Hedging Obligations
Exhibit H Form of Assignment
Exhibit I Form of Notice of Letter of Credit
Exhibit J Form of Subordinated Note
Exhibit J-1 Form of Standstill Agreement
Exhibit K Form of Notice of New Borrowing Base
SCHEDULES:
Schedule I Notice Information for Banks
Schedule II Insurance Requirements
Schedule III Subsidiaries and Partnerships
Schedule IV Hedging Agreements
Schedule V Gas Imbalances
Schedule VI Bank One Liens
-iii-
<PAGE> 5
CREDIT AGREEMENT
Dated as of April 25, 1996
Petsec Energy, Inc., a Nevada corporation (the "Borrower"), the
lenders party hereto and The Chase Manhattan Bank, N.A., as Agent hereunder,
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms. As used in this Agreement,
the term "Borrower" shall have the meaning set forth above and the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Acceptable Security Interest" in any property shall mean a Lien
granted pursuant to a Loan Document (i) which exists in favor of the Collateral
Agent for the benefit of itself, the Banks and the other Persons to be secured
thereby as specified in the Loan Document creating such Lien, (ii) which is
superior to all other Liens other than Permitted Exceptions, (iii) which
secures the Notes and all other Obligations, and (iv) which is perfected and is
enforceable by the Collateral Agent for the benefit of itself and the Banks and
the other beneficiaries to be secured thereby as specified in the Loan Document
creating such Lien against all other Persons.
"Additional Properties" means the Borrower's Oil and Gas Properties
other than the Original Properties, which have been added by the Borrower as
Collateral for the Obligations, by complying with all the requirements of
Section 2.14(a)(iii).
"Advance" means an advance by a Bank to the Borrower as part of a
Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance, each
of which shall be a "Type" of Advance.
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such Person or any Subsidiary of such Person.
The term "controls" (including the terms "controlled by" or "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of capital stock, securities, partnership interests
or other ownership interests, by contract or otherwise.
"Agent" means Chase in its capacity as agent pursuant to Article VII
and any successor in such capacity pursuant to Section 7.06.
"Agreement" means this Credit Agreement among the Borrower, the Banks
and the Agent, as amended from time to time in accordance with the terms
hereof.
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<PAGE> 6
"Annual Reserve Report" is defined in the definition of "Reserve
Report".
"Applicable Lending Office" means, with respect to each Bank, such
Bank's Domestic Lending Office in the case of a Base Rate Advance, and such
Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Advance.
"Applicable Margin" means for any day (i) as to any Advance, a per
annum rate equal to the rate per annum set forth in the following table for the
relevant Type of Advance and for the relevant Percentage Usage of the Borrowing
Base, (ii) as to the commitment fees contemplated by Section 2.03(a), the rate
per annum set forth in the following table for the relevant Percentage Usage of
the Borrowing Base, and (iii) as to the Letter of Credit fees contemplated by
Section 2.13(b)(ii), the rate per annum set forth in the following table for
the relevant Percentage Usage of the available Borrowing Base:
<TABLE>
<CAPTION>
Eurodollar Base Rate Commitment Letter of
Percentage Usage Rate Advance Advance Fee Credit Fee
--------------- --------- ------------ ----------------- ----------------- -------- -----
<S> <C> <C> <C> <C>
Less than 50% 1.375% .50 % .50% 1.25 %
Less than 80% and
greater than or equal to
50% 1.50 % .625% .50% 1.375%
Less than 90% and
greater than or equal to
80% 1.625% .725% .50% 1.50%
Greater than or equal to
90% 1.875% .75 % .50% 1.75 %
</TABLE>
As used in this definition, "Percentage Usage" means, as of any date of
determination, the quotient (expressed as a percentage) obtained by dividing
the aggregate amount of all Advances outstanding plus all Letter of Credit
Liabilities at the close of business on such date by the Borrowing Base at the
close of business on such date. The Applicable Margin shall change on the same
day as any change in the Percentage Usage.
"Arranger" means Chase Securities Inc.
"Assignment" means an assignment and acceptance entered into by a Bank
and an Eligible Assignee, and accepted by the Agent, in substantially the form
of Exhibit H.
"Bank One Lien" has the meaning specified in Section 3.01(b).
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<PAGE> 7
"Banks" means the lenders listed on the signature pages hereof and
each Eligible Assignee upon its becoming a party hereto pursuant to Section
8.07.
"Base Rate" means, at any time, a fluctuating interest rate per annum
as shall be in effect from time to time which rate per annum shall at all times
be equal to the higher of (i) the Prime Commercial Lending Rate as in effect
from time to time and (ii) the Federal Funds Rate as in effect from time to
time plus 1/2 of 1% per annum.
"Base Rate Advance" means an Advance which bears interest as provided
in Section 2.06(a).
"Borrowing" means a borrowing consisting of simultaneous Advances of
the same Type made by each of the Banks pursuant to Section 2.01.
"Borrowing Base" means at any time an amount equal to the amount
initially stated or subsequently determined and in effect pursuant to Section
2.14, but in no event an amount greater than the aggregate amount of the
Commitments at any time.
"Borrowing Base Deficiency" means at any time the excess of (i) the
aggregate outstanding amount of all of the Advances plus all Letter of Credit
Liabilities at such time over (ii) the Borrowing Base at such time.
"Business Day" means a day of the year on which banks are not required
or authorized to close in New York City or Houston, Texas and, if the
applicable Business Day relates to any Eurodollar Rate Advances, on which
dealings are carried on in the London interbank market.
"Capitalized Lease Obligations" means, for any Person, all obligations
under leases which, under GAAP, are required to be capitalized on the books of
such Person at the time of determination, in each case taken at the amount
thereof accounted for as indebtedness (net of interest expense) in accordance
with GAAP.
"Capital Expenditure" means, with respect to any Person, any
expenditure that, in accordance with GAAP, is required to be included in or
reflected by the property, plant and equipment account or any other fixed asset
account in the balance sheet of such Person and any expenditure (net of cash
acquired) by such Person to acquire any interest in any other Person.
"CD Deposits" means the sum of $1,936,861 deposited by PSAL as
certificates of deposit with Bank One, Texas, N.A., for the benefit of the
Borrower.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended from time to time (by SARA or otherwise),
set forth at 42 U.S.C. Sections 9601 et seq (1988), state and local analogs and
all rules and regulations promulgated thereunder, in each case as now or
hereafter in effect.
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<PAGE> 8
"Change of Control" means PSAL shall cease to own, legally and
beneficially, directly or through a Subsidiary, at least 80% of the Borrower,
free and clear of all Liens.
"Chase" means The Chase Manhattan Bank, N.A., a national banking
association.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor Federal tax code, and the regulations promulgated and rulings issued
thereunder, in each case as now or hereafter in effect, and any reference to
any statutory provision shall be deemed to be a reference to any successor
provision or provisions.
"Collateral" means all property in which any Lien is granted or
purported to be granted by the Mortgages or any other Loan Document.
"Collateral Agent" means the beneficiary under the Mortgages.
"Commitment" has the meaning specified in Section 2.01.
"Consolidated" refers to the consolidation of the accounts of PSAL,
PetUSA and/or the Borrower and their respective Consolidated Subsidiaries in
accordance with GAAP.
"Consolidated Indebtedness" means all Indebtedness of the Borrower
other than Subordinated Debt.
"Consolidated Interest Expense" means for any period the consolidated
interest expense included in a Consolidated income statement (net of interest
income) of the Borrower and its Consolidated Subsidiaries for such period,
determined in accordance with GAAP, including, without limitation or
duplication (or, to the extent not so included, with the addition of), in
respect of the Borrower or any of its Consolidated Subsidiaries, to the extent
allocable to such period, (i) the portion of any rental obligation in respect
of any Capital Lease Obligation allocable to interest expense in accordance
with GAAP; (ii) the amortization of original issue discounts; (iii) any
interest payments or fees with respect to bankers acceptances or similar
facilities, (iv) net amounts payable by the Borrower or any of its Consolidated
Subsidiaries with respect to interest rate swap, cap, collar or similar
agreements; and (v) Restricted Preferred Interest dividends or distributions
payable during such period.
"Consolidated Net Income" means for any period the sum of (i) the
Consolidated net income (or loss) of the Borrower and its Consolidated
Subsidiaries for such period determined in accordance with GAAP; provided,
however, that in determining such Consolidated net income, there shall be
excluded therefrom (to the extent otherwise included therein) (a) the net
income (or loss) of any Person acquired by the Borrower or a Subsidiary in a
pooling-of-interest transaction for any period prior to the date of such
transaction, (b) the net income (but not loss) of any Person which is subject
to any restriction which prevents the payment of dividends or the making of
distributions on the capital stock, partnership interests or other ownership
interests of such Person to the extent of such
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<PAGE> 9
restrictions, (c) after-tax gains or losses on the sale, transfer or other
disposition by the Borrower or its Consolidated Subsidiaries of (1) Properties,
other than Collateral, to the extent such gains or losses are attributable to
sales in which the aggregate proceeds exceed $2,500,000 during any semi-annual
period ending June 30 and December 31 of each calendar year or (2) any
Collateral (other than produced Hydrocarbons sold in the ordinary course of
business), (d) all extraordinary gains and extraordinary losses, after
applicable income taxes, and (e) any item constituting the cumulative effect of
a change in accounting principles, after applicable income taxes.
"Consolidated Subsidiaries" of PSAL, PetUSA and/or the Borrower means
all Persons that in accordance with GAAP would be accounted for as consolidated
subsidiaries in the respective financial statements of each.
"Convert", "Conversion" and "Converted" each refers to a conversion of
Advances of one Type into Advances of another Type pursuant to Section 2.02(b)
or Section 2.12.
"Default" means any event or condition which, with notice or lapse of
time or both, would, unless cured or waived, become an Event of Default.
"Development Capex" means from time to time the first year of
projected capital expenditures in the most current Annual Reserve Report.
"Distributions" means any direct or indirect dividend, distribution or
other payment of any kind or character (whether in cash, securities or other
property) (i) in respect of the Subordinated Debt, any class of capital stock
or any other ownership interest or to the holders, as such, of any Subordinated
Debt, any class of capital stock or any other ownership interest (including,
without limitation, pursuant to a merger or consolidation) or (ii) in
consideration for or otherwise in connection with any retirement, purchase,
redemption or other acquisition of the Subordinated Debt, capital stock or any
other ownership interest or any options, warrants or rights to purchase or
acquire any Subordinated Debt, any capital stock or any other ownership
interest.
"Dollars" and "$" means lawful money of the United States.
"Domestic Lending Office" means, with respect to any Bank, the office
of such Bank specified as its "Domestic Lending Office" opposite its name on
Schedule I hereto or in the Assignment pursuant to which it became a Bank, or
such other office of such Bank as such Bank may from time to time specify to
the Borrower and the Agent.
"EBIT" means for any period, EBITDA for such period less depreciation,
depletion and amortization for such period.
"EBITDA" means for any period the sum of (i) the Consolidated net
income (or loss) of the Borrower and its Consolidated Subsidiaries for such
period determined in accordance with GAAP plus (ii) to the extent included in
the determination of such net income (or loss), the Consolidated
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<PAGE> 10
charges for such period for interest, depreciation, depletion and amortization
plus (or, if there is a benefit from income taxes, minus) (iii) to the extent
included in the determination of such net income, the amount of the provision
for or benefit from income taxes; provided, however, that in determining such
Consolidated net income, such Consolidated charges and such provision for or
benefit from income taxes, there shall be excluded therefrom (to the extent
otherwise included therein) (a) the net income (or loss) of, charges for
interest, depreciation, depletion and amortization of, and such provision for
or benefit from income taxes of, any Person acquired by the Borrower or a
Subsidiary in a pooling-of-interest transaction for any period prior to the
date of such transaction, (b) the net income (but not loss) of, charges for
interest, depreciation, depletion and amortization of, and such provision for
(but not benefit from) income taxes of, any Person which is subject to any
restriction which prevents the payment of dividends or the making of
distributions on the capital stock, partnership interests or other ownership
interests of such Person to the extent of such restrictions, (c) pre-tax gains
or losses on the sale, transfer or other disposition of any Property by the
Borrower or its Consolidated Subsidiaries, other than produced Hydrocarbons
sold in the ordinary course of business, (d) all extraordinary gains and
extraordinary losses, prior to applicable income taxes, and (e) any item
constituting the cumulative effect of a change in accounting principles, prior
to applicable income taxes.
"Eligible Assignee" means any Bank and, with the consent of the Agent,
the Issuing Bank and the Borrower (which consent will not be unreasonably
withheld), any other Person.
"Engineering Reports" has the meaning specified in Section 2.14(a)(i).
"Environment" shall have the meaning set forth in 42 U.S.C. Section
9601(8) (1988).
"Environmental Protection Statute" means any law, statute, ordinance,
rule, regulation, order, decision, decree, judgment, permit, license,
authorization or agreement (all as amended from time to time) arising from, in
connection with, or relating to the pollution, protection or regulation of the
Environment or the protection or regulation of health or safety, whether the
foregoing are required or promulgated by any government or agency or other
authority of or in the United States (whether local, state, or federal) or any
foreign country or subdivision thereof, including without limitation, CERCLA,
RCRA and other laws, statutes, ordinances, rules and regulations relating to
the disposal, removal, remediation, production, storing, refining, handling,
transferring, processing, recycling or transporting of or exposure to any
material or substance, wherever located, and any rule, regulation or decision
issued or promulgated in connection with such laws, statutes, ordinances, rules
or regulations by any government, agency or other authority of or in the United
States (whether local, state or federal) or of any foreign country or
subdivision thereof, in each case as now or hereafter in effect.
"EPA" means the United States Environmental Protection Agency, or any
successor thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
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<PAGE> 11
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which is a member of a group of which the Borrower is a member
and which is under common control within the meaning of the regulations under
Section 414 of the Code.
"ERISA Liabilities" means at any time the minimum liability with
respect to Plans which would be required to be reflected at such time as a
liability on the Consolidated balance sheet of the Borrower and its
Subsidiaries under paragraphs 36 and 70 of Statement of Financial Accounting
Standards No. 87, as such Statement may from time to time be amended, modified
or supplemented, or under any successor statement issued in replacement
thereof.
"Eurodollar Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Eurodollar Lending Office" opposite its
name on Schedule I hereto or in the Assignment pursuant to which it became a
Bank (or, if no such office is specified, its Domestic Lending Office), or such
other office of such Bank as such Bank may from time to time specify to the
Borrower and the Agent.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Rate Advance comprising part of the same Borrowing, (i) the interest rate per
annum shown on page 3750 of the Dow Jones & Company Telerate screen or any
successor page as the composite offered rate for London interbank, Dollar
deposits, which as of the date of this Agreement appears under the heading
"USD", as of 11:00 a.m. (London time) two Business Days before the first day of
such Interest Period and for a period equal to such Interest Period or (ii) if
such rate is not shown at such place, the rate per annum at which deposits in
Dollars are offered by the principal office of Chase in London, England, to
prime banks in the London interbank market at 11:00 A.M. (London time) two
Business Days before the first day of such Interest Period in an amount
substantially equal to Chase's Eurodollar Rate Advance comprising part of such
Borrowing and for a period equal to such Interest Period.
"Eurodollar Rate Advance" means an Advance which bears interest as
provided in Section 2.06(b).
"Event of Default" has the meaning specified in Section 6.01.
"Expiration Date" means, for any Letter of Credit, the later of (i)
the Stated Expiry Date of such Letter of Credit, (ii) if any Extension Event
referred to in clause (i) of the definition herein of Extension Event shall
occur in respect of such Letter of Credit, the date on which the Issuing Bank
shall receive an opinion from its counsel to the effect that a final and
nonappealable judgment or order has been rendered or issued either terminating
the order, injunction or other process or decree restraining the Issuing Bank
from paying under such Letter of Credit or permanently enjoining the Issuing
Bank from paying under such Letter of Credit, and (iii) if any Extension Event
referred to in clause (ii) of the definition herein of Extension Event shall
occur in respect of such Letter of Credit, the date on which the Issuing Bank
shall receive an opinion from its counsel to the effect that the Issuing Bank
has no further liability under such Letter of Credit. In the determination the
Expiry
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<PAGE> 12
Date pursuant to clauses (ii) and (iii) above, the Issuing Bank agrees to use
reasonable efforts to secure the opinion of its counsel in a timely fashion.
"Extension Event" means, in respect of any Letter of Credit, that at
any time either (i) the Issuing Bank shall have been served with or otherwise
be subjected to a court order, injunction or other process or decree
restraining or seeking to restrain the Issuing Bank from paying any amount
under such Letter of Credit and either (a) there has been a drawing under such
Letter of Credit which the Issuing Bank would otherwise be obligated to pay or
(b) the Stated Expiry Date of such Letter of Credit has occurred but the right
of the beneficiary or transferee to draw under such Letter of Credit has been
extended past such date in connection with the pendency of the related court
action or proceeding; or (ii) the beneficiary or transferee shall have made a
demand, on or prior to the Stated Expiry Date of such Letter of Credit, to the
effect that the Stated Expiry Date be extended or that the value of such Letter
of Credit be held for the account of the beneficiary or transferee, in either
case under circumstances in which the Issuing Bank may incur liability or loss
if the Issuing Bank does not comply with such demand, and either (a) the
Borrower shall have failed to authorize the Issuing Bank to so extend the
Stated Expiry Date within three banking days after the Issuing Bank shall have
notified the Borrower of such demand or (b) the Issuing Bank shall in its sole
discretion decline to extend such Stated Expiry Date.
"Federal Funds Rate" means, for any day, a fluctuating interest rate
per annum equal for such day to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Agent from three Federal funds brokers of recognized standing
selected by it.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any successor thereof.
"Financial Statements" means the balance sheets and other financial
statements referred to in Section 4.01(e), copies of which have been delivered
to the Agent and the Banks listed on the signature pages hereof.
"GAAP" means (i) as to the Borrower and PetUSA, United States
generally accepted accounting principles as in effect from time to time ("U.S.
GAAP") and (ii) as to PSAL, Australian generally accepted accounting principles
as in effect from time to time, in each instance applied on a basis consistent
with the requirements of Section 1.03 where applicable.
"Governmental Authority" means the country, state, county, city and
political subdivisions in which any Person or such Person's Property is located
or which exercises valid jurisdiction over any such Person or such Person's
Property, and any court, agency, department, commission, board, bureau or
instrumentality of any of them including monetary authorities which exercise
valid
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<PAGE> 13
jurisdiction over any such Person or such Person's Property. Unless otherwise
specified, all references to Governmental Authority herein shall mean a
Governmental Authority having jurisdiction over, where applicable, the
Borrower, its Subsidiaries or any of their Properties or the Agent, any Bank or
any Applicable Lending Office.
"Governmental Requirements" means all judgments, orders, writs,
injunctions, decrees, awards, laws, ordinances, statutes, regulations, rules,
franchises, permits, certificates, licenses, authorizations and the like and
any other requirements of any government or any commission, board, court,
agency, instrumentality or political subdivision thereof.
"Hazardous Materials" means (i) any substance or material identified
as a hazardous substance pursuant to CERCLA; (ii) any substance or material
regulated as a hazardous or solid waste pursuant to RCRA; and (iii) any other
material or substance regulated under any Environmental Protection Statute.
"Hazardous Materials" shall include, without limitation, pollutants,
contaminants, toxic substances, radioactive materials, refined products,
natural gas liquids, crude oil, petroleum and petroleum products,
polychlorinated biphenyls and asbestos.
"Hedging Agreement" means any commodity (whether tangible or
intangible), interest rate or currency swap, cap, floor, forward agreement or
other exchange, price or currency rate or commodity protection agreements or
any option with respect to any such transaction.
"Hedging Obligations" means an aggregate amount not to exceed
$2,500,000, which shall be allocated by the Borrower in accordance with Section
8.12 among those Banks which are party to a Hedging Agreement with the
Borrower, and which shall be secured ratably with all other Obligations
hereunder by the Collateral.
"Hydrocarbon Interests" means all rights, titles, interests and
estates now or hereafter acquired by Borrower or any of its Subsidiaries in and
to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous
hydrocarbon leases, mineral fee interests, overriding royalty and royalty
interests, net profit interests and production payment interests, including any
reserved or residual interests of whatever nature.
"Hydrocarbons" means oil, natural gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined or separated therefrom.
"Indebtedness" means, for any Person, (a) all liabilities of such
Person for borrowed money or the deferred purchase price of Property or
services (other than accounts payable incurred in the ordinary course of
business and not more than ninety (90) days past due), (b) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(c) all Capitalized Lease Obligations of such Person, (d) all Restricted
Preferred Interests issued by such Person or for which such Person is liable,
(e) all obligations (contingent or otherwise) of such Person to reimburse the
issuer of any letter of credit for drawings that have been or might be made
thereunder, (f) all
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<PAGE> 14
liabilities of such Person in respect of unfunded vested benefits under any
Plan, (g) all Indebtedness of others (1) which is secured by any Lien on
Property owned by such Person, whether or not such Person has assumed or become
liable for the payment of such Indebtedness (other than indebtedness secured by
an operator's, vendor's, carrier's, warehouseman's, repairman's, mechanic's,
workman's, materialman's, construction or other like Liens arising by operation
of law in the ordinary course of business or incident to the exploration
development, operation and maintenance of Oil and Gas Properties or statutory
landlord's liens, each of which is in respect of indebtedness that has not been
outstanding more than 90 days or which is being contested in good faith by
appropriate proceedings and for which appropriate reserves have been maintained
in accordance with U.S. GAAP), or (2) the payment of which such Person has
guaranteed or assumed or for the payment or purchase of which such Person has
otherwise become directly or contingently liable, (h) the greater of the fair
market value of any property of such Person sold in connection with, or the
aggregate amount received by such Person in connection with, any production
payment or similar transaction, (i) the maximum aggregate amount which would be
payable by such Person pursuant to forward or prepaid sales of Hydrocarbons or
other minerals (for which consideration has been paid to such Person) if all
such sales were terminated, (j) all obligations of such Person incurred in
connection with any assignment or other conveyance of any right to receive
income that is not accounted for as a sale in accordance with GAAP, (k) all
other obligations of such Person that constitute debt under GAAP, and (l) all
obligations of such Person in connection with securities repurchase
transactions.
"Insufficiency" means, with respect to any Plan, the amount, if any,
by which the present value of the vested benefits under such Plan exceeds the
fair market value of the assets of such Plan allocable to such benefits.
"Interest Period" means, for each Eurodollar Rate Advance comprising
part of the same Borrowing, the period commencing on the date of such Advance
or the date of the Conversion of any Base Rate Advance into such an Advance and
ending on the last day of the period selected by the Borrower pursuant to the
provisions below and, thereafter, each subsequent period commencing on the last
day of the immediately preceding Interest Period and ending on the last day of
the period selected by the Borrower pursuant to the provisions below. The
duration of each such Interest Period shall be one, two, three or six months,
or (subject to Section 2.02(g)) twelve months, in each case as the Borrower
may, upon notice received by the Agent not later than 11:00 a.m. (New York City
time) on the third Business Day prior to the first day of such Interest Period,
select; provided, however, that:
(i) Interest Periods for Advances comprising part of the
same Borrowing shall commence on the same date and shall be of the
same duration;
(ii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day, provided that if such extension would cause the last day
of such Interest Period to occur in the next following calendar month,
the last day of such Interest Period shall occur on the next preceding
Business Day;
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<PAGE> 15
(iii) any Interest Period which begins on the last Business
Day of the calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the calendar
month in which it would have ended if there were a numerically
corresponding day in such calendar month; and
(iv) the Borrower may not select an Interest Period for
any Advance which ends after any principal repayment installment date.
Notwithstanding the foregoing, the initial Interest Period hereunder shall be
one (1) month and shall be subject to early termination by the Majority Banks,
without charge to the Borrower for any costs or expenses relating to such early
termination pursuant to Sections 2.02(c) or 8.04(b), upon four (4) Business
Days prior written notice to the Borrower.
"Investment" means, as applied to any Person, any direct or indirect
(i) purchase or other acquisition by such Person of any interest in stock,
securities, partnership interests or other ownership interests of any other
Person, (ii) loan, advance or other Indebtedness made by such Person to any
other Person, (iii) guaranty, assumption or other incurrence of liability by
such Person of or for any Indebtedness or other obligation of any other Person,
or (iv) capital contribution or other investment by such Person in any other
Person. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment or interest earned on such Investment.
"Issuing Bank" means Chase and any successor issuing bank pursuant to
Section 7.06.
"Letter of Credit" means each letter of credit issued by any Issuing
Bank pursuant to Section 2.13, or by the Banks pursuant to Section 7.06 in the
event there is no Issuing Bank.
"Letter of Credit Liabilities" means the maximum aggregate amount of
all undrawn portions of Letters of Credit (after giving effect to any step up
provision or other mechanism for increases, if any) plus the aggregate amount
of all drawings under Letters of Credit which are unpaid.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien, claim or charge of any kind (including, without limitation, any
production payment, advance payment or similar arrangement with respect to
minerals in place, any agreement to grant any Lien, any agreement to refrain
from granting any Lien granted by or required to be granted by any Loan
Document, any conditional sale or other title retention agreement, the interest
of a lessor under a capital lease and any filing or agreement to provide any
financing statement or other Lien perfection document to secure an obligation,
but excluding filings by lessors under any operating lease of office equipment,
vehicles or other personal property so long as the obligations under such lease
do not constitute Indebtedness), whether or not filed, recorded or otherwise
perfected under applicable law.
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<PAGE> 16
"Loan Documents" means this Agreement, the Notes, the Mortgages and
each other agreement, instrument or document executed at any time in connection
with this Agreement which is designated in writing by the Agent and the
Borrower as a Loan Document.
"Majority Banks" means at any time the Agent plus Banks holding at
least 66-2/3% of the sum of the then aggregate unpaid principal amount of the
Advances owing to Banks plus the then existing amount of Letter of Credit
Liabilities, or, if no such principal amount and no Letter of Credit
Liabilities are then outstanding, Banks having at least 66-2/3% of the total of
all Commitments (provided, however, that, for purposes of this definition,
neither the Borrower nor any Subsidiary of Borrower nor PSAL nor any Subsidiary
of PSAL, if a Bank, shall be included in (i) the Banks holding Advances or
Letter of Credit Liabilities or having any of the Commitments or (ii)
determining the aggregate unpaid principal amount of the Advances, the amount
of Letter of Credit Liabilities or the total of all Commitments). For purposes
of this definition and Section 8.07, Letter of Credit Liabilities shall be
considered held by the respective Banks in accordance with the respective
amounts of their participations therein pursuant to Section 2.13, with the
Issuing Bank holding the balance thereof after taking into account such
participations or, in the event there is no Issuing Bank, in the actual amounts
represented by each Bank's Letter of Credit issued pursuant to Section 7.06.
"Maturity Date" means April 19, 2000.
"Mortgages" means collectively the Mortgage, Security Agreement,
Assignment of Security Interests and Liens, Assignment of Production and
Financing Statements dated as of the date hereof, which create an Acceptable
Security Interest in each of the Original Properties, executed by the Borrower
and delivered to the Collateral Agent in connection herewith, together with all
other security documents delivered by Borrower to the Collateral Agent covering
Additional Properties, all as amended or modified from time to time.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any of
the preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means an employee benefit plan, other than a
Multiemployer Plan, subject to Title IV of ERISA to which the Borrower or any
ERISA Affiliate, and more than one employer other than the Borrower or an ERISA
Affiliate, is making or accruing an obligation to make contributions or, in the
event that any such plan has been terminated, to which the Borrower or any
ERISA Affiliate made or accrued an obligation to make contributions during any
of the five plan years preceding the date of termination of such plan.
"Note" means a promissory note of the Borrower payable to the order of
any Bank, in substantially the form of Exhibit A, evidencing indebtedness of
the Borrower to such Bank resulting from Advances owing to such Bank.
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"Notice of Borrowing" has the meaning specified in Section 2.02(a).
"Notice of Hedging Obligations" has the meaning specified in Section
8.12.
"Notice of Letter of Credit" has the meaning specified in Section
2.13(a).
"Obligations" means all obligations (liquidated, contingent or
otherwise) from time to time owed by the Borrower pursuant to, as a result of
or in connection with any of the Loan Documents, including, without limitation,
all principal of and interest on the Advances, all Letter of Credit Liabilities
and all obligations to pay fees, costs, expenses, indemnities and other amounts
under any Loan Document, and all Hedging Obligations allocated by the Borrower
pursuant to Section 8.12.
"Oil and Gas Properties" means all Hydrocarbon Interests; any
Properties now or hereafter pooled or unitized with the Hydrocarbon Interests;
all presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby (including without
limitation all units created under orders, regulations and rules of any
Governmental Authority) which may affect all or any portion of the Hydrocarbon
Interests; all operating agreements, contracts and other agreements which
relate to any of the Hydrocarbon Interests or the production, sale, purchase,
exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, including all oil in tanks, the
lands covered thereby and all rents, issues, profits, proceeds, products,
revenues and other incomes from or attributable to the Hydrocarbon Interests;
all tenements, hereditaments, appurtenances and Properties in any manner
appertaining, belonging, affixed or incidental to the Hydrocarbon Interests;
and all Properties, rights, titles, interests and estates described or referred
to above, including any and all Property, real or personal, now owned or
hereinafter acquired and situated upon, used, held for use or useful in
connection with the operating, working or development of any of such
Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment or other personal property which may be on such premises for the
purpose of drilling a well or for other similar temporary uses) and including
any and all oil wells, gas wells, injection wells or other wells, buildings,
structures, fuel separators, liquid extraction plans, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries, fixtures,
valves, fittings, machinery and parts, engines, boilers, meters, apparatus,
equipment, appliances, tools, implements, cables, wires, towers, casing, tubing
and rods, surface leases, rights-of-way, easements and servitudes together with
all additions, substitutions, replacements, accessions and attachments to any
and all of the foregoing.
"Original Properties" means all of the Hydrocarbon Interests described
on Exhibit B and all Oil and Gas Properties relating thereto.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
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<PAGE> 18
"Permitted Exceptions" means (i) Liens for taxes, assessments or other
governmental charges or levies not yet due or which are being contested in good
faith by appropriate action and for which appropriate reserves have been
maintained; (ii) Liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations not yet due or which are being contested in good faith by
appropriate action and for which appropriate reserves have been maintained in
accordance with GAAP; (iii) operators', vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's, construction or other like
Liens arising by operation of law in the ordinary course of business or
incident to the exploration, development, operation and maintenance of Oil and
Gas Properties or statutory landlord's liens, each of which is in respect of
obligations that have not been outstanding more than 90 days or which are being
contested in good faith by appropriate proceedings and for which appropriate
reserves have been maintained in accordance with GAAP; (iv) any Liens reserved
in leases or farmout agreements for rent or royalties and for compliance with
the terms of the farmout agreements or leases in the case of leasehold estates,
to the extent that any such Lien referred to in this clause does not materially
impair the use of the Property covered by such Lien for the purposes for which
such Property is held by the Borrower or any of its Subsidiaries or materially
impair the value of such Property subject thereto; (v) encumbrances (other than
to secure the payment of borrowed money or the deferred purchase price of
Property or services), easements, restrictions, servitudes, permits,
conditions, covenants, exceptions or reservations in any rights of way or other
Property of the Borrower or any of its Subsidiaries for the purpose of roads,
pipelines, transmission lines, transportation lines, distribution lines for the
removal of gas, oil, coal or other minerals or timber, and other like purposes,
or for the joint or common use of real estate, rights of way, facilities and
equipment, and defects, irregularities, zoning restrictions and deficiencies in
title of any rights of way or other Property which in the aggregate do not
materially impair the use of such rights of way or other Property for the
purposes of which such rights of way and other Property are held by the
Borrower or any of its Subsidiaries or materially impair the value of such
Property subject thereto; (vi) deposits of cash in support of bids at auction
for oil and gas leases offered by the Minerals Management Service or any other
Governmental Authority, (vii) deposits of cash and securities (provided such
consensual Liens are subordinated to the Indebtedness in form and substance
satisfactory to the Agent) to secure the payment or performance of tenders,
statutory or regulatory, obligations, surety and appeal bonds, bids, leases,
governmental contracts and leases, performance and return of money bonds and
other similar obligations incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money but including
lessee or operator obligations under statutes, governmental regulations or
instruments related to the ownership, exploration and production of oil, gas
and minerals on state, federal or foreign land or waters) not exceeding
$2,500,000 in the aggregate for all such deposits; (viii) Liens created by the
Mortgages; and (ix) Liens existing on the date hereof on Property securing the
Finova Leases (as defined in Section 5.02(d)).
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<PAGE> 19
"Permitted Investments" means:
(i) investments in direct obligations of the United
States or any agency thereof maturing not more than one year from date
of issue;
(ii) investments in commercial paper, certificates of
deposit and bankers acceptances, maturing not more than one year after
the date of issue, issued by commercial banking institutions each of
which is a member of the Federal Reserve System, has its short-term
deposits rated A- or higher by Moody's or Standard & Poor's and has a
combined capital and surplus and undivided profits of not less than
$100,000,000;
(iii) investments in commercial paper, maturing not more
than one year after the date of issue, issued by a corporation (other
than an Affiliate of the Borrower) with a rating of P-1 by Moody's, or
A-1 by Standard & Poor's;
(iv) Eurodollar deposits, maturing not more than one year
after the date of issue, in banks, each of which has capital of not
less than $100,000,000 and has its short-term deposits rated A- or
higher by Moody's or Standard & Poor's;
(v) investments in mutual funds which hold only
securities which if held directly would be Permitted Investments.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof or any trustee, receiver, custodian or similar official.
"Petroleum Engineer" means Ryder Scott Company or a certified
petroleum engineer or other independent petroleum consultant selected by the
Borrower and acceptable to Agent and Majority Banks in their sole discretion.
"PetUSA" means Petsec (U.S.A.) Inc., a Nevada corporation.
"Plan" means an employee benefit plan (other than a Multiemployer
Plan) which is (or, in the event that any such plan has been terminated within
five years after a transaction described in Section 4069 of ERISA, was)
maintained for employees of the Borrower or any ERISA Affiliate and covered by
Title IV of ERISA.
"Preferred Interest" means, as applied to any Person, any capital
stock, partnership interest or other ownership interest of such Person which is
entitled to preference or priority over any other capital stock, partnership
interest or other ownership interest of such Person in respect of either the
payment of dividends or distributions or the distribution of assets upon
liquidation.
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<PAGE> 20
"Prime Commercial Lending Rate" means the per annum rate of interest
from time to time announced by Chase in New York, New York as its prime
commercial lending rate, the Prime Commercial Lending Rate to change when and
as such prime commercial lending rate changes. The Prime Commercial Lending
Rate is a reference rate and does not necessarily represent the lowest or best
rate actually charged to any customer. Chase may make commercial loans or
other loans at rates of interest at, above or below the Prime Commercial
Lending Rate.
"Property" or "asset" (in each case, whether or not capitalized) means
any interest in any kind of property or asset, whether real, personal or mixed,
or tangible or intangible.
"PSAL" means Petroleum Securities Australia Limited, an Australian
corporation organized under Australian Company Number ACN 000 602 700.
"Ratable Portion" means as to any Bank at any date the amount obtained
by dividing (i) such Bank's Commitment at such date by (ii) the aggregate
amount at such date of all Commitments of all of the Banks.
"RCRA" means the Resource Conservation and Recovery Act of 1976, as
amended from time to time, set forth at 42 U.S.C. Sections 6901 et seq (1988),
state and local analogs and all rules and regulations promulgated thereunder,
in each case as now or hereafter in effect.
"Redetermination Date" has the meaning specified in Section 2.14.
"Register" has the meaning specified in Section 8.07(c).
"Regulation D" means Regulation D of the Federal Reserve Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"Regulation G" means Regulation G of the Federal Reserve Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"Regulation U" means Regulation U of the Federal Reserve Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"Reserve Report" means a report, in form and substance satisfactory to
the Agent, setting forth, as of the last day of each fiscal year of the
Borrower (the "Annual Reserve Report") and the last day of the sixth month
following the end of each fiscal year of the Borrower (the "Semi-Annual Reserve
Report") (or such other date in the event of an unscheduled redetermination):
(i) the oil and gas reserves attributable to the Borrower's Oil and Gas
Properties subject thereto together with a projection of the rate of production
and future net income, taxes, operating expenses and capital expenditures with
respect thereto as of such date, based upon the pricing assumptions consistent
with SEC reporting requirements at the time and (ii) such other information as
the Agent may reasonably request.
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<PAGE> 21
"Restricted Preferred Interest" means any Preferred Interest which is
subject to retirement, purchase, redemption, other acquisition or conversion
(other than a conversion into common stock of the Borrower), in whole or in
part, at the option of the holder thereof.
"Revolving Credit Termination Date" means, unless sooner terminated
pursuant to Section 2.04 or Section 6.01, April 19, 1998, as extended pursuant
to Section 2.05.
"SARA" means the Superfund Amendments and Reauthorization Act of 1986.
"Scheduled Redetermination Date" has the meaning set forth in Section
2.14(a)(ii).
"SEC" means the Securities and Exchange Commission or any successor
Governmental Authority.
"Semi-Annual Reserve Report" is defined in the definition of "Reserve
Report".
"Stated Expiry Date" means the original expiration date stated on the
face of any Letter of Credit, or such other date, if any, to which the Issuing
Bank extends the expiration of such Letter of Credit at the request of the
Borrower.
"Subordinated Debt" means the unsecured Indebtedness of the Borrower
to PetUSA, provided that, (i) such Indebtedness shall be evidenced by a note in
the form set forth on Exhibit J, (ii) the proceeds thereof shall be used only
for capital expenditures of the Borrower or other general corporate purposes of
the Borrower, (iii) no Subsidiary of the Borrower shall be liable therefor, and
(iv) such Indebtedness shall be subject to a Standstill Agreement between the
holder thereof and the Agent in the form set forth on Exhibit J-1.
"Subordinated Debt Documents" means all notes, subordination
agreements and other documents evidencing, or executed in connection with, any
Subordinated Debt, including the note and Standstill Agreement attached hereto
as Exhibits J and J-1, respectively.
"Subsidiary" means, for any Person, any corporation (including a
business trust), partnership, joint stock company, trust, unincorporated
association, joint venture or other entity of which more than 50% of the
outstanding capital stock, partnership interests or other ownership interests
having ordinary voting power to elect a majority of the board of directors of
such corporation or, in the case of any other entity, a majority of the Persons
performing similar functions (irrespective of whether or not at the time
capital stock, partnership interests or other ownership interests of any other
class or classes of such corporation or such other entity shall or might have
voting power upon the occurrence of any contingency) is at the time directly or
indirectly owned by such Person, by such Person and one or more of its
Subsidiaries, or by one or more other Subsidiaries of such Person.
"Termination Event" means (i) a "reportable event", as such term is
described in Section 4043 of ERISA and the regulations issued thereunder (other
than a "reportable event" not
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<PAGE> 22
subject to the provision for 30-day notice to the PBGC and any "reportable
event" the reporting of which to the PBGC has been waived by ERISA), or an
event described in Section 4062(e) of ERISA, (ii) the distribution of a notice
of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041(c) of ERISA, (iii) the institution of
proceedings to terminate a Plan by the PBGC under Section 4042 of ERISA, or
(iv) any other event or condition which is reasonably expected to constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan.
"Title Opinions" has the meaning specified in Section 2.14(a)(iii).
"Type" has the meaning specified in the definitions of Advance.
Section 1.02. Computation of Time Periods. In this Agreement in
the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding". The word "through" used herein means "to and
including".
Section 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP
consistent with those applied in the preparation of the Financial Statements,
except as set forth in the notes thereto or as otherwise disclosed in writing
to the Banks.
Section 1.04. Miscellaneous. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule and Exhibit references are to
Articles and Sections of and Schedules and Exhibits to this Agreement, unless
otherwise specified.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES AND LETTERS OF CREDIT
Section 2.01. The Advances.
(a) Each Bank severally agrees, on the terms and conditions herein
set forth, to make Advances to the Borrower from time to time on any Business
Day during the period from the date hereof until the Termination Date in an
aggregate amount not to exceed at any time outstanding an amount equal to (i)
the lesser of (A) the amount set opposite such Bank's name on the signature
pages hereof as its Commitment, or if such Bank has entered into any
Assignment, set forth for such Bank as its Commitment in the Register
maintained by the Agent pursuant to Section 8.07(c), as such amount may be
reduced pursuant to Section 2.04 (such Bank's "Commitment") or (B) the Bank's
Ratable Portion of the Borrowing Base as of the date of each Advance, minus
(ii) such Bank's Ratable Portion of the aggregate of all Letter of Credit
Liabilities at such time.
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<PAGE> 23
(b) Each Borrowing shall consist of Advances of the same Type made
on the same day by the Banks ratably according to their respective Commitments.
Each Borrowing shall be in an aggregate amount not less than $2,000,000 and in
integral multiples of $1,000,000. Within the limits set forth in Section
2.01(a), the Borrower may from time to time borrow, prepay pursuant to Section
2.07 and Section 2.14(b), and reborrow under this Section 2.01.
Section 2.02. Making the Advances.
(a) Borrowing Procedure. Each Borrowing shall be made on notice,
given not later than 11:00 a.m. (New York City time) on the Business Day prior
to the date (which shall be a Business Day) of a proposed Borrowing comprised
of Base Rate Advances and not later than 11:00 a.m. (New York City time) on the
third Business Day prior to the date of a proposed Borrowing comprised of
Eurodollar Rate Advances, by the Borrower to the Agent, which shall give to
each Bank prompt notice thereof by telecopier or telex. Each such notice of a
Borrowing (a "Notice of Borrowing") shall be by telephone or telecopier,
confirmed promptly in writing if by telephone, in substantially the form of
Exhibit C, specifying therein the requested (i) date of such Borrowing, (ii)
Type of Advances comprising such Borrowing, (iii) aggregate amount of such
Borrowing, and (iv) if such Borrowing is to be comprised of Eurodollar Rate
Advances, the initial Interest Period for each such Advance. Each Bank shall,
before 12:00 noon (New York City time) on the date of each Borrowing, make
available for the account of its Applicable Lending Office to the Agent at its
address referred to in Section 8.02, in same day funds, such Bank's ratable
portion of such Borrowing. After the Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article III, the Agent
will make such funds available to the general deposit account of the Borrower
with the Agent.
(b) Certain Limitations. Notwithstanding any other provision in
this Agreement:
(i) at no time shall there be more than seven Interest
Periods applicable to outstanding Eurodollar Rate Advances;
(ii) the Borrower may not select Eurodollar Rate Advances
for any Borrowing if the aggregate amount of such Borrowing is less
than $2,000,000;
(iii) if any Bank shall notify the Agent that the
introduction of or any change in or in the interpretation of any law
or regulation makes it unlawful, or that any central bank or other
Governmental Authority asserts that it is unlawful, for such Bank or
its Eurodollar Lending Office to perform its obligations hereunder to
make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate
Advances hereunder, (A) the obligation of the Banks to make, or to
Convert Advances into, Eurodollar Rate Advances shall be suspended
until the Agent shall notify the Borrower and the Banks that the
circumstances causing such suspension no longer exist and (B) the
Borrower shall forthwith prepay in full all Eurodollar Rate Advances
of all Banks then outstanding, together with interest accrued thereon,
unless the Borrower, within five Business Days of notice from the
Agent, Converts all Eurodollar
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<PAGE> 24
Rate Advances of all Banks then outstanding into Base Rate Advances in
accordance with Section 2.12;
(iv) if, with respect to any Eurodollar Rate Advances, the
Majority Banks shall notify the Agent either (A) that the Eurodollar
Rate for any Interest Period for such Advances will not adequately
reflect the cost to such Majority Banks of making, funding or
maintaining their respective Eurodollar Rate Advances for such
Interest Period as a result of changes in the London interbank
eurodollar market occurring after the date of this Agreement, or (B)
that after making all reasonable efforts, Dollar deposits for the
relevant amounts and Interest Period for their respective Advances are
not available to them in the London interbank market, the Agent shall
forthwith so notify the Borrower and the Banks, whereupon (i) each
Eurodollar Rate Advance will automatically, on the last day of the
then existing Interest Period therefor, Convert into a Base Rate
Advance, and (ii) the obligation of the Banks to make, or to Convert
Advances into, Eurodollar Rate Advances shall be suspended until the
Agent shall notify the Borrower and the Banks that the circumstances
causing such suspension no longer exist;
(v) if the Borrower shall fail to select the duration of
any Interest Period for any Eurodollar Rate Advances in accordance
with the provisions contained in the definition of "Interest Period"
in Section 1.01, the Agent will forthwith so notify the Borrower and
the Banks and such Advances will automatically, on the last day of the
then existing Interest Period therefor, Convert into Base Rate
Advances; and
(vi) if the aggregate unpaid principal amount of
Eurodollar Rate Advances comprising any Borrowing shall be reduced, by
payment or prepayment or otherwise, to less than $2,000,000, such
Advances shall automatically, on the last day of the then existing
Interest Period therefor, Convert into Base Rate Advances.
(c) Notice Irrevocable. Each Notice of Borrowing, each notice of
an Interest Period and each notice of Conversion pursuant to Section 2.12 shall
be irrevocable and binding on the Borrower. The Borrower shall indemnify each
Bank against any loss, cost or expense incurred by such Bank as a result of (i)
in the case of any Borrowing which the related Notice of Borrowing specifies is
to be comprised of Eurodollar Rate Advances, any failure to fulfill on or
before the date specified in such Notice of Borrowing for such Borrowing the
applicable conditions set forth in Article III, or any failure to borrow for
any other reason, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank to fund the
Advance to be made by such Bank as part of such Borrowing when such Advance, as
a result of such failure, is not made on such date, (ii) following any Default
by Borrower, the failure of any Conversion to Eurodollar Rate Advances to occur
when specified in the relevant notice of Conversion, (iii) following any
Default by Borrower the failure of any Interest Period to be applicable as
specified in the relevant notice of Interest Period, (iv) any notice having
been given by a Bank to the Agent as described in Section 2.02(b)(iii), except
to the extent attributable to the gross negligence of any Bank, or (v) any
notice having been given
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<PAGE> 25
by the Majority Banks to the Agent as described in Section 2.02(b)(iv), except
to the extent attributable to the gross negligence of any Bank.
(d) Agent Reliance. Unless the Agent shall have received notice
from a Bank prior to the date of any Borrowing that such Bank will not make
available to the Agent such Bank's Ratable Portion of such Borrowing, the Agent
may assume that such Bank has made such portion available to the Agent on the
date of such Borrowing in accordance with Section 2.02(a) and the Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such Ratable Portion available to the Agent, such Bank and the Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount
is made available to the Borrower until the date such amount is repaid to the
Agent, at (i) in the case of the Borrower, the interest rate applicable at the
time to Advances comprising such Borrowing and (ii) in the case of such Bank,
the Federal Funds Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Bank's
Advance as part of such Borrowing for purposes of this Agreement.
(e) Obligations of Banks Several. The failure of any Bank to make
the Advance to be made by it as part of any Borrowing shall not relieve any
other Bank of its obligation hereunder to make its Advance on the date of such
Borrowing, but no Bank shall be responsible for the failure of any other Bank
to make the Advance to be made by such other Bank on the date of any Borrowing.
(f) Notes. The indebtedness of the Borrower to each Bank
resulting from Advances owing to such Bank shall be evidenced by the Note of
the Borrower payable to the order of such Bank in substantially the form of
Exhibit A hereto.
(g) Twelve Month Interest Periods. The Borrower shall notify the
Agent and the Banks at least six Business Days in advance of any Borrowing of
or Conversion to Eurodollar Rate Advances with an Interest Period of twelve
months. The Borrower will be entitled to select such twelve month Interest
Period unless any Bank notifies the Agent (before 10:00 A.M. on the fourth
Business Day preceding the date of the proposed Borrowing or Conversion) that
deposits corresponding to such Bank's Eurodollar Rate Advance and the proposed
Interest Period are not expected to be available to such Bank in the London
interbank market on the first day of such Interest Period.
Section 2.03. Fees. (a) Commitment Fee. The Borrower agrees to
pay to the Agent for the account of each Bank a commitment fee on the average
daily unused amount of the lesser of (i) such Bank's Commitment or (ii) such
Bank's Ratable Portion of the Borrowing Base, from the date hereof in the case
of each Bank listed on the signature pages hereof and from the effective date
specified in the Assignment pursuant to which it became a Bank in the case of
each other Bank until the Termination Date, payable quarterly in arrears on the
last Business Day of March, June, September and December hereafter, commencing
June 30, 1996, and on the Revolving Credit
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<PAGE> 26
Termination Date, at a rate per annum equal at all times to the Applicable
Margin for commitment fees as contemplated by clause (ii) of the definition of
Applicable Margin.
(b) Agent Fee. The Borrower agrees to pay to the Agent for its
sole account such fees as may be agreed to in writing by it and the Agent.
Section 2.04. Reduction of Commitments. The Borrower shall have
the right at any time and from time to time, upon at least three Business Days'
written notice to the Agent, to terminate in whole or permanently reduce
ratably in part the aggregate Commitments of the Banks; provided that each
partial reduction shall be in the minimum aggregate amount of $1,000,000 and in
an integral multiple of $100,000; and provided further that the aggregate
amount of the Commitments of the Banks shall not be reduced to an amount which
is less than the sum of the then amount of the Letter of Credit Liabilities
plus the aggregate principal amount of the Advances then outstanding.
Section 2.05. Repayment of the Advances. The Borrower shall repay
to the Banks all of the Advances in eight quarterly installments, the first of
which shall be due and payable on the last Business Day (as such term is used
in relation to Eurodollar Rate Advances) of the third calendar month following
the Revolving Credit Termination Date, the next six of which shall be due and
payable on the last Business Day (as that term is used in relation to
Eurodollar Rate Advances) of the 6th, 9th, 12th, 15th, 18th and 21st calendar
month following the Revolving Credit Termination Date, and the final one of
which shall be due and payable on the last Business Day (as such term is used
in relation to Eurodollar Rate Advances) of the 24th calendar month following
the Revolving Credit Termination Date, with each installment being in the
amount equal to one-eighth (1/8th) of the aggregate amount of all Advances
outstanding as of the Revolving Credit Termination Date (which amount is an
aggregate amount for all of the Banks and is to be allocated ratably among the
Banks as contemplated by Section 2.08(a)). On or prior to the 90th day
preceding the then current Revolving Credit Termination Date, the Borrower may
request in writing to the Agent and the Banks that the Banks extend the
Revolving Credit Termination Date for a period of one year; provided however,
that any such extension shall require the consent of all the Banks, which
consent may be withheld by each Bank in its sole discretion, and provided
further that if any Bank has not responded to such request in writing within 30
days after receipt of the written request of the Borrower by the Agent, such
failure shall be deemed a denial of such request.
Section 2.06. Interest on Advances. The Borrower shall pay
interest on the unpaid principal amount of each Advance from the date of such
Advance until such principal amount shall be paid in full, at the following
rates per annum:
(a) Base Rate Advances. During such periods as such Advance is a
Base Rate Advance, a rate per annum equal at all times to the sum of the Base
Rate in effect from time to time plus the Applicable Margin for Base Rate
Advances in effect from time to time, payable quarterly in arrears on the last
day of each March, June, September and December and on the date such Base Rate
Advance shall be Converted or paid in full; provided that any amount of
principal (other than principal of any Eurodollar Rate Advance) which is not
paid when due (whether at stated maturity,
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by acceleration or otherwise) shall bear interest, from the date on which such
amount is due until such amount is paid in full, payable on demand, at a rate
per annum equal at all times to the sum of 2% per annum plus the Base Rate in
effect from time to time plus the Applicable Margin for Base Rate Advances in
effect from time to time.
(b) Eurodollar Rate Advances. During such periods as such Advance
is a Eurodollar Rate Advance, a rate per annum equal at all times during the
Interest Period for such Advance to the sum of the Eurodollar Rate for such
Interest Period plus the Applicable Margin for Eurodollar Rate Advances in
effect from time to time, payable on the last day of such Interest Period and,
if such Interest Period is longer than three months, at three-month intervals
following the first day of such Interest Period; provided that any amount of
principal of any Eurodollar Rate Advance which is not paid when due (whether at
stated maturity, by acceleration or otherwise) shall bear interest, from the
date on which such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the greater of (x) the sum of
2% per annum plus the Base Rate in effect from time to time plus the Applicable
Margin for Base Rate Advances in effect from time to time and (y) the sum of 2%
per annum plus the rate per annum required to be paid on such Advance
immediately prior to the date on which such amount became due.
Section 2.07. Prepayments. The Borrower shall have no optional
right to prepay any principal amount of any Advance other than as provided in
this Section 2.07. The Borrower may, upon at least three Business Days' prior
written notice to the Agent in the case of a prepayment of a Eurodollar Rate
Advance and one (1) Business Days' prior written notice to the Agent in the
case of a prepayment of a Base Rate Advance, in each case stating the proposed
date (which shall be a Business Day) and aggregate principal amount of the
prepayment, and if such notice is given the Borrower shall, prepay the
outstanding principal amounts of the Advances comprising part of the same
Borrowing in whole or ratably in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid; provided, however,
that (x) each partial prepayment of a Borrowing comprised of Base Rate Advances
(as opposed to any payment in full) shall be in an aggregate principal amount
not less than $2,000,000 and an integral multiple of $1,000,000, and after
giving effect thereto such Borrowing shall not have an outstanding principal
amount less than $2,000,000, (y) each partial prepayment of a Borrowing
comprised of Eurodollar Rate Advances (as opposed to any payment in full) shall
be in an aggregate principal amount not less than $2,000,000 and an integral
multiple of $1,000,000, and after giving effect thereto such Borrowing shall
not have an outstanding principal amount less than $2,000,000; and (z) in the
case of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be
obligated to reimburse the Banks in respect thereof pursuant to Section
8.04(b). Each voluntary prepayment of principal following the Revolving Credit
Termination Date shall reduce each subsequent installment of principal due
under Section 2.05 by an amount equal to the principal amount of such voluntary
prepayment divided by the number of regular quarterly payments remaining due on
the Notes under Section 2.05. Notwithstanding the foregoing, any prepayment of
principal following the Revolving Credit Termination Date resulting from a
Borrowing Base Deficiency shall be applied to installments of principal in
inverse order of their maturity.
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Section 2.08. Payments and Computations.
(a) Procedure for Payments by Borrower. Except for payments to be
made to the Issuing Bank as contemplated by Section 2.13, the Borrower shall
make each payment hereunder and under the Notes not later than 12:00 noon (New
York City time) on the day when due in Dollars to the Agent at its address
referred to in Section 8.02 in same day funds. The Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal, interest, commissions on Letters of Credit as contemplated by
Section 2.13(b) or commitment fees ratably to the Banks for the account of
their respective Applicable Lending Offices, and like funds relating to the
payment of any other amount payable to any Bank to such Bank for the account of
its Applicable Lending Office, in each case to be applied in accordance with
the terms of this Agreement. Upon its acceptance of an Assignment and
recording of the information contained therein in the Register pursuant to
Section 8.07(d), from and after the effective date specified in such
Assignment, the Agent shall make all payments hereunder and under the Notes in
respect of the interest assigned thereby to the Bank assignee thereunder, and
the parties to such Assignment shall make all appropriate adjustments in such
payments for periods prior to such effective date directly between themselves.
All payments shall be applied first to the payment of Base Rate Advances and
second to Eurodollar Rate Advances.
(b) Computation of Interest and Fees. All computations of
interest based on the Base Rate (except during such times as the Base Rate is
determined pursuant to clause (ii) of the definition thereof) and of commitment
fees shall be made by the Agent on the basis of a year of 365 or 366 days, as
the case may be, and all computations of interest based on the Eurodollar Rate,
the Federal Funds Rate or, during such times as the Base Rate is determined
pursuant to clause (ii) of the definition thereof, the Base Rate shall be made
by the Agent on the basis of a year of 360 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring
in the period for which such interest or fees are payable. Each determination
by the Agent of an interest rate hereunder shall be conclusive and binding for
all purposes, absent manifest error. The Agent shall promptly notify the
Borrower and each Bank of each determination by it of the Eurodollar Rate
applicable to any Advance.
(c) Payment on Non-Business Days. Whenever any payment hereunder
or under the Notes shall be stated to be due on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest or commitment fees, as the case may be; provided, however, if such
extension would cause payment of interest on or principal of Eurodollar Rate
Advances to be made in the next following calendar month, such payment shall be
made on the next preceding Business Day.
(d) Agent Reliance. Unless the Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the Agent may
assume that the Borrower has made such payment in full to the Agent on such
date and the Agent may, in reliance upon such assumption, cause to be
distributed
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to each Bank on such due date an amount equal to the amount then due such Bank.
If and to the extent that the Borrower shall not have so made such payment in
full to the Agent, each Bank shall repay to the Agent forthwith on demand such
amount distributed to such Bank together with interest thereon, for each day
from the date such amount is distributed to such Bank until the date such Bank
repays such amount to the Agent, at the Federal Funds Rate.
(e) Past Due Amounts. All interest, fees and other amounts due
hereunder (other than principal) that are not paid when due shall bear
interest, from the date on which such amount is due until such amount is paid
in full, at a rate per annum equal at all times to the sum of 2% per annum plus
the Base Rate in effect from time to time plus the Applicable Margin for Base
Rate Advances in effect from time to time.
Section 2.09. Increased Costs and Capital Requirements.
(a) Change of Law. If, due to either (i) the introduction of or
any change in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to any Bank of agreeing to make or making, funding or
maintaining Eurodollar Rate Advances, then the Borrower shall from time to
time, upon demand by such Bank (with a copy of such demand to the Agent),
promptly pay to such Bank additional amounts sufficient to compensate such Bank
for such increased cost. A certificate as to the amount of such increased
cost, submitted to the Borrower and the Agent by such Bank, shall be conclusive
and binding for all purposes, absent manifest error; provided that no Bank may
charge the Borrower for any such increased costs incurred by such Bank for more
than 180 days prior to the date such demand is delivered to the Borrower by
such Bank.
(b) Capital Adequacy. If any Bank determines that either (i) the
introduction of or any change in the interpretation of any law or regulation or
(ii) compliance by such Bank with any law or regulation or any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by such Bank or any corporation controlling such
Bank and that the amount of such capital is increased by or based upon the
existence of such Bank's commitment to lend hereunder and other commitments of
this type or the existence of any Letter of Credit (or similar contingent
obligations), then, upon demand by such Bank (with a copy of such demand to the
Agent), the Borrower shall promptly pay to such Bank, from time to time as
specified by such Bank, additional amounts sufficient to compensate such Bank
or such corporation in the light of such circumstances, to the extent that such
Bank reasonably determines such increase in capital to be allocable to the
existence of such Bank's commitment to lend hereunder or the existence of any
Letter of Credit. A certificate as to such amounts submitted to the Borrower
and the Agent by such Bank shall be conclusive and binding for all purposes,
absent manifest error; provided that no Bank may charge the Borrower for any
such increased amounts incurred by such Bank for more than 180 days prior to
the date such demand is delivered to the Borrower by such Bank.
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(c) Reserves. In the event that any Bank shall determine (which
determination shall, absent manifest error, be conclusive and binding for all
purposes) at any time that by reason of Regulation D or other law or regulation
such Bank is required to maintain reserves in respect of eurocurrency loans or
liabilities during any period that it has a Eurodollar Rate Advance
outstanding, then the Borrower shall from time to time, upon demand by such
Bank (with a copy of such demand to the Agent), promptly pay to such Bank
additional amounts sufficient to compensate such Bank for the cost of
maintaining such reserves. A certificate as to such amounts submitted to the
Borrower and the Agent by such Bank shall be conclusive and binding for all
purposes, absent manifest error; provided that no Bank may charge the Borrower
for any such increased costs incurred by such Bank for more than 180 days prior
to the date such demand is delivered to the Borrower by such Bank.
Section 2.10. Taxes.
(a) No Deduction for Certain Taxes. Any and all payments by the
Borrower hereunder or under the Notes shall be made, in accordance with Section
2.08, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
Agent, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Bank or the Agent (as the case may
be) is organized or any political subdivision thereof and, in the case of each
Bank, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction of such Bank's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as
"Taxes"). If the Borrower shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder or under any Note to any Bank or the
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.10) such Bank or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii)
the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) Other Taxes. In addition, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
under the Notes or from the execution, delivery, filing, recording or
registration of, or otherwise with respect to, this Agreement, the Mortgages,
the Notes or any other Loan Document (hereinafter referred to as "Other
Taxes").
(c) Indemnification. The Borrower will indemnify each Bank and
the Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.10) paid by such Bank or the Agent (as the case
may be) and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes
were correctly or legally asserted. Payments under any indemnification
provided for in this Section 2.10(c) shall be made within 30
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days from the date such Bank or the Agent (as the case may be) makes written
demand therefor and provides reasonable evidence of any Taxes, Other Taxes or
other amounts paid. Each Bank shall use reasonable efforts (consistent with
its internal policies and legal and regulatory restrictions) to select a
jurisdiction for its Applicable Lending Office or change the jurisdiction of
its Applicable Lending Office, as the case may be, so as to avoid the
imposition of any Taxes or Other Taxes or to eliminate the amount of any such
additional amounts which may thereafter accrue; provided that no such election
or change of the jurisdiction for its Applicable Lending Office shall be made
if, in the reasonable judgment of such Bank, such selection or change would be
disadvantageous to such Bank.
(d) Evidence of Tax Payments. As soon as available following the
date of any payment of Taxes, the Borrower will furnish to the Agent, at its
address referred to in Section 8.02, the original or a certified copy of a
receipt evidencing payment thereof (and the Agent will forward a copy of such
receipt to any Bank referenced in the receipt).
(e) Foreign Bank Withholding Exemption. Each Bank organized under
the laws of a jurisdiction outside the United States, on or prior to the date
of the initial Borrowing in the case of each such Bank listed on the signature
pages hereof and on the date of the Assignment pursuant to which it becomes a
Bank in the case of each other foreign Bank, and from time to time thereafter
if requested by the Borrower or the Agent, shall provide the Agent and the
Borrower with the forms prescribed by the Internal Revenue Service of the
United States certifying as to such Bank's status for purposes of determining
exemption from United States withholding taxes with respect to all payments to
be made to such Bank hereunder and under the Notes or other documents
satisfactory to the Borrower and the Agent indicating that all payments to be
made to such Bank hereunder and under the Notes are subject to such taxes at a
rate reduced by an applicable tax treaty. Unless the Borrower and the Agent
have received forms or other documents reasonably satisfactory to them
indicating that payments hereunder and under the Notes are not subject to
United States withholding tax or are subject to such tax at a rate reduced by
an applicable tax treaty, the Borrower or the Agent may withhold taxes from
such payments at the applicable statutory rate in the case of payments to or
for any Bank organized under the laws of a jurisdiction outside the United
States. Should any Bank ever receive any refund, credit or deduction from any
taxing authority to which such Bank would not be entitled but for the payment
by the Borrower or Agent of Taxes withheld pursuant to this Section 2.10(e) (it
being understood that the decision as to whether or not to claim, and if
claimed, as to the amount of any such refund, credit or deduction shall be made
by such Bank, in its sole discretion), such Bank thereupon shall repay to the
Borrower an amount with respect to such refund, credit or deduction equal to
any net reduction in Taxes actually obtained by such Bank, and determined by
such Bank to be attributable to such refund, credit or deduction.
Notwithstanding the foregoing, should any payments hereunder and under the
Notes to any Bank be subject to United States withholding tax, or is subject to
any double taxation due to the lack of an applicable tax treaty, resulting in
increased costs to the Borrower for Taxes or Other Taxes, the Borrower may
require that such Bank assign the entirety of its Commitment, the Advances
owing to it and the Notes held by it, and such Bank's percentage of the
interest in the Letter of Credit Liabilities, to an Eligible Assignee to be
identified by the Borrower at its sole cost and expense.
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<PAGE> 32
(f) Survival of Obligations. Without prejudice to the survival of
any other agreement of the Borrower hereunder, the agreements and obligations
of the Borrower contained in this Section 2.10 shall survive the termination of
the Commitments and this Agreement and the payment in full of principal and
interest hereunder and under the Notes.
Section 2.11. Sharing of Payments, Etc.
(a) If any Bank shall obtain any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, realization on any
Collateral or otherwise) on account of the principal of or interest on the
Advances owed to it in excess of its ratable share of payments on account of
the principal of or interest on the Advances obtained by all the Banks, such
Bank shall forthwith purchase from the other Banks such participations in the
Advances owed to them as shall be necessary to cause such purchasing Bank to
share the excess payment ratably with each of them; provided, however, that if
all or any portion of such excess payment is thereafter recovered from such
purchasing Bank, such purchase from each Bank shall be rescinded and each such
Bank shall repay to the purchasing Bank the purchase price to the extent of
such Bank's ratable share (according to the proportion of (i) the amount of the
participation purchased from such Bank as a result of such excess payment to
(ii) the total amount of such excess payment) of such recovery together with an
amount equal to such Bank's ratable share (according to the proportion of (i)
the amount of such Bank's required repayment to (ii) the total amount so
recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered.
(b) The Borrower agrees that any Bank purchasing a participation
from another Bank pursuant to this Section 2.11 may, to the fullest extent
permitted by law, exercise all its rights hereunder (including the right of
set-off) with respect to such participation as fully as if such Bank were the
direct creditor of the Borrower in the amount of such participation.
Section 2.12. Conversion of Advances. The Borrower may on any
Business Day, upon notice given to the Agent no later than 11:00 a.m. (New York
City time) on the third Business Day prior to the date of the proposed
Conversion and subject to the provisions of Section 2.02, Convert all Advances
of one Type comprising the same Borrowing into Advances of the other Type;
provided, however, that (i) any Conversion of any Eurodollar Rate Advances into
Base Rate Advances shall be made on, and only on, the last day of an Interest
Period for such Eurodollar Rate Advances, except as provided in Section
2.02(b)(iii), and (ii) Advances comprising a Borrowing may not be Converted
into Eurodollar Rate Advances if the outstanding principal amount of such
Borrowing is less than $2,000,000. Each such notice of a Conversion shall,
within the restrictions specified above, specify (i) the date of such
Conversion, (ii) the Advances to be Converted, and (iii) if such Conversion is
into Eurodollar Rate Advances, the duration of the Interest Period for each
such Advance.
Section 2.13. Letters of Credit.
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(a) The Issuing Bank agrees, on the terms and conditions herein
set forth, to issue Letters of Credit for the account of the Borrower from time
to time on any Business Day during the period from the date hereof until one
month before the Revolving Credit Termination Date; provided, however, that (i)
at no time shall the Letter of Credit Liabilities exceed $15,000,000, (ii) at
no time shall the sum of the Letter of Credit Liabilities plus the aggregate
unpaid principal amount of all Advances exceed the lesser of (A) the aggregate
amount of the Commitments at such time or (B) the Borrowing Base at such time,
(iii) no Letter of Credit shall have a Stated Expiry Date later than the
earlier of one year from the date of its issuance or the Revolving Credit
Termination Date, and (iv) the Issuing Bank shall not be obligated to issue any
Letter of Credit if it reasonably believes that the prospect of payment from
any Bank pursuant to Section 2.13(f) as to such Letter of Credit may be
impaired. Each Letter of Credit shall be issued on notice given by the
Borrower to the Issuing Bank and the Agent (which shall give to each Bank
prompt notice thereof) not later than 11:00 A.M. (New York City time) on the
third Business Day prior to the date of the issuance of the proposed Letter of
Credit. Each such notice of a Letter of Credit (a "Notice of Letter of
Credit") shall be by telecopier or telex, in substantially the form of Exhibit
I, specifying therein the requested (i) date of issuance of such Letter of
Credit (which shall be a Business Day), (ii) amount of such Letter of Credit
(which must be in Dollars), (iii) expiration date of such Letter of Credit, and
(iv) purpose of such Letter of Credit (which shall not be to secure
Indebtedness). Additionally, if requested by the Issuing Bank, the Borrower
shall execute and deliver to the Issuing Bank, an application for letter of
credit on the Issuing Bank's standard form.
(b) With respect to each Letter of Credit, the Borrower agrees to
pay (i) to the Issuing Bank for its own account, in advance on the date each
Letter of Credit is issued, an issuance fee equal to the greater of $500 or
.10% per annum of the maximum face amount of such Letter of Credit, for the
life of each Letter of Credit, and (ii) to the Agent, a commission, computed
(on the basis of a year of 360 days for the actual number of days elapsed) at a
rate per annum equal to the Applicable Margin for Letter of Credit Fees in
effect from time to time as contemplated by clause (iii) of the definition of
Applicable Margin, on the maximum face amount of such Letter of Credit from the
date of issuance of such Letter of Credit until the Expiration Date for such
Letter of Credit payable quarterly in arrears on the last Business Day of each
month and on such Expiration Date (which commission shall be shared ratably by
all Banks (including the Issuing Bank) based on their respective Ratable
Portions).
(c) The Borrower will immediately and unconditionally pay to the
Issuing Bank upon demand the amount of each payment made under any Letter of
Credit. If the Borrower shall fail to pay to the Issuing Bank the amount of
any such payment immediately upon demand in accordance with the terms of this
Agreement, such payment shall immediately constitute, without necessity of
further act or evidence, a loan (a "Demand Loan") made by the Issuing Bank to
the Borrower on the date of such payment in a principal amount equal to such
payment and repayable upon demand, together with interest on the principal
amount of such Demand Loan remaining unpaid from time to time, payable on
demand and computed from the date such Demand Loan is made as specified above
to the date of repayment in full thereof, at a rate per annum equal to the sum
of the Base Rate
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in effect from time to time plus the Applicable Margin for Base Rate Advances
in effect from time to time plus 2% per annum.
(d) The obligations of the Borrower under this Agreement and any
other agreement or instrument relating to any Letter of Credit shall be
unconditional and irrevocable, and shall be paid strictly in accordance with
the terms of this Agreement and such other agreement or instrument under all
circumstances, including, without limitation, the following circumstances:
(i) any lack of validity or enforceability of this
Agreement, any Letter of Credit or any other agreement or instrument
relating thereto (collectively, the "L/C Related Documents");
(ii) any change in the time, manner or place of payment
of, or in any other term of, all or any of the obligations of the
Borrower in respect of any Letter of Credit or any other amendment or
waiver of or any consent to departure from all or any of the L/C
Related Documents;
(iii) the existence of any claim, set-off, defense or other
right that the Borrower may have at any time against any beneficiary
or transferee of any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank or
any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C Related Documents or
any other transaction;
(iv) any statement or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(v) payment by the Issuing Bank under any Letter of
Credit against presentation of a draft or document that does not
comply with the terms of such Letter of Credit; or
(vi) any exchange, release or non-perfection of any
collateral for, or any release or amendment or waiver of or consent to
departure from any guarantee of, all or any of the obligations of the
Borrower in respect of any Letter of Credit.
However, this Section 2.13(d) shall not limit any right of the
Borrower to make a claim against the Issuing Bank to the extent provided in
Section 2.13(e).
(e) The Borrower assumes all risks of the acts or omissions of any
beneficiary or transferee of any Letter of Credit with respect to the use of
such Letter of Credit. Neither the Issuing Bank nor any branch, affiliate or
correspondent bank of the Issuing Bank nor any of their respective employees,
agents, officers or directors shall be liable or responsible for: (a) the use
that may be made of any Letter of Credit or any acts or omissions of any
beneficiary or transferee of any Letter of Credit in connection therewith; (b)
the validity, sufficiency or genuineness of documents, or of
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any endorsement thereon, even if such documents should prove to be invalid,
insufficient, fraudulent or forged; (c) payment by the Issuing Bank against
presentation of documents that do not comply with the terms of the relevant
Letter of Credit, including failure of any documents to bear any reference or
adequate reference to the relevant Letter of Credit; or (d) any other
circumstances whatsoever in making or failing to make payment under any Letter
of Credit, except that the Borrower shall have a claim against the Issuing
Bank, and the Issuing Bank shall be liable to the Borrower, to the extent of
any direct, but not consequential, damages suffered by the Borrower that the
Borrower proves were caused by (i) the Issuing Bank's willful misconduct or
gross negligence in determining whether documents presented under a Letter of
Credit comply with the terms of such Letter of Credit or (ii) the Issuing
Bank's willful failure to make lawful payment under a Letter of Credit after
the presentation to it of a draft and documents strictly complying with the
terms and conditions of such Letter of Credit. In furtherance and not in
limitation of the foregoing, the Issuing Bank may accept documents that appear
on their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.
(f) Upon the date of the issuance of a Letter of Credit, the
Issuing Bank shall be deemed to have sold to each other Bank and each other
Bank shall have been deemed to have purchased from the Issuing Bank a ratable
participation in the related Letter of Credit Liabilities and all related
Demand Loans equal to such Bank's Ratable Portion at such date and such sale
and purchase shall otherwise be in accordance with the terms of this Agreement.
The Issuing Bank shall promptly notify each such participant Bank by telex or
telecopy of each Letter of Credit issued or increased, the amount of such
Bank's participation in such Letter of Credit and each payment thereunder.
Upon the making of any payment under any Letter of Credit, each Bank (other
than the Issuing Bank) shall pay for the purchase of its participation therein
by immediate payment to the Issuing Bank of same day funds in the amount of its
participation in such payment.
Section 2.14. Borrowing Base.
(a) Determination of Borrowing Base. During the period from and
after the date hereof until October 31, 1996, unless redetermined pursuant to
Section 2.14(a)(ii) or adjusted pursuant to Section 5.01(i), the amount of the
Borrowing Base shall be $62,500,000. The Borrowing Base shall be redetermined
from time to time by the Agent with the concurrence of the Majority Banks in
accordance with this Section 2.14. Upon any redetermination of the Borrowing
Base, such redetermination shall remain in effect until the next successive
Redetermination Date. "Redetermination Date" shall mean the date that the
redetermined Borrowing Base becomes effective subject to the notice
requirements specified in Section 2.14(a)(i) both for scheduled
redeterminations and unscheduled redeterminations. So long as any of the
Commitments are in effect or any Obligations are outstanding hereunder, this
facility shall be governed by the then effective Borrowing Base.
(i) Upon receipt of the reports required by Section
5.01(h) and such other reports, data and supplemental information as
may from time to time be reasonably requested by the Agent (the
"Engineering Reports"), the Agent will redetermine the Borrowing Base.
Such
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redetermination will be in accordance with the Agent's normal and
customary procedures for evaluating oil and gas reserves and other
related assets as such exist at that particular time. The Agent may
make adjustments to the rates, volumes and prices and other
assumptions set forth therein in accordance with its normal and
customary procedures for evaluating oil and gas reserves and other
related assets as such exist at that particular time. The Agent shall
propose to the Banks a new Borrowing Base within 30 days following
receipt by the Agent and the Banks of the Engineering Reports in a
timely and complete manner. After having received notice of such
proposal by the Agent, the Majority Banks shall have 15 days to agree
or disagree with such proposal. If at the end of the 15 days, the
Majority Banks have not communicated their disapproval such silence
shall be deemed to be an approval and the Agent's proposal shall be
the new Borrowing Base. If however, the Majority Banks notify Agent
within 15 days of their disapproval, the Majority Banks shall, within
a reasonable period of time, agree on a new Borrowing Base. The Agent
shall promptly notify the Borrower and Banks in writing of the new
Borrowing Base by delivering to the Borrower and the Banks written
notice thereof in the form of Exhibit K hereto. Any redetermination
of the Borrowing Base shall not be in effect until written notice is
received by the Borrower.
(ii) So long as any of the Commitments are in effect and
until payments in full of all Obligations hereunder, on or around the
last Business Day of each April and October, commencing October 31,
1996 (each being a "Scheduled Redetermination Date"), the Banks shall
redetermine the amount of the Borrowing Base in accordance with
Section 2.14(a)(i). In addition, the Majority Banks may initiate one
unscheduled redetermination of the Borrowing Base between consecutive
Scheduled Redetermination Dates by specifying in writing to the
Borrower the date on which the Borrower is to furnish the Engineering
Reports in accordance with Section 5.01(h) and the date on which such
redetermination is to occur. The Borrower may also request one
unscheduled redetermination between consecutive Scheduled
Redetermination Dates by providing a written request to the Agent
together with new Engineering Reports.
(iii) The Borrower may include additional Oil and Gas
Properties of the Borrower acquired from time to time as Collateral
for the Obligations, which may then be included in the calculation of
the Borrowing Base by Borrower (A) giving written notice to the Agent
of such Properties to be included, (B) subjecting such Properties to
an Acceptable Security Interest (pursuant to security instruments
satisfactory to the Agent), (C) including such Properties in a Reserve
Report prepared by a Petroleum Engineer and submitted to Agent
together with the certificate required under Section 5.01(h)(iii) and
(D) delivering to the Agent title opinions addressed to the Agent for
the benefit of the Banks covering all of such Properties and other
legal opinions in form, scope and substance acceptable to the Agent
opining favorably as to, among such other matters as may be required
by the Agent, (1) the Borrower's ownership of such Properties, (2) the
existence of an Acceptable Security Interest on such Properties, and
(3) matters of the type covered by the opinion attached hereto as
Exhibit K ("Title Opinions") and the opinion attached hereto as
Exhibit E.
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(b) Borrowing Base Deficiency. If, following the determination of
a new Borrowing Base in accordance with Section 2.14(a), there exists a
Borrowing Base Deficiency, the Borrower shall, within 90 days of the first date
on which such Borrowing Base Deficiency existed:
(i) make, in addition to any regularly scheduled
principal payments, mandatory prepayments of principal on the Notes in
an aggregate principal amount that equals or exceeds the amount of
such Borrowing Base Deficiency, together with accrued interest on each
such prepayment to the date of prepayment; and/or
(ii) include as additional Collateral for the Obligations,
Additional Properties of the Borrower complying with all the
requirements of Section 2.14(a)(iii), satisfactory to the Agent and
the Majority Banks, having a loan value (determined by the Agent and
the Majority Banks in their sole discretion in accordance with Section
2.14(a)(i) above) in an amount such that the sum of such loan value
amount plus the aggregate principal amounts of prepayments made
pursuant to Section 2.14(b)(i) in respect of such Borrowing Base
Deficiency equals or exceeds the amount of such Borrowing Base
Deficiency.
ARTICLE III
CONDITIONS
Section 3.01. Condition Precedent to Initial Credit. The
obligation of the Issuing Bank to issue the initial Letter of Credit and of
each Bank to make the initial Advance is subject to the condition precedent
that the Agent shall have received on or before the day of the initial Letter
of Credit or the initial Borrowing (whichever first occurs) the following, each
dated on or before such day, in form and substance satisfactory to the Agent
and (except for the Notes) in sufficient copies for each Bank:
(a) The Notes payable to the order of the respective Banks, duly
executed by the Borrower.
(b) Mortgages duly executed by the Borrower, together with
accompanying financing statements, each of which shall have been properly filed
and recorded in the appropriate offices to establish, which perfect a first and
prior Lien and security interest in favor of the Collateral Agent in each of
the Original Properties subject only to Permitted Exceptions and the liens and
security interests identified in Schedule VI hereto in favor of Bank One,
Texas, N.A. (the "Bank One Liens"), which Bank One Liens shall each be released
of record on or before the date referred to in the first sentence of, and as
contemplated by, Section 8.13; and "letters in lieu" addressed to each
purchaser of Hydrocarbons produced from the Original Properties instructing
such purchasers to make payment for such Hydrocarbons direct to Agent upon
receipt of written notice from Agent.
(c) A certificate of the Secretary or an Assistant Secretary of
the Borrower certifying (i) copies of the resolutions of the Board of Directors
of the Borrower approving this Agreement,
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the Notes, the Mortgages and the other Loan Documents to be executed by the
Borrower and of all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to this Agreement, the Notes and
the other Loan Documents to be executed by the Borrower; (ii) that attached
thereto are true and complete copies of the articles of incorporation and
by-laws of the Borrower as in effect on such date; and (iii) the names and true
signatures of the officers of the Borrower authorized to sign this Agreement,
the Notes and the other Loan Documents to be executed by the Borrower.
(d) Certificates from the appropriate state agencies with respect
to the existence, qualification and good standing of the Borrower.
(e) A certificate of insurance coverage of the Borrower evidencing
that the Borrower is carrying the insurance specified on Schedule II attached
hereto, naming the Agent, the Collateral Agent and each of the Banks as an
additional insured.
(f) One or more Phase I environmental surveys satisfactory to the
Agent and the Banks in their reasonable discretion, evidencing that the
Original Properties are not in violation of any Environmental Protection
Statute.
(g) Title Opinions of Gordon, Arata, McCollam & Duplantis, L.L.P.,
counsel to the Borrower, in form and content satisfactory to the Agent and the
Banks, covering each of the Original Properties evidencing that Borrower owns
good and indefeasible title in and to each of the Original Properties, that the
Mortgages and related financing statements covering such Properties have been
duly filed in all necessary offices in order to provide constructive notice to
third parties of the existence of such Mortgages and financing statements, and
that, upon the filing of duly executed and acknowledged releases of the Bank
One Liens, in the form attached to each opinion, the Mortgages and financing
statements shall constitute a first and prior Lien and security interest in and
to the Original Properties covered thereby.
(h) Each of the parties thereto shall have executed the
Subordinated Debt Documents.
(i) An opinion of Gordon, Arata, McCollam & Duplantis, L.L.P.,
counsel to the Borrower, substantially in the form of Exhibit E and as to such
other matters as the Agent may reasonably request.
(j) An opinion of Bracewell & Patterson, L.L.P., special counsel
to the Agent, substantially in the form of Exhibit F.
(k) Engineering Reports, including Reserve Reports prepared by a
Petroleum Engineer, satisfactory to the Banks covering all of the Original
Properties.
Section 3.2. Conditions Precedent to Each Advance. The obligation
of each Bank to make an Advance (including, without limitation, the initial
Advance) shall be subject to the further
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conditions precedent that on the date of such Advance (a) the following
statements shall be true (and each of the giving of the applicable Notice of
Borrowing regarding the Borrowing of which such Advance is a part and the
acceptance by the Borrower of the proceeds of such Advance shall constitute a
representation and warranty by the Borrower that on the date of such Advance
such statements are true):
(i) the representations and warranties contained in Section 4.01
and the representations and warranties contained in the
Mortgages are correct on and as of the date of such Advance,
before and after giving effect to such Advance and the
Borrowing of which such Advance is a part and to the
application of the proceeds therefrom, as though made on and
as of such date;
(ii) no event has occurred and is continuing, or would result from
such Advance or the Borrowing of which such Advance is a part
or from the application of the proceeds therefrom, which
constitutes, a Default or an Event of Default; and
(iii) following such Advance there shall not exist a Borrowing Base
Deficiency;
and (b) the Agent shall have received such other approvals, opinions or
documents as the Agent may reasonably request.
Section 3.03. Conditions Precedent to Each Letter of Credit. The
obligation of the Issuing Bank to issue each Letter of Credit shall be subject
to the further conditions precedent that on the date of such Letter of Credit
(a) the following statements shall be true (and each of the giving of the
applicable Notice of Letter of Credit and the acceptance by the Borrower of the
issuance of such Letter of Credit shall constitute a representation and
warranty by the Borrower that on the date of issuance of such Letter of Credit
such statements are true):
(i) the representations and warranties contained in Section 4.01
and the representations and warranties contained in the
Mortgages are correct on and as of the date of issuance of
such Letter of Credit, before and after giving effect to such
issuance, as though made on and as of such date;
(ii) no event has occurred and is continuing, or would result from
such Letter of Credit, which constitutes a Default or an Event
of Default; and
(iii) following the issuance of such Letter of Credit, there shall
not exist a Borrowing Base Deficiency;
and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) Existence, etc. The Borrower and each of its Subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the respective jurisdiction of its incorporation and each has all
requisite power and authority to own its Properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in every jurisdiction where the failure to maintain such
qualification could reasonably be expected to have a material adverse effect on
the Borrower's ability to perform its obligations under the Loan Documents or
to conduct its business.
(b) Power. The execution, delivery and performance by the
Borrower of each Loan Document and the consummation of the transactions
contemplated hereby (i) are within the Borrower's corporate powers, (ii) have
been duly authorized by all necessary corporate action, (iii) do not contravene
(A) the articles of incorporation or by-laws of the Borrower, (B) any
applicable rule, regulation, order, writ, injunction or decree, or (C) law or
any agreement binding on or affecting the Borrower, and (iv) will not result in
or require the creation or imposition of any Lien prohibited by this Agreement.
At the time of each Borrowing hereunder, such Borrowing and the use of the
proceeds of such Borrowing will be within the Borrower's corporate powers, will
have been duly authorized by all necessary corporate action, will not
contravene (i) the articles of incorporation or by-laws of the Borrower, (ii)
any applicable rule, regulation, order, writ, injunction or decree, or (iii)
law or any agreement binding on or affecting the Borrower and will not result
in or require the creation or imposition of any Lien prohibited by this
Agreement.
(c) Authorization and Approvals. No authorization, approval,
consent, license or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for the due execution,
delivery and performance by the Borrower of the Loan Documents, or for the
consummation of the transactions contemplated thereby, other than the approval
of the Louisiana State Mineral Board to the Mortgages covering Collateral
located on lands owned or under the jurisdiction of the State of Louisiana. At
the time of each Borrowing hereunder, no authorization, approval, consent,
license or other action by, and no notice to or filing with, any governmental
authority or regulatory body will be required for such Borrowing or the use of
the proceeds of such Borrowing. All authorizations, licenses, consents,
filings, approvals and certificates which are necessary (i) to enable the
Borrower and each Subsidiary of Borrower to carry on any material aspect of the
business in which it is engaged, the lack of which could reasonably be expected
to subject the Borrower or any Subsidiary of Borrower to any liability or
disability which is material to the business, financial condition, assets,
prospects or results of operations of the Borrower and its Subsidiaries, taken
as a whole, or (ii) to enable the Borrower to perform its obligations under the
Loan Documents have been obtained or made and are in full force and effect, and
there has been no material default by the Borrower under any of the terms
thereof applicable to it.
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(d) Enforceable Obligations. This Agreement, the Notes and the
Mortgages have been duly executed and delivered by the Borrower and constitute,
and each other Loan Document, when executed and delivered by the Borrower in
accordance with this Agreement, will constitute, the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally.
(e) Financial Statements.
(i) The Consolidated and consolidating balance sheets of
PSAL, each as at June 30, 1995, and the corresponding Consolidated and
consolidating statements of earnings, stockholders equity and
cashflows of PSAL for the eighteen month period of January 1, 1991 to
June 30, 1992 and each of the three fiscal years ending June 30, 1993,
1994 and 1995, copies of which have been delivered to each Bank listed
on the signature pages hereof, have been audited by KPMG Peat Marwick,
and present fairly the financial position of PSAL as at such date and
the combined results of the operations and cashflows of PSAL and its
Subsidiaries for each of such periods and fiscal years. The
Consolidated balance sheet of the Borrower and the consolidating
balance sheet of PetUSA, each as at June 30, 1995, and the
corresponding Consolidated and consolidating statements of earnings,
stockholders' equity and cash flows of each of the Borrower and PetUSA
for each of the three fiscal years ending June 30, 1993, 1994 and
1995, copies of which have been delivered to each Bank listed on the
signature pages hereof, have been audited by KPMG Peat Marwick, and
present fairly the financial position of the Borrower and PetUSA as at
such date and the combined results of the operations and cash flows of
the Borrower and PetUSA and their respective Subsidiaries, for each of
the three fiscal years ending June 30, 1993, 1994 and 1995.
(ii) The Consolidated balance sheet of the Borrower, the
consolidating balance sheet of PetUSA, and the Consolidated and
consolidating balance sheets of PSAL, each as at December 31, 1995,
and the corresponding Consolidated and consolidating statements of
earnings, stockholders equity and cash flows of each of the Borrower,
PetUSA and PSAL, duly certified by a financial officer of each, copies
of which have been delivered to each Bank listed on the signature
pages hereof, fairly present, subject to year-end audit adjustments,
the financial condition of the Borrower, PetUSA and PSAL as at such
date and the combined results of the operations of and cash flows of
the Borrower, PetUSA and PSAL for the six (6) months ended on such
date.
(iii) Since June 30, 1995, there has been no material
adverse change in the business, financial condition, assets, prospects
or results of operations of the Borrower or any of its Subsidiaries.
(iv) Since the date of this Agreement (after giving effect
to the incurrence by the Borrower of all of the Advances as of such
date), there has been no material adverse change in (A) the business,
financial condition, assets, prospects or results of operations of the
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Borrower, or (B) the ability of the Borrower to perform its
obligations under the Loan Documents.
(f) Litigation. There are no actions, suits or proceedings
pending or, to the best knowledge of the Borrower, threatened against or
affecting the Borrower, any of its Subsidiaries or any of its or their
respective rights or Properties before any court or by or before any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which could reasonably be expected to have a material
adverse effect on the business, financial condition, assets or results of
operations or prospects of the Borrower or to impair materially the Borrower's
ability to perform its obligations under the Loan Documents or which in any
manner draws into question the validity of any Loan Document. Neither the
Borrower nor, to the best knowledge of the Borrower, any of its Subsidiaries is
in default in any material respect with respect to any applicable order, writ,
injunction or decree of any court, governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which default could
reasonably be expected to have a material adverse effect on the business,
financial condition, assets, results of operations or prospects of the Borrower
or to impair materially the Borrower's ability to perform its obligations under
the Loan Documents or which in any manner draws into question the validity of
any Loan Document.
(g) ERISA Compliance. No Termination Event has occurred or is
reasonably expected to occur with respect to any Plan, except where the
Borrower and its Subsidiaries could not reasonably be expected to have or incur
any fine, penalty or other liability (including, without limitation, liability
to the PBGC, in excess of $1,000,000 in the aggregate). No employee of the
Borrower or any Subsidiary is covered by any Multiemployer Plan or Multiple
Employer Plan. Neither the Borrower nor any ERISA Affiliate has received any
notification that any Plan is in reorganization or has been terminated, within
the meaning of Title IV of ERISA, and the Borrower is not aware of any reason
to expect that any Plan is to be in reorganization or to be terminated within
the meaning of Title IV of ERISA, except where the Borrower and its
Subsidiaries could not reasonably be expected to have or incur any fine,
penalty or other liability (including, without limitation, liability to the
PBGC, in excess of $1,000,000 in the aggregate).
(h) Tax Returns Filed. The Borrower and its Subsidiaries have
filed all United States Federal, state and local income tax returns and all
other material domestic tax returns which are required to be filed by them and
have paid, or provided for the payment before the same became delinquent of,
all taxes due pursuant to such returns or pursuant to any assessment received
by the Borrower or any Subsidiary, other than those taxes contested in good
faith by appropriate proceedings, except where the failure to file such tax
returns or to pay such taxes could not reasonably be expected to have a
material adverse effect on the Borrower's business, financial condition,
assets, prospects or results of operations. The charges, accruals and reserves
on the books of the Borrower and its Subsidiaries in respect of taxes are, in
the opinion of the Borrower, adequate. The Borrower and its Subsidiaries have
set up such reserves as are required by GAAP for the payment of additional
taxes.
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(i) Investment Company Act. The Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(j) Public Utility Holding Company Act. The Borrower is not a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", or a "public utility", as such terms are used in the Public Utility
Holding Company Act of 1935, as amended, any rule or regulation promulgated
thereunder or any order or interpretation of the Securities and Exchange
Commission or its staff issued pursuant thereto.
(k) Regulation U. Neither the Borrower nor any Subsidiary is
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U) or margin stock
(within the meaning of Regulation G). Following the application of the
proceeds of each Advance, not more than 25% of the value of the assets of the
Borrower will consist of assets which are margin stock (within the meaning of
Regulation U) or margin stock (within the meaning of Regulation G) and not more
than 25% of the value of the assets of the Borrower and its Subsidiaries will
consist of assets which are margin stock (within the meaning of Regulation U)
or margin stock (within the meaning of Regulation G). No proceeds of any
Advance have been or will be used in any manner that is not permitted by
Section 5.02(q).
(l) Other Defaults. Neither the Borrower nor any Subsidiary of
Borrower is in default under or with respect to, nor has any event or
circumstance occurred which, but for the passage of time or the giving of
notice or both, would constitute a default under or with respect to, any
contract, agreement, lease or other instrument to which the Borrower or such
Subsidiary is a party and which could reasonably be expected to cause a
material adverse effect on the business, financial condition, assets, results
of operations or reasonably foreseeable prospects of the Borrower, and no
Default or Event of Default exists.
(m) Environmental Matters. The Borrower and each of the
Subsidiaries have been and are in compliance in all respects with all
applicable Environmental Protection Statutes, except to the extent that failure
to comply with such Environmental Protection Statutes could not reasonably be
expected to have a material adverse effect on the business, financial
condition, assets, results of operations or reasonably foreseeable prospects of
the Borrower. There is (1) no presently outstanding allegation by government
officials or other third parties that the Borrower or any of the Subsidiaries
or any of their respective Properties is now or at any time prior to the date
hereof was in violation of any applicable Environmental Protection Statute, (2)
no administrative or judicial proceeding presently pending against the Borrower
or any of the Subsidiaries or against any of their respective Properties
pursuant to such Environmental Protection Statute, and (3) no claim presently
outstanding against the Borrower or any of the Subsidiaries or against any of
their respective Properties, businesses or operations which was asserted
pursuant to any applicable Environmental Protection Statute that, in the case
of all matters described in clauses (1), (2) or (3) above in the aggregate
could reasonably be expected to have a material adverse effect on the
Borrower's business,
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financial condition, assets, reasonably foreseeable prospects or results of
operations. There are no facts or conditions or circumstances known to the
Borrower that the Borrower reasonably believes could form the basis for any
action, lawsuit, claim or proceeding (regulatory or otherwise) involving the
Borrower or any of the Subsidiaries or their respective past or present
Properties, businesses or operations relating to the Environment or
environmental matters, including without limitation any action, lawsuit, claim
or proceeding arising from past or present practices or operations asserted
under any Environmental Protection Statute, that in the aggregate could
reasonably be expected to have a material adverse effect on the Borrower's
business, financial condition, assets, prospects or results of operations.
(n) Title. Other than Permitted Exceptions, the Borrower and its
Subsidiaries have good and indefeasible title to their respective properties
and to all properties reflected by the balance sheet referred to in Section
4.01(e)(i) as being owned by the Borrower or its Subsidiaries. There exists an
Acceptable Security Interest in all of the Oil and Gas Properties set forth in
the most current Reserve Report. After giving full effect to all Permitted
Exceptions, the Borrower owns the net interests in production attributable to
the lands and leases reflected in the most recently delivered Reserve Report
and the ownership of such Properties shall not in any material respect obligate
the Borrower to bear the costs and expenses relating to the maintenance,
development and operations of such Property in an amount in excess of the
working interest of each Property set forth in the most recently delivered
Reserve Report. All information contained in the most recently delivered
Reserve Report is true and correct in all material respects as of the date
thereof. All material leases and agreements necessary for the conduct of the
business of the Borrower and its Subsidiaries are valid and subsisting and are
in full force and effect.
(o) Restrictions. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any other restriction which
could reasonably be expected to materially impair the operation of their
respective businesses.
(p) Accuracy of Statements. No statement, information, exhibit,
representation, warranty or report contained in any Loan Document or furnished
to the Agent or any Bank in connection with or pursuant to any Loan Document or
the preparation or negotiation of any Loan Document contains any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statements contained therein not misleading when taken as a whole.
There is no fact which the Borrower has not disclosed to the Agent and the
Banks in writing and of which any of its officers or directors are aware which
could reasonably be expected to have a material adverse effect on the Borrower
or any of its Subsidiaries.
(q) Governmental Requirements. Neither the Borrower nor any
Subsidiary of the Borrower (i) is in violation of any Governmental Requirement
or (ii) has failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of their
respective properties or the conduct of their respective businesses, except
such violations and failures which could not reasonably be expected to have in
the aggregate (in the event that such violation or failure were asserted by any
Person through appropriate action) a material adverse effect on the
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business, financial condition, assets, reasonably foreseeable prospects or
results of operations of the Borrower.
(r) Operations. The Borrower and its Subsidiaries are in
possession of, and operating in compliance in all material respects with, all
franchises, grants, authorizations, approvals, leases, licenses, permits,
easements, rights- of-way, consents, certificates and orders required to own,
lease, operate or use its respective Properties and to operate its business as
now conducted and proposed to be conducted.
(s) Fiscal Periods. The fiscal year of each of the Borrower,
PetUSA and PSAL is the twelve month period ending on June 30 of each year, and
the fiscal quarters of each of the Borrower, PetUSA and PSAL are each of the
three month periods ending on September 30, December 31, March 31 and June 30
of each year.
(t) Subsidiaries and Partnerships. Except as set forth on
Schedule III, the Borrower has no Subsidiaries and has no interest in any
partnerships.
(u) Location of Business and Offices. The Borrower's principle
place of business and chief executive offices are located at the address set
forth in Section 8.02. The principle place of business and chief executive
office of each Subsidiary of Borrower is located at the addresses stated on
Schedule 8.02.
(v) Insurance. Schedule II attached hereto contains an accurate
and complete description of all material policies of fire, liability, workmens'
compensation and other forms of insurance owned or held by the Borrower and
each of its Subsidiaries. All such policies are in full force and effect, all
premiums with respect thereto have been paid, and no notice of cancellation or
termination has been received with respect to any such policies. Such policies
are sufficient for compliance with all requirements of law and of all
agreements to which the Borrower or any of its Subsidiaries is a party; are
valid, outstanding and enforceable policies; provide adequate insurance
coverage in at least such amounts and against at least such risks (but
including in any event public liability) as are usually insured against in the
same general area by companies engaged in the same or similar business for the
assets and operations of the Borrower and each of its Subsidiaries; will remain
in force and effect through the respect dates set forth in Schedule II without
the payment of additional premiums; and will not in any way be effected by or
terminate or lapse by reason of, the transactions contemplated by this
Agreement. Schedule II identifies all material risks, if any, which the
Borrower and its Subsidiaries and their respective Board of Directors or
officers have designated as being self- insured. Neither the Borrower nor any
of its Subsidiaries has been refused any insurance with respect to its assets
or operations, nor has its coverage been limited below usual and customary
policy limits, by an insurance carrier to which has applied for any insurance
or with which it has carried insurance during the last three years.
(w) Hedging Agreements. As of the date hereof, Schedule IV sets
forth, and as of the effective date of the most recent report pursuant to
Section 5.01(e)(vii), each such report sets forth,
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a true and complete list of all Hedging Agreements (including commodity price
swap agreements, forward agreements or contracts of sale which provide for
prepayment for deferred shipment or delivery of oil, gas or other commodities)
of the Borrower and each of its Subsidiaries, the material terms thereof
(including the type, term, effective date, termination date and notional
amounts or volumes), the net mark to market value thereof, all credit support
agreements relating thereto (including any margin required or supplies), and
the counterparty to each such agreement.
(x) Gas Imbalances. As of the date hereof, except as set forth on
Schedule V, and as of the "as of" date of each Reserve Report delivered
hereunder, except as set forth in the certificate delivered with such Reserve
Report pursuant to Section 5.01(i)(iii), on a net basis there are no gas
imbalances, take or pay or other prepayments with respect to the Collateral
which would require the Borrower to deliver Hydrocarbons produced from the
Collateral at some future time without then or thereafter receiving full
payment therefor.
(y) Parent Liabilities. The Borrower has not guaranteed, nor is
subject to liability for, any obligation of PetUSA or PSAL. The Borrower and
PetUSA file consolidated U.S. tax returns.
ARTICLE V
COVENANTS OF THE BORROWER
Section 5.01. Affirmative Covenants. So long as any amount payable
by the Borrower hereunder or under any Note shall remain unpaid or any Bank
shall have any obligation to lend hereunder, and until all of the Commitments
and all of the Letters of Credit are terminated, the Borrower will, unless the
Majority Banks shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders; provided, however, that this Section 5.01(a)
shall not prevent the Borrower or any of its Subsidiaries from, in good faith
and with reasonable diligence, contesting the validity or application of any
such laws or regulations by appropriate proceedings, if appropriate reserves
(to the extent required by GAAP) in conformity with GAAP have been provided.
(b) Preservation of Existence, Etc. Preserve and maintain, and
cause each of its Subsidiaries to preserve and maintain, its existence, rights,
franchises and privileges in the jurisdiction of its formation, and qualify and
remain qualified, and cause each of its Subsidiaries to qualify and remain
qualified to do business in each jurisdiction in which qualification is
required under applicable law in view of its business and operations or the
ownership of its Properties, except where failure to maintain such rights,
franchises, privileges and qualifications could not reasonably be expected to
have a material adverse effect on the business, financial condition, assets,
reasonably foreseeable prospects or results of operations of the Borrower.
(c) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, (i) insurance with insurance companies or
associations with a Best Rating of no less than the Best
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<PAGE> 47
Rating as of the date of this Agreement of the respective carriers set forth on
Schedule II, in such amounts and covering such risks as are usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which the Borrower or such Subsidiary operates, but in no
event in amounts, or with coverages, less than those set forth on Schedule II
hereto, in each case naming the Agent, Collateral Agent and each of the Banks
as an Additional Insured, and (ii) such other insurance as may be required by
the Mortgages. Within fifteen (15) days prior to the scheduled date of
expiration of each policy of insurance, the Borrower shall furnish, or cause to
be furnished to the Agent and the Banks a certificate of insurance coverage
from the insurer in form and substance satisfactory to the Agent and, if
requested, will furnish the Agent and the Banks copies of the applicable
policies.
(d) Payment of Taxes, Etc. Pay and discharge and cause each
Subsidiary to pay and discharge, before the same shall become delinquent, (i)
all taxes, assessments and charges and like levies imposed upon it or upon its
income, profits or Property, prior to the date on which penalties attach
thereto, and (ii) all lawful claims that, if unpaid, might by law become a Lien
upon its Property, except where failure to pay such taxes, assessments,
charges, levies and claims could not reasonably be expected to have a material
adverse effect on the business, financial condition, assets, reasonably
foreseeable prospects or results of operations of the Borrower; provided,
however, that neither the Borrower nor any Subsidiary shall be required by this
Section 5.01(d) to pay and discharge any such tax, assessment, charge, levy, or
claim which is being contested in good faith and by appropriate proceedings and
with respect to which reserves in conformity with U.S. GAAP have been provided.
(e) Reporting Requirements. Furnish to each Bank:
(i) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year
of the Borrower and PetUSA, respectively, the Consolidated balance
sheet of the Borrower, the consolidating balance sheet of PetUSA as at
the end of such quarter and the corresponding Consolidated and
consolidating statements of earnings, stockholders' capital and cash
flows of each of the Borrower and PetUSA for the period commencing at
the end of the previous fiscal year and ending with the end of such
quarter, setting forth, in comparative form, the corresponding figures
for the corresponding period of the preceding fiscal year, all in
reasonable detail and duly certified by a financial officer of the
Borrower and PetUSA, respectively, as having been prepared in
accordance with GAAP subject, however, to year-end audit adjustments,
together with a certificate of a financial officer of the Borrower
showing in detail (1) the calculation of the financial covenant set
forth in Section 5.02(a) for the two quarter period ending at the end
of each such quarter and the calculation of the financial covenant set
forth in Section 5.02(b) for each such quarter and (2) the amount of
any payments made on the Subordinated Debt during such quarter, the
Consolidated Net Income of the Borrower for such quarter, the
calculation of the Available Cash Ratio under Section 5.02(m) for such
quarter, and the date of repayment, if any, during such quarter, of
the CD Deposits.
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<PAGE> 48
(ii) as soon as available and in any event not later than
90 days after the end of each fiscal year of each of the Borrower and
PetUSA, respectively (and in the event of a change in the fiscal year
of either the Borrower or PetUSA no more than 15 months following the
end of their respective preceding fiscal years), copies of the
Consolidated balance sheet of the Borrower and the consolidating
balance sheet of PetUSA as at the end of such fiscal year and related
statements of earnings, stockholders' capital and cash flows of each
of the Borrower and PetUSA for such fiscal year, all certified by KPMG
Peat Marwick or other independent certified public accountants of
recognized national standing, together with a certificate of a
financial officer of the Borrower showing in detail (1) the
calculation of the financial covenants set forth in Section 5.02(a)
for the two quarter period ending at the end of such year and the
calculation of the financial covenant set forth in Section 5.02(b) for
the last fiscal quarter of such year and (2) the amount of any
payments made on the Subordinated Debt during the last fiscal quarter
of such year, the Consolidated Net Income of the Borrower for such
quarter, the calculation of the Available Cash Ratio under Section
5.02(m) for such quarter, and the date of repayment, if any, during
such quarter, of the CD Deposits.
(iii) promptly after the sending or filing thereof, copies
of all reports which the Borrower, PSAL and PetUSA sends to any of its
stockholders generally, and copies of all reports and registration
statements which PSAL, PetUSA or the Borrower or any of their
respective Subsidiaries files with the Securities and Exchange
Commission, or any Governmental Authority succeeding to the functions
of said Commission, or with any national securities exchange;
(iv) as soon as possible, and in any event within five
Business Days after an officer of the Borrower has obtained knowledge
of the existence of any Default or Event of Default, written notice
thereof setting forth details of such Default or Event of Default and
the actions which the Borrower has taken and proposes to take with
respect thereto;
(v) as soon as possible and in any event within 30 days
after any officer of the Borrower knows or has reason to know that any
Termination Event with respect to any Plan has occurred, a statement
of a financial officer of the Borrower describing such Termination
Event and the action, if any, which the Borrower or its ERISA
Affiliate (as applicable) proposes to take with respect thereto,
unless the aggregate liability (including, without limitation,
liability to the PBGC) of the Borrower and its Subsidiaries pertaining
to all such Plans and Termination Events could not reasonably be
expected to exceed $1,000,000;
(vi) promptly upon the receipt thereof by the Borrower or
any Subsidiary of the Borrower, a copy of any form of notice,
complaint, request for information under CERCLA or corresponding state
law, summons or citation received from the EPA, or any other domestic
or foreign governmental agency or instrumentality, federal, state or
local, in any way concerning any action or omission on the part of the
Borrower or any of its present or former Subsidiaries in connection
with Hazardous Materials or the Environment if the
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<PAGE> 49
amount involved could reasonably be expected to result in a liability
of the Borrower or any Subsidiary in excess of $500,000 in the
aggregate, or concerning the filing of a Lien upon, against or in
connection with the Borrower, its present or former Subsidiaries, or
any of their leased or owned Property, wherever located;
(vii) as soon as available and in any event within thirty
(30) days after each calendar month, a report, in form and substance
satisfactory to the Agent, setting forth as of the last Business Day
of each calendar month, a true and complete list of all Hedging
Agreements (including commodity price swap agreements, forward
agreements or contracts of sale which provide for prepayment for
deferred shipment or delivery of oil, gas or other commodities) of the
Borrower and each of its Subsidiaries, the material terms thereof
(including the type, term, effective date, termination date and
notional amounts or volumes), the net mark to market value therefore,
any new credit support agreements relating thereto not listed on
Schedule IV, any margin required or supplied under any credit support
document, and the counterparty to each such agreement;
(viii) promptly upon the determination or proposal by the
Borrower to make any Distribution, a calculation of the Available Cash
Flow (after giving effect to such Distribution), and setting forth in
reasonable detail the various components necessary to make such
calculation; and
(ix) such other information respecting the condition or
operations, financial or otherwise, of the Borrower or any of the
Subsidiaries as any Bank through the Agent may from time to time
reasonably request.
(f) Acceptable Security Interest. Cause an Acceptable Security
Interest to exist at all times in all Properties covered by the Reserve
Reports.
(g) Maintenance of Properties. The Borrower will, and will cause
each of its Subsidiaries to, at its own expense, do or cause to be done all
things reasonably necessary to preserve and keep in good repair, working order
and efficiency all of the Collateral including, without limitation, all
equipment, machinery and facilities constituting Collateral, and from time to
time will make all the reasonably necessary repairs, renewals and replacements
so that at all times the state and condition of the Collateral will be fully
preserved and maintained, except to the extent a portion of the Collateral is
no longer capable of producing Hydrocarbons in economically reasonable amounts.
The Borrower will and will cause each of its Subsidiaries to promptly: (a) pay
and discharge, or make reasonable and customary efforts to cause to be paid and
discharged, all royalties, expenses and indebtedness accruing under the leases
or other agreements affecting or pertaining to the Collateral, (b) perform or
make reasonable and customary efforts to cause to be performed, in accordance
with industry standards, the obligations required by each and all of the
assignments, deeds, leases, sub-leases, contracts and agreements affecting its
interest in the Collateral, (c) will and will cause each of its Subsidiaries to
do all other things necessary to keep unimpaired, except for Permitted
Exceptions, its rights with respect thereto and prevent any forfeiture thereof
or a default
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<PAGE> 50
thereunder, except to the extent a portion of the Collateral is no longer
capable of producing Hydrocarbons in economically reasonable amounts. The
Borrower will and will cause each of its Subsidiaries to operate the Collateral
or cause or make reasonable and customary efforts to cause the Collateral to be
operated in a careful and efficient manner in accordance with the practices of
the industry and in compliance in all material respects with all applicable
contracts and agreements and in compliance in all material respects with all
Governmental Requirements.
(h) Engineering Reports. Deliver to the Agent and the Banks the
following:
(i) A Reserve Report not less than 45 days prior to each
Scheduled Redetermination Date, commencing with the Scheduled
Redetermination Date to occur on October 31, 1996. The Annual Reserve
Report of each year shall be prepared by a Petroleum Engineer and the
Semi-Annual Reserve Report of each year shall be prepared by or under
the supervision of the chief engineer of the Borrower who shall
certify such Reserve Report to be true and accurate and to have been
prepared in accordance with the procedures used in the immediately
preceding Annual Reserve Report.
(ii) For any unscheduled redetermination requested by the
Borrower (1) pursuant to Section 2.14(a)(ii) or (2) pursuant to
Section 2.14(b)(ii) in conjunction with the addition of Additional
Properties to the Collateral following a Borrowing Base Deficiency,
the Borrower shall provide a Reserve Report, at its sole cost and
expense, prepared by a Petroleum Engineer (in the event of a
redetermination pursuant to clause (1) or (2) above) or under the
supervision of the chief engineer of the Borrower who shall certify
such Reserve Report to be true and accurate and to have been prepared
in accordance with the procedures used in the immediately preceding
Annual Reserve Report (in the event of a redetermination under clause
(1) above which does not include Additional Properties) with an "as
of" date no more than 45 days prior to the date the request for a
redetermination of the Borrowing Base is made by the Borrower. For
any unscheduled redetermination requested by the Banks pursuant to
Section 2.14(a)(ii), the Borrower shall provide a Reserve Report, at
its sole cost and expense, prepared by a Petroleum Engineer or under
the supervision of the chief engineer of the Borrower who shall
certify such Reserve Report to be true and accurate and to have been
prepared in accordance with the procedures used in the immediately
preceding Annual Reserve Report, with an "as of" date as required by
the Majority Banks as soon as possible, but in any event no later than
45 days following the receipt of the request by the Agent.
(iii) With the delivery of each Reserve Report, the
Borrower shall provide to the Agent and the Banks, a certificate from
the President or a Vice President of the Borrower, certifying that, to
the best of his or her knowledge and in all material respects: (a) the
information contained in the Reserve Report and any other information
delivered in connection therewith is true and correct; (b) except for
Permitted Exceptions, the Borrower owns good and indefeasible title to
its Oil and Gas Properties evaluated in such Reserve Report and such
Properties are free of all Liens except for Permitted Exceptions; (c)
except
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<PAGE> 51
as set forth on an exhibit to the certificate, on a net basis there
are no gas imbalances, take or pay or other prepayments with respect
to its Oil and Gas Properties evaluated in such Reserve Report which
would require the Borrower to delivery Hydrocarbons produced from such
Oil and Gas Properties at some future time without then or thereafter
receiving full payment therefor; (d) none of its Oil and Gas
Properties have been sold since the date of the last Borrowing Base
determination except as set forth on an exhibit to the certificate,
which certificate shall list all of its Oil and Gas Properties sold
and in such detail as reasonably required by the Majority Banks; (e)
attached to the certificate is a list of its Oil and Gas Properties
added to and deleted from the immediately prior Reserve Report and a
list of all Persons disbursing proceeds to the Borrower from its Oil
and Gas Properties; (f) except as set forth on a schedule attached to
the certificate, all of the Oil and Gas Properties evaluated by such
Reserve Report are subject to Acceptable Security Instruments; (g) any
change in working interest or net revenue interest in its Oil and Gas
Properties occurring and the reason for such change; and (h) with
regard to any Semi-Annual Reserve Report, any other material
differences contained in such Reserve Report from the immediately
preceding Annual Reserve Report.
(iv) As soon as available and in any event within 60 days
after the end of each fiscal quarter, production reports and general
and administrative cost summaries for its Oil and Gas Properties,
which reports shall include quantities or volume of production,
revenue, realized product prices, operating expenses, taxes, capital
expenditures and lease operating costs which have accrued to the
Borrower's accounts in such period, and such other information with
respect thereto as the Agent or any Bank may reasonably require.
(i) Title Information. On or before the delivery to the Agent and
the Banks of each Reserve Report required by Section 5.01(h), the Borrower will
deliver Title Opinions in form and substance reasonably satisfactory to the
Agent covering the Oil and Gas Properties evaluated by such Reserve Report that
were not included in the immediately preceding Reserve Report, so that the
Agent shall have received together with Title Opinions previously delivered to
the Agent, satisfactory Title Opinions on at least 100% of the value of the Oil
and Gas Properties evaluated by such Reserve Report and included in the
Borrowing Base. The Borrower shall cure any title defects or exceptions which
are not Permitted Exceptions raised by the Title Opinions within 60 days after
a request by the Agent or the Banks to cure such defects or exceptions. If the
Borrower is unable to cure any title defect requested by the Agent or the Banks
to be cured within the 60 day period, such default shall not be a Default or an
Event of Default, but instead the Agent and the Banks shall have the right to
exercise the following remedy in their sole discretion from time to time, and
any failure to so exercise this remedy at any time shall not be a waiver as to
future exercise of the remedy by the Agent or the Banks. To the extent that
the Agent or the Banks are not satisfied with title to any Collateral after the
time period in this section has elapsed, such unacceptable Collateral shall not
count towards the Borrowing Base, and the Agent may send a notice to the
Borrower and the Banks that the then outstanding Borrowing Base shall be
reduced by an amount as determined by all of the Agent and Majority Banks in
accordance with Section 2.14(a)(i) sufficient to cause the Borrower to be in
compliance with the requirement to provide acceptable title information on 100%
of the value
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<PAGE> 52
of the Oil and Gas Properties included in the Borrowing Base. This new
Borrowing Base shall become effective immediately after receipt of such notice.
(j) Additional Collateral.
(i) Should any Properties be made subject to a Reserve
Report, the Borrower will grant to the Collateral Agent, as security
for the Obligations, an Acceptable Security Interest (subject only to
Permitted Exceptions) on the Borrower's interest in such Properties
not already subject to the Lien of the Mortgages, which Lien will be
created and perfected by and in accordance with the provisions of
deeds of trust, security agreements and financing statements, or other
Loan Documents, all in form and substance satisfactory to the Agent in
its sole discretion and in sufficient executed (and acknowledged where
necessary or appropriate) counterparts for recording purposes.
(ii) Concurrently with the granting of the Lien or other
action referred to in this subsection (j), the Borrower will provide
to the Agent Title Opinions in form and substance satisfactory to the
Agent in its sole discretion with respect to the Borrower's interests
in such Properties.
(iii) Also, promptly after the filing of any new Mortgage
in any state, upon the reasonable request of the Agent, the Borrower
will provide to the Agent Title Opinions in accordance with Section
2.14(a)(iii).
Section 5.02. Negative Covenants. So long as any amount payable by
the Borrower hereunder or under any Note shall remain unpaid or any Bank shall
have any obligation to lend hereunder, and until all of the Commitments and all
of the Letters of Credit are terminated, the Borrower will not, without the
written consent of the Majority Banks:
(a) Senior Debt to EBITDA Ratio. For each period of two
consecutive fiscal quarters of the Borrower, permit the ratio of (i)
Consolidated Indebtedness as of the end of such period (but excluding any
amounts identified under clause (e) of the definition of "Indebtedness") to
(ii) two (2) times EBITDA for such period to be greater than 2.75 to 1.00;
(b) Ratio of EBIT to Interest Expense. Permit, for any fiscal
quarter of the Borrower, the ratio of EBIT for such period to Consolidated
Interest Expense for such period to be less than the amount set forth in the
following table for such period:
<TABLE>
<CAPTION>
Minimum Ratio of
Quarter Period Ending EBIT to Interest Expense
------- ------ ------ ---- -- -------- -------
<S> <C>
September 30, 1996 2.5:1.0
December 31, 1996 2.5:1.0
Each fiscal quarter thereafter 3.0:1.0
</TABLE>
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<PAGE> 53
(c) Liens. Other than Permitted Exceptions, create, assume,
incur or suffer to exist or permit any Subsidiary to create, assume, incur or
suffer to exist, any Lien on or in respect of any Property of the Borrower or
any Subsidiary whether now owned or hereafter acquired, or assign or otherwise
convey any right to receive income.
(d) Indebtedness. Create, incur, assume, guarantee, otherwise
become liable for or suffer to exist, or permit any Subsidiary to create,
incur, assume, guarantee, otherwise become liable for or suffer to exist, any
Indebtedness other than (i) Indebtedness under this Agreement, (ii) the
Subordinated Debt, and (iii) Indebtedness of the Borrower existing on the date
hereof not exceeding $325,000 in the aggregate under the Lease Agreement
numbered 7142413, the Lease Agreement numbered 7172711 and the Lease Agreement
numbered 7182793, each between Finova Capital Corp. and the Borrower
(collectively, the "Finova Leases").
(e) Mergers, Etc. Merge or consolidate with or into any Person,
or permit any Subsidiary to merge or consolidate with or into any Person, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions), or permit any Subsidiary to convey, transfer,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions), all or substantially all of its assets (whether now owned or
hereafter acquired).
(f) Restrictions on Dividends, Intercompany Loans, or Investments.
Create or otherwise cause or permit to exist or become effective, or permit any
Subsidiary of the Borrower to create or otherwise cause or permit to exist or
become effective, any consensual encumbrance or restriction (other than the
Loan Documents) on the ability of any Subsidiary of the Borrower to (i) pay
dividends or make any other distributions to, or pay any Indebtedness owed to,
the Borrower, or (ii) make any loans or advances to or investments in the
Borrower.
(g) Letters of Credit. Incur, or permit any Subsidiary to incur,
any liability in connection with any letter of credit, other than Letters of
Credit.
(h) Multiemployer Plans or Multiple Employer Plans. Create or
otherwise cause or permit to exist or become effective, or permit any
Subsidiary to create or otherwise cause or permit to exist or become effective,
any Multiemployer Plan or Multiple Employer Plan to which the Borrower or any
Subsidiary makes or accrues an obligation to make any contribution.
(i) Compliance with ERISA. (i) Terminate, or permit any ERISA
Affiliate to terminate any Plan so as to result in any liability of the
Borrower or any Subsidiary to the PBGC in excess of $1,000,000, or (ii) permit
to exist any occurrence of a Termination Event with respect to any Plan for
which there is an Insufficiency in excess of $1,000,000.
(j) ERISA Liabilities. Create or suffer to exist, or permit any
ERISA Affiliate to create or suffer to exist, any ERISA Liabilities if
immediately after giving effect to such ERISA Liabilities, the aggregate amount
of ERISA Liabilities of the Borrower and its Subsidiaries would exceed
$1,000,000.
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<PAGE> 54
(k) Affiliate Transaction. Except as permitted by Section
5.02(m), make or permit any Subsidiary of Borrower to make, directly or
indirectly: (i) any Investment in any Affiliate; (ii) any transfer, sale,
lease or other disposition of any Property to any Affiliate or any purchase or
acquisition of any Property from an Affiliate; (iii) any material arrangement
or other material transaction directly or indirectly with or for the benefit of
an Affiliate (including without limitation, guaranties and assumptions of
obligations of an Affiliate); provided, that this Section 5.02(k) shall not
prohibit the Borrower and any Subsidiary of Borrower from entering into any
arrangement or other transaction with an Affiliate providing for the leasing of
property, the rendering or receipt of services or the purchase or sale of
inventory and other assets if the monetary or business consideration arising
therefrom would be substantially as advantageous to the Borrower or such
Subsidiary as the monetary or business consideration which would be obtained in
a comparable arm's length transaction with a Person not an Affiliate; or (iv)
any guaranty of any obligation of PSAL, PetUSA, any Affiliate of PSAL or
PetUSA, or any other Person.
(l) Preferred Interest and Options. Issue or cause to become
outstanding any Restricted Preferred Interest, or permit any Subsidiary of
Borrower to issue or cause to become outstanding, any Preferred Interest, or
permit any option, warrant or other right to acquire any capital stock,
partnership interest or other ownership interest of any Subsidiary of Borrower
to be outstanding.
(m) Restricted Payments. Directly or indirectly, declare, pay or
make any Distribution, other than principal payments under the Subordinated
Debt; provided Distributions on the Subordinated Debt may be made only if (i)
no Default or Event of Default exists at the time of such Distribution, (ii) no
Default or Event of Default would result from such Distribution, (iii) on the
date of such Distribution (1) no Borrowing Base Deficiency exists and (2) the
Available Cash Ratio (as defined below, but specifically (X) giving effect to
such Distribution and all other Distributions made since the end of the fiscal
quarter of the Borrower most recently ended prior to such date as if such
Distribution and all such other Distributions were made during such fiscal
quarter and (Y) not giving effect to the first Distribution, if any, made
during the earliest of the four consecutive fiscal quarters immediately
preceding such date) for the four consecutive fiscal quarters of the Borrower
immediately preceding such date is no less than 3.0:1.0, and (iv) in no period
of four consecutive fiscal quarters of the Borrower shall the aggregate of all
such Distributions exceed the lesser of (i) 50% of Consolidated Net Income of
the Borrower for such four quarters or (ii) an amount that does not cause the
ratio of (x) EBITDA for such four quarters less Development Capex to (y) cash
taxes for such four quarters plus the largest Borrowing Base Deficiency if any,
at any date during such four quarters or the next following quarter plus
Consolidated Interest Expense for such four quarters plus the amount of any
payments or proposed payments on the Subordinated Note during such four
quarters (other than repayment of the CD Deposits to PSAL) (the "Available Cash
Ratio"), to fall below 3.0:1.0.
(n) Investments. Make any Investment or permit any Subsidiary to
make any Investment except (i) Investments in Subsidiaries approved in writing
by the Majority Banks, and (ii) Permitted Investments.
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<PAGE> 55
(o) Asset Disposition. Sell, lease, transfer or otherwise dispose
of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise
dispose of, any of the Collateral, except (i) sales of Hydrocarbons in the
ordinary course of business and on reasonable terms, (ii) sales of worn-out or
obsolete equipment in the normal course of business, if no Event of Default
exists at the time of such sale, (iii) replacement of equipment in the normal
course of business with other equipment at least as useful and beneficial to
the Borrower and its Subsidiaries and their respective businesses as the
equipment replaced if no Event of Default exists at the time of such
replacement and (iv) farm-outs of horizons which are not included in any
Reserve Report provided such farm-out is to a Person which is not an Affiliate,
the Borrower has given the Agent advance written notice of the proposed
farm-out and no Default exists at the time of such farm-out.
(p) Use of Proceeds. Use any proceeds of any Advance (i) for any
purpose other than working capital for the Borrower (but not for any payment of
the Subordinated Debt), (ii) in any manner which violates or results in a
violation of any law or regulation or (iii) to purchase or carry any margin
stock (as defined in Regulation U) or any margin stock (as defined in
Regulation G) or to extend credit to others for that purpose.
(q) Line of Business. Engage, or permit any of its Subsidiaries
to engage, in any business other than the business currently engaged in and
other businesses not materially different therefrom.
(r) Agreements. Amend, waive, terminate or otherwise modify, or
agree to the amendment, waiver, termination or other modification of, any of
the Subordinated Debt Documents.
(s) Rental Payments. Create, incur, assume, guarantee, otherwise
become liable for or suffer to exist, or permit any Subsidiary to create,
incur, assume, guarantee, otherwise become liable for or suffer to exist, any
obligation to make any payment under any lease or other rental contract (other
than leases constituting Oil and Gas Properties and Capitalized Lease
Obligations), unless (i) the aggregate amount of all such payments actually
made does not exceed $1,000,000 in any year and (ii) the aggregate amount of
all such payments scheduled or required to be made does not exceed $5,000,000
in any year.
(t) Hedging Agreements. Be a party to any Hedging Agreement (i)
for volumes (in the aggregate) in the then current fiscal quarter of the
Borrower in excess of 75% of the net quarterly production of Hydrocarbons
(using standard 6:1 conversion rates for differing Hydrocarbons) from any
Collateral for the then most recently completed fiscal quarter of the Borrower,
or (ii) if the total aggregate volumes of oil (for all Hedging Agreements) or
the total aggregate volumes of natural gas (for all Hedging Agreements) would
exceed 75% of projected oil or natural gas net volumes, respectively, as stated
in the most recent Reserve Report for the next three year period.
Additionally, the Borrower agrees that in no event shall any Hedging Agreement
extend beyond one (1) year following the Revolving Credit Termination Date,
without the written consent of the Majority Banks.
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<PAGE> 56
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any amount payable pursuant to
Section 2.13(c), under any Hedging Agreement with any Bank, or any principal of
any Note when such amount or principal becomes due and payable, whether at the
due date thereof or by acceleration thereof or otherwise, or shall fail to pay
any interest on any Note or any fees hereunder within five Business Days of
when the same becomes due and payable, whether at the due date thereof or by
acceleration thereof or otherwise; or
(b) Any (i) representation, warranty or certification made by the
Borrower herein or in any other Loan Document, or by the Borrower (or any
officer of the Borrower) in connection with any Loan Document or in any
certificate or document furnished to the Banks pursuant to any Loan Document,
or (ii) representation or warranty deemed to have been made by the Borrower
pursuant to Section 3.02 or Section 3.03 shall prove to have been incorrect or
misleading in any material respect when made or so deemed to have been made; or
(c) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in this Agreement (other than Section 5.02,
Section 8.13 and provisions covered by Section 6.01(a)) on its part to be
performed or observed if the failure to perform or observe such term, covenant
or agreement shall remain unremedied for 10 Business Days after the earlier of
(x) the date written notice thereof has been given to the Borrower by the Agent
or any Bank and (y) the date an officer of the Borrower has knowledge of such
failure, (ii) any term, covenant, condition, or agreement contained in any
other Loan Document or in Section 5.02 or Section 8.13 of this Agreement (other
than Section 5.02(t)(ii) if such failure is due to a decrease in Hydrocarbon
production) on its part to be performed or (iii) any term, covenant, condition
or agreement contained in Section 5.02(t)(ii) if such failure is due to a
decrease in Hydrocarbon production, in which event such deficiency shall not
constitute an Event of Default provided that the Borrower remedies such
deficiency within 90 days of its occurrence; or
(d) PSAL, the Borrower or any Subsidiary of either shall fail to
pay any principal of or premium or interest on any Indebtedness (other than the
Subordinated Debt) which is outstanding in the principal amount of at least
$2,000,000 in the aggregate, of PSAL, the Borrower or such Subsidiary (as the
case may be), when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Indebtedness; or any other event
shall occur or condition shall exist under any agreement or instrument relating
to any such Indebtedness and shall continue after the applicable grace period,
if any, specified in such agreement or instrument, if the effect of such event
or condition is to accelerate, or to permit the acceleration of, the maturity
of such Indebtedness (whether or not such
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default is waived by the holder of such Indebtedness); or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid, prior to
the stated maturity thereof; or
(e) PSAL, the Borrower or any Subsidiary of either, shall be
adjudicated a bankrupt or insolvent by a court of competent jurisdiction, or
generally not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by or
against the Borrower or any Subsidiary, seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted against it
(but not instituted by it), either such proceeding shall remain undismissed or
unstayed for a period of 60 days, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property) shall occur; or
the Borrower or any of Subsidiary shall take any action to authorize any of the
actions set forth above in this subsection (e); or any judgment, writ, warrant
of attachment or execution or similar process shall be issued or levied against
a substantial part of the property of the Borrower or any Subsidiary and such
judgment, writ, warrant of attachment or execution or similar process shall not
be released, stayed, vacated or fully bonded within 30 days after its issue or
levy; or
(f) A final judgment or order for the payment of money in excess
of $5,000,000 shall be rendered against PSAL, the Borrower or any Subsidiary of
either by any court of competent jurisdiction and such judgment or order shall
continue unsatisfied or unstayed (by appeal or otherwise) and shall be in
effect for a period of 30 days; or
(g) Any Change of Control occurs; or
(h) any Mortgage shall at any time, for any reason, cease to be in
full force and effect or shall be declared to be null and void in whole or in
any part by any court or other governmental or regulatory authority having
competent jurisdiction in respect thereof, or the validity or the
enforceability of any Mortgage shall be contested by the Borrower, or the
Borrower shall renounce any of the terms of any Mortgage or shall deny that it
is bound by any of the terms thereof that purport to apply to it; or
(i) any material portion of the Collateral that is not covered by
adequate insurance shall be destroyed or any material portion of the Collateral
shall otherwise become unavailable for use by the Borrower for a period in
excess of 45 days (or 180 days if the Borrower has business interruption
insurance adequate to cover the loss to it resulting from such Collateral being
unavailable for use) or title to any material portion of the Collateral shall
be successfully challenged; or
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(j) Any Termination Event with respect to a Plan shall have
occurred and, 60 days after notice thereof shall have been given to the
Borrower by the Agent, (i) such Termination Event shall still exist and (ii)
the sum (determined as of the date of occurrence of such Termination Event) of
the Insufficiency of such Plan and the Insufficiency of any and all other Plans
with respect to which a Termination Event shall have occurred and then exist
(or in the case of a Plan with respect to which a Termination Event described
in clause (ii) of the definition of Termination Event shall have occurred and
then exist, the liability related thereto) is equal to or greater than
$1,000,000; or
(k) The Borrower and/or PetUSA violates any of the terms and
obligations of any of the Subordinated Debt Documents;
then, and in any such event, the Agent (i) shall at the request, or may with
the consent, of the Majority Banks, by notice to the Borrower, declare the
obligation of the Issuing Bank to issue Letters of Credit, the Commitment of
each Bank and the obligation of each Bank to make Advances to be terminated,
whereupon the same shall forthwith terminate, (ii) shall at the request, or may
with the consent, of the Majority Banks, by notice to the Borrower, declare the
Notes, all interest thereon and all other amounts payable under this Agreement
to be forthwith due and payable, whereupon the Notes, all such interest and all
such amounts shall become and be forthwith due and payable, without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or any other notice of any kind, all of which are hereby expressly
waived by the Borrower and (iii) shall at the request, or may with the consent,
of the Majority Banks, by notice to the Borrower, and in addition to the
Issuing Bank's continuing right to demand payment of all Demand Loans, demand
payment of the maximum amount remaining available to be drawn under then
outstanding Letters of Credit (assuming compliance with all conditions for
drawing thereunder), and immediately upon the making of such demand by the
Agent, the Borrower shall pay to the Agent such amount so demanded; provided,
however, that in the event of any Event of Default described in Section
6.01(e), (A) the obligation of the Issuing Bank to issue Letters of Credit, the
Commitment of each Bank and the obligation of each Bank to make Advances shall
automatically be terminated and (B) the Notes, all such interest, all other
amounts payable under this Agreement and the maximum amount remaining available
to be drawn under then outstanding Letters of Credit (assuming compliance with
all conditions for drawing thereunder) shall automatically and immediately
become and be due and payable, without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration, or any other notice of any kind,
all of which are hereby expressly waived by the Borrower.
ARTICLE VII
THE AGENT
Section 7.01. Authorization and Action. Each Bank hereby appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably incidental thereto.
As to any matters not expressly provided for by this Agreement (including,
without limitation, enforcement or collection of the Notes), the Agent shall
not be required to
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exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Majority Banks and such instructions
shall be binding upon all Banks and all holders of Notes; provided, however,
that the Agent shall not be required to take any action which exposes the Agent
to personal liability or which is contrary to this Agreement or applicable law.
The Agent agrees to give to each Bank prompt notice of each notice given to it
by the Borrower pursuant to the terms of this Agreement.
Section 7.02. Agent's Reliance, Etc. Neither the Agent nor any of
its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (i) may treat
the payee of any Note as the holder thereof until the Agent receives and
accepts an Assignment entered into by the Bank which is the payee of such Note,
as assignor, and an Eligible Assignee, as assignee, as provided in Section
8.07; (ii) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall not
be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Bank or any other Person and shall not be
responsible to any Bank or any other Person for any statements, warranties or
representations made in or in connection with any Loan Document or any other
instrument or document; (iv) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or
conditions of any Loan Document on the part of the Borrower or any Subsidiary
or to inspect the Property (including the books and records) of the Borrower or
any Subsidiary; (v) shall not be responsible to any Bank or any other Person
for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Loan Document or any other instrument or document
or for the existence, sufficiency or value of any Collateral or for the
existence, perfection or priority of any Lien thereon; and (vi) shall incur no
liability under or in respect of any Loan Document by acting upon any notice
(including telephonic notice), consent, certificate or other instrument or
writing (which may be by telecopier, telegram, telex or otherwise) believed by
it to be genuine and signed, given or sent by the proper party or parties.
Section 7.03. Chase and Affiliates. With respect to its
Commitment, its interest in Letter of Credit Liabilities, the Advances made by
it and the Notes issued to it, Chase shall have the same rights and powers
under this Agreement as any other Bank and may exercise the same as though it
were not the Agent or the Issuing Bank; and the term "Bank" or "Banks" shall,
unless otherwise expressly indicated, include Chase in its individual capacity.
Chase and its affiliates may act as the Collateral Agent and may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with, the Borrower, any Subsidiary, any Person
who may do business with or own securities of the Borrower or any Subsidiary
and any other Person, all as if Chase were not the Agent or the Issuing Bank
and without any duty to account therefor to the Banks.
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Section 7.04. Bank Credit Decision. Each Bank acknowledges that it
has, independently and without reliance upon the Agent or any other Bank and
based on the Financial Statements and such other documents and information as
it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Bank also acknowledges that it will, independently
and without reliance upon the Agent or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.
Section 7.05. Indemnification. THE BANKS AGREE TO INDEMNIFY THE
AGENT (TO THE EXTENT NOT REIMBURSED BY THE BORROWER), RATABLY ACCORDING TO THE
RESPECTIVE PRINCIPAL AMOUNTS OF THE NOTES THEN HELD BY EACH OF THEM (OR IF NO
ADVANCES ARE AT THE TIME OUTSTANDING OR IF ANY NOTES ARE HELD BY PERSONS WHICH
ARE NOT BANKS, RATABLY ACCORDING TO EITHER (A) THE RESPECTIVE AMOUNTS OF THEIR
COMMITMENTS, OR (B) IF NO COMMITMENTS ARE AT THE TIME OUTSTANDING, THE
RESPECTIVE AMOUNTS OF THEIR COMMITMENTS IMMEDIATELY PRIOR TO THE TIME THE
COMMITMENTS CEASED TO BE OUTSTANDING), FROM AND AGAINST ANY AND ALL CLAIMS,
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH
MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT IN ANY WAY
RELATING TO OR ARISING OUT OF ANY LOAN DOCUMENT OR ANY OTHER INSTRUMENT OR
DOCUMENT REFERRED TO IN OR PERTAINING TO ANY LOAN DOCUMENT, OR ANY ACTION TAKEN
OR OMITTED BY THE AGENT UNDER ANY LOAN DOCUMENT OR ANY OTHER INSTRUMENT OR
DOCUMENT REFERRED TO IN OR PERTAINING TO ANY LOAN DOCUMENT, INCLUDING, WITHOUT
LIMITATION, IN EACH OF THE FOREGOING CASES, ANY SUCH CLAIM, LIABILITY,
OBLIGATION, LOSS, DAMAGE, PENALTY, ACTION, JUDGMENT, SUIT, COST, EXPENSE OR
DISBURSEMENT RESULTING FROM THE NEGLIGENCE OF THE AGENT, PROVIDED THAT NO BANK
SHALL BE LIABLE FOR ANY PORTION OF SUCH CLAIMS, LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR
DISBURSEMENTS RESULTING FROM THE AGENT'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, EACH BANK AGREES TO REIMBURSE
THE AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY REASONABLE
OUT-OF-POCKET EXPENSES (INCLUDING REASONABLE COUNSEL FEES) INCURRED BY THE
AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION,
MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL
PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR
RESPONSIBILITIES UNDER ANY LOAN DOCUMENT OR ANY OTHER INSTRUMENT OR DOCUMENT
REFERRED TO IN OR PERTAINING TO ANY LOAN DOCUMENT TO THE EXTENT THAT THE AGENT
IS NOT REIMBURSED FOR SUCH
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EXPENSES BY THE BORROWER. IN THE EVENT THAT THE AGENT RECEIVES REIMBURSEMENT
FOR SUCH EXPENSES FROM THE BORROWER AT ANY TIME SUBSEQUENT TO THE AGENT'S
RECEIPT OF THE INDEMNIFICATION REQUIRED BY THE PRECEDING SENTENCE FROM ANY
BANK, THE AGENT SHALL PROMPTLY REFUND TO SUCH BANK ITS RATABLE SHARE OF SUCH
REIMBURSED AMOUNT.
Section 7.06. Successor Agent and Issuing Bank. Subject to the
appointment and acceptance of a successor Agent or Issuing Bank, as applicable
and provided below, the Agent or the Issuing Bank may resign at any time by
giving notice thereof to the Banks and the Borrower and may be removed at any
time with or without cause by the Majority Banks. Upon any such resignation or
removal, the Majority Banks shall have the right to appoint a successor Agent
or Issuing Bank, as the case may be. If no successor Agent shall have been so
appointed by the Majority Banks, and shall have accepted such appointment,
within 30 days after the retiring Agent's giving of notice of resignation or
the Majority Banks' removal of the retiring Agent, then the retiring Agent may,
on behalf of the Banks, appoint a successor Agent. If no successor to the
retiring Issuing Bank shall have been appointed by the Majority Banks, or shall
have accepted such appointment, then, in such event, each Bank shall, following
the receipt by the Agent of a Notice of Letter of Credit pursuant to Section
2.13, be obligated (subject, however, to all of the provisions hereof,
including without limitation, all conditions precedent to the issuance of
Letters of Credit) to issue a Letter of Credit in accordance with the
provisions of Section 2.13 equal to its Ratable Portion of the Letter of Credit
requested in such Notice of Letter of Credit. In such event, the Banks issuing
such Letter of Credit shall not be entitled to any issuance fee pursuant to
Section 2.13(b)(i). Each such Letter of Credit, shall contain identical
provisions for a drawing thereunder by the beneficiary, and shall require that
in the event of a draw thereunder, the Beneficiary shall make such draw ratably
in accordance with the respective amounts of each such Letter of Credit. The
obligation of the Banks to issue Letters of Credit pursuant to this Section
7.06 shall be subject to all the terms and conditions of Sections 2.13(a), (b)
(other than as provided above), (c), (d) and (e) and each reference therein to
the Issuing Bank shall be deemed a reference to each Bank issuing a Letter of
Credit pursuant to this Section 7.06. Upon the acceptance of any appointment
as Agent or Issuing Bank hereunder by a successor Agent or Issuing Bank, such
successor Agent or Issuing Bank shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Agent or
Issuing Bank, and the retiring Agent or Issuing Bank shall be discharged from
its duties and obligations under the Loan Documents, except that the retiring
Issuing Bank shall remain the Issuing Bank with respect to any Letter of Credit
outstanding on the effective date of its resignation or removal and the
provisions affecting the Issuing Bank with respect to such Letters of Credit
shall inure to the benefit of the retiring Issuing Bank. After any retiring
Agent's or Issuing Bank's resignation or removal hereunder as Agent or Issuing
Bank, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent or Issuing Bank.
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ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc. No amendment or waiver of any
provision of any Loan Document executed by the Borrower, nor consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Majority Banks, and then such waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no such amendment,
waiver or consent shall, unless in writing and signed by all the Banks, do any
of the following: (a) waive any of the conditions specified in Section 3.01,
3.02 or 3.03, (b) increase the Commitment of any Bank or subject any Bank to
any additional obligations, (c) reduce the principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, (d) postpone any date
fixed for any payment of principal of, or interest on, the Notes or any fees or
other amounts payable hereunder, (e) take any action which requires the signing
of all the Banks pursuant to the terms of any Loan Document, (f) change the
percentage of the Commitments or of the aggregate unpaid principal amount of
the Notes which shall be required for the Banks or any of them to take any
action hereunder, (g) release a material amount of the Collateral, or (h) amend
this Section 8.01; and provided, further, that no amendment, waiver or consent
shall, unless in writing and signed by the Agent in addition to the Banks
required above to take such action, affect the rights or duties of the Agent
under any Loan Document; and provided, further, that no amendment, waiver or
consent shall, unless in writing and signed by the Issuing Bank in addition to
the Banks required above to take such action, affect the rights or duties of
the Issuing Bank under any Loan Document.
Section 8.02. Notices, Etc. Except as provided in Section 2.02(a),
all notices and other communications provided for hereunder shall be in writing
(including telecopier or telex communication) and mailed, telecopied, telexed,
or delivered, (a) if to the Borrower, at the address at 143 Ridgeway Drive,
Suite 113, Lafayette, Louisiana 70503-3402; Attention: Vice President, Land,
Legal & Administration, Telecopy: (318) 989-8784; (b) if to any Bank listed on
the signature pages hereof, at its Domestic Lending Office specified opposite
its name on Schedule I hereto; (c) if to any other Bank, at its Domestic
Lending office specified in the Assignment pursuant to which it became a Bank;
(d) if to the Agent, to Chemical Bank, as administrative agent on behalf of the
Agent, at such administrative agent's address at Chemical Bank, Agent Bank
Services, 140 East 45th Street, 29th Floor, New York, New York 10017,
Attention: Sandra Miklave, Telephone: (212) 622-0005, Telecopy: (212) 622-0002,
with a copy to The Chase Manhattan Bank, N.A., 707 Travis Street, 7th Floor,
Houston, Texas 77002, Attention: Todd A. Dittmann, Telecopy: (713) 216-8882,
(but references herein to the address of the Agent for purposes of payments or
making available funds shall not include the address to which copies are to be
sent) and (e) if to the Issuing Bank, at its address at The Chase Manhattan
Bank, N.A., 4 MetroTech Center, 8th Floor, Brooklyn, New York 11245, Attention:
Elsie Rodriguez/John Ruane, Trade Finance, Telecopy: (718) 242- 3819, with a
copy to The Chase Manhattan Bank, N.A., 707 Travis, 7th Floor, Houston, Texas
77002, Attention: Todd A. Dittmann, Telecopy: (713) 261-8882; or, as to the
Borrower, the Issuing Bank or the Agent, at such other address as shall be
designated by such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by such party
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in a written notice to the Borrower and the Agent. Each such notice or
communication shall be effective (i) if mailed, on the date it is received,
(ii) if delivered by hand, upon delivery with written receipt, and (iii) if
telecopied, when receipt is confirmed by telephone, except that any notice or
communication to the Agent pursuant to this Agreement shall not be effective
until received by the Agent, and any notice or communication to the Issuing
Bank pursuant to this Agreement shall not be effective until received by the
Issuing Bank. Notices by telephone pursuant to Section 2.02(a) shall be given
to the Agent at (212) 622-0002 or at such other telephone number as shall be
designated by the Agent in a written notice to the Borrower. A notice received
by the Agent by telephone pursuant to Section 2.02(a) shall be effective and
binding on the Borrower if the Agent believes in good faith that it was given
by an authorized representative of the Borrower and acts pursuant thereto,
notwithstanding the absence of written confirmation or any contradictory
provision thereof.
Section 8.03. No Waiver; Remedies. No failure on the part of the
Issuing Bank, any Bank or the Agent to exercise, and no delay in exercising,
any right under any Loan Document shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
the Loan Documents are cumulative and not exclusive of any remedies provided by
law.
Section 8.04. Expenses and Taxes; Compensation; Indemnification;
Arranger.
(a) Expenses and Taxes. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Agent in connection with the preparation,
execution, delivery, administration, modification and amendment of the Loan
Documents, and the other documents to be delivered hereunder, including,
without limitation, the reasonable out-of- pocket expenses of the Agent and the
reasonable fees and out-of-pocket expenses of counsel for the Agent with
respect thereto and with respect to advising the Agent as to its rights and
responsibilities under the Loan Documents, and all costs and expenses of the
Agent, the Issuing Bank and each Bank, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of the Loan
Documents and the other documents to be delivered hereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 8.04(a). In addition, the Borrower
shall pay any and all stamp and other taxes payable or determined to be payable
in connection with the execution and delivery of the Loan Documents and the
other documents to be delivered hereunder, and agrees to save the Agent, the
Issuing Bank and each Bank harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omitting to pay such
taxes.
(b) Compensation. If any payment, or purchase pursuant to Section
2.09(e), of principal of, or Conversion of, any Eurodollar Rate Advance is made
other than on the last day of the Interest Period for such Eurodollar Rate
Advance, as a result of a payment or Conversion pursuant to Section 2.02,
Section 2.07, Section 2.08 or Section 2.12 or purchase pursuant to Section
2.09(e) or acceleration of the maturity of the Notes pursuant to Section 6.01
or for any other reason, the
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Borrower shall, upon demand by any Bank (with a copy of such demand to the
Agent together with the Bank's calculations of the amount owed), pay to the
Agent for the account of such Bank any amounts required to compensate such Bank
for any additional losses, costs or expenses which it may reasonably incur as a
result of such purchase, payment or Conversion, including, without limitation,
any loss (including loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by any Bank to fund or maintain such Advance.
(c) Indemnification. THE BORROWER AGREES TO INDEMNIFY AND HOLD
HARMLESS THE AGENT, THE COLLATERAL AGENT, THE ARRANGER, EACH BANK, THE ISSUING
BANK AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS FROM AND
AGAINST ANY AND ALL CLAIMS, DAMAGES, LOSSES, LIABILITIES, OBLIGATIONS,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, DISBURSEMENTS AND EXPENSES
(INCLUDING, WITHOUT LIMITATION, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL)
FOR WHICH ANY OF THEM BECOME LIABLE OR WHICH ARE INCURRED BY ANY OF THEM IN
CONNECTION WITH OR ARISING OUT OF (I) BREACH BY THE BORROWER OF ANY LOAN
DOCUMENT, (II) VIOLATION BY THE BORROWER OR ANY SUBSIDIARY OF ANY ENVIRONMENTAL
PROTECTION LAW OR ANY OTHER LAW, RULE, REGULATION OR ORDER, (III) ANY LIEN
GRANTED PURSUANT TO ANY LOAN DOCUMENT, (IV) OWNERSHIP BY SUCH BANK, THE
COLLATERAL AGENT, THE ARRANGER, THE ISSUING BANK OR THE AGENT OF ANY PROPERTY
FOLLOWING FORECLOSURE UNDER ANY OF THE LOAN DOCUMENTS, TO THE EXTENT SUCH
CLAIMS, DAMAGES, LOSSES, LIABILITIES, OBLIGATIONS, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, DISBURSEMENTS OR EXPENSES ARISE OUT OF OR RESULT FROM
ANY HAZARDOUS MATERIALS LOCATED IN, ON OR UNDER THE PROPERTY OF THE BORROWER OR
ANY SUBSIDIARY ON OR BEFORE THE DATE OF SUCH FORECLOSURE, INCLUDING, WITHOUT
LIMITATION, CLAIMS, DAMAGES, LOSSES, LIABILITIES, OBLIGATIONS, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, COSTS, DISBURSEMENTS OR EXPENSES WHICH ARE IMPOSED
UPON PERSONS UNDER ANY ENVIRONMENTAL PROTECTION LAW SOLELY BY VIRTUE OF
OWNERSHIP, (V) SUCH BANK'S, THE COLLATERAL AGENT'S, THE ARRANGER'S, THE ISSUING
BANK'S OR THE AGENT'S BEING DEEMED AN OPERATOR OF ANY PROPERTY OF THE BORROWER
OR ANY SUBSIDIARY BY A COURT OR OTHER PERSON, TO THE EXTENT SUCH CLAIMS,
DAMAGES, LOSSES, LIABILITIES, OBLIGATIONS, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, DISBURSEMENTS OR EXPENSES ARISE OUT OF OUR RESULT FROM ANY
HAZARDOUS MATERIALS LOCATED IN, ON OR UNDER SUCH PROPERTY, OR (VI) ANY
INVESTIGATION, LITIGATION, OR PROCEEDING, WHETHER OR NOT THE AGENT, THE
COLLATERAL AGENT, THE ARRANGER, THE ISSUING BANK OR SUCH BANK IS A PARTY
THERETO, RELATED TO OR IN CONNECTION WITH ANY OF THE FOREGOING OR ANY LOAN
DOCUMENT, INCLUDING, WITHOUT LIMITATION, ANY TRANSACTION IN WHICH ANY PROCEEDS
OF ANY ADVANCE ARE APPLIED
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OR ANY LETTER OF CREDIT IS USED, INCLUDING, WITHOUT LIMITATION, IN EACH OF THE
FOREGOING CASES, ANY SUCH CLAIM, DAMAGE, LOSS, LIABILITY, OBLIGATION, PENALTY,
ACTION, JUDGMENT, SUIT, COST, DISBURSEMENT OR EXPENSE RESULTING FROM THE
NEGLIGENCE OF THE AGENT, THE COLLATERAL AGENT, THE ARRANGER, THE ISSUING BANK,
SUCH BANK OR THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, UNLESS
SUCH CLAIM, DAMAGE, LOSS, LIABILITY, OBLIGATION, PENALTY, ACTION, JUDGMENT,
SUIT, COST, DISBURSEMENT OR EXPENSE IS FOUND TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY.
(d) Arranger. The Arranger shall have no duties, obligations,
responsibilities or liabilities whatsoever under or in connection with any Loan
Document.
(e) Survival of Covenants. Without prejudice to the survival of
any other agreement of the Borrower or the Banks hereunder, all obligations of
the Borrower under Section 2.02, Section 2.09, Section 2.10 and this Section
8.04 shall survive the termination of the Commitments, the Letters of Credit
and this Agreement and the payment in full of principal, interest and all other
amounts hereunder and under the Notes.
Section 8.05. Limitation and Adjustment of Interest. (a)
Notwithstanding anything to the contrary set forth herein, in any other Loan
Document or in any other document or instrument, no provision of any of the
Loan Documents or any other instrument or document furnished pursuant hereto or
in connection herewith is intended or shall be construed to require the payment
or permit the collection of interest in excess of the maximum non-usurious rate
permitted by applicable law. Accordingly, if the transactions with any Bank
contemplated hereby would be usurious under applicable law, if any, then, in
that event, notwithstanding anything to the contrary in any Note payable to
such Bank, this Agreement, any other Loan Document or any other document or
instrument, it is agreed as follows: (i) the aggregate of all consideration
which constitutes interest under applicable law that is contracted for, taken,
reserved, charged or received by such Bank under any Note payable to such Bank,
this Agreement or any other Loan Document or under any other document or
instrument shall under no circumstances exceed the maximum amount allowed by
such applicable law, and any excess shall be cancelled automatically and, if
theretofore paid, shall, at the option of such Bank, be credited by such Bank
on the principal amount of the indebtedness owed to such Bank by the Borrower
or refunded by such Bank to the Borrower, and (ii) in the event that the
maturity of any Note payable to such Bank is accelerated or in the event of any
required or permitted prepayment, then such consideration that constitutes
interest under law applicable to such Bank may never include more than the
maximum amount allowed by such applicable law and excess interest, if any, to
such Bank provided for in this Agreement or otherwise shall be cancelled
automatically as of the date of such acceleration or prepayment and, if
theretofore paid, shall, at the option of such Bank, be credited by such Bank
on the principal amount of the indebtedness owed to such Bank by the Borrower
or refunded by such Bank to the Borrower. In determining whether or not the
interest contracted for, taken, reserved, charged or received by any Bank
exceeds the
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<PAGE> 66
maximum non-usurious rate permitted by applicable law, such determination shall
be made, to the extent that doing so does not result in a violation of
applicable law, by amortizing, prorating, allocating and spreading, in equal
parts during the period of the full stated term of the loans hereunder, all
interest at any time contracted for, taken, charged, received or reserved by
such Bank in connection with such loans.
(b) In the event that at any time the interest rate applicable to
any Advance made by any Bank would exceed the maximum non-usurious rate allowed
by applicable law, the rate of interest to accrue on the Advances by such Bank
shall be limited to the maximum non-usurious rate allowed by applicable law,
but shall accrue, to the extent permitted by law, on the principal amount of
the Advances made by such Bank from time to time outstanding, if any, at the
maximum non-usurious rate allowed by applicable law until the total amount of
interest accrued on the Advances made by such Bank equals the amount of
interest which would have accrued if the interest rates applicable to the
Advances pursuant to Article II had at all times been in effect. In the event
that upon the final payment of the Advances made by any Bank and termination of
the Commitments of such Bank, the total amount of interest paid to such Bank
hereunder and under the Notes is less than the total amount of interest which
would have accrued if the interest rates applicable to such Advances pursuant
to Article II had at all times been in effect, then the Borrower agrees to pay
to such Bank, to the extent permitted by law, an amount equal to the excess of
(a) the lesser of (i) the amount of interest which would have accrued on such
Advances if the maximum non-usurious rate allowed by applicable law had at all
times been in effect or (ii) the amount of interest which would have accrued on
such Advances if the interest rates applicable to such Advances pursuant to
Article II had at all times been in effect over (b) the amount of interest
otherwise accrued on such Advances in accordance with this Agreement.
Section 8.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the Agent and
when the Agent shall have, as to each Bank, either received a copy of a
signature page hereof executed by such Bank or been notified by such Bank that
such Bank has executed it and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Agent and each Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of all of the Banks.
Section 8.07. Assignments and Participations.
(a) Each Bank may, after the date hereof, assign to one or more
banks or other entities all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Notes held by it); provided,
however, that, except as provided in Section 8.07(g), (i) each such assignment
shall be of a constant, and not a varying, percentage of all rights and
obligations under this Agreement and the Notes, and the same constant
percentage of the interests in the Letter of Credit Liabilities held by the
assigning Bank pursuant to Section 2.13, the Advances and Commitment shall be
assigned by the assigning Bank to the assignee pursuant to the Assignment with
respect to such assignment, (ii) the amount
-62-
<PAGE> 67
of the Commitment and Advances of the assigning Bank being assigned pursuant to
each such assignment (determined as of the date of the Assignment with respect
to such assignment) shall in no event be less than the lesser of $10,000,000 or
the total of the assigning Bank's Commitments and shall (iii) each such
assignment shall be to an Eligible Assignee, and (iv) the parties to each such
assignment shall execute and deliver to the Agent, for its acceptance and
recording in the Register, an Assignment, together with the Notes subject to
such assignment and a processing and recordation fee of $3,000. Upon such
execution, delivery, acceptance and recording, from and after the effective
date specified in each Assignment, (x) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment, have the rights and obligations of
a Bank hereunder and (y) the Bank assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment, relinquish its rights and be released from its obligations under
this Agreement.
(b) By executing and delivering an Assignment, the Bank assignor
thereunder and the assignee thereunder confirm to and agree with each other and
the other parties hereto as follows: (i) other than as provided in such
Assignment, such assigning Bank makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with any Loan Document or any other instrument or
document or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Loan Document or any other instrument or document
or the existence, sufficiency or value of any Collateral or the existence,
perfection or priority of any Lien thereon; (ii) such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or any other Person or the performance or
observance by the Borrower or any other Person of any of its respective
obligations under any Loan Document or any other instrument or document; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the Financial Statements and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment; (iv) such assignee will, independently
and without reliance upon the Agent, the Collateral Agent, the Issuing Bank,
the Arranger, such assigning Bank or any other Bank and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under or related to any of
the Loan Documents or any other instrument or document; (v) such assignee
confirms that it is an Eligible Assignee; (vi) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto and
appoints and authorizes the Collateral Agent to take such action as agent on
its behalf and to exercise such powers under the Deed of Trust as are delegated
to the Collateral Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of this Agreement are required to be performed by it as a Bank.
(c) The Agent shall maintain at its address referred to in Section
8.02 a copy of each Assignment delivered to and accepted by it and a register
for the recordation of the names and addresses of the Banks and the Commitment
of, and principal amount of the Advances owing to,
-63-
<PAGE> 68
each Bank from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and
the Borrower, the Agent and the Banks may treat each Person whose name is
recorded in the Register as a Bank hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or
any Bank at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of an Assignment executed by an assigning
Bank and an assignee representing that it is an Eligible Assignee, together
with the Notes subject to such assignment, the Agent shall, if such Assignment
has been completed and is in substantially the form of Exhibit H hereto, (i)
accept such Assignment, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Borrower. Within five
Business Days after its receipt of such notice, the Borrower, at the expense of
such Eligible Assignee, shall execute and deliver to the Agent (i) if such
assignment is made prior to the Revolving Credit Termination Date, in exchange
for the surrendered Note a new Note payable to the order of such Eligible
Assignee in an amount equal to the Commitment assumed by it pursuant to such
Assignment and, if the assigning Bank has retained a Commitment hereunder, a
new Note payable to the order of the assigning Bank in an amount equal to the
Commitment retained by it hereunder (such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note, shall be dated the effective date of such Assignment and shall otherwise
be in substantially the form of Exhibit A); and (ii) if such assignment is made
on or after the Revolving Credit Termination Date, in exchange for the
surrendered Note, a new Note payable to the order of such Eligible Assignee in
an amount equal to the portion of the Advances assigned to it pursuant to such
Assignment and, if the assigning Bank has retained a portion of the Advances a
new Note payable to the order of the assigning Bank in an amount equal to the
portion of the Advances retained by it (such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note, shall be dated the effective date of such Assignment and shall otherwise
be in substantially the form of Exhibit A).
(e) Each Bank may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitments and the Advances owing to it and one or more of the Notes held by
it); provided, however, that (i) such Bank's obligations under this Agreement
(including, without limitation, its Commitments to the Borrower hereunder)
shall remain unchanged, (ii) such Bank shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) such Bank
shall remain the holder of any such Notes for all purposes of this Agreement,
(iv) the Borrower, the Agent, the Issuing Bank and the other Banks shall
continue to deal solely and directly with such Bank in connection with such
Bank's rights and obligations under this Agreement and (v) the terms of any
such participation shall not restrict such Bank's ability to make any
amendment, waiver or other modification of this Agreement or any other Loan
Document without the consent of the participant, except that the consent of the
participant may be required to (a) extend the final maturity of any Advance or
Note, reduce the amount or rate of, or extend the time of payment of, interest
fees, principal or any other amount payable hereunder, or increase the amount
of the participant's participation, (b) consent to the assignment or the
transfer by the Borrower of any of its rights and obligations under this
Agreement, or (c) consent to the release of any Collateral.
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<PAGE> 69
(f) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Bank by
or on behalf of the Borrower.
(g) Any Bank may assign, as collateral or otherwise, any of its
rights (including, without limitation, rights to payments of principal of
and/or interest on the Notes) under any Loan Document to any Federal Reserve
Bank without notice to or consent of the Borrower or the Agent.
Section 8.08. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
Section 8.09. Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York. Without limiting the intent of the parties set forth above, (i) Chapter
15, Subtitle 3, Title 79, of the Revised Civil Statutes of Texas, 1925, as
amended (relating to revolving loans and revolving triparty accounts), shall
not apply to this Agreement, the Notes or the transactions contemplated hereby
and (ii) to the extent that any Bank may be subject to Texas law limiting the
amount of interest payable for its account, such Bank shall utilize the
indicated (weekly) rate ceiling from time to time in effect as provided in
Article 5069-1.04 of the Revised Civil Statutes of Texas, as amended.
Section 8.10. JURISDICTION; DAMAGES. THE BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT
SITTING IN NEW YORK CITY, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THE LETTERS OF CREDIT, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN
DOCUMENTS, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COURT.
THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH ACTION OR PROCEEDING. THE BORROWER HEREBY IRREVOCABLY APPOINTS CT
CORPORATION SYSTEM (THE "PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT
1633 BROADWAY, NEW YORK, NEW YORK 10019, AS ITS AGENT TO RECEIVE ON BEHALF OF
THE BORROWER AND ITS PROPERTY SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT
AND ANY OTHER PROCESS WHICH MAY BE SERVED BY THE AGENT, THE ARRANGER, ANY BANK,
THE ISSUING BANK OR ANY OTHER PERSON IN ANY SUCH ACTION OR PROCEEDING. THE
BORROWER HEREBY AGREES THAT SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND
ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING MAY BE
MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS EITHER (A) TO THE PROCESS
AGENT AT
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<PAGE> 70
THE PROCESS AGENT'S ABOVE ADDRESS OR (B) TO THE BORROWER AT ITS ADDRESS
SPECIFIED IN SECTION 8.02. THE BORROWER AGREES THAT A FINAL JUDGMENT, AS TO
WHICH ALL RIGHTS TO APPEAL HAVE TERMINATED, IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING HEREIN SHALL AFFECT
THE RIGHTS OF ANY BANK, THE AGENT, THE ARRANGER, THE ISSUING BANK OR ANY OTHER
PERSON TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF ANY BANK, THE AGENT, THE ARRANGER, THE ISSUING BANK OR ANY OTHER
PERSON TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY
IN THE COURTS OF ANY OTHER JURISDICTION. THE BORROWER HEREBY FURTHER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY ACTION OR
PROCEEDING REFERRED TO IN THIS SECTION 8.10 ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES.
SECTION 8.11. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT, THE
ISSUING BANK AND THE BANKS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT,
ANY OTHER LOAN DOCUMENT TO WHICH THE BORROWER IS A PARTY OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 8.12. Hedging Obligations. The Borrower may from time to
time elect pursuant to this Section 8.12 to have Hedging Obligations secured by
the Mortgages, if at the time of such election no Default or Event of Default
exists; provided, however, that in no event shall Hedging Obligations include
obligations under any Hedging Agreement between the Borrower and any party
other than a Bank nor shall there ever be Hedging Obligations in excess of
$2,500,000 in the aggregate secured by the Mortgages. As to each such
election, the Borrower shall (a) give the Agent notice in the form of Exhibit G
attached hereto (a "Notice of Hedging Obligations") signed by the Borrower and
the proposed secured party describing the proposed Hedging Agreement (including
the type, term, effective date, termination date and notional amounts or
volumes), and the proposed effective date of such election (which shall be a
Business Day not less than 1, nor more than 5, Business Days following such
notice), and (b) deliver to the Agent a copy of the proposed Hedging Agreement.
On the effective date of such election, the obligations of the Borrower under
the proposed Hedging Agreement shall be secured by the Mortgages up to the
maximum amount identified in such notice (in no event to exceed an aggregate
amount of $2,500,000 for all Notices of Hedging Obligations delivered pursuant
to this Section 8.12). From and after the effective date of such election the
proposed secured party who has signed such Notice of Hedging Obligations shall
be, subject to the next succeeding sentence, deemed to be secured by the
Mortgages up to the amount specified in such Notice of Hedging Obligations,
ratably as to all other amounts secured thereby, including all Advances, all
Letter of Credit Liabilities and all other Hedging Obligations designated
-66-
<PAGE> 71
by the Borrower pursuant to a Notice of Hedging Obligation, until the Borrower
and such secured party notify the Agent in writing that there are no
obligations under such Hedging Agreement that are secured by the Mortgages. In
the event the Borrower should at any time deliver a Notice of Hedging
Obligations to the Agent and the Agent should determine that the Hedging
Obligations of the Borrower to the proposed secured party who is party to such
Notice, when taken together with all amounts identified in all prior Notices of
Hedging Obligations delivered to the Agent, would exceed the aggregate sum of
$2,500,000, the amount of the Hedging Obligations to the proposed secured party
identified in the most recent Notice of Hedging Obligations shall automatically
be reduced to an amount that, when taken together with all such other amounts
allocated by the Borrower pursuant to Notices of Hedging Obligations, will not
exceed $2,500,000 in the aggregate.
Section 8.13. Special Provisions. On or before the seventh
Business Day after the date of issuance of the initial Letters of Credit, the
Borrower will deliver to the Agent (i) a release and termination of each of the
Bank One Liens duly executed by Bank One, Texas, N.A., and (ii) termination of
each letter of credit issued in connection with the loan secured by the Bank
One Liens. Notwithstanding anything to the contrary herein, in no event shall
the Borrower be entitled to have any Advance made (other than the initial
Advance) or any Letter of Credit issued (other than Letters of Credit
aggregating not more than $10,000,000) until such release and termination and
such terminations of each such letter of credit are delivered to the Agent.
Until the date referred to in the first sentence of this Section 8.13, the Bank
One Liens shall constitute Permitted Exceptions and such letters of credit
shall not constitute Indebtedness.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.
BORROWER:
PETSEC ENERGY, INC., a Nevada corporation
By: /s/ TERRENCE N. FERN
---------------------------------------
Name: Terrence N. Fern
-------------------------------------
Title: President
------------------------------------
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<PAGE> 72
AGENT:
THE CHASE MANHATTAN BANK, N.A.,
as Agent
By: /s/ RICHARD F. BETZ
---------------------------------------
Name: Richard F. Betz
-------------------------------------
Title: Vice President
------------------------------------
BANKS:
Commitment:
$75,000,000 THE CHASE MANHATTAN BANK, N.A.
By: /s/ RICHARD F. BETZ
---------------------------------------
Name: Richard F. Betz
-------------------------------------
Title: Vice President
------------------------------------
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<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Petsec Energy Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the headings "Selected Historical Financial Data," "Summary Financial
Data" and "Experts" in the prospectus. Our report indicates that the Parent
Company adopted the method of accounting for stock based compensation prescribed
by Statement of Financial Accounting Standards No. 123 for expense allocated to
the Company.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
July 17, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
To the Board of Directors of Petsec Energy Inc.:
We hereby consent to (i) the use in the Prospectus constituting a part of
the Registration Statement on Form S-4 filed by Petsec Energy Inc., a Nevada
corporation (the "Company"), under the Securities Act of 1933, of information
contained in our reserve report dated February 20, 1997, relating to the oil
and gas reserves and estimated future net revenues, as of December 31, 1996, of
certain properties held by the Company and (ii) all references to such report
and/or to this firm in such Prospectus, and further to our being named as an
expert therein.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
/s/ Ryder Scott Company Petroleum Engineers
-------------------------------------------
Houston, Texas
July 15, 1997
<PAGE> 1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
_______________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national Bank) identification no.)
48 Wall Street, New York, NY 10286
(Address of principal executive offices) (Zip code)
</TABLE>
_______________________
PETSEC ENERGY INC.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Nevada 84-1157202
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
143 Ridgeway Drive, Suite 113
Lafayette, LA 70503-3402
(Address of principal executive offices) (Zip code)
</TABLE>
_______________________
9 1/2% Senior Subordinated Notes due 2007
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York, NY 10006, and
New York Albany, NY 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, NY 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, NY 10005
</TABLE>
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 9th day of July, 1997.
THE BANK OF NEW YORK
By: /S/ THOMAS E. TABOR
-------------------------------
Name: THOMAS E. TABOR
Title: ASSISTANT TREASURER
<PAGE> 4
Exhibit 7
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1996, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ...................................... $ 6,024,605
Interest-bearing balances ............................................................... 808,821
Securities:
Held-to-maturity securities ............................................................. 1,071,747
Available-for-sale securities ........................................................... 3,105,207
Federal funds sold in domestic offices of the bank: ....................................... 4,250,941
Loans and lease financing receivables:
Loans and leases, net of unearned income ..................................... 31,962,915
LESS: Allowance for loan and lease losses .................................... 635,084
LESS: Allocated transfer risk reserve ........................................ 429
Loans and leases, net of unearned income,
allowance, and reserve .............................................................. 31,327,402
Assets held in trading accounts ........................................................... 1,539,612
Premises and fixed assets (including capitalized
leases) ................................................................................. 692,317
Other real estate owned ................................................................... 22,123
Investments in unconsolidated subsidiaries and
associated companies .................................................................... 213,512
Customers' liability to this bank on acceptances
outstanding ............................................................................. 985,297
Intangible assets ......................................................................... 590,973
Other assets .............................................................................. 1,487,903
-----------
Total assets .............................................................................. $52,120,460
===========
LIABILITIES
Deposits:
In domestic offices ..................................................................... $25,929,642
Noninterest-bearing .......................................................... 11,245,050
Interest-bearing ............................................................. 14,684,592
In foreign offices, Edge and Agreement
subsidiaries, and IBFs ................................................................ 12,852,809
Noninterest-bearing .......................................................... 552,203
Interest-bearing ............................................................. 12,300,606
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices
of the bank and of its Edge and Agreement
subsidiaries, and in IBFs:
Federal funds purchased ................................................................. 1,360,877
Securities sold under agreements to repurchase............................................. 226,158
Demand notes issued to the U.S. Treasury .................................................. 204,987
Trading liabilities ....................................................................... 1,437,445
Other borrowed money:
With original maturity of one year or less .............................................. 2,312,556
With original maturity of more than one year ............................................ 20,766
Bank's liability on acceptances executed and
outstanding ............................................................................. 1,014,717
Subordinated notes and debentures ......................................................... 1,014,400
Other liabilities ......................................................................... 1,721,291
-----------
Total liabilities ......................................................................... 48,095,648
-----------
EQUITY CAPITAL
Common stock .............................................................................. 942,284
Surplus ................................................................................... 731,319
Undivided profits and capital reserves .................................................... 2,354,095
Net unrealized holding gains (losses) on
available-for-sale securities ........................................................... 7,030
Cumulative foreign currency translation
adjustments ............................................................................. (9,916)
-----------
Total equity capital ...................................................................... 4,024,812
-----------
Total liabilities and equity capital ...................................................... $52,120,460
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
--
J. Carter Bacot |
Thomas A. Renyi | Directors
Alan R. Griffith |
--
<PAGE> 1
EXHIBIT 99.1
PETSEC ENERGY INC.
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
9 1/2% SERIES A SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON _______, 1997, UNLESS EXTENDED (THE
"EXPIRATION DATE") OLD NOTES TENDERED IN THE
EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE BUSINESS DAY PRIOR TO THE EXPIRATION DATE
DELIVER TO THE EXCHANGE AGENT:
THE BANK OF NEW YORK
By Hand/Overnight Courier: By Mail:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, 7th Floor
New York, NY 10286 Reorganization Section
Corporate Trust Services Window Group Level New York, NY 10286
Attention: Reorganization Section Attention: Henry Lopez
By Facsimile:
(212) 815-6639
Confirm by Telephone:
(212) 815-2742
--------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the
Prospectus dated ________, 1997 (the "Prospectus") of Petsec Energy Inc., a
Nevada corporation (the "Company") and this Letter of Transmittal (the "Letter
of Transmittal"), which together describe the Company's offer (the "Exchange
Offer") to exchange its 9 1/2% Series B Senior Subordinated Notes due 2007 (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement of
which the Prospectus is a part, for a like principal amount of its issued and
outstanding 9 1/2% Series A Senior Subordinated Notes due 2007 (the "Old
Notes"). Capitalized terms used but not defined herein have the respective
meaning given to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to
extend the Exchange Offer at its discretion, in which event the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. The Company shall notify the holders of the Old Notes of any
extension by oral or written notice and will mail to the record holders of Old
Notes an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a holder of Old Notes if
original Old Notes, if available, are to be forwarded herewith or an Agent's
Message is to be used if delivery of Old Notes is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offer -- Procedures
for Tendering" and "Book-Entry Transfer." Holders of Old Notes whose Old Notes
are not immediately available, or who are unable to deliver their Old Notes and
all other documents required by this Letter of Transmittal to the Exchange
Agent on or prior to the Expiration Date, or who are unable to complete the
procedure for book-entry transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
<PAGE> 2
Procedures." See Instruction 1. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
The term "holder" with respect to the Exchange Offer means any person
in whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE
AGENT.
List below the Old Notes to which this Letter of Transmittal relates.
If the space below is inadequate, list the registered numbers and principal
amounts on a separate signed schedule and affix the list to this Letter of
Transmittal.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
- ---------------------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered
Holder(s) Exactly as Name(s)
Appear(s) on Old Notes
(Please Fill In, If Blank) Old Note(s) Tendered
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate Principal Principal
Registered Amount Represented by Amount
Number(s)* Note(s) Tendered**
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, any tendering holder of Old Notes will be
deemed to have tendered the entire aggregate principal amount
represented by such Old Notes. All tenders must be in integral
multiples of $1,000.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
|_| CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY
ELIGIBLE INSTITUTIONS ONLY):
Name of Tendering Institution:
-------------------------------------------------
Account Number:
----------------------------------------------------------------
Transaction Code Number:
-------------------------------------------------------
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE
FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered holder(s) of Old Notes:
---------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------------------
<PAGE> 3
Window Ticket Number (if available):
-------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
------------------------
Account Number (if delivered by book-entry transfer):
-------------------------
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO:
Name:
--------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to the Company for exchange the principal amount of
Old Notes indicated above. Subject to and effective upon the acceptance for
exchange of the principal amount of Old Notes tendered in accordance with this
Letter of Transmittal, the undersigned hereby exchanges, assigns and transfers
to the Company all right, title and interest in and to the Old Notes tendered
for exchange hereby. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent, the agent and attorney-in-fact of the undersigned
(with full knowledge that the Exchange Agent also acts as the agent of the
Company in connection with the Exchange Offer) with respect to the tendered Old
Notes with full power of substitution to (i) deliver such Old Notes, or
transfer ownership of such Old Notes on the account books maintained by the
Book-Entry Transfer Facility, to the Company and deliver all accompanying
evidences of transfer and authenticity, and (ii) present such Old Notes for
transfer on the books of the Company and receive all benefits and otherwise
exercise all rights of beneficial ownership of such Old Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney granted
in this paragraph shall be deemed to be irrevocable and coupled with an
interest.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, exchange, assign and transfer the Old
Notes tendered hereby and to acquire the Exchange Notes issuable upon the
exchange of such tendered Old Notes, and that the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim, when the same are
accepted for exchange by the Company.
The undersigned acknowledge(s) that this Exchange Offer is being made
in reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the "SEC"),
including Exxon Capital Holdings Corporation, SEC No-Action Letter (available
April 13, 1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available
June 5, 1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC
No-Action Letter (available June 5, 1991), that the Exchange Notes issued in
exchange for the Old Notes pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by holders thereof (other than (i) a
broker-dealer who purchased Old Notes exchanged for such Exchange Notes
directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders are not participating in, and have no arrangement
with any person to participate in, the distribution of such Exchange Notes. The
undersigned specifically represent(s) to the Company that (i) any Exchange
Notes acquired in exchange for Old Notes tendered hereby are being acquired in
the ordinary course of business of the person receiving such Exchange Notes,
whether or not the undersigned, (ii) the undersigned is not participating in,
and has no arrangement with any person to participate in, the distribution of
Exchange Notes, and (iii) neither the undersigned nor any such other person is
an "affiliate" (as defined in Rule 405 under the Securities Act) of the Company
or a broker-dealer tendering Old Notes acquired directly from the Company for
its own account.
If the undersigned or the person receiving the Exchange Notes is a
broker-dealer that is receiving Exchange Notes for its own account pursuant to
the Exchange Offer, the undersigned acknowledges that it or such other person
will deliver a prospectus in connection with any resale of such Exchange Notes.
The undersigned acknowledges that if the undersigned is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) the
undersigned cannot rely on the position of the staff of the SEC in the Morgan
Stanley Letter and similar SEC no-action letters, and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes, in which case the registration statement
must contain the selling security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the SEC, and (ii) a broker-dealer
that delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
<PAGE> 4
Securities Act and will be bound by the provisions of the Registration
Rights Agreement (including certain indemnification rights and obligations).
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered hereby, including the transfer of such Old Notes on the account books
maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to
have accepted for exchange validly tendered Old Notes when, as and if the
Company gives oral or written notice thereof to the Exchange Agent. Any
tendered Old Notes that are not accepted for exchange pursuant to the Exchange
Offer for any reason will be returned, without expense, to the undersigned at
the address shown below or at a different address as may be indicated herein
under "Special Delivery Instructions" as promptly as practicable after the
Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Old Notes pursuant to the procedures described under the caption "The
Exchange Offer -- Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated under "Special Issuance Instructions,"
please issue the Exchange Notes issued in exchange for the Old Notes accepted
for exchange and return any Old Notes not tendered or not exchanged, in the
name(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please mail or deliver the Exchange Notes
issued in exchange for the Old Notes accepted for exchange and any Old Notes
not tendered or not exchanged (and accompanying documents, as appropriate) to
the undersigned at the address shown below the undersigned's signature(s). In
the event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the Exchange Notes issued in exchange
for the Old Notes accepted for exchange in the name(s) of, and return any Old
Notes not tendered or not exchanged to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Old Notes from the name of the registered holder(s) thereof if the Company
does not accept for exchange any of the Old Notes so tendered for exchange.
<TABLE>
<CAPTION>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6) (SEE INSTRUCTIONS 5 AND 6)
<S> <C>
To be completed ONLY (i) if Old Notes in a principal To be completed ONLY if Old Notes in a principal
amount not tendered, or Exchange Notes issued in exchange amount not tendered, or Exchange Notes issued in exchange
for Old Notes accepted for exchange, are to be issued in the for Old Notes accepted for exchange, are to be mailed or
name of someone other than the undersigned, or (ii) if Old delivered to someone other than the undersigned, or to the
Notes tendered by book-entry transfer which are not undersigned at an address other than that shown below the
exchanged are to be returned by credit to an account undersigned's signature.
maintained at the Book-Entry Transfer Facility. Issue
Exchange Notes and/or Old Notes to: Mail or deliver Exchange Notes and/or Old Notes to:
Name:
-----------------------------------------------------
(Please Type or Print) Name:
-------------------------------------------
- ------------------------------------------------------------ (Please Type or Print)
---------------------------------------------------
Address:
-------------------------------------------------- Address:
(include Zip Code) ---------------------------------------------------
(include Zip Code)
- ------------------------------------------------------------
(Tax Identification or Social Security Number) ---------------------------------------------------
(Tax Identification or Social Security Number)
(Complete Substitute Form W-9)
- ------------------------------------------------------------ ---------------------------------------------------
</TABLE>
|_| Credit unexchanged Old Notes delivered by book-entry transfer
to the Book-Entry Transfer Facility set forth below:
<PAGE> 5
Book-Entry Transfer Facility Account Number:
IMPORTANT
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(Complete Accompanying Substitute Form W-9 on Reverse Side)
X
------------------------------------------------------------------------------
X
------------------------------------------------------------------------------
(Signature(s) of Registered Holders or Old Notes)
Dated , 1997
-----------------------------------------------
(The above lines must be signed by the registered holder(s) of Old Notes as
name(s) appear(s) on the Old Notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by a properly completed
bond power from the registered holder(s), a copy of which must be transmitted
with this Letter of Transmittal. If Old Notes to which this Letter of
Transmittal relate are held of record by two or more joint holders, then all
such holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
then such person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 5 regarding the completion of
this Letter of Transmittal, printed below.)
Name(s):
----------------------------------------------------------------------
(Please Type or Print)
Capacity:
----------------------------------------------------------------------
Address:
----------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number:
-----------------------------------------------
MEDALLION SIGNATURE GUARANTEE (If Required
by Instruction 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:
---------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
(Address, Include Zip Code)
- --------------------------------------------------------------------------------
(Area Code and Telephone Number)
Dated: , 1997
-------------------------------------------------------------------
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes or Book-Entry
Confirmations. All physically delivered Old Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or Agent's Message or facsimile hereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. The method of delivery of the tendered Old
Notes, this Letter of Transmittal and all other required documents to the
Exchange Agent is at the election and risk of the holder and, except as
otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. Instead of delivery by mail, it is
recommended that the holder use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure delivery to the Exchange
Agent before the Expiration Date. No Letter of Transmittal or Old Notes should
be sent to the Company.
2. Guaranteed Delivery Procedures. Holders who wish to tender their
Old Notes and whose Old Notes are not immediately available or who cannot
deliver their Old Notes, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent prior to the Expiration Date or who
cannot complete the procedure for book-entry transfer on a time basis and
deliver an Agent's Message, must tender their Old Notes according to the
guaranteed delivery procedures set forth in the Prospectus. Pursuant to such
procedures: (1) such tender must be made by or through a firm which is a member
of a registered national securities exchange or of the National Association of
Securities Dealers Inc., a commercial bank or a trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution"); (ii) prior to the Expiration Date, the Exchange Agent must have
received from the Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder of the Old Notes,
the registration number(s) of such Old Notes and the total principal amount of
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five business days after the Expiration Date, this
Letter of Transmittal (or facsimile hereof) together with the Old Notes in
proper form for transfer (or a Book-Entry Confirmation) and any other documents
required hereby, must be deposited by the Eligible Institution with the
Exchange Agent within five business days after the Expiration Date; and (iii)
the certificates for all physically tendered shares of Old Notes, in proper
form for transfer (or Book-Entry Confirmation, as the case may be) and all
other documents required hereby are received by the Exchange Agent within five
business days after the Expiration Date.
Any holder of Old Notes who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a Notice
of Guaranteed Delivery will be sent to holders who wish to tender their Old
Notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Guaranteed Delivery Procedures" section of
the Prospectus.
3. Tender by Holder. Only a holder of Old Notes may tender such Old
Notes in the Exchange Offer. Any beneficial holder of Old Notes who is not the
registered holder and who wishes to tender should arrange with the registered
holder to execute and deliver this Letter of Transmittal on his behalf or must,
prior to completing and executing this Letter of Transmittal and delivering his
Old Notes, either make appropriate arrangements to register ownership of the
Old Notes in such holder's name or obtain a properly completed bond power from
the registered holder.
4. Partial Tenders. Tenders of Old Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Old Notes is tendered, the tendering holder should fill in the principal amount
tendered in the third column of the box entitled "Description of Old Notes
Tendered" above. The entire principal amount of Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
If the entire principal amount of all Old Notes is not tendered, then Old Notes
for the principal amount of Old Notes not tendered and Exchange Notes issued in
exchange for any Old Notes accepted will be sent to the holder at his or her
registered address, unless a different address is provided in the appropriate
box on this Letter of Transmittal, promptly after the Old Notes are accepted
for exchange.
5. Signatures on this Letter of Transmittal; Bond Powers and
Endorsements; Medallion Guarantee of Signatures. If this Letter of Transmittal
(or facsimile hereof) is signed by the record holder(s) of the Old Notes
tendered hereby, the signature must correspond with the name(s) as written on
the face of the Old Notes without alteration, enlargement or any change
whatsoever. If this Letter of Transmittal (or facsimile hereof) is signed by a
participant in the Book-Entry Transfer Facility, the signature must correspond
with the name as it appears on the security position listing as the holder of
the Old Notes.
<PAGE> 7
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Old Notes listed and tendered hereby and the
Exchange Notes issued in exchange therefor are to be issued (or any untendered
principal amount of Old Notes is to be reissued) to the registered holder, the
said holder need not and should not endorse any tendered Old Notes, nor provide
a separate bond power. In any other case, such holder must either properly
endorse the Old Notes tendered or transmit a properly completed separate bond
power with this Letter of Transmittal, with the signatures on the endorsement
or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a
person other than the registered holder or holders of any Old Notes listed,
such Old Notes must be endorsed or accompanied by appropriate bond powers, in
each case signed as the name of the registered holder or holders appears on the
Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes
or bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, evidence satisfactory to the Company of their
authority to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal
(or facsimile hereof) is signed by the registered holder(s) of the Old Notes
tendered herein (or by a participant in the Book-Entry Transfer Facility whose
name appears on a security position listing as the owner of the tendered Old
Notes) and the Exchange Notes are to be issued directly to such registered
holder(s) (or, if signed by a participant in the Book-Entry Transfer Facility,
deposited to such participant's account at such BookEntry Transfer Facility)
and neither the box entitled "Special Delivery Instructions" nor the box
entitled "Special Registration Instructions" has been completed, or (ii) such
Old Notes are tendered for the account of an Eligible Institution. In all other
cases, all signatures on this Letter of Transmittal (or facsimile hereof) must
be guaranteed by an Eligible Institution.
6. Special Registration and Delivery Instructions. Tendering holders
should indicate, in the applicable box or boxes, the name and address (or
account at the Book-Entry Transfer Facility) to which Exchange Notes or
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of
the person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer.
If, however, Exchange notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered hereby, or if tendered Old Notes are registered in the name of any
person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. Tax Identification Number. Federal income tax law requires that a
holder of any Old Notes which are accepted for exchange must provide the
Company (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual is his or her social
security number. If the Company is not provided with the correct TIN, the
holder may be subject to a $50 penalty imposed by Internal Revenue Service. (If
withholding results in an over-payment of taxes, a refund may be obtained).
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the Old Notes are registered in more than one name or are not
in the name of the actual owner, see the enclosed "Guidelines for Certification
of Taxpayer Identification Number of Substitute Form W-9" for information on
which TIN to report.
<PAGE> 8
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligations regarding backup
withholding.
9. Validity of Tenders. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
Old Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of the Company or its
counsel, be unlawful. The Company also reserves the absolute right to waive any
conditions of the Exchange Offer or defects or irregularities in tenders as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (includes this Letter of Transmittal and the instructions
hereto) shall be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of Old Notes must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any person shall be under any duty to give notification of defects or
irregularities with regard to tenders of Old Notes nor shall any of them incur
any liability for failure to give such notification.
10. Waiver of Conditions. The Company reserves the absolute
right to waive, in whole or part, any of the conditions to the Exchange Offer
set forth in the Prospectus.
11. No Conditional Tender. No alternative, conditional,
irregular or contingent tender of Old Notes on transmittal of this
Letter of Transmittal will be accepted.
12. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder whose
Old Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
13. Requests for Assistance or Additional Copies. Requests for
assistance or for additional copies of the Prospectus or this Letter of
Transmittal may be directed to the Exchange Agent at the address or telephone
number set forth on the cover page of this Letter of Transmittal. Holders may
also contact their broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Exchange Offer.
14. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE OLD NOTES DELIVERED BY BOOK-ENTRY TRANSFER OR IN ORIGINAL
HARD COPY FORM) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE
EXPIRATION DATE.
<PAGE> 9
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN Social Security Number
IN THE BOX AT RIGHT AND CERTIFY OR Employer Identification Number
FORM W-9 BY SIGNING AND DATING BELOW
<S> <C> <C>
--------------------------------------------- ------------------------------------------
DEPARTMENT OF THE TREASURY PART 2--Certification-- Under penalties of perjury, I PART 3--
INTERNAL REVENUE SERVICE certify that:
(1) The number shown on this form is my correct Awaiting TIN |_|
Taxpayer Identification Number (or I am waiting
for a number to be issued to me) and
(2) I am not subject to backup
PAYER'S REQUEST FOR TAXPAYER withholding either Please
IDENTIFICATION NUMBER (TIN) complete the because I have not
been notified by the Internal
Certificate of Awaiting Revenue
Service ("IRS") that I am
subject to Taxpayer
Identification backup
withholding as a result of
failure to repoNumber below. all
interest or dividends, or the
IRS has notified me that I am no
longer subject to backup
withholding.
--------------------------------------------------------- ------------------------------
Certificate Instructions -- You must
cross out item (2) in Part 2 above if you
have been notified by the IRS that you
are subject to backup withholding because
of underreporting interest or dividends
on your tax return. However, if after
being notified by the IRS that you were
subject to backup withholding you
received another notification from the
IRS stating that you are no longer
subject to backup withholding, do not
cross out item (2).
SIGNATURE DATE , 1997
--------------------------------------------------- --------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number to the payor within
60 days, 31% of all reportable payments made to me thereafter will be withheld
until I provide a number.
, 1997
- ----------------------------------------- ---------------------------
Signature Date
- --------------------------------------------------------------------------------
<PAGE> 10
- --------------------------------------------------------------------------------
CERTIFICATE FOR FOREIGN RECORD HOLDERS
Under penalties of perjury, I certify that I am not a United States
citizen or resident (or I am signing for a foreign corporation, partnership,
estate or trust).
, 1997
- ----------------------------------------- ---------------------------
Signature Date
- --------------------------------------------------------------------------------
<PAGE> 11
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
9 1/2% SERIES A SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
This form, or one substantially equivalent hereto, must be used by a
holder to accept the Exchange Offer of Petsec Energy Inc., a Nevada corporation
(the "Company"), and to tender 9 1/2% Series A Senior Subordinated Notes due
2007 (the "Old Notes") to the Exchange Agent pursuant to the guaranteed
delivery procedures described in "The Exchange Offer --Guaranteed Delivery
Procedures" of the Company's Prospectus, dated ________, 1997 (the
"Prospectus") and in Instruction 2 to the related Letter of Transmittal. Any
holder who wishes to tender Old Notes pursuant to such guaranteed delivery
procedures must ensure that the Exchange Agent receives this Notice of
Guaranteed Delivery prior to the Expiration Date (as defined below) of the
Exchange Offer. Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
__________, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED
IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
THE BANK OF NEW YORK
By Hand/Overnight Courier: By Mail:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, 7th Floor
New York, NY 10286 Reorganization Section
Corporate Trust Services Window Group Level New York, NY 10286
Attention: Reorganization Section Attention: Henry Lopez
By Facsimile:
(212) 815-6639
Confirm by Telephone:
(212) 815-2742
---------------------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER
THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE IN THE BOX PROVIDED ON
THE LETTER OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
<PAGE> 12
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
subject to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Old Notes listed below:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OF OLD NOTES OR ACCOUNT AGGREGATE PRINCIPAL AMOUNT AGGREGATE PRINCIPAL AMOUNT
NUMBER AT THE BOOK-ENTRY FACILITY REPRESENTED TENDERED
- ------------------------------------------------------ ------------------------------- --------------------------------
<S> <C> <C>
</TABLE>
PLEASE SIGN AND COMPLETE
Names of Record Holders: Signatures:
--------------- ---------------------------
Address:
------------------------------- ---------------------------------------
- ---------------------------------------- Dated: , 1997
--------------------------
Area Code and Telephone Numbers:
------
- ----------------------------------------
This Notice of Guaranteed Delivery m st be signed by the Holder(s)
exactly as their name(s) appear on certificates for Old Notes or on a security
position listing as the owner of Old Notes, or by person(s) authorized to
become holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity:
- --------------------------------------------------------------------------------
Address(es):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 13
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the ational Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17 Ad-15 under the Securities Exchange Act of 1934,
guarantees deposit with the Exchange Agent of the Letter of Transmittal (or
facsimile thereof), together with the Old Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility described in
the Prospectus under the caption "The Exchange Offer--Book-Entry Transfer" and
in the Letter of Transmittal) and any other required documents, all by 5:00
p.m., New York City time, within three business days following the Expiration
Date.
Name of Firm:
------------------------- ---------------------------------------
(AUTHORIZED SIGNATURE)
Address:
------------------------------
(INCLUDE ZIP CODE) Name:
-------------------------------
Area Code and Tel. Number: Title:
------------------------------
- --------------------------------------- (PLEASE TYPE OR PRINT)
Date: , 1997
-------------------------
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
<PAGE> 14
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly
completed and duly executed copy of this Notice of Guaranteed Delivery and any
other documents required by this Notice of Guaranteed Delivery must be received
by the Exchange Agent at its address set forth herein prior to the Expiration
Date. The method of delivery of this Notice of Guaranteed Delivery and any
other required documents to the Exchange Agent is at the election and sole risk
of the holder, and the delivery will be deemed made only when actually received
by the Exchange Agent. If delivery is by mail, registered mail with return
receipt requested, properly insured, is recommended. As an alternative to
delivery by mail, the holders may wish to consider using an overnight or hand
delivery service. In all cases, sufficient time should be allowed to assure
timely delivery. For a description of the guaranteed delivery procedures, see
Instruction 2 of the Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Old Notes, the signature must correspond with the
name shown on the security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Old Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
holder(s) appears on the Old Notes or signed as the name of the participant
shown on the Book-Entry Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation,
or other person acting in a fiduciary or representative capacity, such person
should so indicate when signing and submit with the Letter of Transmittal
evidence satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and
requests for assistance and requests for additional copies of the Prospectus
may be directed to the Exchange Agent at the address specified in the
Prospectus. Holders may also contact their broker, dealer, commercial bank,
trust company, or other nominee for assistance concerning the Exchange Offer.
<PAGE> 15
PETSEC ENERGY INC.
LETTER TO CLIENTS
FOR
TENDER OF ALL OUTSTANDING
9 1/2% SERIES A SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON _______, 1997, UNLESS EXTENDED (THE
"EXPIRATION DATE").
NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
To Our Clients:
We are enclosing herewith a Prospectus, dated ___________, 1997, of
Petsec Energy Inc., a Nevada corporation (the "Company") and a related Letter
of Transmittal, which together constitute (the "Exchange Offer") relating to
the offer by the Company, to exchange its 9 1/2% Series B Senior Subordinated
Notes due 2007 (the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act") for a like principal
amount of its issued and outstanding 9 1/2% Series A Senior Subordinated Notes
due 2007 (the "Old Notes"), upon the terms and subject to the conditions set
forth in the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered.
We are the holder of record of Old Notes held by us for your own
account. A tender of such Old Notes can be made only by us as the record holder
and pursuant to your instructions. The Letter of Transmittal is furnished to
you for your information only and cannot be used by you to tender Old Notes
held by us for your account.
We request instructions as to whether you wish to tender any or all of
the Old Notes held by us for your account pursuant to the terms and conditions
of the Exchange Offer. We also request that you confirm that we may on your
behalf make the representations and warranties contained in the Letter of
Transmittal.
Very truly yours,
<PAGE> 16
PLEASE RETURN YOUR INSTRUCTIONS TO US IN THE ENCLOSED ENVELOPE WITHIN
AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE
EXPIRATION DATE.
INSTRUCTION TO REGISTERED HOLDER AND/OR BOOK
ENTRY TRANSFER PARTICIPANT
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
______, 1997 (the "Prospectus") of Petsec Energy Inc., a Nevada corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer") to exchange its 9 1/2% Series B Senior Subordinated Notes due 2007 (the
"Exchange Notes"), for all of its outstanding 9 1/2% Series A Senior
Subordinated Notes due 2007 (the "Old Notes"). Capitalized terms used but not
defined herein have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry
transfer facility participant, as to the action to be taken by you relating to
the Exchange Offer with respect to the Old Notes held by you for the account of
the undersigned.
The aggregate face amount of the Old Notes held by you for the account
of the undersigned is (FILL IN AMOUNT):
$____________________ of the 9 1/2% Series A Senior Subordinated Notes
due 2007.
With respect to the Exchange Offer, the undersigned hereby instructs
you (CHECK APPROPRIATE BOX):
[ ] To TENDER the following Old Notes held by your for the
account of the undersigned (INSERT PRINCIPAL AMOUNT OF OLD NOTES TO BE
TENDERED) (IF ANY): $_______________________.
[ ] NOT to TENDER any Old Notes held by you for the account of
the undersigned.
If the undersigned instructs you to tender the Old Notes held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned by its signature below,
hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i)
the Exchange Notes acquired in exchange for Old Notes pursuant to the Exchange
Offer are being acquired in the ordinary course of business of the person
receiving such Exchange Notes, whether or not undersigned, (ii) the undersigned
is not participating in, and has no arrangement with any person to participate
in, the distribution within the meaning of the Securities Act of 1933, as
amended (the "Securities Act") and (iii) neither the undersigned nor any such
other person is an "affiliate" (within the meaning of Rule 405 under the
Securities Act) of the Company or a broker-dealer tendering Old Notes acquired
directly from the Company. If the undersigned is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Old Notes, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
SIGN HERE
Name of beneficial owner(s):
--------------------------------------------------
Signature(s):
-----------------------------------------------------------------
Name(s) (please print):
-------------------------------------------------------
Address:
----------------------------------------------------------------------
Number:
----------------------------------------------------------------------
Taxpayer Identification or Social Security Number:
----------------------------
Date:
-------------------------------------------------------------------------
<PAGE> 17
PETSEC ENERGY INC.
LETTER TO REGISTERED HOLDERS AND
DEPOSITORY TRUST COMPANY PARTICIPANTS
FOR
TENDER OF ALL OUTSTANDING 9 1/2% SERIES A SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON ________, 1997. UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the
offer by Petsec Energy Inc., a Nevada corporation (the "Company"), to exchange
its 9 1/2% Series B Senior Subordinated Notes due 2007 (the "Exchange Notes"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of its issued and outstanding 9
1/2% Series A Senior Subordinated Notes due 2007 (the "Old Notes") upon the
terms and subject to the conditions set forth in the Company's Prospectus,
dated ______, 1997, and the related Letter of Transmittal (which together
constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated ________, 1997;
2. Letter of Transmittal (together with accompanying
Substitute Form W-9 Guidelines);
3. Notice of Guaranteed Delivery;
4. Letter which may be sent to your clients for whose
account you hold Old Notes in your name or in the name of your
nominee; and
5. Letter which may be sent from your clients to you with
such client's instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the
Exchange Offer will expire on the Expiration Date unless extended.
The Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the Exchange Notes acquired in exchange for
Old Notes pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
the holder, (ii) the holder is not participating in, and has no arrangement
with any person to participate in, the distribution of Exchange Notes within
the meaning of the Securities Act, and (iii) neither the holder nor any such
other person is an "affiliate" (within the meaning of Rule 405 under the
Securities Act) of the Company or a broker-dealer tendering Old Notes acquired
directly from the Company. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Old Notes, it acknowledges
that it will deliver a prospectus in connection with any resale of such
Exchange Notes.
The enclosed Letter to Clients contains an authorization by the
beneficial owners of the Old Notes for you to make the foregoing
representations.
The Company will not pay any fee or commission to any broker or dealer
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the transfer
of Old Notes to it, except as otherwise provided in Instruction 7 of the
enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
PETSEC ENERGY INC.
