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EXHIBIT 99.5
PETSEC ENERGY INC.
Term Sheet for Plan of Reorganization
June 16, 2000
I. Parties to Term Sheet
Petsec (USA) Inc. ("PUSA")
Petsec Energy Inc. ("Petsec")
Undersigned holders of the 9 1/2% Senior Notes due 2007 (the
"Notes") issued by Petsec
Senior Management of Petsec
The Official Committee of Unsecured Creditors (the "Committee")
of Petsec
II. Framework
Petsec and/or all the assets of Petsec will be sold as promptly as practicable.
During the sale process, Petsec will, in accordance with a budget (the
"Budget") agreed to by Petsec, the Committee and Foothill Capital Corporation
("Foothill"), (a) continue to operate its business in the ordinary course,
including managing its trade accounts payable in the ordinary course consistent
with past practice and (b) make capital expenditures necessary to preserve the
value of Petsec's assets. The process, timing and budget for the marketing and
sale of Petsec and/or its assets (the "Marketing Process") shall be agreed to
by Petsec and the Committee. The net proceeds of all sales of Petsec assets
after payment in full of Petsec's obligations to Foothill and amounts necessary
to assume and assign any contracts or leases related to the assets sold and in
excess of the amounts necessary to operate Petsec in accordance with the Budget
shall be deposited in an interest-bearing escrow account, which proceeds shall
not be used by Petsec without the consent of the Committee or an order of the
Bankruptcy Court.
III. Sale Terms
a. Any sale of Petsec or any of its assets shall be subject to
the consent of the Committee. Acceptance of a bid for
consideration other than cash that does not include
sufficient cash to pay the Foothill Debt, priority claims and
the Carve-Out Amounts contemplated hereby will also require
the consent of Petsec, PUSA and Senior Management.
b. Houlihan Lokey Howard & Zukin Capital, L.P. ("HLHZ") shall
serve as the transaction broker (the "Transaction Broker")
subject to being terminated by Petsec as provided in the
following sentence. Provided that (i) Petsec files a plan
which incorporates the terms of the Term Sheet and in no
way materially impairs the rights accorded the holders of
the Notes (the "Noteholders") under the Term Sheet; and
(ii) Petsec (w) circulates a draft of such plan to the
Committee and its advisors on or before May 26, 2000; (x)
circulates a draft of the disclosure statement to such plan
(the "Disclosure Statement") to the Committee and its
advisors on or before June 5, 2000; (y) files such Plan and
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Disclosure Statement with the Court on or before June 30,
2000; and (z) seeks to obtain a hearing on the Disclosure
Statement, which hearing shall occur on or before July 31,
2000, then, so long as Petsec satisfies its obligations
under clauses (i) and (ii) hereinabove set forth, Petsec
may, at its option, terminate HLHZ as the Transaction
Broker if, on or before the earlier of (i) forty-five days
after the entry of a final order approving the adequacy of
the Disclosure Statement or (ii) the date for submission of
ballots on the Plan, HLHZ fails to procure in writing,
binding commitments to vote to accept the Plan of at least
two-thirds in amount and more than one-half in number of
the claims held by the Noteholders that vote to accept or
reject the Plan.
c. Petsec and the Committee will jointly implement the sale in
accordance with the Marketing Process incorporating the
economic terms set forth herein relative to the allocation of
sales proceeds.
IV. Distribution of Sales Proceeds
The proceeds of the sale of Petsec and/or its assets shall be
distributed in the following order of priority:
a. The Foothill Debt;
b. Transaction costs, contract and lease assumption costs and claims
having priority over the Noteholders' claims (including (i) claims
of Petsec's senior management (the "Senior Management")(*1) for
severance benefits under their employment agreements or otherwise in
an aggregate amount not to exceed $491,303 (the "Guaranteed
Payment") which together with the Incentive Payment (as defined
below) shall constitute payment in full for any and all severance or
related claims asserted or assertable by Senior Management); (ii)
claims of Petsec employees (including Senior Management) for accrued
and unpaid vacation pay in an amount set out on Exhibit J of the
Employee Motion (as defined below); (iii) claims of Petsec employees
(exclusive of Senior Management) payable in accordance with the
Petsec Energy Inc. Year 2000 Severance Plan (the "Employee
Severance"); and (iv) reasonable professional fee claims of Akin,
Gump, Strauss, Hauer & Feld, L.L.P.; Vinson & Elkins L.L.P.; HLHZ;
and Gordian Group, L.P. ("Gordian Group"), provided however, that
Petsec's engagement letter with Gordian Group shall be amended in
accordance with Exhibit A hereto. To the extent any of the amounts
for the Guaranteed Payment and/or Employee Severance are not paid,
such amount shall be available for distribution to Petsec's
creditors, PUSA and the PUSA and Senior Management Carve-Out Amounts
in accordance with the terms set forth herein.
c. To the extent not paid pursuant to paragraph IV.b. hereof, all priority
tax claims in cash in full in the ordinary course or as otherwise
required by applicable law.
d. Payment to the following on a pari passu basis:
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(*1) Senior Management shall be defined to include only John T. Bellatti,
Howard H. Wilson, Jr., William R. Sack, James E. Slatten, III, and Ross A.
Keogh.
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(i) the Noteholders , including all interest, fees and expenses
accrued as of the petition date (who will carve out a portion of the
Noteholders' recoveries in accordance with the "Carve-Out Agreement"
described below);
(ii) all other unsecured claims on par with the Noteholders;(*2)
e. The Noteholders in an amount equal to any amounts carved out of
Noteholders' recoveries under the Carve-Out Agreement;
f. The holder of the subordinated shareholder loan; and
g. The holder of equity interests in Petsec.
V. Carve-Out Agreement
a. The Noteholders agree to carve out from their recovery and allow Petsec to
pay to PUSA and the Senior Management, as applicable, amounts (the "Carve-Out
Amounts") representing the following percentages of the actual distributions
payable to the Noteholders in the bankruptcy case (the "Recovery"); provided
however, that the costs incurred in connection with the prosecution of, and the
proceeds of, any claims asserted or assertable by the Debtor or the Committee
under Chapter 5 of the United States Bankruptcy Code (or similar state law
cause of action) shall be excluded from the calculation of the Recovery for
purposes of determining the Carve-Out Amounts. PUSA may retain its portion of
the Carve-Out Amounts on account of its equity interest in Petsec (the "Equity
Claim") or its subordinated shareholder loan (the "Shareholder Loan Claim").
<TABLE>
<CAPTION>
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Noteholders' Recovery PUSA Carve-Out Amounts Senior ManagementCarve-Out Amounts
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<S> <C> <C>
Less than $60 Million 3.375% of Recovery 1.375% of Recovery
$60 to less than $70 Million Above, plus 6.375% of Recovery from $60 Above, plus 1.375% of Recovery from $60
to $70 Million to $70 Million
$70 to less than $80 Million Above, plus 9.375% of Recovery from $70 Above, plus 1.375% of Recovery from $70
to $80 Million to $80 Million
$80 to less than $90 Million Above, plus 12.375% of Recovery from $80 Above, plus 1.375% of Recovery from $80
to $90 Million to $90 Million
$90 to less than $100 Million Above, plus 15.375% of Recovery from $90 Above, plus 1.375% of Recovery from $90
to $100 Million to $100 Million
$100 Million to 100% Recovery Above, plus 18.375% of Recovery from Above, plus 1.375% from $100 million to
$100 Million to 100% Recovery 100% Recovery
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</TABLE>
b. The Senior Management Carve-Out Amount shall be allocated as incentive
payments (the "Incentive Payments") among the Senior Managers in accordance
with the percentages set forth on Exhibit I to the Employee Motion. Guaranteed
Payment, accrued vacation, and the Incentive Payment shall be payable in
accordance with the Motion for Authority to Continue Year 2000 Severance Plan
and Vacation Policy, To Assume Modified Key Employment Agreements and Approve
Management Incentive Plan (the "Employee Motion"), substantially in form as
filed by Petsec with the Bankruptcy Court on May 5, 2000. The relief requested
in the Employee Motion shall be approved by a separate, signed order of the
Bankruptcy Court on the same date that HLHZ is appointed as Transaction Broker.
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(*2) The Petsec Plan of Reorganization shall provide for an administrative
convenience class in the amount of up to $5000 per unsecured claim.
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c. Provided that the Transaction Broker's terms of engagement contain
similar time-based incentives, the foregoing PUSA and Senior
Management Carve-Out Amounts shall be increased or decreased as
follows:
(i)If one or more purchase and sale agreements or similar transaction
agreements is entered into for the sale or transfer of Petsec or any
of its assets after January 18, 2000, but on or before September 15,
2000 (and such agreement or agreements close on or before October 30,
2000), the PUSA and Senior Management Carve-Out Amounts shall be
increased by 20% with respect to that portion of the aggregate gross
consideration attributable to the assets transferred pursuant to such
agreement or agreements or any topping offers that are received in
respect of the underlying assets (the "Pre-September 15th Gross
Consideration") as it relates to the total aggregate gross
consideration received for all of Petsec and/or its assets (the "Total
Aggregate Gross Consideration"). The calculation of the foregoing is
as follows: (PUSA and Senior Management Carve-Out Amounts) x (1.20) x
(Pre-September 15th Gross Consideration / Total Aggregate Gross
Consideration).
(ii)If one or more purchase and sale agreements or similar transaction
agreements is entered into for the sale or transfer of Petsec or any
of its assets after September 15, 2000, but on or before December 15,
2000 (and such agreement or agreements close on or before January 31,
2001), then the PUSA and Senior Management Carve-Out Amounts shall not
be adjusted under this Paragraph with respect to that portion of the
aggregate gross consideration attributable to the assets transferred
pursuant to such agreement or agreements or any topping offers that
are received in respect of the underlying assets.
(iii)If one or more purchase and sale agreements or similar
transaction agreements is entered into for the sale or transfer of
Petsec or any of its assets after December 15, 2000, the PUSA and
Senior Management Carve-Out Amounts shall be decreased by 20% with
respect to that portion of the aggregate gross consideration
attributable to the assets transferred pursuant to such agreement or
agreements or any topping offers that are received in respect of the
underlying assets (the "Post-December 15th Gross Consideration") as it
relates to the Total Aggregate Gross Consideration. The calculation of
the foregoing is as follows: (PUSA and Senior Management Carve-Out
Amounts) x (0.80) x (Post-December 15th Gross Consideration/Total
Aggregate Gross Consideration). This clause shall not apply in the
event a "reasonable" written sale offer is received prior to December
15, 2000, but rejected by the Committee. A written offer shall be
deemed "reasonable" only if the asset or assets subject to such offer
are subsequently sold at a price that is equal to or less than the
price contained in the rejected offer.
d. The Shareholder Loan Claim and the Equity Claim shall be satisfied out
of the PUSA Carve-Out Amount and any deficiencies on such claims shall
be subordinate to the claims of Noteholders. To the extent that such
claims are paid on or after January 18, 2000 from sources other than
the PUSA Carve-Out Amount, the PUSA Carve-Out Amount shall be reduced
on a dollar-for-dollar basis.
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VI. Implementation
Petsec and the Committee will use their best efforts to implement the
Marketing Process as promptly as practicable as contemplated hereby.
Petsec also will file a plan of reorganization (the "Plan") and, if
necessary or required by the buyer, a Section 363 Sale Motion as
promptly as practicable. The Plan will provide for the distribution of
the sale proceeds in accordance with the terms set forth above save
and except the payment of funds contemplated in the Employee Motion
which shall be covered by a separate order of the Bankruptcy Court.
PETSEC ENERGY INC.
By:__________________________
Name
Title
PETSEC (USA) INC.
By:__________________________
Name:
Title:
JOHN T. BELLATTI
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HOWARD H. WILSON, JR.
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WILLIAM R. SACK
-----------------------------
JAMES E. SLATTEN, III
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ROSS A. KEOGH
-----------------------------
THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS OF PETSEC ENERGY INC.
SUN AMERICA INVESTMENTS INC.
By:_______________________________
Kaye Handley
Committee Co-Chair
FIDELITY MANAGEMENT & RESEARCH CO.
By:_______________________________
William P. Wall
Committee Co-Chair
EVERGREEN STRATEGIC INCOME FUND
By:_________________________________
Prescott Crocker
Title:
FIDELITY SUMMER STREET TRUST:
FIDELITY CAPITAL & INCOME FUND
By:_________________________________
Name:
Title:
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FIDELITY FIXED - INCOME TRUST:
FIDELITY HIGH INCOME FUND
By:_________________________________
Name:
Title:
SUN AMERICA INC.
By:_________________________________
Name:
Title:
THE DREYFUS CORP.
By:_________________________________
Roger E. King
Title:
COLONIAL MANAGEMENT ASSOCIATES, INC.
By:_________________________________
Greg Smalley
Title:
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EXHIBIT A
TO
TERM SHEET FOR PLAN OF REORGANIZATION
Gordian Group's engagement letter dated October 15, 1999 (the
"Engagement Letter"), shall be modified in the following respects:
1. Gordian Group shall waive any Additional Fees relating to any
Financial Transaction consummated after February 1, 2000.
2. Gordian Group shall be approved as Petsec's financial advisor for
the duration of Petsec's Chapter 11 bankruptcy case.
3. Petsec's estate's obligation to pay Gordian Group's fees and
expenses shall be the longer of (a) three (3) months or (b) such period as may
be required by Petsec's DIP/cash collateral lender as a condition of lending in
Chapter 11, but in no event shall the estate's obligation for Gordian's fees be
less than $195,000. Subject to the limitation on the estate's obligation to pay
Gordian Group's fees set forth in the preceding sentence, Gordian Group shall
continue to be paid $65,000 per month provided that the total payments to
Gordian Group under the Engagement Letter shall not exceed $1,500,000.
