<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 5, 1997
REGISTRATION NO. 333-29211
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THE WISER OIL COMPANY
(Exact name of Co-Registrant as specified in its charter)
DELAWARE 55-0522128
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
File No. File No. File No. File No. File No.
333-29211-01 333-29211-02 333-29211-05 333-29211-04 333-29211-03
WISER OIL WISER THE WISER THE WISER T.W.O.C.,
DELAWARE, DELAWARE LLC MARKETING OIL COMPANY INC.
INC. (Exact name COMPANY OF CANADA (Exact name
(Exact name of Co- (Exact name (Exact name of Co-
of Co- Registrant of Co- of Co- Registrant
Registrant as specified Registrant Registrant as specified
as specified in its as specified as specified in its
in its charter) in its in its charter)
charter) charter) charter)
DELAWARE DELAWARE DELAWARE NOVA SCOTIA DELAWARE
(State or (State or (State or (State or (State or
other other other other other
jurisdiction jurisdiction jurisdiction jurisdiction jurisdiction
of of of of of
incorporation incorporation incorporation incorporation incorporation
or or or or or
organization) organization) organization) organization) organization)
75-2699737 75-2707365 61-1183511 75-2707371 51-0323142
(I.R.S. (I.R.S. (I.R.S. (I.R.S. (I.R.S.
Employer Employer Employer Employer Employer
dentificationI Identification Identification Identification Identification
No.) No.) No.) No.) No.)
1311
(Primary Standard
Industrial
Classification Code
Number)
ANDREW J. SHOUP, JR.
8115 PRESTON ROAD, SUITE 400 PRESIDENT AND CHIEF EXECUTIVE OFFICER
DALLAS, TEXAS 75225 THE WISER OIL COMPANY
(214) 265-0080 8115 PRESTON ROAD, SUITE 400
(Address, including zip code, DALLAS, TEXAS 75225
and telephone number, including (Name, address, including zip code, and
area code, of Co-Registrants' telephone number, including area code, of
principal executive offices) agent for service)
(214) 265-0080
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COPIES TO:
STEVEN K. COCHRAN
PAUL M. JOHNSTON
THOMPSON & KNIGHT, A PROFESSIONAL CORPORATION
1700 PACIFIC AVENUE, SUITE 3300
DALLAS, TEXAS 75201
(214) 969-1700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date 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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THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
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, AS AMENDED, 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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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 +
+SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 5, 1997
PROSPECTUS
THE WISER OIL COMPANY
OFFER TO EXCHANGE ITS
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007 THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED (THE "EXPIRATION
DATE")
The Wiser Oil Company, a Delaware corporation (the "Company" or "Wiser"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, this
"Prospectus") and in the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange up to $125,000,000 aggregate
principal amount of its 9 1/2% Senior Subordinated Notes due 2007 (the
"Exchange Notes") that have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement (as
defined) of which this Prospectus constitutes a part, for a like aggregate
principal amount of its outstanding 9 1/2% Senior Subordinated Notes due 2007
(the "Outstanding Notes" and, together with the Exchange Notes, the "Notes"),
of which $125,000,000 aggregate principal amount is outstanding. The terms of
the Exchange Notes are identical in all material respects to the terms of the
Outstanding Notes, except for certain transfer restrictions and registration
rights relating to the Outstanding Notes and except for certain provisions
providing for an increase in the interest rate on the Outstanding Notes under
certain circumstances relating to the timing of the Exchange Offer. The
Outstanding Notes were sold by the Company on May 21, 1997 to Salomon Brothers
Inc, NationsBanc Capital Markets, Inc. and Nesbitt Burns Securities Inc.
(collectively, the "Initial Purchasers") pursuant to an offering (the
"Offering") exempt from registration under the Securities Act.
The Outstanding Notes are and the Exchange Notes will be unsecured
obligations of the Company, subordinated in right of payment to all existing
and any future Senior Indebtedness (as defined) of the Company. The Outstanding
Notes rank and the Exchange Notes will rank pari passu with any future senior
subordinated indebtedness and senior to any future junior subordinated
indebtedness of the Company. See "Description of the Exchange Notes--
Subordination." The Outstanding Notes are and the Exchange Notes will be fully
and unconditionally guaranteed on an unsecured, senior subordinated basis by
each of the Initial Subsidiary Guarantors (as defined) under the Subsidiary
Guaranties (as defined) and by certain Restricted Subsidiaries (as defined) if
they become Significant Subsidiaries (as defined) in the future. However, each
of the Initial Subsidiary Guarantors has also guaranteed the payment of
indebtedness outstanding from time to time under the Credit Agreement (as
defined), which indebtedness will constitute Senior Indebtedness. In addition,
all indebtedness and other liabilities of the Company's subsidiaries that are
not Subsidiary Guarantors (as defined) will be effectively senior in right of
payment to the Notes and the Subsidiary Guaranties. At June 30, 1997, (i)
Senior Indebtedness was less than $1.0 million (not including $80.0 million of
borrowing capacity available under the Credit Agreement, which, if borrowed,
would be Senior Indebtedness), (ii) the Company had no senior subordinated
indebtedness other than the Outstanding Notes and (iii) the total indebtedness
and other liabilities (including trade payables, deferred taxes and accrued
liabilities, but excluding any obligations owed to affiliates) of the Company's
subsidiaries that are not Subsidiary Guarantors were less than $0.5 million.
Subject to certain limitations set forth in the Indenture (as defined), the
Company and its subsidiaries (including the Subsidiary Guarantors) may incur
additional Indebtedness (as defined), including Indebtedness that would be
senior to or pari passu with the Notes. See "Use of Proceeds,"
"Capitalization," "Description of Certain Senior Indebtedness" and "Description
of the Exchange Notes."
The Exchange Notes are being offered for exchange in order to satisfy certain
obligations of the Company and the Initial Subsidiary Guarantors under the
Registration Agreement dated May 21, 1997 (the "Registration Agreement")
between the Company, the Initial Subsidiary Guarantors and the Initial
Purchasers.The Exchange Notes will be issued under the same Indenture as the
Outstanding Notes, and the Exchange Notes and the Outstanding Notes will
constitute a single series of debt securities under the Indenture. In the event
that the Exchange Offer is consummated, any Outstanding Notes that remain
outstanding after consummation of the Exchange Offer and the Exchange Notes
issued in the Exchange Offer will vote together as a single class for purposes
of determining whether holders of the requisite percentage in outstanding
principal amount of the Notes have taken certain actions or exercised certain
rights under the Indenture.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
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 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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THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE WISER OIL COMPANY, 8115 PRESTON ROAD, SUITE 400, DALLAS, TEXAS 75225,
ATTENTION: CORPORATE SECRETARY, TELEPHONE (214) 265-0080. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1997.
The Company is making the Exchange Offer in reliance on a position of the
staff of the Division of Corporation Finance of the Securities and Exchange
Commission (the "SEC") as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Company has not sought
its own interpretive letter, and there can be no assurance that the staff of
the Division of Corporation Finance of the SEC would make a similar
determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the Division of Corporation Finance, and subject to the three
immediately following sentences, the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer in exchange for Outstanding Notes may be
offered for resale, resold and otherwise transferred by a holder thereof
(other than a holder who is a broker-dealer) without further compliance with
the registration and prospectus delivery requirements of the Securities Act,
provided that (i) such Exchange Notes are acquired in the ordinary course of
such holder's business and (ii) such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such Exchange Notes. However,
any holder of the Outstanding Notes who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act or any broker-dealer
who purchased Outstanding 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 of the staff of the Division of
Corporation Finance of the SEC set forth in the above mentioned interpretive
letters, (ii) will not be permitted or entitled to tender such Outstanding
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 other transfer of such Outstanding Notes unless such sale or transfer
is made pursuant to an exemption from such requirements. In addition, any
holder who tenders Outstanding Notes in the Exchange Offer with the intention
or for the purpose of participating in a distribution of the Exchange Notes
cannot rely on such interpretations of the staff of the Division of
Corporation Finance of the SEC referred to above and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. A broker-dealer who is not an
"affiliate" of the Company may participate in the Exchange Offer with respect
to Outstanding Notes acquired for its own account as a result of market-making
activities or other trading activities, provided that (i) in connection with
any resales of Exchange Notes received by the broker-dealer in exchange for
such Outstanding Notes, the broker-dealer delivers a prospectus meeting the
requirements of the Securities Act, and (ii) the broker-dealer has not entered
into any arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of such Exchange
Notes. In the event that applicable interpretations by the staff of the
Division of Corporation Finance of the SEC change or otherwise do not permit
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act, holders of Exchange
Notes who transfer Exchange Notes in violation of the prospectus delivery
provisions of the Securities Act or without an exemption from registration
thereunder may incur liability thereunder.
Each holder of Outstanding Notes who wishes to exchange such Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to represent
that (i) it is not an "affiliate" of the Company, (ii) any Exchange Notes to
be received by it are being acquired in the ordinary course of its business,
(iii) it has no arrangement or understanding with any person to participate in
a distribution (within the meaning of the Securities Act) of such Exchange
Notes and (iv) if such holder is not a broker-dealer, such holder is not
engaged in, and does not intend to engage in, a distribution (within the
meaning of
2
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the Securities Act) of such Exchange Notes. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Outstanding Notes pursuant
to the Exchange Offer must acknowledge that it acquired the Outstanding Notes
for its own account as a result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of Corporation Finance of the SEC
in the interpretive letters referred to above, the Company believes that
broker-dealers who acquired Outstanding Notes for their own accounts, as a
result of market-making activities or other trading activities ("Participating
Broker-Dealers"), may fulfill the prospectus delivery requirements with
respect to the Exchange Notes received upon exchange of such Outstanding Notes
(other than Outstanding Notes that represent an unsold allotment from the
original sale of the Outstanding Notes) with a prospectus meeting the
requirements of the Securities Act, that may be the prospectus prepared for an
exchange offer so long as it contains a description of the plan of
distribution with respect to the resale of such Exchange Notes. Accordingly,
this Prospectus may be used by a Participating Broker-Dealer during the period
referred to in the immediately following sentence in connection with resales
of Exchange Notes received in exchange for Outstanding Notes where such
Outstanding Notes were acquired by such Participating Broker-Dealer for its
own account as a result of market-making activities or other trading
activities. Subject to certain provisions set forth in the Registration
Agreement, the Company has agreed that, for a period of up to 90 days after
the consummation of the Exchange Offer, it will make this Prospectus available
to any Participating Broker-Dealer for use in connection with any such resale.
Any Participating Broker-Dealer who is an "affiliate" of the Company may not
rely on such interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. See "The Exchange Offer--Resales of Exchange Notes" and
"Plan of Distribution."
Each Participating Broker-Dealer who surrenders Outstanding Notes pursuant
to the Exchange Offer will be deemed to have agreed, by execution of the
Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any
material respect or which causes this Prospectus to omit to state a material
fact necessary in order to make the statements contained or incorporated by
reference herein, in light of the circumstances under which they were made,
not misleading or of the occurrence of certain other events specified in the
Registration Agreement, such Participating Broker-Dealer will suspend the sale
of Exchange Notes pursuant to this Prospectus until the Company has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to each such
Participating Broker-Dealer or until the Company has given notice that the
sale of Exchange Notes may be resumed, as the case may be. Notwithstanding
that the Company may suspend the sale of the Exchange Notes under such
circumstances, the Company has no obligation to extend the 90-day period
referred to above during which Participating Broker-Dealers are entitled to
use this Prospectus in connection with the resale of Exchange Notes.
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Outstanding Notes. The Exchange Notes will be a
new issue of securities for which there is currently no market. Although the
Initial Purchasers have informed the Company that they each currently intend
to make a market in 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 Exchange Notes. The Company currently does not intend to
apply for listing of the Exchange Notes on any securities exchange or for
quotation of the Exchange Notes through the National Association of Securities
Dealers Automated Quotation System.
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Any Outstanding Notes not tendered or accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Indenture (except
for those rights that terminate upon the consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the holders of Outstanding Notes
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such holders (other than
Initial Purchasers or under certain limited circumstances relating to holders
who are not eligible to participate in the Exchange Offer) to provide for the
registration under the Securities Act of the Outstanding Notes held by them.
If Outstanding Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered Outstanding Notes is likely to diminish;
accordingly, holders who do not tender their Outstanding Notes may encounter
difficulties in selling such notes following the Exchange Offer. See "Risk
Factors--Consequences of a Failure to Exchange Outstanding Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OUTSTANDING NOTES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OUTSTANDING NOTES PURSUANT TO THE EXCHANGE OFFER.
Outstanding Notes may be tendered for exchange prior to 5:00 p.m., New York
City time, on , 1997, unless the Exchange Offer is extended by the
Company (in which case the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended). Tenders of Outstanding
Notes may be withdrawn at any time prior to the Expiration Date. The Exchange
Offer is not conditioned upon any minimum aggregate principal amount of
Outstanding Notes being tendered or accepted for exchange. However, the
Exchange Offer is subject to certain events and conditions that may be waived
by the Company and to the terms and provisions of the Registration Agreement.
See "The Exchange Offer--Conditions to the Exchange Offer." Outstanding Notes
may be tendered for exchange in whole or in part in a principal amount of
$1,000 and integral multiples thereof.
Each Exchange Note will bear interest from the most recent date to which
interest has been paid or duly provided for on the Outstanding Note
surrendered in exchange for such Exchange Note or, if no such interest has
been paid or duly provided for on such Outstanding Note, from May 21, 1997.
Holders of the Outstanding Notes whose Outstanding Notes are accepted for
exchange will not receive accrued interest on such Outstanding Notes for any
period from and after the last interest payment date to which interest has
been paid or duly provided for on such Outstanding Notes prior to the original
issue date of the Exchange Notes or, if no such interest has been paid or duly
provided for, will not receive any accrued interest on such Outstanding Notes,
and will be deemed to have waived the right to receive any interest on such
Outstanding Notes accrued from and after such interest payment date or, if no
such interest has been paid or duly provided for, from and after May 21, 1997.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. See "Use of Proceeds." No dealer-manager is
being used in connection with the Exchange Offer. Solicitation of tenders of
Outstanding Notes may be made in person, or by mail, telephone or telecopy, by
officers and regular employees of the Company. Such persons will receive no
additional compensation for any solicitation activities. The Company has
agreed to pay the expenses of the Exchange Offer. See "The Exchange Offer--
Fees and Expenses."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of the Outstanding Notes on or about
, 1997.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the notes
thereto, and other financial information included or incorporated by reference
in this Prospectus. References to the "Company" or "Wiser" include The Wiser
Oil Company and its consolidated subsidiaries. Unless otherwise indicated, all
references to dollars or $ are to U.S. dollars. Certain terms used but not
defined in the summary are defined elsewhere in this Prospectus, including
certain terms used in the oil and gas industry defined in "Glossary of Oil and
Gas Terms." As noted in such Glossary, Present Value is the present value
(using an annual discount rate of 10%) of estimated future net revenues from
the production of proved reserves, without giving effect to income taxes.
THE COMPANY
Founded in 1905, The Wiser Oil Company is one of the oldest public
independent oil and gas companies in the United States. In recent years, the
Company has successfully implemented a new business strategy adopted in 1991,
emphasizing growth in reserves and production volumes through acquisitions and
subsequent development and exploitation of acquired properties. Since its
change in strategic direction, the Company's total proved reserves have grown
to 50.5 MMBOE (approximately 63% of which were oil and NGLs) at December 31,
1996 from 24.3 MMBOE at December 31, 1991, and its annual net production has
grown to 4.7 MMBOE in 1996 from 2.3 MMBOE in 1991. The Company's primary
operations, representing approximately 62% of its proved reserves at
December 31, 1996, are located in the Permian Basin in West Texas and Southeast
New Mexico. Wiser has additional operations in Alberta, Canada, the Appalachian
Basin in Kentucky, Tennessee and West Virginia and the San Juan Basin in New
Mexico.
Prior to 1991 the Company focused primarily on the acquisition of
non-operated interests in oil and gas properties. In 1991 the Company moved its
headquarters from Sistersville, West Virginia to Dallas, Texas and began to
assemble an experienced management team with substantial acquisition,
exploitation and development expertise. After reviewing the Company's existing
property portfolio and refining the new business strategy, the management team
began disposing of the Company's non-strategic assets and acquiring and
operating properties in new core areas with the potential for increased
reserves and production volumes. Pursuant to this strategy, the Company
acquired and developed properties in the Permian Basin and Canada, and
successfully added reserves and production through workovers, recompletions,
waterfloods and CO/2/ gas injections, as well as the drilling of exploratory,
development and infill wells.
A substantial portion of the Company's growth in reserves and production
volumes since 1991 has been the result of (i) two successful enhanced oil
recovery projects on properties acquired from 1992 to 1995 in the Permian Basin
and (ii) the Company's 1994 acquisition and subsequent exploration on and
exploitation of properties in Alberta, Canada. From June 1993 through December
1996, the Company completed 113 producing wells on its Maljamar waterflood
project in Southeast New Mexico. As a result, the Company's average daily net
oil production from the three units in this project increased to 2,800 Bbls in
December 1996 from 580 Bbls in January 1993 (on a pro forma combined basis,
assuming the Company had acquired all three units at January 1, 1993). At its
Wellman Unit in West Texas, the Company used CO/2/ gas injection and
refurbished a natural gas processing plant to increase average daily net
production to 927 Bbls of oil, 440 Bbls of NGLs and 547 Mcf of natural gas in
December 1996 from 650 Bbls of oil and no NGLs or natural gas in December 1993.
In June 1994 the Company acquired oil and gas properties located primarily in
Alberta, Canada for $52.0 million. From the date of this acquisition through
December 1996, the Company completed 22 net wells on these properties. As a
result, the Company's average daily net Canadian production increased to 3,200
BOE in December 1996 from 1,860 BOE in June 1994.
The Company's principal executive offices are located at 8115 Preston Road,
Suite 400, Dallas, Texas 75225, and its telephone number is (214) 265-0080.
5
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BUSINESS STRATEGY
The Company's strategy is to grow reserves and production volumes through (i)
acquiring producing properties that provide significant development and
exploitation potential, (ii) developing and exploiting its reserve base in
order to maximize production and recoverable reserves and (iii) exploring for
oil and gas reserves, while (iv) maintaining financial flexibility.
PURSUE STRATEGIC ACQUISITIONS. Over the last several years, the Company
has assembled an experienced management team which uses a comprehensive
interdisciplinary and technical approach to evaluate potential acquisitions
of oil and gas properties. The Company's property acquisition criteria
include: (a) existing oil and gas production; (b) significant potential for
increasing reserves and production through development, exploitation
(including enhanced recovery techniques) or exploration; (c) proximity to
the Company's existing core operating areas or, in the alternative,
sufficient critical mass to justify diversification into a new area; (d)
opportunities to lower unit costs; and (e) an attractive purchase price. In
addition, the Company will continue to consider strategic combinations with
other industry participants in order to achieve operating synergies,
greater asset diversification and enhanced financial flexibility.
CAPITALIZE UPON DEVELOPMENT AND EXPLOITATION EXPERTISE. The Company
believes that one of its primary strengths is its expertise and experience
in the exploitation of oil and gas properties through enhanced recovery
operations and other methods. The Company believes that this strength
differentiates it from other independent oil and gas companies of similar
size. The Company has successfully added reserves and production volumes to
existing and acquired properties through workovers, recompletions,
waterfloods and CO/2/ gas injections, as well as the drilling of
development or infill wells. The Company's success in the Maljamar
waterflood project and the Wellman Unit CO/2/ gas injection project
exemplify how the Company has capitalized on this core competency. The
Company has budgeted $23.5 million for development and exploitation
activities at the Maljamar and Wellman projects in 1997, and intends to
continue to seek opportunities that would allow it to utilize further its
development and exploitation expertise.
EXPAND EXPLORATION PROGRAM. The Company is increasingly placing greater
emphasis on exploration as a source of future growth, and focuses on
exploration opportunities that can benefit from advanced technologies,
including 3-D seismic, designed to reduce risks and increase success rates.
In 1996 the Company hired a new Vice President of Exploration with over 33
years of exploration experience with major integrated and independent oil
and gas companies to lead its domestic exploration group. This group is
developing a balanced portfolio of exploration prospects in areas where it
believes multiple prospects could be developed if a significant discovery
were made. In addition, this group is responsible for domestic exploration
activities on existing properties. In Canada, exploration has represented a
significant portion of the Company's capital budget since 1994. The
Company's activities for the winter 1996/1997 Canadian drilling season
included participation in five gross exploratory wells (four of which were
successful) to test five prospects. On a Company-wide basis, the 1997
exploration budget comprises $16.8 million (approximately 23%) of the
Company's $72.4 million 1997 capital expenditure program, compared with
exploration expenditures of $3.5 million (approximately 8%) of the
Company's total capital expenditures of $46.2 million in 1996.
MAINTAIN FINANCIAL FLEXIBILITY. The Company is committed to maintaining
financial flexibility, which it believes is important for the successful
implementation of its growth strategy. The Company currently expects its
1997 capital expenditure budget (excluding any property acquisitions) to be
funded primarily by internally generated cash flow, including the sale of
its remaining marketable securities. At June 30, 1997, the Company had (i)
approximately $34.2 million of cash and marketable securities, (ii) no
long-term debt other than the Outstanding Notes and (iii) $80.0 million of
borrowing capacity available under the Credit Agreement. The Company
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currently intends to make use of its excess cash, its marketable securities
and its available borrowing capacity to implement its growth strategy.
RECENT ANNOUNCEMENT
On August 13, 1997, the Company announced its results of operations for the
three months and six months ended June 30, 1997. The Company reported a net
loss for the quarter ended June 30, 1997 of $1.9 million, or $0.22 per share,
on revenues of $17.8 million, compared with a net loss of $5.4 million, or
$0.60 per share, on revenues of $21.4 million for the comparable period of the
prior year. Before taking into account non-cash property impairment charges and
gains from securities and property sales, the net loss for the quarter ended
June 30, 1997 was $2.9 million, or $0.33 per share, compared to net income of
$0.9 million, or $0.10 per share, for the quarter ended June 30, 1996. The
results of operations for the quarter ended June 30, 1997 were impacted by
lower production rates, lower oil and gas prices, higher exploration expenses
due to increased drilling activity and higher interest expense due to the
Offering of the Outstanding Notes. For information regarding the Company's
results of operations for the six months ended June 30, 1997, see "Selected
Consolidated Financial and Operating Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations" and the Company's Consolidated Financial Statements and notes
thereto included elsewhere in this Prospectus.
As a result of lower actual production rates for the quarter ended June 30,
1997, the Company adjusted its anticipated rate of net production for the year
ending December 31, 1997 to 5.1 MMBOE, representing a 7% reduction from the
Company's previous estimate for 1997 of 5.5 MMBOE. Lower than expected
production primarily from Canadian properties, the Wellman Unit and the
Maljamar properties resulted in a decrease in net production on an oil
equivalent basis to 1,146 MBOE in the second quarter of 1997 from 1,298 MBOE in
the first quarter of 1997 (a 13% decrease) and from 1,165 MBOE in the second
quarter of 1996 (a 2% decrease). Weather delays, compressor problems, wells
shut in due to lack of availability of workover rigs and drilling delays due to
rig shortages caused lower production rates from the Company's Canadian
properties in the second quarter and first six months of 1997. During July
1997, however, the Company's average daily net production on an oil equivalent
basis from its Canadian properties increased by 200 BOE over the average daily
net production for the second quarter of 1997. The Company anticipates that net
production from its Canadian properties will steadily increase during the
remainder of 1997 as a result of drilling activity at its Provost and Beatton
River/Elm properties. The lower than expected production at the Wellman Unit
during the second quarter of 1997 was due primarily to lack of well bore
integrity in several older wells which were recompleted in the second quarter
of 1997. The Company is currently drilling two new wells and side-tracking
another well at the unit to offset lower second quarter production. This
development activity at the Wellman Unit is expected to be completed by the end
of October 1997. Production rates were lower than expected at the Maljamar
properties due to significantly reduced drilling as a result of permitting
delays at the Skelly Unit and the deferral of wells while evaluating offset
production at the Maljamar Grayburg and Caprock Maljamar Units. The Company
believes that the Maljamar Grayburg and Skelly Units will achieve previously
estimated production rates, although responses to water injection has been
delayed. Production rates from the Caprock Maljamar Unit, however, are expected
to be flatter than originally projected. The deferred wells at the Maljamar
Grayburg and Caprock Maljamar Units are currently being replaced with lease
line wells and wells on recently purchased acreage adjacent to the Skelly Unit.
7
<PAGE>
THE EXCHANGE OFFER
Exchange Offer.............. Up to $125,000,000 aggregate principal amount of
Exchange Notes are being offered in exchange for
a like aggregate principal amount of Outstanding
Notes. Outstanding Notes may be tendered for
exchange in whole or in part in a principal
amount of $1,000 and integral multiples thereof.
The Company is making the Exchange Offer in order
to satisfy its obligations under the Registration
Agreement relating to the Outstanding Notes.
Subject to the terms and conditions of the
Exchange Offer, the Company will issue the
Exchange Notes to tendering holders of the
Outstanding Notes promptly following the
Expiration Date.
Registration Agreement......
The Outstanding Notes were sold by the Company on
May 21, 1997 to the Initial Purchasers, who
placed the Outstanding Notes in the United States
with "qualified institutional buyers" in reliance
on Rule 144A under the Securities Act and outside
the United States with non-U.S. persons in
reliance on Regulation S under the Securities
Act. In connection therewith, the Company and the
Initial Subsidiary Guarantors executed and
delivered for the benefit of the holders of the
Outstanding Notes the Registration Agreement
providing for, among other things, the Exchange
Offer.
Expiration Date............. 5:00 p.m., New York City time, on
, 1997, unless the Exchange
Offer is extended by the Company. See "The
Exchange Offer--Terms of the Exchange Offer" and
"--Extensions and Amendments."
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain
conditions, which may be waived by the Company in
its sole discretion. The Exchange Offer is not
conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered or
accepted for exchange. The Company reserves the
right to (i) delay the acceptance of the
Outstanding Notes for exchange, (ii) terminate or
amend the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of certain
conditions, (iii) extend the Expiration Date of
the Exchange Offer and retain all of the
Outstanding Notes tendered pursuant to the
Exchange Offer, subject, however, to the right of
holders of the Outstanding Notes to withdraw
their tendered Outstanding Notes, and (iv) waive
any condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer--Extensions and Amendments" and "--
Conditions to the Exchange Offer."
Procedures for Tendering
Outstanding Notes..........
Each holder of Outstanding Notes wishing to
accept the Exchange Offer must either (i)
complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in
accordance with
8
<PAGE>
the instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
either the certificates for such Outstanding
Notes or, if such procedure is available, a Book-
Entry Confirmation of such Outstanding Notes into
the Exchange Agent's account at the Book-Entry
Transfer Facility, or (ii) deliver such a Book-
Entry Confirmation together with an Agent's
Message (whereby the holder acknowledges its
receipt of and agrees to be bound by the Letter
of Transmittal), and any other required
documentation, to the Exchange Agent at the
address set forth herein. By executing the Letter
of Transmittal or delivering an Agent's Message,
each holder of Outstanding Notes will represent
to the Company that, among other things, (i) the
Exchange Notes acquired pursuant to the Exchange
Offer by the holder and any beneficial owner of
such Outstanding Notes are being acquired in the
ordinary course of business of the person
receiving such Exchange Notes, (ii) neither the
holder nor such beneficial owner has an
arrangement or understanding with any person to
participate in a distribution of such Exchange
Notes, (iii) if such beneficial owner is not a
broker-dealer, neither the holder nor such
beneficial owner is engaged in or intends to
engage in a distribution of such Exchange Notes,
and (iv) neither the holder nor such beneficial
owner is an "affiliate," as defined in Rule 405
under the Securities Act, of the Company. See
"The Exchange Offer--Procedures for Tendering
Outstanding Notes."
A Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to
the Exchange Offer may be deemed an "underwriter"
within the meaning of the Securities Act and,
therefore, must acknowledge that it will deliver
a prospectus meeting the requirements of the
Securities Act in connection with any resale of
such Exchange Notes. Subject to certain
provisions set forth in the Registration
Agreement, the Company has agreed that, for a
period of up to 90 days after the consummation of
the Exchange Offer, it will make this Prospectus
available to any Participating Broker-Dealer for
use in connection with any such resale. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. See "The Exchange
Offer--Resales of Exchange Notes" and "Plan of
Distribution."
Special Procedures for
Beneficial Owners..........
Any beneficial owner whose Outstanding Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Outstanding Notes
in the Exchange Offer should contact such
9
<PAGE>
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on its own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering its Outstanding Notes,
either make appropriate arrangements to register
ownership of the Outstanding Notes in such
owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time
and may not be able to be completed prior to the
Expiration Date.
Guaranteed Delivery
Procedures................. Holders of Outstanding Notes who wish to tender
their Outstanding Notes and whose Outstanding
Notes are not immediately available or who cannot
complete the procedures for book-entry transfer
of such Outstanding Notes or deliver the Letter
of Transmittal or other required documents to the
Exchange Agent prior to the Expiration Date must
tender their Outstanding Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Procedures for Tendering
Outstanding Notes--Guaranteed Delivery."
Withdrawal Rights........... Tenders of Outstanding Notes may be withdrawn at
any time prior to the Expiration Date. See "The
Exchange Offer-- Withdrawal Rights."
Certain Federal Income Tax
Considerations.............
The exchange of the Outstanding Notes for
Exchange Notes by tendering holders should not be
a taxable exchange for U.S. federal income tax
purposes, and such holders should not recognize
any taxable gain or loss for U.S. federal income
tax purposes as a result of such exchange.
Holders of Exchange Notes will continue to be
required to include interest on such Exchange
Notes in gross income in accordance with their
method of accounting for U.S. federal income tax
purposes. Holders should review the information
set forth under "Certain Federal Income Tax
Considerations" for a discussion of certain U.S.
tax considerations relating to the Exchange Notes
prior to tendering the Outstanding Notes in the
Exchange Offer.
Use of Proceeds.............
The Company will not receive any cash proceeds
from the issuance of the Exchange Notes offered
hereby. Of the net proceeds of the Offering of
the Outstanding Notes, approximately $77.0
million was used to pay in full all outstanding
indebtedness under the Credit Agreement, and the
balance will be used for general corporate
purposes. See "Use of Proceeds."
Exchange Agent.............. Texas Commerce Bank National Association is
serving as Exchange Agent in connection with the
Exchange Offer. See "The Exchange Offer--Exchange
Agent."
10
<PAGE>
THE EXCHANGE NOTES
Exchange Notes..............
$125,000,000 in aggregate principal amount of 9
1/2% Senior Subordinated Notes due 2007, which
have been registered under the Securities Act.
The terms of the Exchange Notes are identical in
all material respects to the terms of the
respective Outstanding Notes for which they may
be exchanged pursuant to the Exchange Offer,
except for certain transfer restrictions and
registration rights relating to the Outstanding
Notes and except for certain provisions providing
for an increase in the interest rate on the
Outstanding Notes under circumstances relating to
the timing of the Exchange Offer. See
"Description of the Exchange Notes."
Maturity.................... May 15, 2007.
Interest on the Exchange The Exchange Notes will bear interest at the rate
Notes...................... of 9 1/2% per annum, payable semiannually on May
15 and November 15 of each year, commencing
November 15, 1997. Each Exchange Note will bear
interest from the most recent date to which
interest has been paid or duly provided for on
the Outstanding Note surrendered in exchange for
such Exchange Note or, if no such interest has
been paid or duly provided for on such
Outstanding Note, from May 21, 1997. Interest on
the Outstanding Notes accepted for exchange will
cease to accrue upon issuance of the Exchange
Notes.
Optional Redemption......... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after May 15, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest,
if any, to the date of redemption. In addition,
prior to May 15, 2000, up to 33 1/3% of the
aggregate principal amount of the Notes
originally issued is redeemable at the option of
the Company, in whole or in part, from time to
time, at 109.500% of the principal amount
thereof, plus accrued and unpaid interest, if
any, to the date of redemption, with the net
proceeds of one or more Equity Offerings,
provided that at least 66 2/3% of the aggregate
principal amount of the Notes originally issued
remains outstanding immediately after such
redemption. See "Description of the Exchange
Notes--Optional Redemption."
Subsidiary Guaranties....... The Exchange Notes will be fully and
unconditionally guaranteed on an unsecured,
senior subordinated basis by each of the Initial
Subsidiary Guarantors under the Subsidiary
Guaranties and by certain Restricted Subsidiaries
if they become Significant Subsidiaries in the
future. See "Description of the Exchange Notes--
Subsidiary Guaranties."
11
<PAGE>
Subordination of Exchange
Notes and Subsidiary
Guaranties.................
The Exchange Notes and the Subsidiary Guaranties
will be unsecured obligations of the Company and
the Subsidiary Guarantors, as applicable. The
Exchange Notes and each Subsidiary Guaranty will
be subordinated in right of payment to all
existing and any future Senior Indebtedness and
will rank pari passu with any future senior
subordinated indebtedness and senior to any
future junior subordinated indebtedness of the
Company or the applicable Subsidiary Guarantor,
as the case may be. At June 30, 1997, (i) Senior
Indebtedness was less than $1.0 million (not
including $80.0 million of borrowing capacity
available under the Credit Agreement, which, if
borrowed, would be Senior Indebtedness), (ii) the
Company had no senior subordinated indebtedness
other than the Outstanding Notes and (iii) the
total indebtedness and other liabilities
(including trade payables, deferred taxes and
accrued liabilities, but excluding any
obligations owed to affiliates) of the Company's
subsidiaries that are not Subsidiary Guarantors
were less than $0.5 million. Subject to certain
limitations set forth in the Indenture, the
Company and its subsidiaries (including the
Subsidiary Guarantors) may incur additional
Indebtedness, including Indebtedness that would
be senior to or pari passu with the Notes. See
"Use of Proceeds," "Capitalization," "Description
of Certain Senior Indebtedness" and "Description
of the Exchange Notes."
Change of Control...........
Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
purchase the Notes at a purchase price equal to
101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date
of purchase. In the event of a Change of Control,
there can be no assurance that the Company or the
Subsidiary Guarantors will have the financial
resources or be permitted under the terms of
their other indebtedness to purchase the Notes.
See "Risk Factors--Limitation on Purchase of
Notes Upon the Occurrence of a Change of Control"
and "Description of the Exchange Notes--Purchase
at the Option of Holders Upon a Change of
Control."
Certain Covenants........... The Indenture pursuant to which the Outstanding
Notes were, and the Exchange Notes will be,
issued contains certain covenants that, among
other things, limit the ability of the Company
and its Restricted Subsidiaries to (i) incur
additional Indebtedness, (ii) incur Indebtedness
that is subordinate to Senior Indebtedness but
senior to the Notes, (iii) pay dividends or make
other distributions with respect to Capital Stock
or Redeemable Stock or purchase, redeem or retire
Capital Stock or Redeemable Stock or make other
Restricted Payments, (iv) enter into certain
transactions with Affiliates,
12
<PAGE>
(v) create certain Liens, (vi) enter into certain
consolidations, mergers and transfers of assets,
(vii) issue any Capital Stock of a Restricted
Subsidiary or permit any Person other than the
Company or a Wholly Owned Restricted Subsidiary
to own such stock, (viii) permit any Restricted
Subsidiary to suffer to exist certain types of
restrictions on the ability of Restricted
Subsidiaries to pay dividends and make other
transfers of assets to the Company and other
Restricted Subsidiaries and (ix) dispose of the
proceeds of certain Asset Sales. All of these
limitations are subject to a number of important
qualifications. See "Description of the Exchange
Notes-- Certain Covenants" and "--Merger,
Consolidation and Sale of Substantially All
Assets."
Listing..................... None. See "Risk Factors--Lack of Public Market."
Sinking Fund................ None.
For additional information with respect to the Exchange Notes (including
defined terms), see "Description of the Exchange Notes."
RISK FACTORS
Prior to making an investment decision, prospective purchasers of the
Exchange Notes should consider all of the information set forth in this
Prospectus and should carefully evaluate the considerations set forth in "Risk
Factors."
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data set forth below have been
derived from the Company's Consolidated Financial Statements and notes thereto
contained elsewhere in this Prospectus. The financial data for the years ended
December 31, 1996, 1995 and 1994 were derived from the audited consolidated
financial statements of the Company. The financial data for the six months
ended June 30, 1997 and 1996 were derived from the unaudited consolidated
financial statements of the Company. The summary consolidated financial data
are qualified in their entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- -------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and gas sales............... $39,269 $32,473 $72,012 $54,400 $53,559
Dividends and interest.......... 457 398 683 1,241 1,641
Marketable security sales
gains.......................... 1,813 6,832 12,977 13,101 7,475
Other........................... 1,860 227 1,017 2,939 2,681
------- ------- ------- ------- -------
Total revenues................ 43,399 39,930 86,689 71,681 65,356
------- ------- ------- ------- -------
Costs and expenses:
Production and operating........ 13,561 11,491 23,970 20,690 22,313
Purchased natural gas........... 773 642 1,462 727 759
Depreciation, depletion and
amortization................... 11,010 9,850 19,653 19,778 18,313
Property impairments............ -- 12,112 12,112 4,893 --
Exploration..................... 4,139 2,196 4,176 5,801 4,130
General and administrative...... 4,931 4,940 9,364 8,193 6,502
Interest expense................ 3,355 2,728 5,452 5,618 3,907
------- ------- ------- ------- -------
Total costs and expenses...... 37,769 43,959 76,189 65,700 55,924
------- ------- ------- ------- -------
Income (loss) before income
taxes.......................... 5,630 (4,029) 10,500 5,981 9,432
Income tax expense (benefit).... 1,433 (173) 4,072 3,788 444
------- ------- ------- ------- -------
Net income (loss)............... $ 4,197 $(3,856) $ 6,428 $ 2,193 $ 8,988
======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDAX (1)..................... $21,864 $15,627 $38,233 $27,729 $26,666
Operating cash flows............ 17,047 13,432 34,287 20,541 24,334
Capital expenditures (2)........ 39,917 19,587 46,231 31,052 73,186
Ratios:
Ratio of earnings to fixed
charges (3)
Historical..................... 2.7x (0.5)x 2.9x 2.1x 3.4x
As adjusted (4)................ 1.7x N/A 1.5x N/A N/A
Ratio of EBITDAX to fixed
charges (1)(3)
Historical..................... 6.5x 5.7x 7.0x 4.9x 6.8x
As adjusted (4)................ 3.5x N/A 3.1x N/A N/A
Ratio of total debt to EBITDAX
(1)
Historical..................... N/A N/A 2.1x 2.7x 2.9x
As adjusted (4)................ N/A N/A 3.3x N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.......... $ 28,110
Working capital (5)... 24,910
Marketable
securities........... 6,075
Net property, plant
and equipment........ 204,242
Total assets.......... 255,443
Long-term debt........ 124,261
Stockholders' equity.. 102,473
</TABLE>
(See footnotes on following page)
14
<PAGE>
- --------
(1) EBITDAX is not a generally accepted accounting measure, but is presented as
a supplemental financial indicator of the Company's ability to service or
incur debt. EBITDAX is calculated by adding interest expense, income tax
expense, depreciation, depletion and amortization, property impairment
costs and exploration costs to net income (excluding marketable security
sales gains and dividends and interest). EBITDAX should not be considered
in isolation or as a substitute for net income, operating cash flow or any
other measure of financial performance prepared in accordance with
generally accepted accounting principles or as a measure of the Company's
profitability or liquidity.
(2) Consist of costs incurred by the Company in connection with its oil and gas
acquisition, development and exploration activities, and, in certain years,
costs relating to the reconditioning of its gas plants. See Note 6 to the
Company's Consolidated Financial Statements included elsewhere in this
Prospectus.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and fixed charges. Fixed charges
consist of interest expense.
(4) The as adjusted ratios for the six months ended June 30, 1997 and the year
ended December 31, 1996 give effect to the termination of the Company's
Maljamar project financing credit facility, the Offering and the
application of the estimated net proceeds of the Offering as if such
transactions had occurred at the beginning of the indicated period. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--
Credit Agreement."
(5) Working capital represents the difference between current assets and
current liabilities.
15
<PAGE>
SUMMARY RESERVE AND OPERATING DATA
The following tables set forth summary reserve and operating data at the
dates and for the periods indicated. The summary information relating to the
Company's proved reserves, estimated future net revenues and Present Values at
December 31, 1996, 1995 and 1994 is derived from estimates prepared by DeGolyer
and MacNaughton (as to United States properties) and Gilbert Lausten Jung
Associates Ltd. (as to Canadian properties), each of which is a firm of
independent petroleum engineers. Estimates of proved reserves and future net
revenues from which Present Values are derived are based on year end prices of
oil and gas held constant (except to the extent a contract specifically
provides otherwise) in accordance with SEC regulations. The prices of oil and
gas at December 31, 1996 used to estimate the Company's proved reserves and
future net revenues from which Present Value is derived were substantially
higher than the prices used in previous years to make such estimates and
substantially higher than oil and gas prices at August 29, 1997. For additional
information regarding the effect of prices on proved reserves, estimated future
net revenues and Present Values, see "Risk Factors--Uncertainty of Estimates of
Reserves and Future Net Revenues" and "Business and Properties--Oil and Gas
Reserves."
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
PROVED RESERVES:
Oil and NGLs (MBbl)............................... 31,612 32,208 23,430
Natural gas (MMcf)................................ 113,377 109,915 107,920
Oil equivalents (MBOE)........................... 50,508 50,527 41,417
Estimated future net revenues before income
taxes............................................ $705,723 $401,037 $272,776
Present Value..................................... $414,314 $235,416 $160,804
Standardized Measure of Discounted Future Net Cash
Flows(1)......................................... $317,180 $194,602 $142,032
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- -----------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PRODUCTION VOLUMES:
Oil and NGLs (MBbl).................. 1,433 1,284 2,776 2,332 2,277
Natural gas (MMcf)(2)................ 6,063 6,390 12,288 12,171 11,076
Oil equivalents (MBOE)(2)........... 2,444 2,349 4,824 4,361 4,123
WEIGHTED AVERAGE SALES PRICES(3):
Oil (per Bbl)........................ $18.57 $18.09 $ 18.81 $ 16.91 $ 15.60
Natural gas (per Mcf)(2)............. 2.22 1.61 1.77 1.37 1.73
NGLs (per Bbl) ...................... 13.97 11.89 13.36 10.11 9.00
Oil equivalents (per BOE)(2)........ 16.07 13.82 14.93 12.47 12.99
SELECTED EXPENSES PER BOE(4):
Lease operating ..................... $4.68 $4.07 $ 4.14 $ 4.06 $ 4.54
Production taxes..................... 0.98 0.92 0.93 0.78 0.97
Depreciation, depletion and
amortization........................ 4.60 4.28 4.16 4.62 4.53
General and administrative........... 2.06 2.14 1.98 1.92 1.61
</TABLE>
- --------
(1) The Standardized Measure of Discounted Future Net Cash Flows prepared by
the Company represents the present value (using an annual discount rate of
10%) of estimated future net revenues from the production of proved
reserves, after giving effect to income taxes. See the Supplemental
Financial Information attached to the Company's Consolidated Financial
Statements included elsewhere in this Prospectus for additional information
regarding the disclosure of the Standardized Measure of Discounted Future
Net Cash Flows.
(2) Calculated giving effect to volumes of natural gas purchased for resale as
follows: first six months of 1997--301 MMcf, first six months of 1996--269
MMcf, 1996--605 MMcf, 1995--500 MMcf and 1994--469 MMcf.
(3) Reflects results of hedging activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Other Matters."
(4) Calculated without giving effect to volumes of natural gas purchased for
resale.
16
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment
in the Exchange Notes offered hereby.
SUBORDINATION OF NOTES AND SUBSIDIARY GUARANTIES
The Outstanding Notes are and the Exchange Notes will be subordinated in
right of payment to all existing and any future Senior Indebtedness of the
Company. The Outstanding Notes rank and the Exchange Notes will rank pari
passu with any future senior subordinated indebtedness of the Company and
senior to any future junior subordinated indebtedness of the Company. Each
Subsidiary Guaranty of a Subsidiary Guarantor will be subordinated in right of
payment to all existing and any future Senior Indebtedness of such Subsidiary
Guarantor, will rank pari passu with any future senior subordinated
indebtedness of such Subsidiary Guarantor and will rank senior to any future
junior subordinated indebtedness of such Subsidiary Guarantor. At June 30,
1997, the Company had less than $1.0 million of Senior Indebtedness
outstanding (not including $80.0 million of borrowing capacity available under
the Credit Agreement, which, if borrowed, would be Senior Indebtedness), and
no senior subordinated indebtedness outstanding other than the Outstanding
Notes. In addition, the Indenture governing the Notes limits, but does not
prohibit, the incurrence by the Company and the Subsidiary Guarantors of
additional Indebtedness that is senior in right of payment to the Notes or the
Subsidiary Guaranties. In the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding with respect to the Company or upon
acceleration of the Notes due to an Event of Default, the assets of the
Company will be available to pay obligations of the Notes only after all
Senior Indebtedness of the Company has been paid in full in cash, and the
assets of each Subsidiary Guarantor will be available to pay its Subsidiary
Guaranty only after all Senior Indebtedness of such Subsidiary Guarantor has
been paid in full in cash. In such circumstances, there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes. The holders of
any Indebtedness of the Company's subsidiaries other than the Subsidiary
Guarantors will be entitled to payment thereof from the assets of such
subsidiaries prior to the holders of any unsecured obligations of the Company,
including the Notes. At June 30, 1997, the total indebtedness and other
liabilities (including trade payables, deferred taxes and accrued liabilities,
but excluding any obligations owed to affiliates) of the Company's
subsidiaries that are not Subsidiary Guarantors were less than $0.5 million.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources," "Description of Certain
Senior Indebtedness" and "Description of the Exchange Notes--Subordination"
and "--Subsidiary Guaranties."
The Notes and the Subsidiary Guaranties are unsecured and will be
effectively subordinated to any secured indebtedness of the Company or the
appropriate Subsidiary Guarantor, as applicable. Each of the Initial
Subsidiary Guarantors has guaranteed the payment of indebtedness outstanding
from time to time under the Credit Agreement, which indebtedness will
constitute Senior Indebtedness. In addition, any Senior Indebtedness of the
Company or any Subsidiary Guarantor (including the Credit Agreement) may be
secured by all or a portion of the assets of the Company or such Subsidiary
Guarantor, as appropriate. The ability of the Company to comply with the
provisions of the Credit Agreement or any other Senior Indebtedness may be
affected by events beyond the Company's control. The breach of any such
provisions could result in a default under the Credit Agreement or any other
Senior Indebtedness, in which case, depending on the actions taken by the
lenders thereunder, or their successors or assignees, such lenders could elect
to declare all amounts borrowed under the Credit Agreement or any other Senior
Indebtedness, together with accrued interest, to be due and payable, and the
Company and the Subsidiary Guarantors could be prohibited from making payments
of interest and principal on the Notes until the default is cured or all
Senior Indebtedness is paid or satisfied in full. In addition, such lenders
could proceed against any collateral securing the payment of such
indebtedness, which collateral could constitute a significant portion or all
of the Company's
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assets. See "Description of Certain Senior Indebtedness" and "Description of
the Exchange Notes--Subordination."
CONSEQUENCES OF A FAILURE TO EXCHANGE OUTSTANDING NOTES
The Outstanding Notes have not been registered under the Securities Act or
any state securities laws, and, therefore, may not be offered, sold or
otherwise transferred except in compliance with the registration requirements
of the Securities Act and any other applicable securities laws, or pursuant to
an exemption therefrom or in a transaction not subject thereto, and in each
case in compliance with certain other conditions and restrictions, including
the right of the Company and the Trustee (as defined) in certain cases to
require the delivery of opinions of counsel, certifications and other
information prior to any such transfer. Outstanding Notes that remain
outstanding after the consummation of the Exchange Offer will continue to bear
a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Outstanding Notes that remain
outstanding will not be entitled to any rights to have such Outstanding Notes
registered under the Securities Act or to any similar rights under the
Registration Agreement (subject to certain limited exceptions). The Company
currently intends to register under the Securities Act Outstanding Notes that
remain outstanding after consummation of the Exchange Offer only if such
Outstanding Notes are held by Initial Purchasers or persons ineligible to
participate in the Exchange Offer (other than due solely to the status of such
person as an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act). See "Description of the Exchange Notes--Registration
Agreement." If Outstanding Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered Outstanding Notes is likely to
diminish; accordingly, holders who do not tender their Outstanding Notes may
encounter difficulties in selling such notes following the Exchange Offer. The
Exchange Notes and any Outstanding Notes that remain outstanding after
consummation of the Exchange Offer will constitute a single series of debt
securities under the Indenture and, accordingly, will vote together as a
single class for purposes of determining whether holders of the requisite
percentage in outstanding principal amount of the Notes have taken certain
actions or exercised certain rights under the Indenture.
The Outstanding Notes provide that if (i) by July 21, 1997, neither an
exchange offer registration statement nor a resale shelf registration
statement has been filed, (ii) by September 18, 1997, neither an exchange
offer registration statement has been declared effective nor a resale shelf
registration statement has been filed, (iii) by October 20, 1997, neither an
exchange offer has been consummated nor a resale shelf registration statement
has been declared effective or (iv) either the exchange offer registration
statement or the resale shelf registration statement has been declared
effective and such registration statement ceases to be effective or usable
(subject to certain exceptions), Special Interest (as defined) will accrue and
be payable semiannually until such time as all such Registration Defaults (as
defined) have been cured. Following consummation of the Exchange Offer,
neither the Outstanding Notes nor the Exchange Notes will be entitled to any
increase in the interest rate thereon (subject to certain limited exceptions).
See "Description of the Exchange Notes" and "Description of the Outstanding
Notes".
LIMITATION ON PURCHASE OF NOTES UPON THE OCCURRENCE OF A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to purchase the Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase. If a Change of Control were to occur, there can be no
assurance that the Company and the Subsidiary Guarantors would have sufficient
financial resources, or would be able to arrange financing, to pay the
purchase price for all Notes tendered by the holders thereof. The Credit
Agreement contains, and any future credit agreements or other agreements
relating to indebtedness (including Senior Indebtedness or other senior
subordinated indebtedness) to which the Company or a Subsidiary Guarantor
becomes a party may contain,
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restrictions on the purchase of Notes. If a Change of Control occurs at a time
when the Company and the Subsidiary Guarantors are unable to purchase the
Notes (due to insufficient financial resources, contractual prohibition or
otherwise), such 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 and may constitute a default under the terms of any
other indebtedness of the Company or the Subsidiary Guarantors then
outstanding. In such circumstances, the subordination provisions in the
Indenture would likely prohibit payments to holders of Notes. See "Description
of the Exchange Notes--Subordination" and "--Purchase at the Option of Holders
Upon a Change of Control". The definition of "Change of Control" in the
Indenture includes a sale, lease, conveyance or transfer of "all or
substantially all" of the assets of the Company and certain of its Restricted
Subsidiaries, taken as a whole, to a person or group of persons. There is
little case law interpreting the phrase "all or substantially all" in the
context of an indenture. Because there is no precise established definition of
this phrase, the ability of a holder of the Notes to require the Company to
purchase such Notes as a result of a sale, lease, conveyance or transfer of
all or substantially all of the Company's assets to a person or group of
persons may be uncertain.
FRAUDULENT CONVEYANCE
If a court in a lawsuit brought by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, or the Company as a debtor-in-
possession, were to determine under relevant federal or state fraudulent
conveyance statutes that the Company did not receive fair consideration or
reasonably equivalent value for incurring indebtedness, including the Notes,
and that, at the time of such incurrence, the Company (i) was insolvent, (ii)
was rendered insolvent by reason of such incurrence, (iii) was engaged in a
business or transaction for which the assets remaining with the Company
constituted unreasonably small capital or (iv) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they
matured, then such court, subject to applicable statutes of limitation, could
void the Company's obligations under the Notes, subordinate the Notes to other
indebtedness of the Company or take other action detrimental to the holders of
the Notes.
The measure of insolvency for these purposes will depend upon the governing
law of the relevant jurisdiction. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value or the fair saleable value of all of that
company's property or if the present fair saleable value of that company's
assets is less than the amount that will be required to pay its probable
liability on its existing debts as they become absolute and mature. Moreover,
regardless of solvency, a court could void an incurrence of indebtedness,
including the Notes, if it determined that such transaction was made with the
intent to hinder, delay or defraud creditors. In addition, a court could
subordinate indebtedness, including the Notes, to the claims of all existing
and future creditors on similar grounds. The Company believes that, after
giving effect to the Offering, the Company was (i) neither insolvent nor
rendered insolvent by the incurrence of indebtedness in connection with the
Offering, (ii) in possession of sufficient capital to run its business
effectively and (iii) incurring debts within its ability to pay as the same
mature or become due.
In addition, the Subsidiary Guaranties may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit brought by or on behalf of
creditors of the Subsidiary Guarantors. In such a case, the analysis set forth
above would generally apply, except that the Subsidiary Guaranties could also
be subject to the claim that, since the Subsidiary Guaranties were incurred
for the benefit of the Company (and only indirectly for the benefit of the
Subsidiary Guarantors), the obligations of the Subsidiary Guarantors
thereunder were incurred for less than fair consideration or reasonably
equivalent value. A court could void the Subsidiary Guarantors' obligations
under the Subsidiary Guaranties, subordinate the Subsidiary Guaranties to
other indebtedness of the Subsidiary Guarantors or take other action
detrimental to the holders of the Notes. See "Description of Certain Senior
Indebtedness" and "Description of the Exchange Notes."
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VOLATILITY OF OIL AND GAS PRICES
The Company's financial condition, results of operations and future growth
and the carrying value of its proved reserves are substantially dependent upon
the price of, and demand for, oil and gas. Historically, the markets for oil
and gas have been volatile, and such markets are likely to continue to be
volatile in the future. Prices for oil and gas are subject to wide
fluctuations in response to relatively minor changes in the supply of and
demand for oil and gas, market uncertainty and a variety of additional factors
beyond the Company's control. These factors include the level of consumer
product demand, weather conditions, domestic and foreign governmental
regulations, the price and availability of alternative fuels, the availability
of pipeline capacity, political conditions in the Middle East, domestic and
foreign supplies of oil and gas, the price and level of foreign imports and
overall economic conditions. It is impossible to predict future oil and gas
price movements with any certainty. Any significant and extended decline in
the price of oil or gas would adversely affect the Company's financial
condition and results of operations, and could result in a reduction in the
carrying value of the Company's proved reserves and adversely affect its
access to capital. See "--Uncertainty of Estimates of Reserves and Future Net
Revenues" and "--Property Impairment Charges."
REPLACEMENT AND EXPANSION OF RESERVES
The Company's financial condition and results of operations depend
substantially upon its ability to acquire or find and successfully develop
additional oil and gas reserves. The proved reserves of the Company will
generally decline as its reserves are produced, except to the extent that the
Company acquires properties containing proved reserves or conducts successful
development, exploitation or exploration activities. At December 31, 1996, the
Company's proved reserves were comprised of approximately 90% proved developed
reserves, and the Company does not have a large inventory of development
drilling locations or enhanced recovery projects to pursue after 1997. If the
Company is unable to economically acquire or find significant new reserves for
development and exploitation, the Company's oil and gas production, and thus
its revenue, would likely decline gradually as its reserves are produced.
UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET REVENUES
There are numerous uncertainties inherent in estimating oil and gas reserves
and their values, including many factors beyond the Company's control. The
reserve information set forth in this Prospectus represents estimates only.
Although the Company believes such estimates to be reasonable, reserve
estimates are imprecise and should be expected to change as additional
information becomes available.
Estimates of oil and gas reserves, by necessity, are projections based on
engineering data, and there are uncertainties inherent in the interpretation
of such data as well as the projection of future rates of production and the
timing of development expenditures. Reserve engineering is a subjective
process of estimating underground accumulations of oil and gas that are
difficult to measure. The accuracy of any reserve estimate is a function of
the quality of available data, engineering and geological interpretation, and
judgment. As a result, estimates of different engineers, including those used
by the Company, may vary. Estimates of economically recoverable oil and gas
reserves and of future net revenues necessarily depend upon a number of
factors and assumptions, such as historical production from the area compared
with production from other producing areas, the assumed effects of regulations
by governmental agencies and assumptions concerning future oil and gas prices,
operating costs, severance and excise taxes, development costs and workover
and remedial costs, all of which may in fact vary considerably from actual
results. Any significant variance in the assumptions could materially affect
estimates of economically recoverable quantities of oil and gas attributable
to any particular group of properties, classifications of such reserves based
on risk of recovery and estimates of the future net revenues expected
therefrom. Moreover, there can be no assurance that
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the Company's reserves will ultimately be produced or that its proved
undeveloped reserves will be developed within the periods anticipated. Actual
production, revenues and expenditures with respect to the Company's reserves
will likely vary from estimates, and such variances may be material.
The Present Values referred to in this Prospectus should not be construed as
the current market value of the proved reserves attributable to the Company's
oil and gas properties. In accordance with applicable SEC requirements, proved
reserves and the future net revenues from which Present Value is derived are
estimated using prices and costs at the date of the estimate held constant
(except to the extent a contract specifically provides otherwise). Actual
future prices and costs may differ materially. The estimates at December 31,
1996 of the Company's proved reserves and the future net revenues from which
Present Value is derived were made using weighted average sales prices of
$24.63 per Bbl of oil and $3.45 per Mcf of natural gas at that date, which
prices were substantially higher than the prices used in previous years to
make such estimates and substantially higher than oil and gas prices at August
29, 1997. The closing price on the New York Mercantile Exchange ("NYMEX") for
the prompt month futures contract for delivery of West Texas Intermediate
Crude Oil on December 31, 1996 and August 29, 1997 was $25.92 and $19.61 per
Bbl, respectively. The closing price on the NYMEX for the prompt month futures
contract for natural gas delivered at Henry Hub, Louisiana on December 31,
1996 and August 29, 1997 was $2.76 and $2.71 per MMBtu, respectively. For
additional information regarding the effect of prices on proved reserves,
estimated future net revenues and Present Values, see "Business and
Properties--Oil and Gas Reserves." In addition, actual future net revenues
from proved reserves will be affected by factors such as the amount and timing
of actual production and the incurrence of expenses, supply and demand for oil
and gas, curtailments or increases in consumption by gas purchasers and
changes in governmental regulations or taxation. Furthermore, the 10% discount
factor that the SEC requires the Company to use in calculating Present Values
is not necessarily the most appropriate discount factor based on interest
rates in effect from time to time and risks associated with the Company's
reserves or the oil and gas industry in general.
PROPERTY IMPAIRMENT CHARGES
During 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires the Company to
assess the need for an impairment of capitalized costs of oil and gas
properties on a property-by-property (rather than a company-wide) basis.
Applying SFAS No. 121, the Company recognized non-cash property impairment
charges of $12.1 million in 1996 and $4.9 million in 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations." Significant declines in oil or gas prices or downward
revisions of reserve estimates could adversely impact the Company's estimates
of future net revenues from its proved reserves and consequently could result
in future non-cash impairment charges against the Company's income.
IMPACT ON NET INCOME OF MARKETABLE SECURITY SALES GAINS
The Company's net income during the three-year period ended December 31,
1996 and the six months ended June 30, 1997 was positively impacted by its
sales of marketable securities. The Company recognized pretax gains from such
sales of $13.0 million in 1996, $13.1 million in 1995, $7.5 million in 1994
and $1.8 million in the first six months of 1997. In the absence of such
gains, the Company would have reported net losses in 1996 and 1995, and its
net income in 1994 and the first six months of 1997 would have been reduced.
The Company plans to liquidate the remainder of its marketable securities
(valued at $6.1 million at June 30, 1997) in 1997. Accordingly, the positive
impact that sales of marketable securities have had on the Company's net
income is not expected to continue beyond 1997.
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<PAGE>
ACQUISITION RISKS
The Company expects to continue to evaluate and pursue acquisition
opportunities. The successful acquisition of producing properties requires an
assessment of recoverable reserves, future oil and gas prices, operating
costs, potential environmental and other liabilities and other factors beyond
the Company's control. This assessment is necessarily inexact and its accuracy
is inherently uncertain. In connection with such an assessment, the Company
performs a review it believes to be generally consistent with industry
practices. This review, however, will not reveal all existing or potential
problems, nor will it permit the Company to become sufficiently familiar with
the properties to assess fully their deficiencies and capabilities.
Inspections generally are not performed on every well, and structural and
environmental problems are not necessarily observable even when an inspection
is undertaken. Even when problems are identified, the seller may not be
willing or financially able to give contractual protection against such
problems, and the Company may decide to assume environmental and other
liabilities in connection with acquired properties. There can be no assurance
that the Company's acquisitions will be successful. Any unsuccessful
acquisition could have a material adverse effect on the Company's financial
condition and results of operations.
DRILLING AND OPERATING RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive oil or gas reservoirs will be encountered. 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 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. The cost of
drilling, completing and operating wells is often uncertain. The Company's
drilling operations may be curtailed, delayed or canceled as a result of a
variety of factors, many of which are beyond its control, including economic
conditions, mechanical problems, pressure or irregularities in formations,
title problems, weather conditions, compliance with governmental requirements
and shortages in or delays in the delivery of equipment and services. Such
equipment shortages and delays sometimes involve drilling rigs, especially in
Canada, where weather conditions result in a short drilling season, causing a
high demand for rigs by a large number of companies during a relatively short
period of time. The Company's future drilling activities may not be
successful. Lack of drilling success could have a material adverse effect on
the Company's financial condition and results of operations.
In addition to the substantial risk that wells drilled will not be
productive, hazards such as unusual or unexpected geologic formations,
pressures, downhole fires, mechanical failures, blowouts, cratering,
explosions, uncontrollable flows of oil, gas or well fluids, pollution and
other environmental risks are inherent in oil and gas development,
exploitation, exploration, production and gathering. These hazards could
result in substantial losses to the Company due to injury and loss of life,
severe damage to and destruction of property and equipment, pollution and
other environmental damage and suspension of operations. The Company carries
insurance that it believes is in accordance with customary industry practices,
but, as is common in the oil and gas industry, the Company does not fully
insure against all risks associated with its business either because such
insurance is not available or because the cost thereof is considered
prohibitive. The occurrence of an event that is not covered, or not fully
covered, by insurance could have a material adverse effect on the Company's
financial condition and results of operations. See "Business and Properties--
Drilling and Operating Risks."
RISK OF HEDGING ACTIVITIES
In order to reduce its exposure to price risks in the sale of its oil,
natural gas and NGLs, the Company has entered into and may in the future enter
into hedging contracts. The Company's hedging contracts apply to only a
portion of its production and provide only limited price protection against
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fluctuations in the oil and gas markets. If the Company's reserves are not
produced at rates equivalent to the hedged position, the Company would be
required to satisfy its obligations under its hedging contracts on potentially
unfavorable terms without the ability to hedge that risk through sales of
comparable quantities of its own production. Further, the terms under which
the Company enters into hedging contracts are based on assumptions and
estimates of numerous factors such as cost of production and pipeline and
other transportation costs to delivery points. Substantial variations between
the assumptions and estimates used by the Company and actual results
experienced could materially adversely affect the Company's anticipated profit
margins and its ability to manage the risks associated with fluctuations in
oil and gas prices. Additionally, to the extent that the Company enters into
hedging contracts, it may be prevented from realizing the benefits of price
increases above the level of the hedges. Such hedging contracts are also
subject to the risk that the other party may prove unable or unwilling to
perform its obligations under such contracts. Any significant nonperformance
could have a material adverse effect on the Company's financial condition and
results of operations. Adjustments to oil and gas sales from the Company's
hedging activities resulted in a reduction in the Company's revenues of $6.9
million and $1.8 million, respectively, for the year ended December 31, 1996
and the six months ended June 30, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Other Matters."
COMPETITION
The Company operates in the highly competitive areas of oil and gas
acquisition, development, exploitation, exploration, production and gathering.
In seeking to acquire desirable producing properties or new leases for future
exploration and in marketing and transporting its oil and gas production, the
Company faces intense competition from both major and independent oil and gas
companies, many of which have substantially larger financial resources, staffs
and facilities than the Company. See "Business and Properties--Competition."
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, development, exploitation and production of,
and the exploration for, oil and gas reserves. The Company's capital
expenditures for oil and gas activities, including property acquisitions, were
approximately $46.2 million in 1996. The Company anticipates that such
expenditures, including $15.9 million used to purchase certain properties in
the Welder Ranch area located in Refugio and Goliad Counties, Texas in June
and August 1997 and an additional $3.0 million budgeted for the acquisition of
properties within the same geologic trend as the Welder Ranch properties, but
otherwise excluding property acquisitions, will total approximately $72.4
million in 1997. The Company intends to finance such capital expenditures with
funds provided by internally generated cash flows, including the sale of its
remaining marketable securities, and the balance of the net proceeds of the
Offering of the Outstanding Notes. If the Company's internally generated cash
flows are less than anticipated or its capital needs are greater than
anticipated, the Company may borrow funds under the Credit Agreement or seek
additional equity or debt financing.
The Credit Agreement limits the amount of consolidated senior funded debt
(defined in the Credit Agreement to exclude the Notes but include indebtedness
under the Credit Agreement and other indebtedness for borrowed money and
similar obligations) that the Company may borrow to the borrowing base in
effect from time to time under the Credit Agreement, as determined by the
banks that are parties thereto. Various factors (including declines in the
price of oil or gas) could result in a reduction of the Company's borrowing
base under the Credit Agreement. If the Company's consolidated senior funded
debt exceeds the amount of the reduced borrowing base, the Company would be
required to make principal payments under the Credit Agreement to bring the
total amount of consolidated senior funded debt outstanding in compliance with
the revised borrowing base. No assurance can be given that the Company will
not be required to make such mandatory prepayments
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in the future. See "--Uncertainty of Estimates of Reserves and Future Net
Revenues" and "Description of Certain Senior Indebtedness."
If the Company's cash flow from operations, the balance of the net proceeds
of the Offering and the availability under the Credit Agreement are not
sufficient to satisfy its cash requirements, there can be no assurance that
additional equity or debt financing will be available to meet such
requirements. Even if such alternative financing is available, there can be no
assurance that the terms of such financing will be acceptable to the Company.
If acceptable financing is not available, any future property acquisitions and
the Company's development, exploitation and exploration activities may be
curtailed.
In the last several years, the Company has funded a significant portion of
its capital expenditures by liquidating portions of its portfolio of
marketable securities. It expects to liquidate the remainder of its marketable
securities during 1997. Accordingly, this source of funds is not expected to
be available after 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General."
INTERNATIONAL OPERATIONS
The Company's Canadian operations represented approximately 15% of its total
proved reserves at December 31, 1996 and approximately 20% of its total
revenues for the year ended December 31, 1996, and are expected to represent a
significant portion of its operations in the future. The Company continues to
evaluate other international investment opportunities and has allocated
approximately $192,000 of its 1997 capital expenditures budget for this
purpose, but currently has no binding agreements or commitments to conduct any
material international oil and gas exploration or development activities other
than in Canada. The Company's Canadian operations, and any other international
operations that the Company may conduct in the future, may be adversely
affected by local political and economic developments, exchange controls,
foreign currency fluctuations, export duties and quotas, domestic and
international customs and tariffs, changing taxation policies and other
governmental regulations. In addition, the Company receives a substantial
portion of its revenue in Canadian dollars. As a result, fluctuations in the
exchange rate of the Canadian dollar with respect to the U.S. dollar could
have an adverse effect on the Company's financial position, results of
operations and cash flows.
MARKETABILITY OF PRODUCTION
The marketability of the Company's natural gas production depends in part
upon the availability, proximity and capacity of natural gas gathering
systems, pipelines and processing facilities. Most of the Company's natural
gas is delivered through gas gathering systems and gas pipelines that are not
owned by the Company. Federal, state, provincial and local regulation of oil
and gas production and transportation, tax and energy policies, changes in
supply and demand and general economic conditions all could adversely affect
the Company's ability to produce and market its oil and gas. Any dramatic
change in market factors could have a material adverse effect on the Company's
financial condition and results of operations. See "Business and Properties--
Marketing of Production" and "--Governmental Regulation."
COMPLIANCE WITH ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
The Company's business is subject to federal, state, provincial and local
laws and regulations relating to the development, exploitation, production and
gathering of, and the exploration for, oil and gas, including those relating
to the protection of the environment. Although the Company believes it is in
substantial compliance with all applicable laws and regulations, the
implementation of new, or the modification of existing, laws or regulations
could have a material adverse effect on the Company's financial condition and
results of operations. In addition, the discharge of oil, gas or other
pollutants,
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or wastes or hazardous or toxic substances, into the air, soil or water may
give rise to significant liabilities on the part of the Company to the
government and third parties, and may require the Company to incur substantial
costs of remediation. No assurance can be given that existing environmental
and other governmental laws or regulations, as currently interpreted or
reinterpreted in the future, or future laws or regulations will not materially
adversely affect the Company's financial condition and results of operations.
See "Business and Properties--Governmental Regulation" and "--Environmental
Matters."
DEPENDENCE ON KEY PERSONNEL
The Company depends, and will continue to depend in the foreseeable future,
on the services of its officers and key employees with extensive experience
and expertise in evaluating and analyzing producing oil and gas properties and
drilling prospects, maximizing production from oil and gas properties
(including through enhanced recovery methods) and marketing oil and gas
production. The ability of the Company to retain such officers and key
employees is important to the continued success and growth of the Company. The
loss of key personnel could have a material adverse effect on the Company. The
Company does not maintain key man life insurance on any of its officers or
employees. See "Management."
LACK OF PUBLIC MARKET
The Outstanding Notes were issued to, and the Company believes are currently
owned by, a relatively small number of beneficial owners. The Outstanding
Notes have not been registered under the Securities Act and will continue to
be subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes. See "-- Consequences of a Failure to Exchange
Outstanding Notes." Although the Exchange Notes will generally be permitted to
be resold or otherwise transferred by holders thereof (who are not affiliates
of the Company or broker-dealers) without compliance with the registration and
prospectus delivery requirements of the Securities Act, they will constitute a
new issue of securities with no established trading market. The Company has
been advised by the Initial Purchasers that the Initial Purchasers currently
intend to make a market in the Exchange Notes. However, the Initial Purchasers
are not obligated to do so, and any market-making activity with respect to the
Exchange Notes may be discontinued at any time without notice. In addition,
such market-making activity will be subject to the limits imposed by the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and may be limited during the Exchange Offer. If the Exchange
Notes are traded after their initial issuance, they may trade at a discount
from face value and at a discount from the initial offering price of the
Outstanding Notes, depending upon prevailing interest rates, the market for
similar securities and other factors including general economic conditions and
the financial condition of the Company. The Company does not intend to apply
for a listing or quotation of the Exchange Notes on any securities exchange or
stock market. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Exchange Notes. The liquidity of, and trading
market for, the Exchange Notes also may be adversely affected by general
declines in the market for similar securities. Such a decline may adversely
affect such liquidity and trading market independent of the financial
performance of, and prospects for, the Company.
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.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer 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. Subject
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to certain provisions set forth in the Registration Agreement, the Company has
agreed that, for a period of up to 90 days after the consummation of the
Exchange Offer, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. However, under
certain circumstances, the Company has the right to require that Participating
Broker-Dealers suspend the resale of Exchange Notes pursuant to this
Prospectus. Notwithstanding that the Company may cause the resale of Exchange
Notes pursuant to this Prospectus to be suspended, the Company has no
obligation to extend the 90-day period referred to above during which
Participating Broker-Dealers are entitled to use this Prospectus in connection
with such resales. See "The Exchange Offer--Resales of Exchange Notes."
EXCHANGE OFFER ELIGIBILITY AND PROCEDURES
Any holder of the Outstanding Notes who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act or any broker-dealer
who purchased Outstanding Notes from the Company to resell pursuant to Rule
144A or any other available exemption under the Securities Act will not be
permitted or entitled to tender such Outstanding Notes in the Exchange Offer
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or other transfer of such
Outstanding Notes unless such sale or transfer is made pursuant to an
exemption from such requirements. See "The Exchange Offer--Resales of Exchange
Notes."
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make
certain representations to the Company set forth in "The Exchange Offer--
Acceptance for Exchange and Issuance of Exchange Notes."
Issuance of the Exchange Notes in exchange for the Outstanding Notes
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of the required documents. Therefore, holders of the
Outstanding Notes desiring to tender such Outstanding Notes in exchange for
Exchange Notes should allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities
with respect to tenders of Outstanding Notes for exchange. See "The Exchange
Offer--Procedures for Tendering Outstanding Notes."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including without limitation statements under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business and Properties," regarding
proved reserves, estimated future net revenues, Present Values, planned
capital expenditures (including the amount and nature thereof), increases in
oil and gas production, the number of wells anticipated to be drilled in 1997
and thereafter and 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, there can be no assurance that
the actual results or developments anticipated by the Company will be realized
or, even if substantially realized, that they will have the expected
consequences to or effects on its business or operations. Among the factors
that could cause actual results to differ materially from the Company's
expectations are general economic conditions, competition, domestic and
foreign government regulations, fluctuations in oil and gas prices and the
other factors set forth in "Risk Factors." 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. The
Company assumes no obligation to update any such forward-looking statements.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Outstanding Notes, the Company and the
Initial Subsidiary Guarantors entered into the Registration Agreement with the
Initial Purchasers, pursuant to which the Company and the Initial Subsidiary
Guarantors agreed to file and to use their reasonable best efforts to cause to
become effective with the SEC a registration statement with respect (subject
to certain exceptions) to the exchange of the Outstanding Notes for debt
securities with terms identical in all material respects to the terms of the
Outstanding Notes. A copy of the Registration Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. See
"Description of the Exchange Notes--Registration Agreement."
The Exchange Offer is being made to satisfy the contractual obligations of
the Company and the Initial Subsidiary Guarantors under the Registration
Agreement. The form and terms of the Exchange Notes are the same as the form
and terms of the Outstanding Notes except that: (i) the Exchange Notes have
been registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Outstanding Notes and will
not be entitled to resale registration under the Registration Agreement
(subject to certain limited exceptions), although the Registration Agreement
does provide for prospectus delivery procedures to assist resales of Exchange
Notes; and (ii) the Exchange Notes will not provide for any increase in the
interest rate thereon (subject to certain limited exceptions). In that regard,
the Outstanding Notes provide that if (i) by July 21, 1997, neither an
exchange offer registration statement nor a resale shelf registration
statement has been filed, (ii) by September 18, 1997, neither an exchange
offer registration statement has been declared effective nor a resale shelf
registration statement has been filed, (iii) by October 20, 1997, neither an
exchange offer has been consummated nor a resale shelf registration statement
has been declared effective or (iv) either the exchange offer registration
statement or the resale shelf registration statement has been declared
effective and such registration statement ceases to be effective or usable
(subject to certain exceptions), Special Interest will accrue and be payable
semiannually until such time as all such Registration Defaults have been
cured. See "Risk Factors--Consequences of a Failure to Exchange Outstanding
Notes" and "Description of the Outstanding Notes."
The Exchange Offer is not being made to, nor will the Company accept tenders
for exchange from, holders of Outstanding 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.
Unless the context requires otherwise, the term "holder" with respect to the
Exchange Offer means (i) any person in whose name the Outstanding Notes are
registered on the books of the Company, (ii) any other person who has obtained
a properly completed bond power from the registered holder or (iii) any person
whose Outstanding Notes are held of record by The Depository Trust Company
(the "Depository") who desires to deliver such Outstanding Notes by book-entry
transfer at the Depository. Persons holding Outstanding Notes through the
Depository and wishing to accept the Exchange Offer must do so pursuant to the
Depository's Automated Tender Offer Program. See "--Procedures for Tendering
Outstanding Notes--Book-Entry Transfer."
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $125,000,000 aggregate principal amount of Exchange Notes for a
like aggregate principal amount of Outstanding Notes properly tendered prior
to the Expiration Date and not properly withdrawn in accordance with the
procedures described below. The Company will issue, promptly after the
Expiration Date, an aggregate principal amount of up to $125,000,000 of
Exchange Notes in exchange for a like aggregate principal amount of
Outstanding Notes tendered and accepted in connection with the Exchange Offer.
The term
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"Expiration Date" means 5:00 p.m., New York City time, on
, 1997, unless the Exchange Offer is extended by the
Company (in which case the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended). Holders may tender their
Outstanding Notes in whole or in part in a principal amount of $1,000 and
integral multiples thereof. The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Outstanding Notes being tendered or
accepted for exchange. As of the date of this Prospectus, $125,000,000
aggregate principal amount of Outstanding Notes is outstanding.
Holders of Outstanding Notes do not have any appraisal or dissenters' rights
in connection with the Exchange Offer. Outstanding Notes that are not tendered
for exchange or are tendered but not accepted in connection with the Exchange
Offer will remain outstanding and be entitled to the benefits of the
Indenture, but will not be entitled to any further registration rights under
the Registration Agreement, except under limited circumstances. See "Risk
Factors--Consequences of a Failure to Exchange Outstanding Notes,"
"Description of the Exchange Notes--Registration Agreement" and "Description
of the Outstanding Notes."
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Outstanding Notes will be
returned, without expense, to the tendering holder thereof (or, in the case of
Outstanding Notes tendered pursuant to the procedures for book-entry transfer
described below, such Outstanding Notes will be credited to an account
maintained with the Depository for the Outstanding Notes) promptly after the
Expiration Date. Holders who tender Outstanding Notes in connection with the
Exchange Offer will not be required to pay brokerage commissions or fees or,
subject to the instructions herein and in the Letter of Transmittal, transfer
taxes with respect to the exchange of Outstanding Notes in connection with the
Exchange Offer. The Company will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the Exchange
Offer. See "--Fees and Expenses" and "--Transfer Taxes."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OUTSTANDING NOTES AS TO WHETHER TO TENDER OR
REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OUTSTANDING NOTES PURSUANT
TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY
SUCH RECOMMENDATION. HOLDERS OF OUTSTANDING NOTES MUST MAKE THEIR OWN DECISION
WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE
AMOUNT OF OUTSTANDING NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE
LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON
THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXTENSIONS AND AMENDMENTS
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (i)
to delay the acceptance of the Outstanding Notes for exchange, (ii) to
terminate the Exchange Offer (whether or not any Outstanding Notes have
theretofore been accepted for exchange) if the Company determines, in its sole
and absolute discretion, that any of the events or conditions referred to
under "--Conditions to the Exchange Offer" have occurred or exist or have not
been satisfied, (iii) to extend the Expiration Date of the Exchange Offer and
retain all Outstanding Notes tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Outstanding Notes to withdraw their
tendered Outstanding Notes as described under "--Withdrawal Rights," and (iv)
to waive any condition or otherwise amend the terms of the Exchange Offer in
any respect. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, or if the Company waives a material
condition of the Exchange Offer, the Company will promptly disclose such
amendment or waiver by means of a prospectus supplement that will be
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distributed to the registered holders of the Outstanding Notes, and the
Company will extend the Exchange Offer to the extent required by Rule 14e-1
under the Exchange Act.
Any such delay in acceptance, termination, extension or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and
by making a public announcement thereof, and such announcement in the case of
an extension will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Company may choose to make any public
announcement and subject to applicable law, the Company shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, Exchange Notes
for Outstanding Notes validly tendered and not withdrawn (pursuant to the
withdrawal rights described under "--Withdrawal Rights") promptly after the
Expiration Date. In all cases, delivery of Exchange Notes in exchange for
Outstanding Notes tendered and accepted for exchange pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of (i)
certificates for such Outstanding Notes or a confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Outstanding Notes into the
Exchange Agent's account at the Depository's book-entry transfer facility
system (the "Book-Entry Transfer Facility") pursuant to the procedures for
book-entry transfer described under "--Procedures for Tendering Outstanding
Notes--Book-Entry Transfer," if available, (ii) the Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message, and (iii) any other documents
required by the Letter of Transmittal. 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 the Book-Entry Transfer Facility has received an express
acknowledgment from the participant in the Book-Entry Transfer Facility
tendering Outstanding 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 the participant.
Subject to the terms and conditions of the Exchange Offer, the Company will
be deemed to have accepted for exchange, and thereby exchanged, Outstanding
Notes validly tendered and not withdrawn as, if and when the Company gives
oral or written notice to the Exchange Agent of the Company's acceptance of
such Outstanding Notes for exchange pursuant to the Exchange Offer. The
Exchange Agent will act as agent for the Company for the purpose of receiving
tenders of Outstanding Notes, Letters of Transmittal and related documents,
and as agent for tendering holders for the purpose of receiving Outstanding
Notes, Letters of Transmittal and related documents and transmitting Exchange
Notes to validly tendering holders. Such exchange will be made promptly after
the Expiration Date. If for any reason whatsoever, acceptance for exchange or
the exchange of any Outstanding Notes tendered pursuant to the Exchange Offer
is delayed (whether before or after the Company's acceptance for exchange of
Outstanding Notes) or the Company extends the Exchange Offer or is unable to
accept for exchange or exchange Outstanding Notes tendered pursuant to the
Exchange Offer, then, without prejudice to the Company's rights set forth
herein, the Exchange Agent may, nevertheless, on behalf of the Company and
subject to Rule 14e-1(c) under the Exchange Act, retain tendered Outstanding
Notes and such Outstanding Notes may not be withdrawn except to the extent
tendering holders are entitled to withdrawal rights as described under "--
Withdrawal Rights."
By tendering, a holder of Outstanding Notes will represent to the Company
that (i) it has full power and authority to tender, exchange, sell, assign and
transfer the tendered Outstanding Notes and to acquire the Exchange Notes
issuable upon exchange thereof, (ii) the Company will acquire good, marketable
and unencumbered title to the tendered Outstanding Notes, free and clear of
all liens,
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restrictions, charges and encumbrances, and (iii) the Outstanding Notes
tendered for exchange are not subject to any adverse claims or proxies. In
addition, by tendering, the holder will represent to the Company that (i) the
Exchange Notes acquired pursuant to the Exchange Offer by the holder and any
beneficial owner of the tendered Outstanding Notes are being acquired in the
ordinary course of business of the person receiving such Exchange Notes, (ii)
neither the holder nor such beneficial owner has an arrangement or
understanding with any person to participate in a distribution of such
Exchange Notes, (iii) if such beneficial owner is not a broker-dealer, neither
the holder nor such beneficial owner is engaged in or intends to engage in a
distribution of such Exchange Notes and (iv) neither the holder nor such
beneficial owner is an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company. See "--Resales of Exchange Notes." The holder
also will warrant and agree 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 Outstanding Notes tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
Valid Tender
In order for Outstanding Notes to be validly tendered pursuant to the
Exchange Offer, (a) the Exchange Agent must receive prior to the Expiration
Date a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents, and either (i) the certificates for such Outstanding Notes
or (ii) a Book-Entry Confirmation of such Outstanding Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the procedures
for book-entry transfer described below, if available, or (b) the Exchange
Agent must receive prior to the Expiration Date a Book-Entry Confirmation of
such Outstanding Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility with an Agent's Message and any other required documents or
(c) the holder must comply with the guaranteed delivery procedures set forth
below. 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.
If less than all of the Outstanding Notes are tendered, a tendering holder
should fill in the amount of Outstanding Notes being tendered in the
appropriate box on the Letter of Transmittal. The entire amount of Outstanding
Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer
The Exchange Agent will establish an account with respect to the Outstanding
Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer
within two business days after the date of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility may make
a book-entry delivery of the Outstanding Notes by causing the Depository to
transfer such Outstanding Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility in accordance with the Depository's procedures for
transfers. Although delivery of Outstanding Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Book-Entry
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Transfer Facility, the Letter of Transmittal or an Agent's Message must in any
case be transmitted to and received by the Exchange Agent at one of the
Exchange Agent's addresses set forth under "--Exchange Agent" prior to the
Expiration Date, or the guaranteed delivery procedures set forth below must be
complied with.
The Depository's Automated Tender Offer Program ("ATOP") is the only method
of processing exchange offers through the Book-Entry Transfer Facility. To
accept the Exchange Offer through ATOP, participants in the Book-Entry
Transfer Facility must send electronic instructions to the Depository through
the Depository's communication system in place of sending a signed, hard copy
Letter of Transmittal. The Depository is obligated to communicate those
electronic instructions to the Exchange Agent. To tender Outstanding Notes
through ATOP, the electronic instructions sent to the Depository and
transmitted by the Depository to the Exchange Agent must contain the character
(i.e., the Agent's Message) by which the participant acknowledges its receipt
of and agrees to be bound by the Letter of Transmittal.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY IN ACCORDANCE WITH THE DEPOSITORY'S
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. THE LETTER OF
TRANSMITTAL OR AN AGENT'S MESSAGE MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR
PRIOR TO , 1997.
Signature Guarantees
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Outstanding Notes surrendered for
exchange are tendered (i) by a registered holder of the Outstanding Notes (or
by a participant in the Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of such Outstanding Notes) 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 the Book-Entry Transfer Facility) or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by a firm or
other entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible
guarantor institution", including (as such terms are defined therein): (i) a
bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association (collectively, "Eligible Institutions").If Outstanding Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Outstanding Notes surrendered for exchange must be endorsed
by or be accompanied by appropriate bond powers duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
Guaranteed Delivery
If a holder desires to tender Outstanding Notes pursuant to the Exchange
Offer and (i) the certificates for such Outstanding Notes are not immediately
available, (ii) such holder cannot complete the procedures for book-entry
transfer of the Outstanding Notes on a timely basis or (iii) time will not
permit the Letter of Transmittal or other required documents to reach the
Exchange Agent before the Expiration Date, such Outstanding Notes may
nevertheless be tendered, provided that all of the following guaranteed
delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is
received by the Exchange Agent, as provided below, prior to the
Expiration Date; and
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(iii) the certificates representing all tendered Outstanding Notes, in
proper form for transfer, or a Book-Entry Confirmation with respect
to such Outstanding Notes, together with a properly completed and
duly executed Letter of Transmittal or an Agent's Message, and any
other required documents, are received by the Exchange Agent within
five New York Stock Exchange trading days after the date of execution
of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted by
facsimile, overnight courier or mail, to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of Exchange Notes
in exchange for Outstanding Notes tendered and accepted for exchange pursuant
to the Exchange Offer will in all cases be made only after timely receipt by
the Exchange Agent of (i) Outstanding Notes, or a Book-Entry Confirmation with
respect to such Outstanding Notes, (ii) a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) or an Agent's Message and (iii)
any other required documents. Accordingly, the delivery of Exchange Notes
might not be made to all tendering holders at the same time, and will depend
upon when Outstanding Notes, Book-Entry Confirmations with respect to
Outstanding Notes and other required documents are received by the Exchange
Agent. The Company's acceptance for exchange of Outstanding Notes tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions of the Exchange Offer.
Determination of Validity
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tendered Outstanding Notes and the
validity and form of any other required documents will be determined by the
Company, in its sole discretion, whose determination shall be final and
binding on all parties. The Company reserves the absolute right, in its sole
and absolute discretion, to reject any and all tenders determined by it not to
be in proper form or the acceptance of which, or exchange for, may, in the
view of counsel to the Company, be unlawful. No tender of Outstanding Notes
will be deemed to have been validly made until all irregularities with respect
to such tender have been cured or waived. Neither the Company, any affiliates
or assigns of the Company, the Exchange Agent nor any other person shall be
under any duty to give any notification of any irregularities in tenders or
incur any liability for failure to give any such notification. The Company
also reserves the absolute right, subject to applicable law, to waive any of
the conditions of the Exchange Offer as set forth under "--Conditions to the
Exchange Offer" or any condition or irregularity in any tender of Outstanding
Notes of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders.
A beneficial owner of Outstanding Notes that are held by or registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial owner
wishes to participate in the Exchange Offer. If such beneficial owner wishes
to tender directly, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering its Outstanding Notes,
either make appropriate arrangements to register ownership of the Outstanding
Notes in such beneficial owner'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
Outstanding Notes tendered thereby, the signature must correspond with the
name(s) written on the face of the Outstanding Notes without alteration,
enlargement or any change whatsoever. If the Letter of Transmittal 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 Outstanding Notes. If any Letter of Transmittal, endorsement,
bond power, power of attorney or any other document required by the Letter
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of Transmittal 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 unless waived by the Company, proper evidence satisfactory to the
Company, in its sole discretion, of such person's authority to so act must be
submitted.
RESALES OF EXCHANGE NOTES
The Company is making the Exchange Offer in reliance on a position of the
staff of the Division of Corporation Finance of the SEC as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, the Company has not sought its own interpretive letter, and there can
be no assurance that the staff of the Division of Corporation Finance of the
SEC would make a determination with respect to the Exchange Offer similar to
that made in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and
subject to the three immediately following sentences, the Company believes
that Exchange Notes issued pursuant to the Exchange Offer in exchange for
Outstanding Notes may be offered for resale, resold and otherwise transferred
by a holder thereof (other than a holder who is a broker-dealer) without
further compliance with the registration and prospectus delivery requirements
of the Securities Act, provided that (i) such Exchange Notes are acquired in
the ordinary course of such holder's business and (ii) such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. However, any holder of Outstanding Notes who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or any broker-dealer who purchased Outstanding 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 of the
staff of the Division of Corporation Finance of the SEC set forth in the
above-mentioned interpretive letters, (ii) will not be permitted or entitled
to tender such Outstanding 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 other transfer of such Outstanding Notes
unless such sale or transfer is made pursuant to an exemption from such
requirements. In addition, any holder who tenders Outstanding Notes in the
Exchange Offer with the intention or for the purpose of participating in a
distribution of the Exchange Notes cannot rely on such interpretations of the
staff of the Division of Corporation Finance of the SEC referred to above and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. A broker-
dealer who is not an "affiliate" of the Company may participate in the
Exchange Offer with respect to Outstanding Notes acquired for its own account
as a result of market-making activities or other trading activities, provided
that (i) in connection with any resales of Exchange Notes received by the
broker-dealer in exchange for such Outstanding Notes, the broker-dealer
delivers a prospectus meeting the requirements of the Securities Act, and (ii)
the broker-dealer has not entered into any arrangement or understanding with
any person to participate in a distribution (within the meaning of the
Securities Act) of such Exchange Notes. In the event that applicable
interpretations by the staff of the Division of Corporation Finance of the SEC
change or otherwise do not permit resales of the Exchange Notes without
compliance with the registration and prospectus delivery requirements of the
Securities Act, holders of Exchange Notes who transfer Exchange Notes in
violation of the prospectus delivery provisions of the Securities Act or
without an exemption from registration thereunder may incur liability
thereunder.
Each holder of Outstanding Notes who wishes to exchange such Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to represent
that (i) it is not an "affiliate" of the Company, (ii) any Exchange Notes to
be received by it are being acquired in the ordinary course of its business,
(iii) it has no arrangement or understanding with any person to participate in
a distribution (within the meaning of the Securities Act) of such Exchange
Notes and (iv) if such holder is not a broker-dealer, such holder is not
engaged in, and does not intend to engage in, a distribution (within the
meaning of the Securities Act) of such Exchange Notes. Each Participating
Broker-Dealer that receives Exchange
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Notes for its own account in exchange for Outstanding Notes pursuant to the
Exchange Offer must acknowledge that it acquired the Outstanding Notes for its
own account as a result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of Corporation
Finance of the SEC in the interpretive letters referred to above, the Company
believes that Participating Broker-Dealers may fulfill the prospectus delivery
requirements with respect to the Exchange Notes received upon exchange of
Outstanding Notes (other than Outstanding Notes which represent an unsold
allotment from the original sale of the Outstanding Notes) with a prospectus
meeting the requirements of the Securities Act, that may be the prospectus
prepared for an exchange offer so long as it contains a description of the
plan of distribution with respect to the resale of such Exchange Notes.
Accordingly, this Prospectus may be used by a Participating Broker-Dealer
during the period referred to in the immediately following sentence in
connection with resales of Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired by such Participating Broker-
Dealer for its own account as a result of market-making activities or other
trading activities. Subject to certain provisions set forth in the
Registration Agreement, the Company has agreed that, for a period of up to 90
days after the consummation of the Exchange Offer, it will make this
Prospectus available to any Participating Broker-Dealer for use in connection
with any such resale. Any Participating Broker-Dealer who is an "affiliate" of
the Company may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "Plan of Distribution."
Each Participating Broker-Dealer who surrenders Outstanding Notes pursuant
to the Exchange Offer will be deemed to have agreed, by execution of the
Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any
material respect or which causes this Prospectus to omit to state a material
fact necessary in order to make the statements contained or incorporated by
reference herein, in light of the circumstances under which they were made,
not misleading or of the occurrence of certain other events specified in the
Registration Agreement, such Participating Broker-Dealer will suspend the sale
of Exchange Notes pursuant to this Prospectus until the Company has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such
Participating Broker-Dealer or until the Company has given notice that the
sale of the Exchange Notes may be resumed, as the case may be. Notwithstanding
that the Company may suspend the sale of the Exchange Notes under such
circumstances, the Company has no obligation to extend the 90-day period
referred to above during which Participating Broker-Dealers are entitled to
use this Prospectus in connection with the resale of Exchange Notes.
WITHDRAWAL RIGHTS
Tenders of Outstanding Notes may be withdrawn at any time prior to the
Expiration Date. In order for a withdrawal to be effective a written or (for
participants in the Book-Entry Transfer Facility) electronic ATOP transmission
notice of withdrawal must be received by the Exchange Agent at one of its
addresses set forth under "--Exchange Agent" prior to the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person who tendered
the Outstanding Notes to be withdrawn, (ii) identify the Outstanding Notes to
be withdrawn (including the certificate number or numbers and the aggregate
principal amount of such Outstanding Notes), (iii) contain a statement that
such person is withdrawing its election to have such Outstanding Notes
exchanged, (iv) be signed by the person in the same manner as the orginal
signature on the Letter of Transmittal by which such Outstanding Notes were
tendered (including any required signature guarantees) or be accompanied
34
<PAGE>
by documents of transfer sufficient to have the Trustee with respect to the
Outstanding Notes register the transfer of such Outstanding Notes in the name
of the person withdrawing the tender and (v) specify the name in which such
Outstanding Notes are registered, if different from that of the person who
tendered such Outstanding Notes. If Outstanding Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "--Procedures
for Tendering Outstanding Notes," the notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Outstanding Notes and otherwise comply with the
procedures of such facility. Withdrawals of tenders of Outstanding Notes may
not be rescinded. Outstanding Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time prior to the Expiration Date by following any of the
procedures described above under "--Procedures for Tendering Outstanding
Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all
parties. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Outstanding Notes
which have been tendered but which are withdrawn will be returned to the
holder thereof (or, in the case of Outstanding Notes tendered pursuant to the
procedures for book-entry transfer described above, such Outstanding Notes
will be credited to the account at the Book-Entry Transfer Facility specified
in the notice of withdrawal) promptly after withdrawal.
INTEREST ON THE EXCHANGE NOTES
Each Exchange Note will bear interest at the rate of 9 1/2% per annum from
the most recent date to which interest has been paid or duly provided for on
the Outstanding Note surrendered in exchange for such Exchange Note or, if no
interest has been paid or duly provided for on such Outstanding Note, from May
21, 1997 (the date of original issuance of the Outstanding Notes). Interest on
the Exchange Notes will be payable semiannually on May 15 and November 15 of
each year, commencing on November 15, 1997.
Holders of Outstanding Notes whose Outstanding Notes are accepted for
exchange will not receive accrued interest on such Outstanding Notes for any
period from and after the last interest payment date to which interest has
been paid or duly provided for on such Outstanding Notes prior to the original
issue date of the Exchange Notes or, if no such interest has been paid or duly
provided for, will not receive any accrued interest on such Outstanding Notes,
and will be deemed to have waived the right to receive any interest on such
Outstanding Notes accrued from and after such interest payment date or, if no
such interest has been paid or duly provided for, from and after May 21, 1997.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Outstanding Notes for any Exchange Notes, and,
as described below, may terminate the Exchange Offer (whether or not any
Outstanding Notes have theretofore been accepted for exchange), or may waive
any conditions to or amend the Exchange Offer, if any of the following
conditions have occurred or exist or have not been satisfied:
(a) there shall occur a change in the current interpretation by the staff
of the SEC which permits the Exchange Notes issued pursuant to the Exchange
Offer in exchange for Outstanding Notes to be offered for resale, resold
and otherwise transferred by holders thereof (other than broker-dealers and
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without compliance with the registration
and prospectus
35
<PAGE>
delivery provisions of the Securities Act provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such
holders have no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes; or
(b) any 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 which, in the Company's judgment, would reasonably be
expected to impair the ability of the Company to proceed with the Exchange
Offer; or
(c) any law, statute, rule or regulation shall have been adopted or
enacted which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer; or
(d) a banking moratorium shall have been declared by United States
federal authorities that, in the Company's judgment, would reasonably be
expected to impair the ability of the Company to proceed with the Exchange
Offer; or
(e) trading on the New York Stock Exchange or generally in the United
States over-the-counter market shall have been suspended by order of the
SEC or any other governmental authority which, in the Company's judgment,
would reasonably be expected to impair the ability of the Company to
proceed with the Exchange Offer; or
(f) a stop order shall have been issued by the SEC suspending the
effectiveness of the Registration Statement or proceedings shall have been
initiated or, to the knowledge of the Company, threatened for that purpose;
or
(g) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby; or
(h) any change, or any development involving a prospective change, in the
business or financial affairs of the Company or any of its subsidiaries has
occurred that, in the sole judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, the Company may, subject to applicable law, terminate the Exchange
Offer (whether or not any Outstanding Notes have theretofore been accepted for
exchange) or may waive any such condition or otherwise amend the terms of the
Exchange Offer in any respect. If such waiver or amendment constitutes a
material change to the Exchange Offer, the Company will promptly disclose such
waiver or amendment by means of a prospectus supplement that will be
distributed to the registered holders of the Outstanding Notes, and the
Company will extend the Exchange Offer to the extent required by Rule 14e-1
under the Exchange Act.
36
<PAGE>
EXCHANGE AGENT
Texas Commerce Bank National Association (the "Exchange Agent") has been
appointed as Exchange Agent for the Exchange Offer. Delivery of the Letters of
Transmittal and any other required documents, questions, requests for
assistance and requests for additional copies of this Prospectus or of the
Letter of Transmittal should be directed to the Exchange Agent as follows:
<TABLE>
<S> <C>
By Mail: By Overnight Courier:
Texas Commerce Bank National Association Texas Commerce Bank National Association
Attn: Frank Ivins--Personal and Attn: Frank Ivins--Personal and Confidential
Confidential
P.O. Box 2320 1201 Main Street, One Main Place, 18th Floor
Dallas, Texas 75221-2320 Dallas, Texas 75202
By Hand: By Facsimile Transmission:
Texas Commerce Bank National Association (for Eligible Institutions only)
Attn: Frank Ivins--Personal and Texas Commerce Bank National Association
Confidential
1201 Main Street, One Main Place, 18th Attn: Frank Ivins--Personal and Confidential
Floor
Dallas, Texas 75202 (214) 672-5746
or
Texas Commerce Bank National Association Confirm by Telephone:
Corporate Trust Securities Window (214) 672-5678
Worth Building, Room 234, Window 20
55 Water Street
New York, New York 10041
</TABLE>
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone or in person by officers and regular
employees of the Company. No additional compensation will be paid to any such
officers and employees who engage in soliciting tenders.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, has agreed
to pay the Exchange Agent reasonable and customary fees for its services and
will reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent, accounting and legal fees and printing costs, among others.
TRANSFER TAXES
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Notes are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the Outstanding Notes tendered, or
if a transfer tax is imposed for any reason other than the exchange of
Outstanding Notes in connection with 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.
37
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The exchange of the Outstanding Notes for Exchange Notes by tendering
holders should not be a taxable exchange for U.S. federal income tax purposes,
and such holders should not recognize any taxable gain or loss for U.S.
federal income tax purposes as a result of such exchange. Holders of Exchange
Notes will continue to be required to include interest on the Exchange Notes
in gross income in accordance with their method of accounting for U.S. federal
income tax purposes. HOLDERS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN U.S.
TAX CONSIDERATIONS RELATING TO THE EXCHANGE NOTES PRIOR TO TENDERING THE
OUTSTANDING NOTES IN THE EXCHANGE OFFER.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's and the
Initial Subsidiary Guarantors' obligations under the Registration Agreement.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes in the Exchange Offer. In consideration for issuing the
Exchange Notes as contemplated in this Prospectus, the Company will receive
Outstanding Notes in like principal amount. The form and terms of the Exchange
Notes are identical in all material respects to the form and terms of the
Outstanding Notes, except for certain transfer restrictions and registration
rights relating to the Outstanding Notes and except for certain provisions
providing for an increase in the interest rate on the Outstanding Notes under
certain circumstances relating to the timing of the Exchange Offer. See
"Description of the Exchange Notes." The Outstanding Notes surrendered in
exchange for the Exchange Notes will be retired and cancelled and cannot be
reissued. Accordingly, issuance of the Exchange Notes will not result in any
increase in the outstanding debt of the Company.
The net proceeds to the Company from the sale of the Outstanding Notes were
approximately $119.9 million, after deducting the discount received by the
Initial Purchasers and the estimated expenses of the Offering payable by the
Company. The Company used approximately $77.0 million of such net proceeds to
pay in full the outstanding indebtedness under the Company's credit agreement
(the "Credit Agreement") with a group of banks. The balance of the net
proceeds of the Offering will be used by the Company for general corporate
purposes, which may include future acquisitions of oil and gas properties. The
Company intends to reborrow under the Credit Agreement from time to time as
necessary to fund oil and gas acquisition, development, exploitation,
exploration and production activities and for other general corporate
purposes. For additional information regarding the Credit Agreement, see
"Description of Certain Senior Indebtedness" and Note 3 to the Company's
Consolidated Financial Statements included elsewhere in this Prospectus.
38
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 30,
1997. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1997
----------------
(IN THOUSANDS)
<S> <C>
Cash and marketable securities:
Cash and cash equivalents................................... $ 28,110
Marketable securities....................................... 6,075
--------
Total cash and marketable securities...................... $ 34,185
========
Long-term debt:
Credit Agreement (1)........................................ $ --
9 1/2% Senior Subordinated Notes due 2007 (2)............... 124,261
--------
Total long-term debt...................................... 124,261
Stockholders' equity:
Preferred Stock -- $10.00 par value; 300,000 shares
authorized;
no shares issued and outstanding........................... --
Common Stock -- $3.00 par value; 20,000,000 shares
authorized; 9,126,294 shares issued; 8,950,090 shares
outstanding (3)............................................ 27,379
Paid-in capital............................................. 3,208
Retained earnings........................................... 70,045
Marketable securities valuation adjustment.................. 3,728
Foreign currency translation................................ 842
Treasury stock, 176,204 shares, at cost..................... (2,729)
--------
Total stockholders' equity................................. 102,473
--------
Total capitalization...................................... $226,734
========
</TABLE>
- --------
(1) At June 30, 1997, no indebtedness was outstanding under the Credit
Agreement; however, the Company had $80.0 million of borrowing capacity
available thereunder. See "Description of Certain Senior Indebtedness" for
additional information concerning the Credit Agreement.
(2) Net of (i) approximately $352,000 of unamortized discount and (ii)
approximately $386,000 of unamortized cost of an interest rate hedging
arrangement entered into by the Company in anticipation of the Offering.
The cost of the hedging arrangement was included in the expenses of the
Offering payable by the Company.
(3) Excludes shares issuable pursuant to the Company's stock incentive plans.
At June 30, 1997, there were 1,019,350 shares of common stock of the
Company issuable pursuant to options or other rights outstanding under
such plans.
39
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial data of the Company are
derived from information contained in the Company's consolidated financial
statements. The financial data for each of the five years in the period ended
December 31, 1996 were derived from the audited consolidated financial
statements of the Company. The financial data for the six months ended June
30, 1997 and 1996 were derived from the unaudited consolidated financial
statements of the Company, but in the opinion of management include all
adjustments necessary for a fair presentation of the financial information.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the full year.
The selected consolidated financial and operating data presented below are
qualified in their entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and notes
thereto included elsewhere in this Prospectus. For additional information
regarding the Company's operations, see "Business and Properties."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ --------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and gas sales..... $ 39,269 $ 32,473 $ 72,012 $ 54,400 $ 53,559 $ 40,329 $ 37,157
Dividends and
interest............. 457 398 683 1,241 1,641 1,855 2,000
Marketable security
sales gains.......... 1,813 6,832 12,977 13,101 7,475 -- --
Other................. 1,860 227 1,017 2,939 2,681 737 1,025
-------- -------- -------- -------- -------- -------- --------
Total revenues...... 43,399 39,930 86,689 71,681 65,356 42,921 40,182
-------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Production and
operating............ 13,561 11,491 23,970 20,690 22,313 17,864 15,083
Purchased natural
gas.................. 773 642 1,462 727 759 1,182 993
Depreciation,
depletion and
amortization......... 11,010 9,850 19,653 19,778 18,313 15,352 13,803
Property impairments.. -- 12,112 12,112 4,893 -- -- --
Exploration........... 4,139 2,196 4,176 5,801 4,130 3,639 6,308
General and
administrative....... 4,931 4,940 9,364 8,193 6,502 5,429 4,199
Interest expense...... 3,355 2,728 5,452 5,618 3,907 530 31
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses........... 37,769 43,959 76,189 65,700 55,924 43,996 40,417
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes.......... 5,630 (4,029) 10,500 5,981 9,432 (1,075) (235)
Income tax expense
(benefit)............. 1,433 (173) 4,072 3,788 444 (2,091) (712)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 4,197 $ (3,856) $ 6,428 $ 2,193 $ 8,988 $ 1,016 $ 477
======== ======== ======== ======== ======== ======== ========
Average outstanding
shares (1)............ 8,950 8,939 8,954 8,939 8,941 8,939 8,938
Per share data:
Net income per share.. $ 0.47 $ (0.43) $ 0.72 $ 0.25 $ 1.01 $ 0.11 $ 0.05
Cash dividends per
share................ $ 0.06 $ 0.06 $ 0.12 $ 0.40 $ 0.40 $ 0.40 $ 0.40
OTHER FINANCIAL DATA:
EBITDAX (2)............ $ 21,864 $ 15,627 $ 38,233 $ 27,729 $ 26,666 $ 16,591 $ 17,907
Operating cash flow.... 17,047 13,432 34,287 20,541 24,334 16,892 17,933
Capital expenditures
(3)................... 39,917 19,587 46,231 31,052 73,186 72,321 17,218
Ratios:
Ratio of earnings to
fixed charges (4).... 2.7x (0.5)x 2.9x 2.1x 3.4x N/A(5) N/A (5)
Ratio of EBITDAX to
fixed
charges (2)(4)....... 6.5x 5.7 x 7.0x 4.9x 6.8x 31.3x N/M
Ratio of total debt to
EBITDAX (2).......... N/A N/A 2.1x 2.7x 2.9x 2.8x N/M
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash
equivalents........... $ 28,110 $ 2,180 $ 5,870 $ 1,397 $ 2,714 $ 3,499 $ 14,525
Working capital (6).... 24,910 1,059 3,493 1,034 2,313 6,454 16,401
Marketable securities.. 6,075 13,053 7,176 19,592 27,337 34,781 3,845
Net property, plant and
equipment............. 204,242 165,157 179,718 169,089 167,371 127,708 75,697
Total assets........... 255,443 193,102 208,617 203,407 210,791 177,782 102,340
Long-term debt......... 124,261 75,625 78,654 74,171 78,013 46,777 135
Stockholders' equity... 102,473 93,087 99,262 101,132 105,427 105,116 87,241
</TABLE>
(See footnotes on following pages)
40
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- --------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
RESERVE AND OPERATING
DATA:
Production volumes:
Oil and NGLs (MBbl)... 1,433 1,284 2,776 2,332 2,277 1,468 1,298
Natural gas
(MMcf)(7)............ 6,063 6,390 12,288 12,171 11,076 8,296 6,996
Oil equivalents
(MBOE)(7)........... 2,444 2,349 4,824 4,361 4,123 2,851 2,464
Weighted average sales
prices(8):
Oil (per Bbl)......... $ 18.57 $ 18.09 $ 18.81 $ 16.91 $ 15.60 $ 16.44 $ 19.07
Natural gas (per
Mcf)(7).............. 2.22 1.61 1.77 1.37 1.73 2.07 1.95
NGLs (per Bbl)........ 13.97 11.89 13.36 10.11 9.00 9.42 10.11
Oil equivalents (per
BOE)(7)............. 16.07 13.82 14.93 12.47 12.99 14.15 15.08
Selected expenses per
BOE(9):
Lease operating....... $ 4.68 $ 4.07 $ 4.14 $ 4.06 $ 4.54 $ 5.80 $ 5.63
Production taxes...... 0.98 0.92 0.93 0.78 0.97 0.72 0.75
Depreciation,
depletion and
amortization......... 4.60 4.28 4.16 4.62 4.53 5.35 5.24
General and
administrative....... 2.06 2.14 1.98 1.92 1.61 1.98 1.78
Proved reserves (end of
period)(10):
Oil and NGLs (MBbl)... N/A N/A 31,612 32,208 23,430 21,242 11,756
Natural gas (MMcf).... N/A N/A 113,377 109,915 107,920 103,317 70,034
Oil equivalents
(MBOE).............. N/A N/A 50,508 50,527 41,417 38,462 23,428
Estimated future net
revenues before
income taxes (in
thousands)........... N/A N/A $705,723 $401,037 $272,776 $241,251 $210,591
Present Value (in
thousands)........... N/A N/A $414,314 $235,416 $160,804 $137,149 $116,611
Standardized Measure
of Discounted Future
Net Cash Flows (in
thousands)(11)....... N/A N/A $317,180 $194,602 $142,032 $112,423 $ 86,559
Weighted average sales
prices
(end of
period)(10)(12):
Oil (per Bbl)......... N/A N/A $ 24.63 $ 18.19 $ 16.11 $ 13.35 $ 17.29
Natural gas (per
Mcf)................. N/A N/A $ 3.45 $ 1.84 $ 1.57 $ 2.34 $ 2.36
NGLs (per Bbl)........ N/A N/A $ 19.79 $ 12.87 $ 9.80 $ 9.07 $ 8.04
</TABLE>
- -------
(1) Calculated using the treasury stock method. Under this method, average
outstanding shares for the six months ended June 30, 1997 and the year
ended December 31, 1996 exclude 1,019,350 and 864,582 shares,
respectively, issuable pursuant to the Company's stock incentive plans at
such dates.
(2) EBITDAX is not a generally accepted accounting measure, but is presented
as a supplemental financial indicator of the Company's ability to service
or incur debt. EBITDAX is calculated by adding interest expense, income
tax expense, depreciation, depletion and amortization, property impairment
costs and exploration costs to net income (excluding marketable security
sales gains and dividends and interest). EBITDAX should not be considered
in isolation or as a substitute for net income, operating cash flows or
any other measure of financial performance prepared in accordance with
generally accepted accounting principles or as a measure of the Company's
profitability or liquidity.
(3) Consist of costs incurred by the Company in connection with its oil and
gas acquisition, development and exploration activities, and, in certain
years, costs relating to the reconditioning of its gas plants. See Note 6
to the Company's Consolidated Financial Statements included elsewhere in
this Prospectus.
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income (loss) before income taxes and fixed charges. Fixed
charges consist of interest expense.
(See footnotes on following page)
41
<PAGE>
(5) Earnings were insufficient to cover fixed charges by $1,075,000 and
$235,000 for the years ended December 31, 1993 and 1992, respectively.
(6) Working capital represents the difference between current assets and
current liabilities.
(7) Calculated giving effect to volumes of natural gas purchased for resale
as follows: first six months of 1997--301 MMcf, first six months of
1996--269 MMcf, 1996--605 MMcf, 1995--500 MMcf, 1994--469 MMcf, 1993--666
MMcf and 1992--600 MMcf.
(8) Reflects results of hedging activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Other
Matters."
(9) Calculated without giving effect to volumes of natural gas purchased for
resale.
(10) Estimates of proved reserves and future net revenues from which Present
Values are derived are based on year end prices of oil and gas held
constant (except to the extent a contract specifically provides
otherwise) in accordance with SEC regulations. The prices of oil and gas
at December 31, 1996 used to estimate the Company's proved reserves and
future net revenues from which Present Value is derived were
substantially higher than the prices used in previous years to make such
estimates and substantially higher than oil and gas prices at August 29,
1997. For additional information regarding the effect of prices on proved
reserves, estimated future net revenues and Present Values, see "Business
and Properties--Oil and Gas Reserves."
(11) The Standardized Measure of Discounted Future Net Cash Flows prepared by
the Company represents the present value (using an annual discount rate
of 10%) of estimated future net revenues from the production of proved
reserves, after giving effect to income taxes. See the Supplemental
Financial Information attached to the Company's Consolidated Financial
Statements included elsewhere in this Prospectus for additional
information regarding the disclosure of the Standardized Measure of
Discounted Future Net Cash Flows.
(12) Year end prices used to estimate proved reserves and future net revenues
from which Present Values are derived. See footnote 10 above.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in an understanding of the
Company's historical financial position and results of operations for each
year in the three-year period ended December 31, 1996 and for the unaudited
six-month periods ended June 30, 1997 and 1996. The Company's Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus
contain detailed information that should be referred to in conjunction with
the following discussion.
GENERAL
The Company's results of operations have been significantly affected by its
Maljamar waterflood project, Wellman Unit CO/2/ gas injection project and 1994
acquisition and subsequent development, exploitation and exploration of its
Canadian oil and gas properties. The Company has achieved increases in its oil
and gas production primarily as a result of these activities.
The Company owns certain marketable securities and, in connection with its
change in business strategy, has been liquidating portions of its portfolio in
order to fund a portion of the Company's capital expenditures. The Company
recognized pretax gains from the sale of marketable securities of $13.0
million, $13.1 million and $7.5 million in 1996, 1995 and 1994, respectively,
and $1.8 million in the first six months of 1997. In the absence of such
gains, the Company would have reported net losses in 1996 and 1995, and its
net income in 1994 and the first six months of 1997 would have been reduced.
The Company plans to liquidate the remainder of its marketable securities
(valued at $6.1 million at June 30, 1997) in 1997. Accordingly, the positive
impact that sales of marketable securities have had on the Company's net
income is not expected to continue, and sales of marketable securities will no
longer be a source of funds, beyond 1997. See "Risk Factors--Impact on Net
Income of Marketable Security Sales Gains" and "--Substantial Capital
Requirements."
During 1995, the Company adopted SFAS No. 121, which requires the Company to
assess the need for an impairment of capitalized costs of oil and gas
properties on a property-by-property (rather than a company-wide) basis.
Applying SFAS No. 121, the Company recognized non-cash property impairment
charges of $12.1 million in 1996 and $4.9 million in 1995. See "Risk Factors--
Property Impairment Charges" and "--Results of Operations."
The Company's future results of operations and growth are substantially
dependent upon (i) its ability to acquire or find and successfully develop
additional oil and gas reserves and (ii) the prevailing prices for oil and
gas. At December 31, 1996, the Company's proved reserves were comprised of
approximately 90% proved developed reserves, and the Company does not have a
large inventory of development drilling locations or enhanced recovery
projects to pursue after 1997. If the Company is unable to economically
acquire or find significant new reserves for development and exploitation, the
Company's oil and gas production, and thus its revenues, would likely decline
gradually as its reserves are produced. In addition, oil and gas prices are
dependent upon numerous factors beyond the Company's control, such as
economic, political and regulatory developments and competition from other
sources of energy. The oil and gas markets have historically been very
volatile, and any significant and extended decline in the price of oil or gas
would have a material adverse effect on the Company's financial condition and
results of operations, and could result in a reduction in the carrying value
of the Company's proved reserves and adversely affect its access to capital.
See "Risk Factors--Volatility of Oil and Gas Prices" and "Business and
Properties--Oil and Gas Reserves."
The Company follows the successful efforts method of accounting for oil and
gas producing activities. Under this method, the Company capitalizes all costs
incurred to acquire interests in oil and gas properties, to drill and equip
exploratory wells in which proved reserves are discovered and to drill and
equip development wells. Geological and geophysical costs, delay rentals and
technical support
43
<PAGE>
costs are expensed as incurred. The costs of drilling and equipping
exploratory wells in which proved reserves are not discovered are expensed
upon a determination that a well does not justify commercial development. The
capitalized costs of producing oil and gas properties are depreciated and
depleted using the units-of-production method based on estimated proved
reserves. Unproved oil and gas properties are periodically assessed for
impairment of value, and if an impairment is determined to exist, such
impairment is expensed. The successful efforts method of accounting could
affect the Company's income from operations depending upon the Company's level
of drilling activities and the results of such drilling in any year.
RESULTS OF OPERATIONS
Production information presented below includes volumes of natural gas
purchased for resale; however, per unit of production information with respect
to production and operating expenses, depreciation, depletion and amortization
and general and administrative costs is calculated without giving effect to
such volumes. Such volumes were 301 MMcf in the first six months of 1997, 269
MMcf in the first six months of 1996, 605 MMcf in 1996, 500 MMcf in 1995 and
469 MMcf in 1994.
Comparison of Six Months Ended June 30, 1997 to Six Months Ended June 30,
1996
Income (Loss) Before Income Taxes and Net Income (Loss). Income before
income taxes increased 240% to $5.6 million for the first six months of 1997
from a loss before income taxes of $4.0 million for the first six months of
1996. Net income increased 209% to $4.2 million for the first six months of
1997 from a net loss of $3.9 million for the same period of 1996. The
improvement in income before income taxes and net income was attributable
primarily to the absence of a non-cash property impairment charge in the first
six months of 1997 compared with a $12.1 million non-cash property impairment
charge recognized in the first six months of 1996, combined with higher
production and higher net realized prices during the first six months of 1997.
Production. The Company's net oil production rose 13% to 1,260 MBbls in the
first six months of 1997 from 1,118 MBbls in the first six months of 1996. Net
natural gas production decreased 5% to 6,063 MMcf in the first six months of
1997 from 6,390 MMcf in the first six months of 1996. Net NGL production
increased to 173 MBbls in the first six months of 1997 from 166 MBbls in the
first six months of 1996. On an equivalent unit basis, net production
increased 4% to 2,444 MBOE in the first six months of 1997 from 2,349 MBOE in
the first six months of 1996. The increase in production was primarily
attributable to higher oil production from the Company's Maljamar properties
as a result of continued development drilling.
Revenues. Total revenues increased 9% to $43.4 million in the first six
months of 1997 from $39.9 million in the first six months of 1996, primarily
because of higher net oil production and net realized prices received from oil
and gas production. Average net realized oil prices rose 3% to $18.57 per Bbl
in the first six months of 1997 from $18.09 per Bbl in the first six months of
1996. Average net realized natural gas prices rose 38% to $2.22 per Mcf in the
first six months of 1997 from $1.61 per Mcf in the first six months of 1996.
Average net realized NGL prices rose 17% to $13.97 per Bbl in the first six
months of 1997 from $11.89 per Bbl in the first six months of 1996. The
average net realized oil and gas prices received in the first six months of
1997 of $18.57 per Bbl and $2.22 per Mcf, respectively, compared to average
prices of $19.95 per Bbl and $2.22 per Mcf, respectively, which would have
been received before the effects of the Company's hedging activities, which
activities resulted in a reduction of $1.8 million in the Company's oil and
gas sales for the first six months of 1997. Adjustments to oil and gas sales
from the Company's hedging activities resulted in a reduction of $2.6 million
in oil and gas revenues during the first six months of 1996.
Dividends and interest increased 15% in the first six months of 1997,
primarily as a result of interest income earned on higher invested cash
balances. The Company recognized a $1.8 million
44
<PAGE>
pretax gain from the sale of marketable securities for the first six months of
1997, compared with a $6.8 million pretax gain from similar sales in the first
six months of 1996. Other revenues of the Company increased to $1.9 million in
the first six months of 1997 from $0.2 million in the first six months of
1996, primarily as a result of the sale of producing oil and gas properties in
Michigan.
Production and Operating Expenses. Production and operating expenses
increased 18% to $13.6 million in the first six months of 1997 from $11.5
million in the first six months of 1996, primarily due to additional
development wells completed at the Maljamar properties and workover and repair
operations at the Wellman Unit. On an equivalent unit of production basis,
such expenses increased 13% to $5.66 per BOE in the first six months of 1997
from $4.99 per BOE in the first six months of 1996.
Depreciation, Depletion and Amortization ("DD&A"). DD&A increased 12% to
$11.0 million for the first six months of 1997 from $9.9 million in the first
six months of 1996. The DD&A rate per BOE increased 7% to $4.60 per BOE in the
first six months of 1997 from $4.28 in the first six months of 1996. The
increase in the DD&A rate per BOE in the first six months of 1997 was due
primarily to higher DD&A from Canadian properties which have a greater than
average ratio of costs to reserves.
Exploration Costs. Exploration costs increased 88% to $4.1 million in the
first six months of 1997 from $2.2 million in the first six months of 1996,
primarily as a result of $1.2 million in dry hole expenses incurred in
connection with the South Lakeside prospect in Cameron Parish, Louisiana and
higher geological and geophysical expenses.
General and Administrative Costs. General and administrative costs during
the first six months of 1997 were comparable to the first six months of 1996.
Interest Expense. Interest expense increased 23% to $3.4 million in the
first six months of 1997 from $2.7 million in the first six months of 1996 as
a result of the increase in long-term debt associated with the issuance in May
1997 of $125 million principal amount of Outstanding Notes.
Comparison of 1996 to 1995
Income Before Income Taxes and Net Income. Income before income taxes
increased 75% to $10.5 million for 1996 from $6.0 million in 1995. Net income
increased 191% to $6.4 million in 1996 from $2.2 million in 1995. The
improvement in income before income taxes and net income was attributable
primarily to higher production and higher net realized prices during 1996.
Production. The Company's net oil production rose 17% to 2,425 MBbls in 1996
from 2,080 MBbls in 1995. Net natural gas production increased 1% to 12,288
MMcf in 1996 from 12,171 MMcf in 1995. Net NGL production increased 39% to 351
MBbls in 1996 from 252 MBbls in 1995. On an equivalent unit basis, net
production increased 11% to 4,824 MBOE in 1996 from 4,361 MBOE in 1995. The
increase in production was primarily attributable to development activities
which resulted in the addition of 102 net producing wells in 1996.
Revenues. Total revenues increased 21% to $86.7 million in 1996 from $71.7
million in 1995, primarily because of higher production and higher net
realized prices during 1996. Average net realized oil prices rose 11% to
$18.81 per Bbl in 1996 from $16.91 per Bbl in 1995. Average net realized
natural gas prices rose 29% to $1.77 per Mcf in 1996 from $1.37 per Mcf in
1995. Average net realized NGL prices rose 32% to $13.36 per Bbl in 1996 from
$10.11 per Bbl in 1995. The average net realized oil, gas and NGL prices
received in 1996 of $18.81 per Bbl, $1.77 per Mcf and $13.36 per Bbl,
respectively, compared to average prices of $20.86 per Bbl, $1.92 per Mcf and
$13.64 per Bbl, respectively, which would have been received before the
effects of the Company's hedging activities, which activities resulted in a
reduction of $6.9 million in the Company's oil and gas sales for 1996. Effects
of hedging activities were not significant in 1995.
45
<PAGE>
Dividends and interest decreased 42% to $0.7 million in 1996 from $1.2
million in 1995, primarily as a result of sales of marketable securities in
1996 and 1995. The Company recognized a pretax gain of $13.0 million from
marketable security sales in 1996, compared with a pretax gain of $13.1
million from similar sales in 1995. Other revenues of the Company decreased
66% to $1.0 million in 1996 from $2.9 million in 1995, primarily as a result
of fewer sales of non-strategic properties in 1996.
Production and Operating Expenses. Production and operating expenses
increased 16% to $24.0 million in 1996 from $20.7 million in 1995, primarily
due to higher production taxes resulting from higher revenues from sales of
oil and gas. On an equivalent unit of production basis, such expenses
increased 5% to $5.07 per BOE in 1996 from $4.84 per BOE in 1995.
Depreciation, Depletion and Amortization. DD&A decreased 1% to $19.7
million in 1996 from $19.8 million in 1995. The DD&A rate per BOE decreased
10% to $4.16 in 1996 from $4.62 in 1995. The decrease in the DD&A rate per BOE
in 1996 was due primarily to upward revisions of previous estimates of the
Company's proved reserves attributable to certain of its properties in the
Permian Basin and Canada during 1996, while capitalized costs relating to such
properties remained relatively constant.
Property Impairment Charges. The Company recognized non-cash property
impairment charges of $12.1 million in 1996 and $4.9 million in 1995 as a
result of applying the provisions of SFAS No. 121. The impairment charge for
1996 resulted from a downward revision of previous estimates of the Company's
proved reserves attributable to certain of its properties in Michigan and
Canada. The impairment charge for 1995 resulted from a downward revision of
previous estimates of the Company's proved reserves attributable to certain of
its Canadian properties.
Exploration Costs. Exploration costs decreased 28% to $4.2 million in 1996
from $5.8 million in 1995, primarily as a result of a temporary reduction by
the Company in its 1996 domestic exploration activities due to a redirection
of its exploration program in the fourth quarter of 1996. See "Business and
Properties--Business Strategy."
General and Administrative Costs. General and administrative costs increased
15% to $9.4 million in 1996 from $8.2 million in 1995, primarily as a result
of higher compensation costs and professional fees relating to acquisition and
tax matters. On an equivalent unit of production basis, general and
administrative costs increased 3% to $1.98 per BOE in 1996 from $1.92 per BOE
in 1995.
Interest Expense. Interest expense decreased 2% to $5.5 million in 1996 from
$5.6 million in 1995.
Effective Tax Rate. The Company's effective tax rate decreased to 39% in
1996 from 63% in 1995. This decrease was due primarily to a decrease in 1996
in the amount of tax loss attributable to the Company's Canadian operations
that was not deductible for purposes of United States federal income taxes. In
addition, the Company's Internal Revenue Code Section 29 income tax credits
relating to its San Juan Basin properties increased 15% to $1.5 million in
1996 from $1.3 million in 1995.
Comparison of 1995 to 1994
Income Before Income Taxes and Net Income. Income before income taxes
decreased 36% to $6.0 million in 1995 from $9.4 million in 1994. Net income
decreased 76% to $2.2 million in 1995 from $9.0 million in 1994. The decrease
in income before income taxes was due primarily to a non-cash property
impairment charge of $4.9 million against 1995 income, all of which related to
impairments of certain of Wiser's Canadian properties, compared with no such
charge in 1994. The decrease in net income was due primarily to (i) such
property impairment charge and (ii) an increase in income tax
46
<PAGE>
expense to $3.8 million in 1995 from $0.4 million in 1994, due principally to
a decrease in the deferred tax asset valuation reserve in 1994 which did not
occur in 1995. The property impairment charge and the increase in income tax
expense in 1995 were partially offset by a pretax gain of $13.1 million from
the sale by the Company of a portion of its marketable securities portfolio in
1995, compared with a pretax gain of $7.5 million from similar sales in 1994.
Production. The Company's net oil production decreased 1% to 2,080 MBbls in
1995 from 2,104 MBbls in 1994. Net natural gas production increased 10% to
12,171 MMcf in 1995 from 11,076 MMcf in 1994. Net NGL production increased 46%
to 252 MBbls in 1995 from 173 MBbls in 1994. The Company's total net
equivalent production increased 6% to 4,361 MBOE in 1995 from 4,123 MBOE in
1994, primarily as a result of 34 net producing wells completed in 1995.
Revenues. Total revenues increased 10% to $71.7 million in 1995 from $65.4
million in 1994, primarily because of an increase of $5.6 million in pretax
gains from the sale by the Company of marketable securities in 1995 compared
with pretax gains from similar sales in 1994. Oil and gas revenues for 1995
remained relatively constant, increasing 1% to $54.4 million in 1995 from
$53.6 million in 1994. This increase was due primarily to higher production in
1995, partially offset by a 4% decrease in 1995 in average net realized prices
on an oil equivalent basis. Average net realized oil prices rose 8% to $16.91
per Bbl in 1995 from $15.60 per Bbl in 1994, while average net realized
natural gas prices declined 21% to $1.37 per Mcf in 1995 from $1.73 per Mcf in
1994. Average net realized NGL prices rose 12% to $10.11 per Bbl in 1995 from
$9.00 per Bbl in 1994.
Production and Operating Expenses. Production and operating expenses
decreased 7% to $20.7 million in 1995 from $22.3 million in 1994, primarily as
a result of sales by the Company of non-strategic properties in late 1994. On
an equivalent unit of production basis, such expenses decreased 12% to $4.84
per BOE in 1995 from $5.51 per BOE in 1994.
Depreciation, Depletion and Amortization. DD&A increased 8% to $19.8 million
in 1995 from $18.3 million in 1994, primarily as a result of an additional
$4.8 million in DD&A attributable to a full year of ownership of the Company's
Canadian properties in 1995, partially offset by a decrease of $3.2 million in
DD&A due to sales by the Company in late 1994 of certain non-strategic
properties with high DD&A rates. The DD&A rate per BOE increased 2% to $4.62
in 1995 from $4.53 in 1994.
Exploration Costs. Exploration costs increased 41% to $5.8 million in 1995
from $4.1 million in 1994, primarily as a result of higher dry hole costs in
1995.
General and Administrative Costs. General and administrative costs increased
26% to $8.2 million in 1995 from $6.5 million in 1994. Of this increase, $1.0
million was due to the inclusion in 1995 operating results of a full year of
Canadian operations and $0.7 million was attributable to higher legal
expenses. On an equivalent unit of production basis, general and
administrative costs increased 19% to $1.92 per BOE in 1995 from $1.61 per BOE
in 1994.
Interest Expense. Interest expense increased 44% to $5.6 million in 1995
from $3.9 million in 1994. This increase was due primarily to the inclusion in
1995 operating results of a full year's interest expense related to the $52.0
million of bank debt incurred in connection with the Company's purchase of its
Canadian properties in 1994.
Effective Tax Rate. The Company's effective tax rate increased to 63% in
1995 from 5% in 1994. The increase was due primarily to an increase in net
operating losses attributable to the Company's Canadian operations for which
no current United States federal income tax benefit was available and benefits
realized in 1994 from the recognition of previously reserved deferred tax
assets which were not available in 1995.
47
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
General
Working capital at June 30, 1997 was $24.9 million, representing a $21.4
million increase over the corresponding amount at December 31, 1996. At June
30, 1997, the Company had $28.1 million in cash and cash equivalents and
$255.4 million of total assets. At June 30, 1997, capitalization totaled
$226.7 million, of which approximately 45% was represented by stockholders'
equity and 55% by long-term debt. All of the long-term debt was represented by
the Outstanding Notes.
Capital Sources
Funding for the Company's business activities has been provided primarily by
cash flow from operations, bank financing and sales of marketable securities.
The Company anticipates liquidating the remainder of its marketable securities
during 1997. Accordingly, this source of funds is not expected to be available
after 1997. See "Risk Factors--Substantial Capital Requirements."
While the Company regularly engages in discussions relating to potential
acquisitions of oil and gas properties (some of which may be material to the
Company), the Company has no current agreement or commitment with respect to
any such acquisition, other than relatively minor acquisitions of oil and gas
properties and interests in its normal course of business. Any future
acquisitions may require additional financing and will be dependent upon
financing arrangements available at the time.
The Company believes that funds provided by internally generated cash flows,
including the sale of its remaining marketable securities, and the balance of
the net proceeds of the Offering of the Outstanding Notes will be sufficient
to meet anticipated operating and capital expenditure requirements (excluding
any property acquisitions) in 1997. If the Company's internally generated cash
flows are less than anticipated or its capital needs are greater than
anticipated, the Company may borrow funds under the Credit Agreement. At June
30, 1997, the Company had $34.2 million in cash and marketable securities, no
indebtedness outstanding under the Credit Agreement and $80.0 million of
borrowing capacity available under the Credit Agreement. The Credit Agreement
limits the amount of consolidated senior funded debt (defined in the Credit
Agreement to exclude the Notes but include indebtedness under the Credit
Agreement and other indebtedness for borrowed money and similar obligations)
that the Company may borrow to the borrowing base in effect from time to time
under the Credit Agreement, as determined by the banks that are parties
thereto. Various factors (including declines in the price of oil or gas) could
result in a reduction of the Company's borrowing base under the Credit
Agreement. If the Company's cash flow from operations, the balance of the net
proceeds of the Offering and the availability under the Credit Agreement are
not sufficient to satisfy its cash requirements, there can be no assurance
that additional equity or debt financing will be available to meet such
requirements. See "Risk Factors--Substantial Capital Requirements."
Credit Agreement
The Credit Agreement provides for a revolving credit facility to the
Company. For a description of the Credit Agreement, see "Description of
Certain Senior Indebtedness."
At December 31, 1996, the outstanding principal balance of indebtedness
under the Credit Agreement was $58.0 million, all of which was bearing
interest at 6.31% per annum. These borrowings were used by the Company to
finance property acquisitions and for other general corporate purposes. The
average interest rate paid by the Company on borrowings under the Credit
Agreement during 1996 was 6.04% per annum.
On March 10, 1997, the Company borrowed $23.9 million under the Credit
Agreement to pay in full its outstanding indebtedness under its Maljamar
project financing credit facility and the Company thereafter terminated such
facility. For a description of the Maljamar project financing credit facility,
see
48
<PAGE>
Note 3 to the Company's Consolidated Financial Statements included elsewhere
in this Prospectus. During the first quarter of 1997, the Company applied $1.7
million of its operating cash flows to reduce its indebtedness under the
Credit Agreement to $76.9 million at March 31, 1997, all of which was bearing
interest at 6.25% per annum.
The Company used approximately $77.0 million of the net proceeds of the
Offering to pay in full the outstanding indebtedness under the Credit
Agreement. The Company intends to reborrow under the Credit Agreement from
time to time as necessary to fund oil and gas acquisition, development,
exploitation and exploration activities and for other general corporate
purposes.
Cash Flow Analysis
Cash Flows from Operating Activities. Cash flows from operating activities
were $17.0 million during the first six months of 1997, compared with $13.4
million during the first six months of 1996. Cash flows from operating
activities were $34.3 million in 1996, $20.5 million in 1995 and $24.3 million
in 1994. The increase in cash flows from operating activities for the first
six months of 1997 and during 1996 was due primarily to higher production and
higher net realized prices in those periods. The decrease in cash flows for
1995 compared to 1994 was due primarily to higher interest expense and income
taxes paid in 1995.
Cash Flows from Investing Activities. Cash flows used in investing
activities increased to $35.9 million in the first six months of 1997,
compared with $12.4 million in the first six months of 1996. Cash flows used
in investing activities increased to $32.1 million in 1996 from $14.4 million
in 1995. These increases were caused primarily by an increase in capital
expenditures. Capital expenditures were $39.9 million in the first six months
of 1997, compared with $19.6 million in the first six months of 1996. This
increase in capital expenditures was primarily the result of the $15.0 million
acquisition of oil and gas properties in the Welder Ranch area located in
Refugio and Goliad Counties, Texas in June 1997, increased exploration
expenses and the completion of additional secondary recovery facilities at
Maljamar. Capital expenditures were $46.2 million in 1996 compared with $31.1
million in 1995. Cash flows used in investing activities decreased to $14.4
million in 1995 from $52.8 million in 1994. Cash flows used in investing
activities in 1994 included $52.0 million for the acquisition by the Company
of Canadian oil and gas properties in June 1994. Cash flows from investing
activities in 1996, 1995, 1994 and the first six months of 1997 included $14.0
million, $14.5 million, $8.3 million and $1.8 million, respectively, in
proceeds from marketable security sales. At June 30, 1997, the Company's
marketable securities portfolio had been reduced to $6.1 million in value. The
Company anticipates liquidating the remainder of its marketable securities
during 1997.
Cash Flows from Financing Activities. Cash flows from financing activities
were $41.1 million in the first six months of 1997, compared with $0.3 million
used in financing activities in the first six months of 1996. Cash flows from
financing activities were $2.2 million in 1996 compared to $7.5 million used
in financing activities in 1995. During the first six months of 1997, the
Company increased its total long-term debt by $45.6 million as a result of the
sale of the Outstanding Notes and incurred $4.9 million in debt issuance costs
and fees. During 1996, the Company increased its total long-term debt by $4.5
million in connection with financing development activities in the Maljamar
area. The Company also reduced its cash dividends to $1.1 million in 1996 from
$3.6 million in 1995. During 1995, the Company reduced its total long-term
debt by $3.8 million. Cash flows used in financing activities were $7.5
million in 1995 compared with $27.7 million in cash flows from financing
activities in 1994. During 1994, total long-term debt increased $31.2 million
as a result of financing the acquisition of the Canadian oil and gas
properties.
Capital Expenditures
The Company requires capital primarily for the acquisition, development and
exploitation of, and the exploration for, oil and gas properties, the
repayment of indebtedness and general working capital needs.
49
<PAGE>
Capital expenditures of the Company increased approximately 104% to $39.9
million in the first six months of 1997 from $19.6 million in the first six
months of 1996, primarily as a result of the acquisition of oil and gas
properties in the Welder Ranch area located in Refugio and Goliad Counties,
Texas in June 1997 for $15.0 million, increased exploration expenses and the
addition of secondary recovery facilities at the Company's Maljamar waterflood
project. Capital expenditures increased approximately 49% to $46.2 million in
1996 from $31.1 million in 1995, primarily as a result of an increase in
capital expenditures related to the Maljamar waterflood project. Capital
expenditures decreased approximately 58% to $31.1 million in 1995 from $73.2
million in 1994. Capital expenditures in 1994 included $52.0 million for the
purchase of certain Canadian oil and gas properties in June 1994. Excluding
the 1994 Canadian acquisition, capital expenditures increased approximately
47% to $31.1 million in 1995 from $21.2 million in 1994. The increase
reflected a full year of capital expenditures in Canada, the completion of
modifications to a gas processing plant at the Company's Wellman Unit and an
increase in capital expenditures related to the Maljamar waterflood project.
During 1997, subject to market conditions and drilling and operating
results, the Company expects to spend approximately $53.5 million on
development, exploitation and exploration activities. Of this amount, the
Company has budgeted $36.7 million for development and exploitation activities
and $16.8 million for exploration activities. See "Risk Factors--Volatility of
Oil and Gas Prices" and "--Replacement and Expansion of Reserves" and
"Business and Properties--Principal Oil and Gas Properties" and "--Exploration
Activities." These budgeted amounts do not include amounts necessary to
acquire oil and gas properties and, in particular, do not include $15.9
million used to purchase certain properties in the Welder Ranch area located
in Refugio and Goliad Counties, Texas in June and August 1997 and an
additional $3.0 million budgeted to purchase properties in the same geologic
trend as the Welder Ranch properties. See "Business and Properties--Principal
Oil and Gas Properties--Other U.S. Properties."
OTHER MATTERS
Hedging Activities
The Company has entered into and may in the future enter into hedging
arrangements with respect to portions of its oil, natural gas and NGL
production to reduce its sensitivity to volatile commodity prices. The Company
believes that hedging, although not free of risk, allows the Company to
achieve a more predictable cash flow and to reduce exposure to price
fluctuations. However, hedging arrangements limit the benefit to the Company
of increases in the prices of the hedged commodity. Moreover, the Company's
hedging arrangements apply only to a portion of its production and provide
only partial price protection against declines in prices. Such arrangements
may expose the Company to risk of financial loss in certain circumstances. See
"Risk Factors--Risk of Hedging Activities." The Company adjusts the price
received for the hedged production during the period the hedged transactions
occur. Adjustments to oil and gas sales from the Company's hedging activities
resulted in a reduction in the Company's revenues of $6.9 million and $1.8
million, respectively, for the year ended December 31, 1996 and the six months
ended June 30, 1997. Hedging activities in 1995 and 1994 did not result in any
material increase or decrease in oil and gas revenues. The Company expects
that the amount of production it hedges will vary from time to time. The
Company continuously reevaluates its hedging program in light of market
conditions, commodity price forecasts, capital spending and debt service
requirements.
50
<PAGE>
At December 31, 1996, approximately 41% of the Company's total expected oil
production through December 1997 was hedged under collar arrangements as
follows:
<TABLE>
<CAPTION>
DAILY VOLUME FLOOR PRICE CEILING PRICE
BEGINNING DATE ENDING DATE (BBLS) (PER BBL) (PER BBL)
-------------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
January 1, 1997 December 31, 1997 1,000 $16.00 $18.85
January 1, 1997 December 31, 1997 1,000 21.80(1) 25.55(1)
January 1, 1997 March 31, 1997 2,000 16.00 19.41
April 1, 1997 June 30, 1997 2,000 17.00 19.00
July 1, 1997 September 30, 1997 2,000 17.00 19.00
</TABLE>
- --------
(1) Canadian dollars.
At December 31, 1996, approximately 40% of the Company's total expected NGL
production from January 1 through March 31, 1997 was hedged at a weighted
average swap price of $18.76 per Bbl. See Note 1 to the Company's Consolidated
Financial Statements included elsewhere in this Prospectus.
Effects of Fluctuations in Exchange Rates
The Company receives a substantial portion of its revenue in Canadian
dollars. As a result, fluctuations in the exchange rates of the Canadian
dollar with respect to the U.S. dollar could have an adverse effect on the
Company's financial condition and results of operations. Historically,
exchange rate fluctuations have not been material to the Company. See "Risk
Factors--International Operations."
Environmental and Other Regulatory Matters
The Company's business is subject to certain federal, state, provincial and
local laws and regulations relating to the development, exploitation,
production and gathering of, and the exploration for, oil and gas, including
those relating to the protection of the environment. Many of these laws and
regulations have become more stringent in recent years, often imposing greater
liability on a larger number of potentially responsible parties. Although the
Company believes it is in substantial compliance with all applicable laws and
regulations, the requirements imposed by 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. Although significant expenditures may be required to comply with
governmental laws and regulations applicable to the Company, compliance has
not had a material adverse effect on the earnings or competitive position of
the Company. See "Risk Factors--Compliance with Environmental and Other
Governmental Regulations" and "Business and Properties--Governmental
Regulation" and "--Environmental Matters."
51
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
Founded in 1905, The Wiser Oil Company is one of the oldest public
independent oil and gas companies in the United States. In recent years, the
Company has successfully implemented a new business strategy adopted in 1991,
emphasizing growth in reserves and production volumes through acquisitions and
subsequent development and exploitation of acquired properties. Since its
change in strategic direction, the Company's total proved reserves have grown
to 50.5 MMBOE (approximately 63% of which were oil and NGLs) at December 31,
1996 from 24.3 MMBOE at December 31, 1991, and its annual net production has
grown to 4.7 MMBOE in 1996 from 2.3 MMBOE in 1991. The Company's primary
operations, representing approximately 62% of its proved reserves at
December 31, 1996, are located in the Permian Basin in West Texas and
Southeast New Mexico. Wiser has additional operations in Alberta, Canada, the
Appalachian Basin in Kentucky, Tennessee and West Virginia and the San Juan
Basin in New Mexico.
Prior to 1991 the Company focused primarily on the acquisition of
non-operated interests in oil and gas properties. In 1991 the Company moved
its headquarters from Sistersville, West Virginia to Dallas, Texas and began
to assemble an experienced management team with substantial acquisition,
exploitation and development expertise. After reviewing the Company's existing
property portfolio and refining the new business strategy, the management team
began disposing of the Company's non-strategic assets and acquiring and
operating properties in new core areas with the potential for increased
reserves and production volumes. Pursuant to this strategy, the Company
acquired and developed properties in the Permian Basin and Canada, and
successfully added reserves and production through workovers, recompletions,
waterfloods and CO/2/ gas injections, as well as the drilling of exploratory,
development and infill wells.
A substantial portion of the Company's growth in reserves and production
volumes since 1991 has been the result of (i) two successful enhanced oil
recovery projects on properties acquired from 1992 to 1995 in the Permian
Basin and (ii) the Company's 1994 acquisition and subsequent exploration on
and exploitation of properties in Alberta, Canada. From June 1993 through
December 1996, the Company completed 113 producing wells on its Maljamar
waterflood project in Southeast New Mexico. As a result, the Company's average
daily net oil production from the three units in this project increased to
2,800 Bbls in December 1996 from 580 Bbls in January 1993 (on a pro forma
combined basis, assuming the Company had acquired all three units at January
1, 1993). At its Wellman Unit in West Texas, the Company used CO/2/ gas
injection and refurbished a natural gas processing plant to increase average
daily net production to 927 Bbls of oil, 440 Bbls of NGLs and 547 Mcf of
natural gas in December 1996 from 650 Bbls of oil and no NGLs or natural gas
in December 1993. In June 1994 the Company acquired oil and gas properties
located primarily in Alberta, Canada for $52.0 million. From the date of this
acquisition through December 1996, the Company completed 22 net wells on these
properties. As a result, the Company's average daily net Canadian production
increased to 3,200 BOE in December 1996 from 1,860 BOE in June 1994.
The Company's principal executive offices are located at 8115 Preston Road,
Suite 400, Dallas, Texas 75225, and its telephone number is (214) 265-0080.
BUSINESS STRATEGY
The Company's strategy is to grow reserves and production volumes through
(i) acquiring producing properties that provide significant development and
exploitation potential, (ii) developing and exploiting its reserve base in
order to maximize production and recoverable reserves and (iii) exploring for
oil and gas reserves, while (iv) maintaining financial flexibility.
52
<PAGE>
PURSUE STRATEGIC ACQUISITIONS. Over the last several years, the Company has
assembled an experienced management team which uses a comprehensive
interdisciplinary and technical approach to evaluate potential acquisitions of
oil and gas properties. The Company's property acquisition criteria include:
(a) existing oil and gas production; (b) significant potential for increasing
reserves and production through development, exploitation (including enhanced
recovery techniques) or exploration; (c) proximity to the Company's existing
core operating areas or, in the alternative, sufficient critical mass to
justify diversification into a new area; (d) opportunities to lower unit
costs; and (e) an attractive purchase price. In addition, the Company will
continue to consider strategic combinations with other industry participants
in order to achieve operating synergies, greater asset diversification and
enhanced financial flexibility.
CAPITALIZE UPON DEVELOPMENT AND EXPLOITATION EXPERTISE. The Company believes
that one of its primary strengths is its expertise and experience in the
exploitation of oil and gas properties through enhanced recovery operations
and other methods. The Company believes that this strength differentiates it
from other independent oil and gas companies of similar size. The Company has
successfully added reserves and production volumes to existing and acquired
properties through workovers, recompletions, waterfloods and CO/2/ gas
injections, as well as the drilling of development or infill wells. The
Company's success in the Maljamar waterflood project and the Wellman Unit
CO/2/ gas injection project exemplify how the Company has capitalized on this
core competency. The Company has budgeted $23.5 million for development and
exploitation activities at the Maljamar and Wellman projects in 1997, and
intends to continue to seek opportunities that would allow it to utilize
further its development and exploitation expertise.
EXPAND EXPLORATION PROGRAM. The Company is increasingly placing greater
emphasis on exploration as a source of future growth, and focuses on
exploration opportunities that can benefit from advanced technologies,
including 3-D seismic, designed to reduce risks and increase success rates. In
1996 the Company hired a new Vice President of Exploration with over 33 years
of exploration experience with major integrated and independent oil and gas
companies to lead its domestic exploration group. This group is developing a
balanced portfolio of exploration prospects in areas where it believes
multiple prospects could be developed if a significant discovery were made. In
addition, this group is responsible for domestic exploration activities on
existing properties. In Canada, exploration has represented a significant
portion of the Company's capital budget since 1994. The Company's activities
for the winter 1996/1997 Canadian drilling season included participation in
five gross exploratory wells (four of which were successful) to test five
prospects. On a Company-wide basis, the 1997 exploration budget comprises
$16.8 million (approximately 23%) of the Company's $72.4 million 1997 capital
expenditure program, compared with exploration expenditures of $3.5 million
(approximately 8%) of the Company's total capital expenditures of $46.2
million in 1996.
MAINTAIN FINANCIAL FLEXIBILITY. The Company is committed to maintaining
financial flexibility, which it believes is important for the successful
implementation of its growth strategy. The Company currently expects its 1997
capital expenditure budget (excluding any property acquisitions) to be funded
primarily by internally generated cash flow, including the sale of its
remaining marketable securities. At June 30, 1997, the Company had
(i) approximately $34.2 million of cash and marketable securities, (ii) no
long-term debt other than the Outstanding Notes and (iii) $80.0 million of
borrowing capacity available under the Credit Agreement. The Company currently
intends to make use of its excess cash, its marketable securities and its
available borrowing capacity to implement its growth strategy.
53
<PAGE>
PRINCIPAL OIL AND GAS PROPERTIES
The following table summarizes certain information with respect to each of
the Company's principal areas of operation at December 31, 1996:
<TABLE>
<CAPTION>
PROVED RESERVES
---------------------------------- 1996
TOTAL TOTAL PERCENT AVERAGE
GROSS OIL NATURAL PROVED OF TOTAL NET
OIL AND AND NGLS GAS RESERVES PROVED PRODUCTION
GAS WELLS(1) (MBBLS) (MMCF) (MBOE) RESERVES (BOE/DAY)
------------ -------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Permian Basin
Maljamar.............. 223 14,706 6,248 15,748 31% 2,074
Wellman............... 14 7,067 2,494 7,482 15% 1,594
Dimmitt/Slash Ranch... 59 2,548 12,954 4,707 9% 848
Other................. 281 1,290 11,490 3,205 7% 1,380
----- ------ ------- ------ --- ------
Total Permian
Basin.............. 577 25,611 33,186 31,142 62% 5,896
Appalachian Basin....... 443 989 31,633 6,260 12% 1,343
San Juan Basin.......... 2,200 48 20,831 3,520 7% 1,104
Other(2)(3)............. 261 1,432 3,896 2,082 4% 1,281
----- ------ ------- ------ --- ------
Total United
States(3).......... 3,481 28,080 89,546 43,004 85% 9,624
Canada.................. 287 3,532 23,831 7,504 15% 3,318
----- ------ ------- ------ --- ------
Total Company(3).... 3,768 31,612 113,377 50,508 100% 12,942
===== ====== ======= ====== === ======
</TABLE>
- --------
(1) During the first six months of 1997, a total of 63 additional gross oil
and gas wells were placed on production at the Company's properties.
(2) Includes properties located in Michigan which were sold in February and
April 1997 for an aggregate price of $2.3 million. The Company's Michigan
properties included 24,000 gross (9,300 net) leasehold acres and 12 gross
(two net) productive oil wells. These properties contained 931 MBOE of the
Company's total proved reserves at December 31, 1996, and the Company's
net production from these properties averaged 479 BOE per day in 1996.
(3) Excludes certain properties in the Welder Ranch area located in Refugio
and Goliad Counties, Texas acquired by the Company in June and August
1997. See "--Other U.S. Properties."
Permian Basin
Maljamar. The Company's Maljamar properties are situated in Southeast New
Mexico. At December 31, 1996, the Maljamar properties contained 15.7 MMBOE of
proved reserves, which represented 31% of the Company's total proved reserves
and 30% of the Company's Present Value of total proved reserves.
The Maljamar properties consist of three producing units acquired by the
Company in separate transactions between 1992 and 1995: the Maljamar Grayburg
and Caprock Maljamar Units, both of which are in Lea County, New Mexico, and
the Skelly Unit in Eddy County, New Mexico. The Maljamar Grayburg Unit
produces from the Grayburg and San Andres formations at depths ranging from
3,800 to 4,500 feet, and the Caprock Maljamar Unit produces from the same
formations at depths ranging from 4,000 to 5,000 feet. The Skelly Unit is
located approximately five miles west of the two Lea County units and produces
from the Seven Rivers, Grayburg and San Andres formations at depths ranging
from 2,100 to 4,000 feet. The Company has a 100% working interest in each of
these units, which have been combined into a single large scale waterflood
project encompassing approximately 11,800 gross leasehold acres.
Exploitation efforts at the project include recompletions of existing wells
and the drilling of infill development wells on 20-acre spacing to create a
five-spot water injection pattern of 40 acres. From
54
<PAGE>
June 1, 1993 through December 31, 1996, the Company made capital expenditures
of $50.1 million and completed 113 producing wells at the project. At December
31, 1996, the project included 223 producing wells and 102 water injection
wells, all of which were operated by the Company. During 1996, Wiser placed a
total of 68 wells on production, and had 33 additional wells in various stages
of drilling or completion at year end. At December 31, 1996, a total of 28
wells remained to be drilled at the project, 12 of which have been completed
as of August 31, 1997 and the remainder of which are expected to be drilled in
1997 as part of a total capital expenditure thereon of $17.4 million.
The Company's average daily net production from the Maljamar properties
increased to 2,800 Bbls of oil and 1,760 Mcf of natural gas in December 1996
from 580 Bbls of oil and 220 Mcf of natural gas in January 1993 (on a pro
forma combined basis, assuming the Company had acquired all three units at
January 1, 1993). The Company's net production from the Maljamar properties
averaged 1,900 Bbls of oil and 1,044 Mcf of natural gas per day in 1996. The
Company's cumulative net production from the Maljamar properties since
acquired by the Company has been 1,360 MBbls of oil and 670 MMcf of natural
gas through December 31, 1996.
Wellman Unit. In 1993 the Company acquired a 62% working interest in and
became operator of the Wellman Unit in Terry County, Texas, located in the
northwestern edge of the Horseshoe Atoll. At December 31, 1996, the Company's
Wellman property contained 7.5 MMBOE of proved reserves, which represented 15%
of the Company's total proved reserves and 14% of the Company's Present Value
of total proved reserves.
The Company owns approximately 2,300 gross (1,400 net) leasehold acres in
the Wellman Unit. The Wellman Unit produces oil from the Wolfcamp Reef
formation at depths ranging from 9,100 to 10,000 feet. Water injection at the
unit began in 1979, and CO/2/ injection began in 1983. The unit also includes
a gas processing plant, which processes wellhead gas produced from the unit.
Wiser's interest in this plant is proportionate to its working interest in the
Wellman Unit. Processing at the plant involves subjecting the wellhead gas to
high pressure and low temperature treatments that cause the gas to separate
into various products, including NGLs, residual natural gas and CO/2/. The
NGLs and residual natural gas are sold to pipeline companies, and the CO/2/ is
reinjected into the unit's reservoir. At December 31, 1996, the unit included
14 productive wells, three water injection wells and three CO/2/ injection
wells, all of which were operated by the Company.
The Company's net production from the Wellman Unit averaged 1,051 Bbls of
oil, 483 Bbls of NGLs and 374 Mcf of natural gas per day in 1996. The
Company's average daily net production from the unit was 927 Bbls of oil, 440
Bbls of NGLs and 547 Mcf of natural gas in December 1996, which was 8% lower
on an equivalent unit basis than the average daily net production from the
unit in 1996. This reduction was due primarily to weather-related delays in
drilling operations and plant processing and shortages of available drilling
rigs. The Company's cumulative net production from the unit since acquired by
the Company has been 1,181 MBbls of oil, 278 MBbls of NGLs and 137 MMcf of
natural gas through December 31, 1996.
In 1994 the Company began reconditioning the gas processing plant at the
Wellman Unit to enhance the extraction of NGLs and residual natural gas from
the wellhead gas. The Company completed the reconditioning project in June
1995 at a total cost of approximately $6.0 million. Following completion of
this project, average daily net production from the unit increased to 1,180
Bbls of oil and 527 Bbls of NGLs during the six months ended December 31, 1995
from 982 Bbls of oil and no NGLs for the six months ended June 30, 1995. For
the year ended December 31, 1996, the gas plant processed an average of 31
MMcf of gross natural gas and CO/2/ per day and recovered an average of 885
Bbls of NGLs and 685 Mcf of residual natural gas per day. During November and
December 1996, the plant operated at an average of 95% of its maximum capacity
of 35 MMcf of gas per day.
55
<PAGE>
Dimmitt/Slash Ranch Fields. The Company's Dimmitt/Slash Ranch properties are
situated in Loving County, Texas, 80 miles west of Midland, Texas. At December
31, 1996, the Dimmitt/Slash Ranch properties contained 4.7 MMBOE of proved
reserves, which represented 9% of the Company's total proved reserves and 11%
of the Company's Present Value of total proved reserves.
The Company owns approximately 5,400 gross (4,100 net) leasehold acres in
the Dimmitt Field, and has working interests in this acreage ranging from 50%
to 100%. The Company acquired its initial interest in and became operator of
the field in 1993. The Dimmitt Field produces oil and gas from the Cherry
Canyon and Bell Canyon formations at depths ranging from 4,700 to 6,700 feet.
At December 31, 1996, the field included 56 productive wells. The Company
completed two wells in the Cherry Canyon formation and performed recompletions
on seven producing wells in the Bell Canyon formation in 1996. The Company
plans to drill two additional development wells in the Cherry Canyon formation
and to recomplete 10 additional Bell Canyon wells during 1997 for an estimated
total capital expenditure of approximately $1.4 million. The Company's net
production from the Dimmitt Field averaged 374 Bbls of oil and 1,172 Mcf of
natural gas per day in 1996.
The Slash Ranch Field is a natural gas field that underlies the Dimmitt
Field. The Company owns approximately 2,600 gross (1,800 net) leasehold acres
in the Slash Ranch Field. The Slash Ranch Field produces from the Atoka,
Fusselman and Ellenburger formations at depths ranging from 15,000 to 20,000
feet. At December 31, 1996, the field included three producing wells, all of
which were operated by the Company. The Company's working interests in these
wells range from 34% to 100%. The Company's net production from the Slash
Ranch Field averaged 1,672 Mcf of natural gas per day in 1996. The Company has
identified several exploratory prospects in this field and intends to further
define these prospects with 3-D seismic in 1998. See "--Exploration
Activities--United States--West Texas."
The Company's net production from the Dimmitt/Slash Ranch properties
averaged 374 Bbls of oil and 2,844 Mcf of natural gas per day in 1996. The
Company's cumulative net production from the properties since acquired by the
Company has been 326 MBbls of oil and 3.4 Bcf of natural gas through December
31, 1996.
Appalachian Basin
The Company's Appalachian Basin properties are situated in Kentucky,
Tennessee and West Virginia. At December 31, 1996, these properties contained
6.3 MMBOE of proved reserves, which represented 12% of the Company's total
proved reserves and 12% of the Company's Present Value of total proved
reserves. The Appalachian Basin reserves are long-lived reserves (generally,
over 40 years) characterized by gradual decline rates.
The Company has operated in Kentucky and Tennessee since 1917 and owns
approximately 123,000 gross (108,000 net) leasehold acres in 22 shallow
natural gas fields in southeastern Kentucky and northeastern Tennessee. The
Company's working interests in this acreage range from 33% to 100%. The
Company has a 100% working interest in approximately 90% of the total acreage.
The primary producing formations in these fields are the Maxon, Big Lime and
Corniferous at a maximum depth of less than 3,000 feet. At December 31, 1996,
the Company owned 368 gross (309 net) productive wells in these fields, of
which approximately 98% were operated by the Company. Although daily
production from individual wells in the fields is low (on average, 30 Mcf per
day), the production generally receives a higher sales price than the
Company's other natural gas production because of the proximity of the fields
to the northeastern United States gas markets. The Company completed four
development wells in Kentucky and Tennessee in 1996 and two development wells
in early 1997. The Company expects to spend approximately $500,000 in 1997 to
drill seven additional development wells in Kentucky and Tennessee. The
Company's net production from its Kentucky and Tennessee properties averaged
5,346 Mcf of natural gas per day in 1996.
56
<PAGE>
The Company owns approximately 20,000 gross (14,000 net) leasehold acres in
the Blue Creek Field in Clay and Kanawha Counties, West Virginia. The Company
has an average 70% working interest in this acreage, which it acquired in
February 1995. The Blue Creek Field produces from the Rosedale, Injun, Keener
and Weir formations, ranging from depths of 1,200 to 2,800 feet. At December
31, 1996, the Company owned 75 gross (48 net) productive gas wells in this
field, all of which were operated by another company. During 1996, the Company
participated in the drilling of 12 gross (nine net) development wells in the
Blue Creek Field. The Company has identified 35 development drilling locations
in the field, of which 20 have been drilled for an estimated total capital
expenditure of $2.6 million. The Company's net production from its West
Virginia properties averaged 913 Mcf of natural gas, 104 Bbls of oil and 193
Bbls of NGLs per day in 1996.
The Company owns and operates an extensive natural gas gathering and
transportation system located in its producing areas of Kentucky and
Tennessee. The system consists of approximately 340 miles of gas gathering
pipelines, 16 gas compressor stations, two gas processing plants and two gas
storage reservoirs. The pipelines have a throughput capacity of approximately
20 MMcf of natural gas per day. During the year ended December 31, 1996, the
pipelines gathered an average of 8.2 MMcf of natural gas per day. The two
processing plants have a total capacity of 16 MMcf of natural gas per day.
During the year ended December 31, 1996, the plants processed an average of
8.2 MMcf of natural gas per day and recovered an average of 193 Bbls of NGLs
per day. See "--Marketing of Production."
The Company's net production from its Appalachian Basin properties averaged
6,259 Mcf of natural gas, 104 Bbls of oil and 193 Bbls of NGLs per day in
1996.
San Juan Basin
The Company's San Juan Basin properties are located in Rio Arriba County in
northwestern New Mexico. At December 31, 1996, the San Juan Basin properties
contained 3.5 MMBOE of proved reserves, which represented 7% of the Company's
total proved reserves and 7% of the Company's Present Value of total proved
reserves. The Company owns approximately 11,100 gross (5,300 net) leasehold
acres in the San Juan Basin. The Company's average 48% working interest in the
acreage was contributed in connection with a unitization of the wells in the
San Juan Basin fields in the 1950's, resulting in the ownership by the Company
of small non-operated working interests in the wells. At December 31, 1996,
the Company owned working interests in 2,200 producing gas wells in the San
Juan Basin, which working interests ranged from 0.21% to 4.2% and averaged
approximately 1.8%. The Company's San Juan Basin properties produce from
multiple formations ranging from depths of 3,500 feet to 8,000 feet. The
Company's net production from these properties averaged 6,539 Mcf of natural
gas and 14 Bbls of oil per day in 1996. During the year ended December 31,
1996, approximately 50% of the Company's net production from these properties
was from the Fruitland Coal seams. Such production generates nonconventional
fuels income tax credits for Wiser under Section 29 of the Internal Revenue
Code of 1986, as amended. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations." In 1996
production from the San Juan Basin properties was diminished as a result of a
five-month curtailment due to a pipeline rupture. The Company expects that
future development of the properties will depend on natural gas prices, and
that its share of the costs of any such future development activities will not
be significant.
Other U.S. Properties
In June 1997 the Company acquired certain oil and gas properties in the
Welder Ranch area located in Refugio and Goliad Counties, Texas for an
aggregate cash consideration of $15.0 million. The acquired properties include
approximately 17,000 gross leasehold acres, 29 productive wells, all of which
are being operated by the Company, approximately 30 potential development well
sites and a 73-mile 3-D seismic survey. The Company's internal engineers
estimate that the properties contain
57
<PAGE>
approximately 2,900 MBOE of proved reserves, consisting of approximately 13.2
Bcf of natural gas and 700 MBbls of oil. The Company's working interests in
the acquired acreage range from 32.5% to 62.5% and average approximately 53%.
The properties produce from multiple formations ranging from depths of 2,900
feet to 5,600 feet. The Company estimates that net production from the
properties will average approximately 4,500 Mcf of natural gas and 60 Bbls of
oil per day. The Company expects to commence drilling operations on the 30
development well sites during the third quarter of 1997 at a rate of three
wells per month. In August 1997 the Company acquired a 40% working interest in
the Fitzsimmons and Blanco Creek prospects located within the same geologic
trend as the Welder Ranch properties for a cash consideration of $900,000. The
Company expects that a 3-D seismic survey covering approximately 47 square
miles of the Fitzsimmons and Blanco Creek acreage will be completed by
December 31, 1997. The Company has budgeted $4.3 million for exploration and
development activities on the Welder Ranch properties during the second half
of 1997.
The Company's other United States properties include properties located in
the Anadarko Basin in Texas and Oklahoma and the Gulf Coast onshore region.
The Company intends to develop its Anadarko Basin and Gulf Coast properties as
new core operating areas if certain exploration projects it is currently
pursuing prove successful. See "--Exploration Activities--United States."
Canada
In June 1994, Wiser established an important new core area with the
completion of a $52.0 million acquisition of Canadian oil and gas properties
from Eagle Resources, Ltd. The purchase included 7.2 MMBOE of proved reserves
and 2.8 MMBOE of probable reserves, approximately 127,000 net undeveloped
acres, seven exploration prospects and an existing staff of 23 persons. At
December 31, 1996, the Company's Canadian properties contained 7.5 MMBOE of
proved reserves, which represented 15% of the Company's total proved reserves
and 15% of the Present Value of the Company's total proved reserves.
The following table summarizes certain information with respect to each of
the Company's principal Canadian areas of operation at December 31, 1996:
<TABLE>
<CAPTION>
PROVED RESERVES
---------------------------------
PERCENT OF
TOTAL TOTAL PERCENT OF 1996 AVERAGE
TOTAL GROSS PROVED CANADIAN TOTAL COMPANY NET
OIL AND RESERVES PROVED PROVED PRODUCTION
GAS WELLS(1) (MBOE) RESERVES RESERVES (BOE/DAY)
------------ -------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Evi................ 15 1,224 16% 2.4% 825
Provost............ 46 616 8% 1.2% 742
Grande Prairie..... 16 884 12% 1.8% 239
Leahurst........... 16 355 5% 0.7% 356
Pine Creek......... 5 420 6% 0.8% 239
Other.............. 189 4,005 53% 8.0% 917
--- ----- --- ---- -----
Total Canada..... 287 7,504 100% 14.9% 3,318
=== ===== === ==== =====
</TABLE>
- --------
(1) During the first six months of 1997, a total of 14 additional gross oil
and gas wells were placed on production at the Company's Canadian
properties.
Evi. The Company's Evi Field is located approximately 400 miles north of
Calgary. At December 31, 1996, the Evi Field contained 1,224 MBOE of proved
reserves, which represented 16% of the Company's total Canadian proved
reserves and 35% of the Present Value of the Company's total Canadian proved
reserves.
58
<PAGE>
The Company owns approximately 5,440 gross (1,870 net) leasehold acres in
the Evi Field, and has an average 34% working interest in this acreage. The
Evi Field produces oil from the Granite Wash formation at depths ranging from
4,900 to 5,000 feet. The Company's net production from the Evi Field averaged
825 Bbls of oil per day in 1996. At December 31, 1996, the Company owned 15
gross (3.2 net) productive wells and two gross (0.4 net) water disposal wells
in the field, of which 12 productive wells and both water disposal wells were
operated by Wiser.
Provost. The Company's Provost properties are located approximately 210
miles northeast of Calgary. At December 31, 1996, the Provost properties
contained 616 MBOE of proved reserves, which represented 8% of the Company's
total Canadian proved reserves and 11% of the Present Value of the Company's
total Canadian proved reserves.
The Company owns approximately 9,280 gross (6,300 net) leasehold acres in
the Provost properties, and has an average 68% working interest in this
acreage. The Provost properties produce mainly from the Dina formation at
depths of 3,070 to 3,170 feet. The Provost Dina "X' Pool is the Company's main
producing pool in these properties. Water injection in this pool began in
1990. The Company drilled 12 infill wells in the Dina "X' Pool in 1996. This
increased the Company's average daily net production from the pool to 630 Bbls
of oil in December 1996 from 150 Bbls of oil in January 1996. The Company
drilled two additional infill wells in the pool in the first half of 1997. In
addition, the Company drilled a new discovery well and a follow-up development
well in the Provost area in the first half of 1997, and plans to drill an
additional five to seven development wells in this area.
The Company's net production from the Provost properties averaged 679 Bbls
of oil and 380 Mcf of natural gas per day in 1996. At December 31, 1996, the
Company owned 46 gross (35.8 net) productive wells and two gross (two net)
water injection wells on the properties, of which 29 gross productive wells
and both water injection wells were operated by the Company. The Company has a
100% working interest in 22 of the productive wells and a 92% working interest
in one of the others.
Grande Prairie. The Company's Grande Prairie properties are located
approximately 380 miles northwest of Calgary. At December 31, 1996, the Grande
Prairie properties contained 884 MBOE of proved reserves, which represented
12% of the Company's total Canadian proved reserves and 11% of the Present
Value of the Company's total Canadian proved reserves.
The Company owns approximately 8,320 gross (2,260 net) leasehold acres in
the Grande Prairie properties, and has an average 27% working interest in this
acreage. The Grande Prairie properties produce from the Halfway formation at
depths of 6,200 to 6,300 feet. At December 31, 1996, the Company owned 16
gross (3.9 net) productive wells and one gross (0.23 net) gas injection well
at Grande Prairie, all of which were operated by Wiser. All but one well has
been unitized in the Grande Prairie Halfway "A' Unit, in which the Company has
a 22.9% working interest. Gas re-injection in the unit began in 1989 to
enhance oil recovery. The Company's net production from the Grande Prairie
properties averaged 158 Bbls of oil and 487 Mcf of natural gas per day in
1996.
Leahurst. The Company's Leahurst properties are located approximately 180
miles northeast of Calgary. At December 31, 1996, the Leahurst properties
contained 355 MBOE of proved reserves, which represented 5% of the Company's
total Canadian proved reserves and 8% of the Present Value of the Company's
total Canadian proved reserves.
The Company owns approximately 880 gross (560 net) leasehold acres in the
Leahurst properties, and has an average 63% working interest in this acreage.
The Leahurst properties produce from the Glauconite formation at depths of
4,150 to 4,250 feet. At December 31, 1996, the Company owned 16 gross (2.6
net) productive wells and two gross (0.63 net) water injection wells on the
Leahurst properties. All of the wells in the properties have been unitized in
the Leahurst Glauconite "B' Unit, in which the Company has a 16% working
interest. The unit is operated by a third party. Water injection
59
<PAGE>
in the unit began in 1994 to enhance oil recovery. The Company recently
completed a six-well infill drilling program at the unit. Five of these wells
have proved undeveloped reserves assigned to them. The Company's net
production from the Leahurst properties averaged 334 Bbls of oil and 130 Mcf
of natural gas per day in 1996.
Pine Creek. The Company's Pine Creek Field is located approximately 240
miles northwest of Calgary. At December 31, 1996, the Pine Creek Field
contained 420 MBOE of proved reserves, which represented 6% of the Company's
total Canadian proved reserves and 4% of the Present Value of the Company's
total Canadian proved reserves. The Company owns approximately 8,000 gross
(2,100 net) leasehold acres in the Pine Creek Field, and has a 26% working
interest in this acreage. The Pine Creek Field produces natural gas from the
Bluesky and Gething formations at depths of 8,000 to 8,200 feet. At December
31, 1996, the Company owned five gross (1.3 net) productive wells in the Pine
Creek Field, all of which were operated by a third party. The Company's net
production from the Pine Creek Field averaged 967 Mcf of natural gas and 78
Bbls of NGLs per day in 1996.
Other Canadian Properties. The Company owns interests in approximately 30
other Canadian properties, primarily located in its principal areas of
operation. For the year ended December 31, 1996, these properties individually
represented less than 5%, and in the aggregate represented approximately 28%,
of the Company's average daily net Canadian production.
EXPLORATION ACTIVITIES
United States. Wiser's domestic exploration program seeks to maintain a
balanced portfolio of drilling opportunities that range from lower risk field
extension wells to higher risk, high reserve potential prospects. The Company
focuses primarily on exploration opportunities that can benefit from advanced
technologies, including 3-D seismic, designed to reduce risks and increase
success rates. Prospects are developed in-house and through strategic
alliances with exploration companies that have expertise in specific target
areas. In addition, the Company evaluates some externally generated prospects
and participates in farm-ins to enhance its portfolio. In 1996, Wiser
participated in three gross (two net) domestic exploration wells, compared
with 19 gross (six net) wells in 1995, spending $0.9 million in 1996 and $2.8
million in 1995 on domestic exploration. The Company has budgeted $11.5
million for its 1997 domestic exploration program.
The Company is currently focusing its domestic exploration activities in the
following geographical areas:
West Texas. The Company has identified deeper exploratory prospects in
the Slash Ranch Field in Loving County where it is currently producing at
shallower depths. The Company intends to define these prospects further
with 3-D seismic. In Pecos County, Wiser has a 23.5% working interest in
the Indian Mesa prospect and a 47.5% working interest in the Panther Bluff
prospect. The Company has completed 3-D seismic on the Indian Mesa prospect
and an exploratory well has been drilled and abandoned on this prospect.
The Company was carried at no cost in this well. Additional exploratory
drilling is anticipated on the Indian Mesa prospect.The Company has
identified unproven drilling potential in the Panther Bluff prospect to be
defined further with 3-D seismic data. The operator is in the process of
obtaining necessary permits to commence exploration of this prospect.
Gulf Coast. The Company plans to develop exploration projects in the Gulf
Coast onshore region. The Company intends to seek a mix of moderate risk,
moderate cost prospects and some higher cost, higher potential prospects.
In the Bison Ridge project in Louisiana, the Company is participating in a
proposed 60-square mile 3-D seismic survey and will bear 25% of the survey
costs. In the South Lakeside prospect in Cameron Parish, Louisiana, Wiser
participated through a 12.5% working interest in an exploratory well that
was recently plugged and abandoned. In the Tecumseh project in southwest
Mississippi and adjacent Louisiana, the Company is operating a
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<PAGE>
30-square mile 3-D seismic survey. Two wells are planned to be drilled on
this acreage in 1997. Wiser would operate the two wells, if drilled, and
own a 50% working interest therein. In the Castleberry project in Conecuh
County, Alabama, the Company is participating in and operating a proposed
31-square mile 3-D seismic survey and will bear 50% of the survey costs.
Anadarko Basin. The Company owns a 20% working interest in an exploratory
well that has been completed in the Lower Morrow sand at its Mustang
prospect in Lipscomb County, Texas. The Lower Morrow formation tested at
3,000 Mcf per day, and the Company is currently reviewing 3-D seismic data
for possible additional drilling in this area.
Canada. Wiser focuses its Canadian exploration activities in specific
regions within the Western Canadian Sedimentary Basin in close proximity to
known producing horizons where the potential for significant reserves exists.
The Company's technical personnel have considerable experience in this focus
area. From the date of the Company's acquisition of its Canadian properties
through December 31, 1996, the Company's Canadian exploration activities have
resulted in the successful completion of five net wells (out of 14 net wells
drilled). The Company has budgeted $5.1 million for its 1997 Canadian
exploration program.
The Company is currently focusing its Canadian exploration activities in the
following geographical areas:
Northeast British Columbia. The Company owns approximately 2,760 gross
(1,380 net) leasehold acres in the Beatton River/Elm area, and has an
average 50% working interest in this acreage. During the winter 1996/1997
drilling season, the Company completed a new discovery oil well in the
Cretaceous formation. This well qualifies under a provincial program
encouraging exploration activity which exempts the Company from paying
royalties on production to the provincial government for a period of 36
months. A step-out well is currently drilling and, if successful, a third
well is expected to be drilled on this acreage. These two wells, if
completed, will be tied into a nearby gathering system together with the
initial discovery well. The Company expects to test the Triassic Halfway
formation at 4,100 feet as it develops the Beatton River/Elm prospect.
Northern Alberta. The Company's Gage project is presently undergoing land
assembly as an oil prospect targeting the Triassic formation at
approximately 4,000 feet. A number of wells drilled by others in this area
have previously tested oil and gas, but have never produced because of a
lack of pipelines in the area. The Company is engaged in a shallower
competitive venture in this area to determine whether there are sufficient
natural gas reserves to justify the construction of production facilities.
The Company owns approximately 5,440 gross (3,560 net) leasehold acres in
the Gage project and has working interests in the natural gas rights
ranging from 50% to 100%. The Company has purchased and intends to continue
to purchase the oil rights to this project in private sales from the
Province of Alberta. An exploratory well is planned upon completion of land
assembly activities.
The Company is also developing the Evi West project, targeting the
Granite Wash sands located in an area near certain of the Company's
production facilities. The Company has completed a detailed 2-D seismic
analysis which revealed sands draped over a Precambrian structure at a
depth of approximately 5,000 feet. The Company owns a 100% working interest
in approximately 640 gross leasehold acres on this project.
West Central Alberta. The Company owns approximately 16,000 gross (7,050
net) leasehold acres in the Bronson project with working interests ranging
from 50% to 100%. An exploratory well on this acreage has been drilled and
abandoned. A second exploratory well has been completed as a marginal
producer. The Company is currently evaluating this project for future
drilling. Wiser is also producing natural gas from the shallower Cardium
formation.
The Company owns approximately 1,920 gross (960 net) leasehold acres in
the Ferrier prospect, and has a 50% working interest in this acreage. Based
on a 2-D seismic analysis of this
61
<PAGE>
area, the Company drilled and completed an exploratory well through the
Cretaceous and into the Mississippian formations at a depth of
approximately 10,000 feet. This well produced a significant amount of
natural gas with water, but will require additional work to eliminate the
water production. In addition, the Company has earned working interests
ranging from 27.5% to 50% in five sections of adjacent acreage. Plant
capacity and infrastructure are currently available in the area.
The Company owns approximately 640 gross (213 net) leasehold acres and
has a 33% working interest with two equal partners in the Windfall project.
A shallow natural gas target has been confirmed, and Wiser is currently
interpreting 2-D seismic on a second, deeper target. An exploratory test
well is expected to spud during the third quarter of 1997.
Other International Projects. The Company has budgeted approximately
$192,000 for 1997 capital expenditures in connection with possible exploration
activities in Peru and Brazil. The Company is currently negotiating a
participation agreement with certain third parties pursuant to which it would
acquire a 12.5% non-operated working interest in an exploration license in
Peru.
MARKETING OF PRODUCTION
The Company markets its production of oil, natural gas and NGLs to a variety
of purchasers, including large refiners and resellers, pipeline affiliate
marketers, independent marketers, utilities and industrial end-users. To help
manage the impact of potential price declines, Wiser has developed a portfolio
of long- and short-term contracts with prices that are either fixed or related
to market conditions in varying degrees. Most of the Company's production is
sold pursuant to contracts that provide for market-related pricing for the
areas in which the production is located.
During the year ended December 31, 1996, revenues from the sale of
production to Highland Energy Company, Koch Oil Co. Ltd. and Texaco Trading
and Transportation represented approximately 35%, 18% and 15%, respectively,
of the Company's total oil and gas revenues. The sales to Koch Oil Co. Ltd.
accounted for approximately 75% of the Company's revenues from sales of its
Canadian production in 1996. The Company believes it would be able to locate
alternate purchasers in the event of the loss of any one or more of these
purchasers, and that any such loss would not have a material adverse effect on
the Company's financial condition or results of operations.
Crude Oil. The Company sells its crude oil and condensate to various
refiners and resellers in the United States and Canada at posting-related and
spot-related prices that also depend on factors such as well location,
production volume and product quality. The Company typically sells its crude
oil and condensate production at or near the well site, although in some cases
it is gathered by the Company or others and delivered to a central point of
sale. The Company's crude oil and condensate production is transported by
truck or by pipeline and is typically committed to arrangements having a term
of one year or less. The Company has not engaged in crude oil trading
activities. Revenue from the sale of crude oil and condensate totaled $45.6
million for the year ended December 31, 1996 and represented 63% of the
Company's total oil and gas revenues for that period.
From time to time, the Company enters into crude oil price hedges to reduce
its exposure to commodity price fluctuation. At December 31, 1996,
approximately 41% of the Company's total expected crude oil production through
December 1997 was hedged under such arrangements at a weighted average volume
of 3,496 Bbls of oil per day and at a weighted average hedge floor price of
$16.39 per Bbl and a weighted average hedge ceiling price of $19.06 per Bbl.
See "Risk Factors--Risk of Hedging Activities," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Other Matters" and
Note 1 to the Company's Consolidated Financial Statements included elsewhere
in this Prospectus.
62
<PAGE>
Natural Gas. The Company sells its produced and gathered natural gas to
utilities, marketers, processor/resellers and industrial end-users primarily
under market-sensitive, long-term contracts or daily, monthly or multi-month
spot agreements. An insignificant amount of the Company's natural gas is
committed to long-term, fixed-price sales agreements. To accomplish the
delivery and sale of certain of its natural gas, the Company has entered into
long-term agreements with various natural gas gatherers that deliver its gas
to points of sale on major transmission pipelines.
In Kentucky and Tennessee, the Company owns and operates an extensive
natural gas gathering and transportation system consisting of approximately
340 miles of pipeline, 16 gas compressor stations, two gas processing plants
and two gas storage reservoirs. The Company utilizes this system to procure,
aggregate and deliver natural gas produced from over 260 wells that are owned
and operated by the Company, comprising most of its Appalachian Basin natural
gas production, together with natural gas produced from wells owned and
operated by others, in meeting its delivery obligations under a sales contract
with a local utility. This sales contract, which expires on October 31, 1999,
provides for market-related pricing plus payment of a stated standby demand
charge based on an established peak-day delivery obligation. The maximum daily
volume of natural gas that the utility may demand is subject to annual
adjustment (never to exceed 12,000 Mcf per day) and currently is fixed at
11,000 Mcf per day. For the year ended December 31, 1996, approximately 10% of
the Company's total natural gas production was sold under this sales contract.
The Company also utilizes its Kentucky/Tennessee gathering and transportation
system to transport natural gas on behalf of third parties and natural gas
purchased from third parties for resale.
The Company believes that it has sufficient production from its properties,
and from those of others tied to its gathering and transportation system, to
meet the Company's delivery obligations under its existing natural gas sales
contracts. Although the Company has not entered into financial transactions to
hedge the price of its estimated future natural gas production for 1997 or
beyond, it may consider various hedging arrangements in the future.
NGLs. From its natural gas processing plants in West Texas and Kentucky, the
Company sells NGLs to independent marketers for resale. A direct pipeline
connection to the Texas Gulf Coast market area facilitates the sale of NGLs
from the Company's Wellman Unit, and enables the Company to receive prices
that are representative of the daily market value of NGLs on the Texas Gulf
Coast, less transportation and fractionation costs. The market for NGLs in
Kentucky is less competitive with higher transportation costs in that region
due to the absence of product pipelines. The Company's weighted average price
in 1996 for NGLs sold from Company-operated plants or under processing
agreements with others was $13.36 per Bbl. At December 31, 1996, approximately
40% of the Company's total expected NGL production from January 1 through
March 31, 1997 was hedged at a weighted average swap price of $18.76 per Bbl.
Prices for NGLs attributable to natural gas sold to plants operated by others
are generally included in the prices reported by the Company for the sale of
its natural gas.
Price Considerations. Crude oil prices are established in a highly liquid,
international market, with average crude oil prices received by the Company
generally fluctuating with changes in the futures price established on the
NYMEX for West Texas Intermediate Crude Oil ("NYMEX-WTI"). The average crude
oil price per Bbl received by the Company in 1996 was $18.81, compared to an
average price per Bbl of $20.86 that would have been received before the
effects of the Company's hedging activities. The average NYMEX-WTI closing
price per Bbl for 1996 was $22.01.
Natural gas prices in each of the geographical areas in which the Company
operates are closely tied to established price indices which are heavily
influenced by national and regional supply and demand factors and the futures
price per MMBtu for natural gas delivered at Henry Hub, Louisiana established
on the NYMEX ("NYMEX-Henry Hub"). At times, these indices correlate closely
with the NYMEX-Henry Hub price, but often, as in early 1996, there are
significant variances between the NYMEX-Henry Hub price and the indices used
to price the Company's natural gas. Average natural
63
<PAGE>
gas prices received by Wiser in each of its operating areas generally
fluctuate with changes in these established indices. The average natural gas
price per Mcf received by the Company in 1996 was $1.77, compared to an
average price per Mcf of $1.92 that would have been received before the
effects of the Company's hedging activities. The NYMEX-Henry Hub price per
MMBtu for 1996, as represented by the annual average of the closing price on
the last three trading days for the prompt month NYMEX natural gas futures
contract applicable to each month in 1996, was $2.55. The average natural gas
price received by the Company in 1996 was lower than such 1996 NYMEX-Henry Hub
price as a result of pricing differentials determined by the location of the
Company's natural gas production relative to the Henry Hub trading point,
lower natural gas prices generally applicable to Canadian natural gas
production relative to U.S. production and the Company's hedging activities.
See "Risk Factors--Volatility of Oil and Gas Prices."
OIL AND GAS RESERVES
The following table sets forth the proved developed and undeveloped reserves
of the Company at December 31, 1996:
<TABLE>
<CAPTION>
OIL AND NGLS (MBBLS) NATURAL GAS (MMCF) TOTAL RESERVES (MBOE)
---------------------------- ----------------------------- ----------------------------
DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL
--------- ----------- ------ --------- ----------- ------- --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Permian Basin
Maljamar............... 11,914 2,792 14,706 5,266 982 6,248 12,792 2,956 15,748
Wellman................ 7,067 -- 7,067 2,494 -- 2,494 7,482 -- 7,482
Dimmitt/Slash Ranch.... 2,191 357 2,548 12,276 678 12,954 4,237 470 4,707
Other.................. 1,273 17 1,290 10,662 828 11,490 3,050 155 3,205
------ ----- ------ ------- ------ ------- ------ ----- ------
Total Permian Basin.... 22,445 3,166 25,611 30,698 2,488 33,186 27,561 3,581 31,142
Appalachian Basin....... 967 22 989 26,173 5,460 31,633 5,328 932 6,260
San Juan Basin.......... 48 -- 48 20,358 473 20,831 3,442 78 3,520
Other................... 1,432 -- 1,432 3,423 473 3,896 2,003 79 2,082
------ ----- ------ ------- ------ ------- ------ ----- ------
Total United States.... 24,892 3,188 28,080 80,652 8,894 89,546 38,334 4,670 43,004
Canada.................. 3,225 307 3,532 22,477 1,354 23,831 6,971 533 7,504
------ ----- ------ ------- ------ ------- ------ ----- ------
Total Company.......... 28,117 3,495 31,612 103,129 10,248 113,377 45,305 5,203 50,508
====== ===== ====== ======= ====== ======= ====== ===== ======
</TABLE>
64
<PAGE>
The following table summarizes the Company's proved reserves, the estimated
future net revenues from such proved reserves and the Present Value and
Standardized Measure of Discounted Future Net Cash Flows attributable thereto
at December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS,
EXCEPT FOR WEIGHTED
AVERAGE SALES PRICES)
<S> <C> <C> <C>
Proved reserves:
Oil and NGLs (MBbl)............................ 31,612 32,208 23,430
Natural gas (MMcf)............................. 113,377 109,915 107,920
Oil equivalents (MBOE)........................ 50,508 50,527 41,417
Estimated future net revenues before income
taxes......................................... $705,723 $401,037 $272,776
Present Value.................................. $414,314 $235,416 $160,804
Standardized Measure of Discounted Future Net
Cash Flows(1)................................. $317,180 $194,602 $142,032
Proved developed reserves:
Oil and NGLs (MBbl)............................ 28,117 21,556 18,799
Natural gas (MMcf)............................. 103,129 102,026 98,370
Oil equivalents (MBOE)........................ 45,305 38,560 35,194
Estimated future net revenues before income
taxes......................................... $631,406 $310,034 $251,003
Present Value.................................. $381,169 $195,439 $155,642
Weighted average sales prices:
Oil (per Bbl).................................. $ 24.63 $ 18.19 $ 16.11
Natural gas (per Mcf).......................... 3.45 1.84 1.57
NGLs (per Bbl)................................. 19.79 12.87 9.80
</TABLE>
- --------
(1) The Standardized Measure of Discounted Future Net Cash Flows prepared by
the Company represents the present value (using an annual discount rate of
10%) of estimated future net revenues from the production of proved
reserves, after giving effect to income taxes. See the Supplemental
Financial Information attached to the Consolidated Financial Statements of
the Company included elsewhere in this Prospectus for additional
information regarding the disclosure of the Standardized Measure
information in accordance with the provisions of Statement of Financial
Accounting Standards No. 69, "Disclosures about Oil and Gas Producing
Activities."
All information set forth in this Prospectus relating to the Company's
proved reserves, estimated future net revenues and Present Values is taken
from reports prepared by DeGolyer and MacNaughton (with respect to the
Company's United States properties) and Gilbert Lausten Jung Associates Ltd.
(with respect to the Company's Canadian properties), each of which is a firm
of independent petroleum engineers. The estimates of these engineers were
based upon review of production histories and other geological, economic,
ownership and engineering data provided by the Company. No reports on the
Company's reserves have been filed with any federal agency. In accordance with
SEC guidelines, the Company's estimates of proved reserves and the future net
revenues from which Present Values are derived are made using year end oil and
gas sales prices held constant throughout the life of the properties (except
to the extent a contract specifically provides otherwise). The prices of oil
and gas at December 31, 1996 used to estimate the Company's proved reserves
and the future net revenues from which Present Value is derived were
substantially higher than the prices used in previous years to make such
estimates and substantially higher than oil and gas prices at August 29, 1997.
The closing price on the NYMEX for the prompt month futures contract for
delivery of West Texas Intermediate Crude Oil on December 31, 1996 and August
29, 1997 was $25.92 and $19.61 per Bbl, respectively. The closing price on the
NYMEX for the prompt month futures contract for natural gas delivered at
65
<PAGE>
Henry Hub, Louisiana on December 31, 1996 and August 29, 1997 was $2.76 and
$2.71 per MMBtu, respectively. A decline in prices relative to year end 1996
could cause a significant decline in the Present Value attributable to the
Company's proved reserves at December 31, 1996. For example, a $1.00 decline
in oil and NGL prices, holding all other variables constant, would decrease
such Present Value by 4%, or $14.8 million, and a $0.10 decline in natural gas
prices, holding all other variables constant, would decrease such Present
Value by 1%, or $5.1 million. See "Risk Factors--Uncertainty of Estimates of
Reserves and Future Net Revenues." Operating costs, development costs and
certain production-related taxes were deducted in arriving at estimated future
net revenues, but such costs do not include debt service, general and
administrative expenses and income taxes.
There are numerous uncertainties inherent in estimating oil and gas reserves
and their values, including many factors beyond the Company's control. The
reserve data set forth in this Prospectus represents estimates only. Reservoir
engineering is a subjective process of estimating the sizes of underground
accumulations of oil and gas that cannot be measured in an exact manner. The
accuracy of any reserve estimate is a function of the quality of available
data, engineering and geological interpretation, and judgment. As a result,
estimates of different engineers, including those used by the Company, may
vary. In addition, estimates of reserves are subject to revision based upon
actual production, results of future development, exploitation and exploration
activities, prevailing oil and gas prices, operating costs and other factors,
which revisions may be material. Accordingly, reserve estimates are often
different from the quantities of oil and gas that are ultimately recovered and
are highly dependent upon the accuracy of the assumptions upon which they are
based. There can be no assurance that these estimates are accurate predictions
of the Company's oil and gas reserves or their values. Estimates with respect
to proved reserves that may be developed and produced in the future are often
based upon volumetric calculations and upon analogy to similar types of
reserves rather than actual production history. Estimates based on these
methods are generally less reliable than those based on actual production
history. Subsequent evaluation of the same reserves based upon production
history will result in variations, which may be substantial, in the estimated
reserves. See "Risk Factors--Uncertainty of Estimates of Reserves and Future
Net Revenues."
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<PAGE>
NET PRODUCTION, SALES PRICES AND COSTS
The following table presents certain information with respect to oil and gas
production, prices and costs attributable to all oil and gas property interests
owned by the Company for the three-year period ended December 31, 1996 and the
six months ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- -----------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PRODUCTION VOLUMES:
Oil (MBbl)
United States........................ 945 784 1,732 1,445 1,794
Canada............................... 315 334 693 635 310
------- ------- ------- ------- -------
Total Company....................... 1,260 1,118 2,425 2,080 2,104
Natural gas (MMcf)
United States (1).................... 4,912 4,913 9,479 9,418 9,804
Canada............................... 1,151 1,477 2,809 2,753 1,272
------- ------- ------- ------- -------
Total Company (1)................... 6,063 6,390 12,288 12,171 11,076
NGLs (MBbl)
United States........................ 157 142 301 212 163
Canada............................... 16 24 50 40 10
------- ------- ------- ------- -------
Total Company....................... 173 166 351 252 173
WEIGHTED AVERAGE SALES PRICES (2):
Oil (per Bbl)
United States........................ $ 18.83 $ 18.22 $ 18.91 $ 17.14 $ 15.48
Canada............................... 17.80 17.79 18.55 16.38 16.32
Total Company....................... 18.57 18.09 18.81 16.91 15.60
Natural gas (per Mcf)
United States (1).................... $ 2.44 $ 1.75 $ 1.95 $ 1.46 $ 1.79
Canada............................... 1.27 1.14 1.16 1.05 1.23
Total Company (1)................... 2.22 1.61 1.77 1.37 1.73
NGLs (per Bbl)
United States........................ $ 13.54 $ 11.17 $ 12.88 $ 9.67 $ 8.93
Canada............................... 18.26 16.12 16.21 12.45 10.15
Total Company....................... 13.97 11.89 13.36 10.11 9.00
SELECTED EXPENSES PER BOE (3):
Lease operating
United States........................ $ 4.90 $ 4.56 $ 4.53 $ 4.59 $ 4.74
Canada............................... 3.90 2.68 3.04 2.58 3.22
Total Company....................... 4.68 4.07 4.14 4.06 4.54
Production taxes (4)
Total Company........................ $ 0.98 $ 0.92 $ 0.93 $ 0.78 $ 0.97
Depreciation, depletion and
amortization
United States........................ $ 3.52 $ 3.66 $ 3.36 $ 3.63 $ 4.20
Canada............................... 8.45 6.02 6.49 7.37 6.72
Total Company....................... 4.60 4.28 4.16 4.62 4.53
General and administrative
United States........................ $ 2.08 $ 2.31 $ 2.11 $ 1.99 $ 1.58
Canada............................... 2.00 1.67 1.61 1.70 1.76
Total Company....................... 2.06 2.14 1.98 1.92 1.61
</TABLE>
- --------
(1) Calculated giving effect to volumes of natural gas purchased for resale as
follows: first six months of 1997--301 MMcf, first six months of 1996--269
MMcf, 1996--605 MMcf, 1995--500 MMcf and 1994--469 MMcf.
(2) Reflects results of hedging activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Other Matters."
(3) Calculated without giving effect to volumes of natural gas purchased for
resale.
(4) Canada does not assess production taxes on revenue derived from oil and gas
production from Crown lands. However, in Canada, royalties are payable to
the provincial governments on production from Crown lands, subject to
certain programs that provide for royalty rate reductions, royalty holidays
and tax credits for the purpose of encouraging oil and gas exploration and
development. See "--Governmental Regulation--Canada."
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<PAGE>
PRODUCTIVE WELLS AND ACREAGE
Productive Wells
The following table sets forth the Company's domestic and Canadian
productive wells at June 30, 1997:
<TABLE>
<CAPTION>
PRODUCTIVE WELLS
----------------------------------
OIL GAS TOTAL
--------- ------------ -----------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- -----
<S> <C> <C> <C> <C> <C> <C>
United States................................ 862 579 2,685(1) 423 3,547 1,002
Canada....................................... 230 60 71 26 301 86
----- --- ----- --- ----- -----
Total...................................... 1,092 639 2,756 449 3,848 1,088
===== === ===== === ===== =====
</TABLE>
- --------
(1) 2,200 of the Company's gross natural gas wells are located in the San Juan
Basin. The Company has non-operated working interests in these wells
ranging from 0.21% to 4.2%.
Acreage
The following table sets forth the Company's undeveloped and developed gross
and net leasehold acreage at December 31, 1996. 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.
<TABLE>
<CAPTION>
UNDEVELOPED ACRES DEVELOPED ACRES TOTAL ACRES(1)
----------------- --------------- ---------------
GROSS NET GROSS NET GROSS NET
----------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Permian Basin
Maljamar.................... 0 0 11,773 11,761 11,773 11,761
Wellman..................... 0 0 2,280 1,432 2,280 1,432
Dimmitt/Slash Ranch......... 480 440 7,487 5,457 7,967 5,897
Other....................... 31,153 5,807 14,431 9,884 45,584 15,691
-------- -------- ------- ------- ------- -------
Total Permian Basin....... 31,633 6,247 35,971 28,534 67,604 34,781
Appalachian Basin............. 26,846 21,195 116,330 100,695 143,176 121,890
San Juan Basin................ 0 0 11,140 5,281 11,140 5,281
Other......................... 31,212 5,132 57,425 14,668 88,637 19,800
-------- -------- ------- ------- ------- -------
Total United States....... 89,691 32,574 220,866 149,178 310,557 181,752
Canada........................ 166,487 74,595 56,919 21,051 223,406 95,646
-------- -------- ------- ------- ------- -------
Total Company............. 256,178 107,169 277,785 170,229 533,963 277,398
======== ======== ======= ======= ======= =======
</TABLE>
- --------
(1) Excluded is acreage in which the Company's interest is limited to a
mineral or royalty interest. At December 31, 1996, the Company held
mineral or royalty interests in 227,180 gross (31,465 net) developed acres
and 1,371,809 gross (203,346 net) undeveloped acres.
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<PAGE>
All the leases for the undeveloped acreage summarized in the preceding table
will expire at the end of their respective primary terms unless prior to that
date the existing leases are renewed or production has been obtained from the
acreage subject to the lease, in which event the lease will remain in effect
until the cessation of production. The following table sets forth the minimum
remaining lease terms for the gross and net undeveloped acreage:
<TABLE>
<CAPTION>
ACRES EXPIRING
---------------
GROSS NET
------- -------
<S> <C> <C>
Twelve Months Ending:
December 31, 1997.......................................... 35,579 10,840
December 31, 1998.......................................... 30,874 8,657
Thereafter................................................. 189,725 87,672
------- -------
Total.................................................... 256,178 107,169
======= =======
</TABLE>
As is customary in the industry, the Company generally acquires oil and gas
acreage without any warranty of title except as to claims made by, through or
under the transferor. Although the Company has title to developed acreage
examined prior to acquisition in those cases in which the economic
significance of the acreage justifies the cost, there can be no assurance that
losses will not result from title defects or from defects in the assignment of
leasehold rights. In many instances, title opinions may not be obtained if in
the Company's judgment it would be uneconomical or impractical to do so.
DRILLING ACTIVITY
The following table sets forth for the three-year period ended December 31,
1996 and the six-month period ended June 30, 1997, the number of exploratory
and development wells drilled and completed by or on behalf of the Company.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------
1997 1996 1995 1994
--------- --------- --------- ---------
GROSS NET GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
United States
Producing........................ 0 0 1 1 9 3 4 1
Dry.............................. 2 1 2 1 10 3 7 2
Canada
Producing........................ 2 2 1 1 3 2 3 2
Dry.............................. 1 1 6 4 4 2 7 3
Development Wells:
United States
Producing........................ 49 45 93 85 48 27 34 15
Dry.............................. 1 0 2 1 2 2 6 2
Canada
Producing........................ 12 4 21 15 4 2 1 0
Dry.............................. 3 2 5 3 2 2 1 0
Total Wells:
Producing........................ 63 51 116 102 64 34 42 18
Dry.............................. 7 4 15 9 18 9 21 7
--- --- --- --- --- --- --- ---
Total.......................... 70 55 131 111 82 43 63 25
=== === === === === === === ===
</TABLE>
69
<PAGE>
OPERATIONS
The Company generally seeks to be named as operator for wells in which it
has acquired a significant interest, although, as is common in the industry,
this typically occurs only when the Company owns the major portion of the
working interest in a particular well or field. At December 31, 1996, the
Company operated 100% of its Maljamar (223 gross wells), Wellman (14 gross
wells) and Dimmitt/Slash Ranch (59 gross wells) properties, which comprised
approximately 55% of the Company's total proved reserves. At December 31,
1996, the Company owned 368 gross wells on its Kentucky and Tennessee
properties, of which approximately 98% were operated by the Company. At that
same date, the Company also operated 82 (out of a total of 287) gross wells on
its Canadian properties.
As operator, the Company is able to exercise substantial influence over the
development and enhancement of a well and to supervise operation and
maintenance activities on a daily basis. The Company does not conduct the
actual drilling of wells on properties for which it acts as operator, but
engages independent contractors who are supervised by the Company. The Company
employs petroleum engineers, geologists and other operations and production
specialists who strive to improve production rates, increase reserves and/or
lower the cost of operating its oil and gas properties.
Oil and gas properties are customarily operated under the terms of a joint
operating agreement, which provides for reimbursement of the operator's direct
expenses and monthly per-well supervision fees. Per-well supervision fees vary
widely depending on the geographic location and producing formation of the
well, whether the well produces oil or gas and other factors. Such fees
received by the Company in 1996 ranged from $95 to $870 per well per month.
COMPETITION
The oil and gas industry is highly competitive. The Company encounters
competition from other oil and gas companies in all areas of its operations,
including the acquisition of producing properties. The Company's competitors
include major integrated oil and gas companies and numerous independent oil
and gas companies, individuals and drilling and income programs. Many of its
competitors are large, well established companies with substantially larger
operating staffs and greater capital resources than 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 depend upon its ability to evaluate
and select suitable properties and to consummate transactions in a highly
competitive environment. See "Risk Factors--Replacement and Expansion of
Reserves," "--Competition" and "--Substantial Capital Requirements."
DRILLING AND OPERATING RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive oil or gas reservoirs will be encountered. 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 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. The cost of
drilling, completing and operating wells is often uncertain. The Company's
drilling operations may be curtailed, delayed or canceled as a result of a
variety of factors, many of which are beyond its control, including economic
conditions, mechanical problems, pressure or irregularities in formations,
title problems, weather conditions, compliance with governmental requirements
and shortages in or delays in the delivery of equipment and services. Such
equipment shortages and delays sometimes involve drilling rigs, especially in
Canada, where weather conditions result in a short drilling season, causing a
high demand for rigs by a large number of companies during a relatively
70
<PAGE>
short period of time. The Company's future drilling activities may not be
successful. Lack of drilling success could have a material adverse effect on
the Company's financial condition and results of operations.
In addition, the Company's use of 3-D seismic requires greater pre-drilling
expenditures than traditional drilling strategies. Although the Company
believes that its use of 3-D seismic will increase the probability of success
of its exploratory wells and should reduce average finding costs through the
elimination of prospects that might otherwise be drilled solely on the basis
of 2-D seismic and other traditional methods, unsuccessful wells are likely to
occur.
The Company's operations are subject to all the hazards and risks normally
incident to the development, exploitation, production and gathering of, and
the exploration for, oil and gas, including unusual or unexpected geologic
formations, pressures, downhole fires, mechanical failures, blowouts,
cratering, explosions, uncontrollable flows of oil, gas or well fluids and
pollution and other environmental risks. These hazards could result in
substantial losses to the Company due to injury and loss of life, severe
damage to and destruction of property and equipment, pollution and other
environmental damage and suspension of operations. The Company maintains
comprehensive insurance coverage, including a $1.0 million general liability
insurance policy and a $20.0 million excess liability policy. The Company
believes that its insurance is adequate and customary for companies of a
similar size engaged in comparable operations, but losses could occur for
uninsurable or uninsured risks or in amounts in excess of existing insurance
coverage. See "Risk Factors--Drilling and Operating Risks."
TITLE TO PROPERTIES
The Company's land department and contract land professionals have reviewed
title records or other title review materials relating to substantially all of
its producing properties. The title investigation performed by the Company
prior to acquiring undeveloped properties is thorough, but less rigorous than
that conducted prior to drilling, consistent with industry standards. The
Company believes it has satisfactory title to all its producing properties in
accordance with standards generally accepted in the oil and gas industry. The
Company's properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes and other inchoate
burdens which the Company believes do not materially interfere with the use of
or affect the value of such properties. At December 31, 1996, the Company's
leaseholds for approximately 61% of its net acreage were being kept in force
by virtue of production on that acreage in paying quantities. The remaining
net acreage was held by lease rentals and similar provisions and requires
production in paying quantities prior to expiration of various time periods to
avoid lease termination.
The Company expects to make acquisitions of oil and gas properties from time
to time. In making an acquisition, the Company generally focuses most of its
title and valuation efforts on the more significant properties. It is
generally not feasible for the Company to review in-depth every property it
purchases and all records with respect to such properties. However, even an
in-depth review of properties and records may not necessarily reveal existing
or potential problems, nor will it permit the Company to become familiar
enough with the properties to assess fully their deficiencies and
capabilities. Evaluation of future recoverable reserves of oil and gas, which
is an integral part of the property selection process, is a process that
depends upon evaluation of existing geological, engineering and production
data, some or all of which may prove to be unreliable or not indicative of
future performance. See "Risk Factors--Uncertainty of Estimates of Reserves
and Future Net Revenues." To the extent the seller does not operate the
properties, obtaining access to properties and records may be more difficult.
Even when problems are identified, the seller may not be willing or
financially able to give contractual protection against such problems, and the
Company may decide to assume environmental and other liabilities in connection
with acquired properties. See "Risk Factors--Acquisition Risks."
71
<PAGE>
GOVERNMENTAL REGULATION
The Company's operations are affected from time to time in varying degrees
by political developments and federal, state, provincial and local laws and
regulations. In particular, oil and gas production and related operations are
or have been subject to price controls, taxes and other laws and regulations
relating to the oil and gas industry. Failure to comply with such laws and
regulations can result in substantial penalties. The regulatory burden on the
oil and gas industry increases the Company's cost of doing business and
affects its profitability. Although the Company believes it is in substantial
compliance with all applicable laws and regulations, because such laws and
regulations are frequently amended or reinterpreted, the Company is unable to
predict the future cost or impact of complying with such laws and regulations.
United States. Sales of natural gas by the Company are not regulated and are
generally made at market prices. However, the Federal Energy Regulatory
Commission ("FERC") regulates interstate natural gas transportation rates and
service conditions, which affect the marketing of natural gas produced by the
Company, as well as the revenues received by the Company for sales of such
production. Although maximum selling prices of natural gas were formerly
regulated, on July 26, 1989, the Natural Gas Wellhead Decontrol Act
("Decontrol Act") was enacted, completely removing by January 1, 1993, price
and non-price controls for all "first sales" of natural gas, which include all
sales by the Company of its own production; consequently, sales of the
Company's natural gas currently may be made at uncontrolled market prices,
subject to applicable contract provisions. The FERC's jurisdiction over
natural gas transportation was unaffected by the Decontrol Act. While sales by
producers of natural gas, and all sales of crude oil, condensate and NGLs, can
currently be made at uncontrolled market prices, Congress could re-enact
prices controls in the future.
Since the mid-1980's, the FERC has issued a series of orders, culminating in
Order Nos. 636, 636-A, 636-B and 636-C ("Order 636"), that have significantly
altered the marketing and transportation of natural gas. Order 636 mandates a
fundamental restructuring of interstate pipeline sales and transportation
service, including the unbundling by interstate pipelines of the sale,
transportation, storage and other components of the city-gate sales services
such pipelines previously performed. One of the FERC's purposes in issuing the
orders is to increase competition within all phases of the natural gas
industry. In July 1996, the United States Court of Appeals for the District of
Columbia Circuit ("D.C. Circuit") largely upheld Order 636. A number of
parties have appealed this ruling to the U.S. Supreme Court. Certain issues
also were remanded to the FERC by the D.C. Circuit. On remand, the FERC, in
Order No. 636-C, reaffirmed some elements of the remanded portions of Order
636 and modified others. Order No. 636-C may be the subject of further
proceedings at the FERC and is subject to appeal. Numerous parties also have
filed petitions for review of orders in individual pipeline restructuring
proceedings. Upon judicial review, these orders may be remanded or reversed in
whole or in part. Consequently, it is difficult to predict with precision the
ultimate effects of Order 636 on the Company. Generally, Order 636 has
eliminated or substantially reduced the interstate pipelines' traditional role
as wholesalers of natural gas, and has substantially increased competition and
volatility in natural gas markets. While significant regulatory uncertainty
remains, Order 636 may ultimately enhance the Company's ability to market and
transport its natural gas, although it may also subject the Company to greater
competition, more restrictive pipeline imbalance tolerances and greater
associated penalties for violation of such tolerances.
The FERC has announced several important transportation-related policy
statements and proposed rule changes, including the appropriate manner in
which interstate pipelines release capacity under Order 636 and, more
recently, the price which shippers can charge for their released capacity. In
addition, in 1995, the FERC issued a policy statement on how interstate
natural gas pipelines can recover the costs of new pipeline facilities. In
January 1996, the FERC issued a policy statement and a request for comments
concerning alternatives to its traditional cost-of-service ratemaking
methodology. A number of pipelines have obtained FERC authorization to charge
negotiated rates as
72
<PAGE>
one such alternative. While any additional FERC action on these matters would
affect the Company only indirectly, these policy statements and proposed rule
changes are intended to further enhance competition in natural gas markets.
The Company cannot predict what action the FERC will take on these matters,
nor can it predict whether the FERC's actions will achieve its stated goal of
increasing competition in natural gas markets. However, the Company does not
believe that it will be treated materially differently than other natural gas
producers and marketers with which it competes.
Commencing in May 1994, the FERC issued a series of orders in individual
cases that delineate its new gathering policy. Among other matters, the FERC
slightly narrowed its statutory tests for establishing gathering status and
reaffirmed that, except in situations in which the gatherer acts in concert
with an interstate pipeline affiliate to frustrate the FERC's transportation
policies, it does not generally have jurisdiction over natural gas gathering
facilities and services, and that such facilities and services located in
state jurisdictions are properly regulated by state authorities. In addition,
the FERC has approved numerous transfers by interstate pipelines of gathering
facilities to unregulated independent or affiliated gathering companies,
subject to the transferee providing service for two years from the date of
transfer to the pipeline's existing customers pursuant to a default contract
or pursuant to mutually agreeable terms. In August 1996, the D.C. Circuit
largely upheld the FERC's new gathering policy, but remanded the FERC's
default contract condition. The FERC has not yet issued an order on remand.
This new gathering policy may tend to increase competition among gatherers,
like the Company. This policy may also result in increased state regulation of
the Company's gathering facilities. However, the Company does not believe that
it will be affected materially differently by this policy than other
producers, gatherers and marketers with which it competes.
The Company's gathering operations are subject to safety and operational
regulations relating to the design, installation, testing, construction,
operation, replacement and management of facilities. Pipeline safety issues
have recently been the subject of increasing focus in various political and
administrative arenas at both the state and federal levels. The Company
believes its operations, to the extent they may be subject to current gas
pipeline safety requirements, comply in all material respects with such
requirements. The Company cannot predict what effect, if any, the adoption of
this or other additional pipeline safety legislation might have on its
operations, but the industry could be required to incur additional capital
expenditures and increased costs depending upon future legislative and
regulatory changes.
The price the Company receives from the sale of oil and NGLs is affected by
the cost of transporting such products to market. Effective January 1, 1995,
the FERC implemented regulations establishing an indexing system for
transportation rates for oil pipelines, which, generally, would index such
rates to inflation, subject to certain conditions and limitations. These
regulations could increase the cost of transporting oil and NGLs by interstate
pipelines, although the most recent adjustment generally decreased rates.
These regulations have generally been approved on judicial review. The Company
is not able to predict with certainty the effect, if any, of these regulations
on its operations. However, the regulations may increase transportation costs
or reduce wellhead prices for oil and NGLs.
The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration for and production of oil and gas.
Such states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from wells and the regulation
of spacing, plugging and abandonment of such wells. The statutes and
regulations of certain states limit the rate at which oil and gas can be
produced from the Company's properties. However, the Company does not believe
it will be affected materially differently by these statutes and regulations
than any other similarly situated oil and gas company. See "Risk Factors--
Compliance with Environmental and Other Governmental Regulations."
73
<PAGE>
Canada. In Canada, producers of oil negotiate sales contracts directly with
oil purchasers, with the result that sales of oil are generally made at market
prices. The price of oil received by the Company depends in part on oil
quality, prices of competing fuels, distance to market, the value of refined
products and the supply/demand balance. Oil exports may be made pursuant to
export contracts with terms not exceeding one year in the case of light crude,
and not exceeding two years in the case of heavy crude, provided that an order
approving any such export has been obtained from the National Energy Board
("NEB"). Any oil export to be made pursuant to a contract of a longer duration
requires an exporter to obtain an export license from the NEB, and the issue
of such license requires the approval of the Governor General in Counsel.
In Canada, the price of natural gas sold is determined by negotiation
between buyers and sellers. Natural gas exported from Canada is subject to
regulation by the NEB. Exporters are free to negotiate prices and other terms
with purchasers, provided that export contracts in excess of two years must
continue to meet certain criteria prescribed by the NEB. As is the case with
oil, natural gas exports for a term of less than two years must be made
pursuant to an NEB order, or, in the case of exports for a longer duration,
pursuant to an NEB license and Governor General in Council approval. The
government of Alberta also regulates the volume of natural gas that may be
removed from Alberta for consumption elsewhere based on such factors as
reserve availability, transportation arrangements and marketing
considerations.
In addition to Canadian federal regulation, Alberta and certain other
provinces have legislation and regulations that govern royalties payable on
production from Crown lands. The royalty regime that is in place at a
particular time or location is a significant factor in the profitability of
oil and gas production. Royalties payable on production from lands other than
Crown lands are determined by negotiations between the mineral owner and the
lessee. Crown royalties are determined by governmental regulation and are
generally calculated as a percentage of the value of the gross production. The
rate of royalties payable generally depends in part on prescribed reference
prices, well productivity, geographical location, field discovery date and the
type and quality of the petroleum product produced.
From time to time the government of Alberta has established incentive
programs that have included royalty rate reductions, royalty holidays and tax
credits for the purpose of encouraging oil and gas exploration or enhanced
production projects. For example, a producer of oil or gas is entitled to a
credit against the royalties payable to the Crown by virtue of the Alberta
Royalty Tax Credit ("ARTC") program. The ARTC program provides a rebate on
Crown royalties paid in respect of eligible producing properties. The ARTC
program is based on a price-sensitive formula, and the ARTC rate currently
varies between 25% and 75% of the royalty otherwise payable on production. The
ARTC rate is currently applied to a maximum of $2.0 million of Alberta Crown
royalties otherwise payable by each producer or associated group of producers
in each tax year. The rate is established quarterly based on average "par
price", as determined by the Alberta Department of Energy for the previous
quarterly period. Producing properties acquired from corporations claiming
maximum entitlement to ARTC will generally not be eligible for ARTC.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive and
changing federal, state, provincial and local laws and regulations relating to
environmental protection, including the generation, storage, handling and
transportation of oil and gas and the discharge of materials into the
environment, and relating to safety and health. The recent trend in
environmental legislation and regulation generally is toward stricter
standards, and this trend will likely continue. These laws and regulations may
require the acquisition of a permit or other authorization before construction
or drilling commences and for certain other activities; limit or prohibit
construction, drilling and other activities on certain lands lying within
wilderness and other protected areas; and impose substantial liabilities for
pollution resulting from the Company's operations. The permits required for
various of the Company's operations are
74
<PAGE>
subject to revocation, modification and renewal by issuing authorities.
Governmental authorities have the power to enforce compliance with their
regulations, and violations are subject to fines, penalties or injunctions. In
the opinion of management, the Company is in substantial compliance with
current applicable environmental laws and regulations, and the Company has no
material commitments for capital expenditures to comply with existing
environmental requirements. Nevertheless, changes in existing environmental
laws and regulations or in interpretations thereof could have a significant
impact on the Company. The impact of such changes, however, would not likely
be any more burdensome to the Company than to any other similarly situated oil
and gas company.
The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, and similar state laws impose
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous
substances found at the 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.
Furthermore, neighboring landowners and other third parties may file claims
for personal injury and property damage allegedly caused by the hazardous
substances released into the environment.
The Company generates typical oil and gas field wastes, including hazardous
wastes, that are subject to the federal Resources Conservation and Recovery
Act and comparable state statutes. The United States Environmental Protection
Agency and various state agencies have limited the approved methods of
disposal for certain hazardous and nonhazardous wastes. Furthermore, certain
wastes generated by the Company's oil and gas operations that are currently
exempt from regulation 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 Oil Pollution Act ("OPA") imposes a variety of requirements on
"responsible parties" for onshore and offshore oil and gas facilities and
vessels related to the prevention of oil spills and liability for damages
resulting from such spills in waters of the United States. The "responsible
party" includes the owner or operator of an onshore facility or vessel or the
lessee or permittee of, or the holder of a right of use and easement for, the
area where an onshore facility is located. OPA assigns liability to each
responsible party for oil spill removal costs and a variety of public and
private damages from oil spills. Few defenses exist to the liability for oil
spills imposed by OPA. OPA also imposes financial responsibility requirements.
Failure to comply with ongoing requirements or inadequate cooperation in a
spill event may subject a responsible party to civil or criminal enforcement
actions.
The Company's Canadian operations are also subject to environmental
regulation pursuant to local, provincial and federal legislation. Canadian
environmental legislation provides for restrictions and prohibitions on
releases or emissions of various substances produced in association with
certain oil and gas industry operations and can affect the location of wells
and facilities and the extent to which exploration and development is
permitted. In addition, legislation requires that well and facilities sites be
abandoned and reclaimed to the satisfaction of provincial authorities. In most
cases, an environmental assessment and review is required prior to initiating
exploration or development projects or undertaking significant changes to
existing projects. A breach of such legislation may result in the imposition
of fines and issuance of clean-up orders. Environmental legislation in Alberta
has recently undergone a major revision and has been consolidated in the
Environmental Protection and Enhancement Act. Under the new Act, environmental
standards and compliance for releases, clean-up and reporting are stricter.
Also, the range of enforcement actions available and the severity of penalties
have been significantly increased. These changes will have an incremental
effect on the cost of conducting operations in Alberta.
75
<PAGE>
The Company owns, leases or operates numerous properties that for many years
have produced or processed oil and gas. The Company also owns and operates
natural gas gathering, transportation and processing systems. It is not
uncommon for such properties to be contaminated with hydrocarbons or
polychlorinated biphenyls. Although the Company or previous owners of these
interests may have used operating and disposal practices that were standard in
the industry at the time, hydrocarbons, polychlorinated biphenyls or other
wastes may have been disposed of or released on or under the properties or on
or under other locations where such wastes have been taken for disposal. These
properties may be subject to federal or state requirements that could require
the Company to remove any such wastes or to remediate the resulting
contamination. In addition, some of the Company's properties are operated by
third parties over whom the Company has no control. Notwithstanding the
Company's lack of control over properties operated by others, the failure of
the previous owners or operators to comply with applicable environmental
regulations may, in certain circumstances, adversely impact the Company. See
"Risk Factors--Compliance with Environmental and Other Governmental
Regulations."
ABANDONMENT COSTS
The Company is responsible for payment of plugging and abandonment costs on
its oil and gas properties pro rata to its working interest. Based on its
experience, the Company anticipates that the ultimate aggregate salvage value
of lease and well equipment located on its properties will exceed the costs of
abandoning such properties. There can be no assurance, however, that the
Company will be successful in avoiding additional expenses in connection with
the abandonment of any of its properties. In addition, abandonment costs and
their timing may change due to many factors, including actual production
results, inflation rates and changes in environmental laws and regulations.
EMPLOYEES
At June 30, 1997, the Company employed 136 full-time employees, of whom five
were executive officers, 28 were technical personnel, 52 were field personnel
and 51 were administrative personnel. Of the total employees, 109 were located
in the United States and 27 were located in Canada. At June 30, 1997, none of
the Company's employees was represented by a labor union. The Company
considers its relations with its employees to be good.
FACILITIES
The Company's principal executive and administrative offices are located at
8115 Preston Road, Suite 400, Dallas, Texas. The offices contain approximately
21,000 square feet of space and are leased through December 31, 2001. Rental
payments are approximately $33,500 per month. The Company also maintains a
regional office in Corbin, Kentucky consisting of a one-story building
containing approximately 7,400 square feet of office space. The Company owns
this building. The office of the Company's Canadian subsidiary, The Wiser Oil
Company of Canada, is located at 645 7th Avenue, S.W., Suite 2550, Calgary,
Alberta. This office contains approximately 14,000 square feet of space and is
leased through June 30, 1999. Rental payments are approximately $12,500 per
month.
LEGAL PROCEEDINGS
No legal proceedings are pending against the Company other than litigation
incidental to its business that the Company believes will not have a material
adverse effect on its financial condition or results of operations.
76
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN OTHER EMPLOYEES
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Andrew J. Shoup, Jr. ........... President, Chief Executive Officer and Director
A. Wayne Ritter................. Vice President, Acquisitions and Production
Vice President Finance and Chief Financial
Lawrence J. Finn................ Officer
Kent E. Johnson................. Vice President of Exploration
Allan J. Simus.................. President of The Wiser Oil Company of Canada
Brett R. Schweikle.............. Manager of Primary Operations
Earl Krieg...................... Manager of Secondary Recovery Operations
S. Clay Cox..................... Manager of Marketing
W.B. Phillips................... Manager of Land
David A. Rice................... Manager of Acquisitions
Richard Davis................... Controller
John W. Cushing, III............ Director
Howard G. Hamilton.............. Director
C. Frayer Kimball, III.......... Director
Lorne H. Larson................. Director
Jon L. Mosle, Jr. .............. Director
Paul D. Neuenschwander.......... Director
A.W. Schenck, III............... Director
</TABLE>
Andrew J. Shoup, Jr., 62, has served as President, Chief Executive Officer
and a director of the Company since July 1, 1991. From September 1990 until
June 1991, Mr. Shoup was engaged as a consultant to Pacific Enterprises Oil
Company (USA), an oil and gas exploration and production company ("Pacific
Enterprises"). From January 1989 until September 1990, he served as the
President and Chief Operating Officer of Pacific Enterprises. From June 1986
until January 1989, he served as Chairman and Chief Executive Officer of
Sabine Corporation, an oil and gas exploration and production company.
Mr. Shoup has a B.S. Degree in Petroleum Engineering from Louisiana State
University, a Masters of Industrial Administration from Yale University and
approximately 37 years of experience in the oil and gas industry.
A. Wayne Ritter, 57, has served as Vice President, Acquisitions and
Production of the Company since August 1993. Mr. Ritter previously served as
Vice President in Charge of Acquisitions of the Company from September 1991 to
August 1993. From September 1990 until September 1991, he served as Manager of
Production--Fort Worth Division of Snyder Oil Corporation, an oil and gas
exploration and production company. Prior thereto, he was the Manager of
Business Development of Marsh Operating Company, an oil and gas exploration
and production company. Mr. Ritter has M.S. and B.S. Degrees in Petroleum
Engineering from the University of Texas and approximately 30 years of
experience in the oil and gas industry.
Lawrence J. Finn, 52, has served as Vice President Finance and Chief
Financial Officer of the Company since November 1993. From August 1990 until
October 1993, Mr. Finn was President of CWF Energy, Inc., an oil and gas
exploration and production company, and from March 1988 until August 1990, he
served as Vice President Finance and Chief Financial Officer of Verado Energy,
Inc., an oil and gas exploration and production company. Mr. Finn has a B.B.A.
Degree in Management Accounting from, and has taken post graduate accounting
courses at, the University of Houston. Mr. Finn has approximately 29 years of
experience in the oil and gas industry.
Kent E. Johnson, 60, has served as Vice President of Exploration of the
Company since September 1996. From May 1989 until June 1995, Mr. Johnson
served as Vice President
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Exploration/Development of DALEN Resources, an oil and gas exploration and
production company. When DALEN Resources was acquired by Enserch Exploration,
Inc. in June 1995, Mr. Johnson became Enserch's Regional Director for Gulf
Coast activities and served in that capacity until he joined Wiser. Mr.
Johnson has Ph.D. and M.S. Degrees in Geology from the University of
Wisconsin, a B.A. Degree in Geology from Augustine College and approximately
34 years of experience in the oil and gas industry.
Allan J. Simus, 63, is President of The Wiser Oil Company of Canada ("Wiser
Canada") and has served in such capacity since August 1994. From 1988 until
joining Wiser Canada, he served as President and General Manager of LL&E
Canada, Ltd., an oil and gas exploration and production company. Mr. Simus
served as President of Del Norte Resources Ltd., an oil and gas exploration
and production company, from 1987 to 1988, Executive Vice President and a
director of Onyx Petroleum Exploration Company Ltd., an oil and gas
exploration and production company, from 1983 to 1986, and General Manager of
Sabine Canada Ltd. from 1974 until 1982. Mr. Simus has B.S. Degrees in
Geological Engineering and Geology from Colorado College and approximately 39
years of experience in the oil and gas industry.
Brett R. Schweikle, 35, has served as Manager of Primary Operations of the
Company since May 1993. Mr. Schweikle previously served as Manager of
Production of the Company from January 1992 until April 1993.
Earl Krieg, 44, has served as Manager of Secondary Recovery Operations of
the Company since May 1993. Prior thereto, he served as Engineering Manager
and Senior Acquisitions Engineer of Edisto Resources Corporation, an oil and
gas exploration and production company.
S. Clay Cox, 45, has served as Manager of Marketing of the Company since
1995. Prior to 1995, he was Vice President of Highland Energy Company, an oil
and gas marketing firm in Dallas, Texas, which he joined in 1991. Prior to
1991, he held various oil and gas marketing management positions with Sabine
Corporation and Pacific Enterprises.
W. B. Phillips, 45, has served as Manager of Land of the Company since 1991.
David A. Rice, 44, has served as Manager of Acquisitions of the Company
since December
1992. From February 1992 to December 1992, Mr. Rice served as contract
acquisitions engineer for the Company.
Richard Davis, 43, has served as Controller of the Company since February
1997. From October 1982 to May 1994, Mr. Davis held various positions at Hunt
Oil Company, an oil and gas exploration and production company, and from
August 1994 to February 1997, he served as Controller of Gemini Exploration
Company, an oil and gas exploration and production company.
John W. Cushing, III, 64, has served as a director of the Company since
1986. For more than the last five years, Mr. Cushing has served as President
of Petroleum Services, Inc., a geologic consulting firm, and President of
Hydrocarbon Well Logging, Inc., a well service and engineering company located
in Parkersburg, West Virginia.
Howard G. Hamilton, 65, has served as a director of the Company since 1974.
For more than the last five years, Mr. Hamilton has been the owner and
operator of Palm Pavilion, a recreational facility in Clearwater, Florida.
C. Frayer Kimball, III, 62, has been a director of the Company since 1972.
For more than the last five years, Mr. Kimball has been a principal and Vice
President of Petroleum Engineers, Inc., a consulting engineering firm in
Lafayette, Louisiana. He is also Vice President of Triumph Energy, Inc., an
oil and gas exploration and production company.
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Lorne H. Larson, 61, has served as a director of the Company since 1995.
Since January 1986, Mr. Larson has been President and Chief Executive Officer
of ProGas Ltd., a Calgary, Alberta-based company involved in natural gas
marketing. Since 1993, he has served as a director of Rigel Energy
Corporation, an oil and gas exploration and production company, and since
April 1994 has served as a director of The General Accident Assurance Company
of Canada, a property and casualty company.
Jon L. Mosle, Jr., 68, has been a director of the Company since 1994. Mr.
Mosle has been an independent consultant and investor since 1992. From 1984 to
1992, he served as Director of Private Capital of Ameritrust Texas, N.A., a
trust company. Mr. Mosle currently serves as a director of Aquila Gas Pipeline
Corporation, a gas transmission company, Southwest Securities, Inc., a
brokerage firm and member of the New York Stock Exchange, and Trust Company of
Texas, a trust company.
Paul D. Neuenschwander, 72, has served as a director of the Company since
1964. Mr. Neuenschwander has been an independent oil and gas consultant in
Wyoming for more than the last five years.
A.W. Schenck, III, 54, has served as a director of the Company since 1986.
Since July 1995, he has served as Executive Vice President of the Retail
Banking Division of Great Western Financial Corp., and since October 1993, has
served as a director of the Consumer Bankers Association. Prior to that time,
he held various executive positions with PNC Bank Corp.
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DESCRIPTION OF CERTAIN SENIOR INDEBTEDNESS
The following description of the Credit Agreement as in effect as of the
date of this Prospectus does not purport to be complete and is subject to and
qualified in its entirety by reference to the Credit Agreement, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
In June 1994, the Company and its Canadian subsidiary entered into the
Credit Agreement with a group of banks. Prior to the consummation of the
Offering, the Credit Agreement provided for a term loan to the Company's
Canadian subsidiary and a revolving credit facility to the Company. Upon
consummation of the Offering, the Credit Agreement was amended to provide
solely for a revolving credit facility to the Company, to reduce the interest
rate on borrowings under the Credit Agreement, to reset the borrowing base
thereunder and to make certain other changes, including changes to take into
account the issuance by the Company of the Outstanding Notes (collectively,
the "Credit Agreement Amendments"). In connection with the Credit Agreement
Amendments, the Company's affiliated partnership that held the Company's
Maljamar oil and gas properties was dissolved and such properties were
transferred to the Company. In addition, in connection with such amendments,
the Initial Subsidiary Guarantors unconditionally guaranteed the payment of
indebtedness under the Credit Agreement, and the Company agreed that any other
Subsidiary Guarantors which at any time guaranteed the Notes would also
guarantee the payment of indebtedness under the Credit Agreement. The
Company's obligations under the Credit Agreement are not secured.
The revolving credit facility under the Credit Agreement may be utilized in
two ways: to obtain the issuance of letters of credit and for revolving credit
loans. There are two interest rate options available to the Company under the
Credit Agreement, each of which includes an "applicable margin" that varies
depending upon the ratio of the Company's consolidated senior funded debt
(defined in the Credit Agreement to exclude the Notes but include indebtedness
under the Credit Agreement and other indebtedness for borrowed money and
similar obligations) to the borrowing base (as defined in the Credit
Agreement) then in effect under the Credit Agreement. The interest rate
options are: (a) the agent bank's prime rate plus an applicable margin ranging
from 0% to 0.375% per annum and (b) the London interbank offered rate plus an
applicable margin ranging from 0.625% to 1.25% per annum. The London interbank
offered rate will be adjusted if the rules of the Board of Governors of the
Federal Reserve System impose reserve requirements on certain kinds of
deposits maintained by the agent bank. The Company may repay borrowings under
the Credit Agreement at any time in whole or in part, without penalty, in
certain minimum amounts.
Borrowings under the Credit Agreement are limited to the borrowing base (as
defined therein). Upon consummation of the Offering, the borrowing base was
reset at $80.0 million. The banks may review and redetermine the borrowing
base semiannually, and mandatory prepayments will be required over the six
months following a redetermination if the Company's consolidated senior funded
debt exceeds the borrowing base. Borrowing base redeterminations may be based
on a variety of factors, including the banks' analysis of the Company's oil
and gas reserves and projected production, but each bank can exercise its
discretion in determining the borrowing base, provided that (a) the borrowing
base is subject to automatic reduction beginning on April 1, 1999 and
continuing until March 31, 2002, which is the termination date of the Credit
Agreement, (b) each bank must consistently apply its standards for similar
credits to its redeterminations of the borrowing base and (c) certain
averaging procedures apply if the individual banks request a different
borrowing base. The Company pays the banks an annual commitment fee on the
unused availability under the borrowing base. The fee is calculated as a
percentage ranging from 0.25% to 0.375% per annum based on the ratio of the
Company's consolidated senior funded debt to the borrowing base then in
effect.
Under the Credit Agreement, the payment of dividends by the Company in any
year is limited to the greater of (i) 80% of the Company's adjusted
consolidated net income (defined in the Credit
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Agreement to exclude, among other things, gains from sales of marketable
securities) for such year and (ii) $4.5 million. The Credit Agreement also
prohibits the Company from incurring any debt if, after giving effect to the
incurrence of such debt, either (i) a default or event of default (as defined
in the Credit Agreement) exists or (ii) the Company's consolidated senior
funded debt would exceed the borrowing base then in effect under the Credit
Agreement. The Credit Agreement also prohibits the Company from entering into
any hedge transaction for its future production (other than "floor"
transactions that do not fix any "ceiling" price for the hedged production)
which would cause the amount of production subject to the Company's then
existing hedge transactions to exceed 65% of the Company's anticipated
production from its proved developed producing reserves during the term of
such existing hedge transactions. Furthermore, the Company is required to meet
a current ratio test (consolidated current assets to consolidated current
liabilities), a consolidated funded debt ratio test (consolidated funded debt
to consolidated total capital) and an interest expense maintenance ratio test
similar to the Consolidated Interest Coverage Ratio incurrence test described
under "Description of the Exchange Notes--Certain Covenants--Limitation on
Indebtedness". The Credit Agreement also restricts the purchase (including a
repurchase upon the occurrence of a Change of Control), redemption and
defeasance of subordinated indebtedness of the Company, including the Notes.
The Credit Agreement contains other customary affirmative and restrictive
covenants that, among other things, limit the Company and its subsidiaries
with respect to liens, investments and sales of assets. The Credit Agreement
also contains customary events of default, including, among other things, and
subject to applicable grace periods, payment defaults, material
misrepresentations, covenant defaults, certain bankruptcy events and judgment
defaults.
The Company used a portion of the net proceeds of the Offering to pay in
full the outstanding indebtedness under the Credit Agreement. At August 31,
1997, no indebtedness was outstanding under the Credit Agreement, but the
Company had $80.0 million available under the Credit Agreement, which, if
borrowed, would be Senior Indebtedness. The Company intends to reborrow under
the Credit Agreement from time to time as necessary to fund acquisition,
development, exploitation and exploration activities and for other general
corporate purposes.
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DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued under an indenture dated as of May 21,
1997 (the "Indenture") entered into among the Company, the Initial Subsidiary
Guarantors and Texas Commerce Bank National Association, as trustee (the
"Trustee"). The Exchange Notes will be issued under the same Indenture as the
Outstanding Notes, and the Exchange Notes and the Outstanding Notes will
constitute a single series of debt securities under the Indenture. In the
event that the Exchange Offer is consummated, any Outstanding Notes that
remain outstanding after consummation of the Exchange Offer and the Exchange
Notes issued in the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding principal amount of Notes have taken certain actions or exercised
certain rights under the Indenture. The Exchange Notes and the Outstanding
Notes are sometimes collectively referred to herein as the "Notes."
The terms of the Notes will include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939
(the "1939 Act"). The following summary of certain terms and provisions of the
Notes and the Indenture does not purport to be complete and is qualified in
its entirety by reference to the 1939 Act, the Notes and the Indenture. A copy
of the Indenture (which includes the forms of Notes) is available upon request
to the Company at the address set forth under "Available Information."
The definitions of certain capitalized terms used in the following summary
are set forth below under "Certain Definitions." Capitalized terms used in
this summary and not otherwise defined below have the meanings assigned to
them in the Indenture. For purposes of this "Description of the Exchange
Notes," references to the "Company" shall mean The Wiser Oil Company,
excluding its subsidiaries.
GENERAL
The Notes will mature on May 15, 2007, and will be limited to an aggregate
principal amount of $125,000,000. The Notes will bear interest at a rate of 9
1/2% per annum from May 21, 1997 (the "Issue Date"), or from the most recent
interest payment date to which interest has been paid, payable semiannually on
May 15 and November 15 of each year, beginning on November 15, 1997, to the
person in whose name the Note (or any predecessor Note) is registered at the
close of business on the immediately preceding May 1 or November 1, as the
case may be. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. See "The Exchange Offer--Interest on the
Exchange Notes."
Principal of, premium, if any, on and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at an office or agency of
the Company, one of which will be maintained for such purpose in The City of
New York (which will be an office of the Trustee) or such other office or
agency permitted under the Indenture. At the option of the Company, payment of
interest may be made by check mailed to the person entitled thereto as shown
on the Security Register. The Notes will be issued in denominations of $1,000
and integral multiples thereof.
The obligations of the Company under the Outstanding Notes are and under the
Exchange Notes will be unconditionally guaranteed on a senior subordinated and
unsecured basis by the Subsidiary Guarantors. See "--Subsidiary Guaranties."
SUBORDINATION
The Outstanding Notes are and the Exchange Notes will be unsecured senior
subordinated obligations of the Company. The payment of the principal of,
premium, if any, on and interest on the Notes will be subordinated in right of
payment, as set forth in the Indenture, to the payment when due
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in cash of all Senior Indebtedness of the Company. The Notes will rank
subordinate in right of payment to all existing and future Senior Indebtedness
of the Company, pari passu with any future Pari Passu Indebtedness of the
Company and senior to any future Subordinated Indebtedness of the Company. The
Subsidiary Guaranty of each Subsidiary Guarantor will rank subordinate in
right of payment to all existing and future Senior Indebtedness of such
Subsidiary Guarantor, pari passu with any future Pari Passu Indebtedness of
such Subsidiary Guarantor and senior to any future Subordinated Indebtedness
of such Subsidiary Guarantor. As described below, the Notes and the Subsidiary
Guaranties will be structurally subordinated to all existing and future
liabilities of subsidiaries of the Company that are not Subsidiary Guarantors.
At June 30, 1997, the outstanding Senior Indebtedness of the Company and the
Subsidiary Guarantors was less than $1.0 million (not including $80.0 million
of borrowing capacity available under the Credit Agreement which, if borrowed,
would be Senior Indebtedness), the Company and the Subsidiary Guarantors had
no outstanding Pari Passu Indebtedness or Subordinated Indebtedness and the
total Indebtedness and other liabilities (including trade payables, deferred
taxes and accrued liabilities, but excluding any obligations owed to
affiliates) of the Company's subsidiaries other than the Subsidiary Guarantors
were less than $0.5 million. The Company and its subsidiaries have other
liabilities, including contingent liabilities, which may be significant.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company and its Restricted Subsidiaries may incur, the
amounts of such Indebtedness could be substantial and such Indebtedness may be
Senior Indebtedness or Pari Passu Indebtedness. See "Risk Factors--
Subordination of Notes and Subsidiary Guaranties" and "--Certain Covenants--
Limitation on Indebtedness."
The Company may not pay principal of, premium, if any, on or interest on,
the Notes or make any deposit pursuant to the provisions of the Indenture
described under "--Defeasance and Covenant Defeasance" and may not repurchase,
redeem or otherwise retire any Notes (collectively, "pay the Notes") if (i)
any principal, premium, interest or other amounts due in respect of any Senior
Indebtedness of the Company is not paid within any applicable grace period
(including at maturity) or (ii) any other default on Senior Indebtedness of
the Company occurs and the maturity of such Senior Indebtedness is accelerated
in accordance with its terms unless, in either case, the default has been
cured or waived and any such acceleration has been rescinded or such Senior
Indebtedness has been paid in full in cash; provided, however, that the
Company may pay the Notes without regard to the foregoing if the Company and
the Trustee receive written notice approving such payment from the
Representative of each issue of Designated Senior Indebtedness of the Company.
During the continuance of any default (other than a default described in
clause (i), and provided that no acceleration has occurred and is continuing
as described in clause (ii), of the preceding sentence) with respect to any
such Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may
be required to effect such acceleration), the Company may not pay the Notes
for a period (a "Payment Blockage Period") commencing upon the receipt by the
Company and the Trustee of written notice of such default from the
Representative of the holders of any such Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period (a "Payment
Blockage Notice") and ending 179 days after receipt of such notice by the
Company and the Trustee unless earlier terminated (a) by written notice to the
Company and the Trustee from the Representative which gave such Payment
Blockage Notice, (b) because such default is no longer continuing or (c)
because such Designated Senior Indebtedness has been repaid in full in cash.
Notwithstanding the provisions described in the immediately preceding
sentence, unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such
Designated Senior Indebtedness and not rescinded such acceleration, the
Company may (unless otherwise prohibited as described in the first sentence of
this paragraph) resume payments on the Notes after the end of such Payment
Blockage Period. No more than one Payment Blockage Notice may be given in any
consecutive 360-day period.
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Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation, dissolution or winding up of the Company or in a
bankruptcy, reorganization, insolvency, receivership, or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness of
the Company will be entitled to receive payment in full in cash before the
Holders of the Notes are entitled to receive any payment of principal of, or
premium, if any, on or interest on, the Notes. In addition, until the Senior
Indebtedness of the Company is paid in full in cash, any distribution made by
or on behalf of the Company to which Holders of Notes would be entitled but
for the subordination provisions of the Indenture will be made to holders of
the Senior Indebtedness of the Company, except that Holders of Notes may
receive and retain shares of stock and any debt securities that are
subordinated to all Senior Indebtedness of the Company to at least the same
extent as the Notes.
The Subsidiary Guaranty of each Subsidiary Guarantor will be subordinated to
Senior Indebtedness of such Subsidiary Guarantor to the same extent and in the
same manner as the Notes are subordinated to Senior Indebtedness of the
Company. In addition, the holders of Designated Senior Indebtedness of a
Subsidiary Guarantor will have rights corresponding to those of holders of
Designated Senior Indebtedness of the Company.
The Indenture provides that the subordination provisions of the Indenture
applicable to the Notes and the Subsidiary Guaranties may not be amended,
waived or modified in a manner that would adversely affect the rights of the
holders of any Designated Senior Indebtedness of the Company or of a
Subsidiary Guarantor unless the holders of such Indebtedness consent in
writing (in accordance with the provisions of such Indebtedness) to such
amendment, waiver or modification.
The Notes will be structurally subordinated to the claims of creditors of
the Company's subsidiaries that are not Subsidiary Guarantors (see "Subsidiary
Guaranties"), including trade creditors and holders of Preferred Stock of such
subsidiaries (if any), and such claims will generally have a priority as to
the assets of such subsidiaries over the claims of the Company and the holders
of the Company's Indebtedness, including the Notes. The Subsidiary Guaranty of
each Subsidiary Guarantor will be structurally subordinated to the claims of
creditors of any subsidiary of such Subsidiary Guarantor that is not itself a
Subsidiary Guarantor, including trade creditors and holders of Preferred Stock
of such subsidiary (if any), and such claims will generally have a priority as
to the assets of such subsidiary over the claims of its parent Subsidiary
Guarantor and the holders of such Subsidiary Guarantor's Indebtedness,
including the applicable Subsidiary Guaranty. Under the Indenture, and subject
to certain limitations, Indebtedness may be incurred by subsidiaries of the
Company and the Subsidiary Guarantors. See "--Certain Covenants--Limitation on
Indebtedness."
SUBSIDIARY GUARANTIES
Under the circumstances described below, the Company's payment obligations
under the Notes will be jointly and severally guaranteed by the Subsidiary
Guarantors. The Subsidiary Guaranty of each Subsidiary Guarantor will be an
unsecured senior subordinated obligation of such Subsidiary Guarantor. See "--
Subordination." As of the Issue Date and the date of this Prospectus, the only
Subsidiary Guarantors were the Initial Subsidiary Guarantors.
The Indenture requires the Company to cause any Restricted Subsidiary (other
than a Foreign Subsidiary) that becomes a Significant Subsidiary (and any
Significant Subsidiary, other than a Foreign Subsidiary, that was previously
an Unrestricted Subsidiary and becomes a Restricted Subsidiary) after the
Issue Date to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Significant Subsidiary will become a Subsidiary
Guarantor. Subject to the preceding sentence, any Subsidiary Guarantor that is
no longer a Significant Subsidiary may, by execution and delivery to the
Trustee of a supplemental indenture satisfactory to the Trustee, be released
from its Subsidiary Guaranty and cease to be a Subsidiary Guarantor. In
addition, certain mergers, consolidations and dispositions of Property may
result in the addition of additional Subsidiary Guarantors or the release
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of Subsidiary Guarantors. See "--Merger, Consolidation and Sale of
Substantially All Assets." 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 Guaranty
upon execution and delivery of a supplemental indenture satisfactory to the
Trustee.
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 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 Guaranty or pursuant to its contribution obligations
under the Indenture, result in the obligations of such Subsidiary Guarantor
under its Subsidiary Guaranty not constituting a fraudulent conveyance or
fraudulent transfer under federal, state or foreign law. Each Subsidiary
Guarantor that makes a payment or distribution under a Subsidiary Guaranty
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.
See "Risk Factors--Fraudulent Conveyance."
Each Subsidiary Guarantor may merge or consolidate with or dispose of its
assets to the Company or a Wholly Owned Restricted Subsidiary that is a
Subsidiary Guarantor. In addition, each Subsidiary Guarantor may merge or
consolidate with or dispose of its assets to any Person (other than the
Company or a Wholly Owned Restricted Subsidiary that is a Subsidiary
Guarantor), regardless of whether such Person is an Affiliate of such
Subsidiary Guarantor, if (i) immediately after such transaction, and giving
effect thereto, no Default or Event of Default has occurred and is continuing;
(ii) such transaction was subject to, and consummated in compliance with, as
appropriate, either the provisions of the Indenture described under "--Certain
Covenants--Limitation on Asset Sales" or those described under "--Merger,
Consolidation and Sale of Substantially All Assets;" and (iii) the Company
shall have delivered to the Trustee an Officer's Certificate and an Opinion of
Counsel, each stating that such transaction complies with the above provisions
and that all conditions precedent relating to such transaction have been
complied with.
OPTIONAL REDEMPTION
Except as provided in the next succeeding paragraph, the Notes are not
redeemable prior to May 15, 2002. At any time on or after May 15, 2002, the
Notes are redeemable at the option of the Company, in whole or in part (equal
to $1,000 in principal amount or an integral multiple thereof), on not less
than 30 nor more than 60 days' prior notice, at the following redemption
prices (expressed as percentages of principal amount), plus accrued and unpaid
interest, if any, to the date of redemption (subject to the right of holders
of record on the relevant record date to receive interest due on the relevent
interest date), if redeemed during the 12-month period commencing on May 15 of
the years indicated below.
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002.......................................................... 104.750%
2003.......................................................... 103.167%
2004.......................................................... 101.583%
2005 and thereafter........................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to May 15, 2000 the Company may, at any
time or from time to time, redeem up to 33 1/3% of the aggregate principal
amount of the Notes originally outstanding at a redemption price of 109.500%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of redemption, with the net proceeds of one or more Equity Offerings
of the Company, provided that at least 66 2/3% of the aggregate principal
amount of the Notes originally issued remains outstanding immediately after
the occurrence of such redemption and provided, further, that such
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redemption shall occur not later than 75 days after the date of the closing of
any such Equity Offering. The redemption shall be made in accordance with
procedures set forth in the Indenture.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate.
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
PURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes shall have
the right to require the Company to repurchase all or any part (equal to
$1,000 in principal amount or an integral multiple thereof) of such Holder's
Notes pursuant to the offer described below (the "Change of Control Offer") at
a purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase (the "Change of
Control Payment").
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder stating, among other things: (i) that a Change of
Control has occurred and a Change of Control Offer is being made pursuant to
the Indenture and that all Notes (or portions thereof) properly tendered will
be accepted for payment; (ii) the purchase price and the purchase date, which
shall be, subject to any contrary requirements of applicable law, no fewer
than 30 days nor more than 60 days from the date the Company notifies the
Holders of the occurrence of the Change of Control (the "Change of Control
Payment Date"); (iii) that any Note (or portion thereof) accepted for payment
(and duly paid on the Change of Control Payment Date) pursuant to the Change
of Control Offer shall cease to accrue interest on the Change of Control
Payment Date; (iv) that any Notes (or portions thereof) not properly tendered
will continue to accrue interest; (v) a description of the transaction or
transactions constituting the Change of Control; (vi) the procedures that
Holders of Notes must follow in order to tender their Notes (or portions
thereof) for payment and the procedures that Holders of Notes must follow in
order to withdraw an election to tender Notes (or portions thereof) for
payment; and (vii) all other instructions and materials necessary to enable
Holders to tender Notes pursuant to the Change of Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Rules 13e-4 and 14e-1 under the Exchange Act, and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the purchase of Notes in connection with a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions relating to the Change of Control
Offer, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations described
above by virtue thereof.
If a Change of Control were to occur, there can be no assurance that the
Company and the Subsidiary Guarantors would have sufficient financial
resources, or would be able to arrange financing, to pay the purchase price
for all Notes tendered by the Holders thereof. In addition, the Credit
Agreement contains, and any future credit agreements or other agreements
relating to indebtedness (including Senior Indebtedness or Pari Passu
Indebtedness) to which the Company or a Subsidiary Guarantor becomes a party
may contain, restrictions on the purchase of Notes. If a Change of Control
occurs at a time when the Company and the Subsidiary Guarantors are unable to
purchase the Notes (due to insufficient financial resources, contractual
prohibition or otherwise), such 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 and may constitute a default
under the terms of any
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other Indebtedness of the Company or the Subsidiary Guarantors then
outstanding. In such circumstances, the subordination provisions in the
Indenture would likely prohibit payments to Holders of Notes. See "--
Subordination."
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 in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
A "Change of Control" shall be deemed to occur if (i) any "person" or
"group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provision to either of the foregoing, including any group
acting for the purpose of acquiring, holding or disposing of securities within
the meaning of Rule 13d-5(b)(1) under the Exchange Act), becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act) of 50 percent or more of the total voting power of all classes of the
Voting Stock of the Company or warrants or options to acquire such Voting
Stock, calculated on a fully diluted basis, (ii) the sale, lease, conveyance
or transfer of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole (other than to any Wholly Owned
Restricted Subsidiary) shall have occurred, (iii) the stockholders of the
Company shall have approved any plan of liquidation or dissolution of the
Company, (iv) the Company consolidates with or merges into another Person or
any Person merges into the Company in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is reclassified into or
exchanged for cash, securities or other property, other than any such
transaction where (a) the outstanding Voting Stock of the Company is
reclassified into or exchanged for Voting Stock of the surviving corporation
that is Capital Stock and (b) either (x) the holders of the Voting Stock of
the Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction in substantially the same proportion as
before the transaction or (y) within 25 days after the closing of any such
transaction both Moody's and S&P shall have expressly affirmed credit ratings
for the Notes (after giving effect to such transaction) that are as high or
higher than the highest such ratings for the Notes given by such services,
respectively, at any time during the 90 days immediately prior to the public
announcement of such transaction and such expressly affirmed ratings are at
least B1 from Moody's and B+ from S&P or (v) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Company's Board of Directors (together with any new directors whose
election or appointment by such board or whose nomination for election by the
stockholders of the Company 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 Company's Board
of Directors then in office.
The definition of Change of Control includes a phrase relating to the sale,
lease, conveyance or transfer of "all or substantially all" of the Company's
assets. The Indenture is governed by New York law, and there is no established
quantitative definition under New York law of "substantially all" of the
assets of a corporation. Accordingly, if the Company and its Restricted
Subsidiaries were to engage in a transaction in which they disposed of less
than all of the assets of the Company and its Restricted Subsidiaries taken as
a whole, a question of interpretation could arise as to whether such
disposition was of "substantially all" of their assets and whether the Company
was required to make a Change of Control Offer.
Except as described above with respect to a Change of Control, the Indenture
does not contain any other provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar restructuring.
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BOOK-ENTRY SYSTEM
The Outstanding Notes have been issued and the Exchange Notes will initially
be issued in the form of one or more Global Securities (as defined in the
Indenture) held in book-entry form. The Notes will be deposited with the
Trustee as custodian for the Depository, and the Depository or its nominee
will initially be the sole registered holder of the Notes for all purposes
under the Indenture. Except as set forth below, a Global Security may not be
transferred except as a whole by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository.
The Notes that are issued as described below under "--Certificated Notes"
will be issued in definitive form. Upon the transfer of a Note in definitive
form, such Note will, unless the applicable Global Security has previously
been exchanged for Notes in definitive form, be exchanged for an interest in
the Global Security representing the principal amount of the Notes being
transferred.
Upon the issuance of a Global Security, the Depository or its nominee will
credit, on its internal system, the accounts of persons holding through it
with the respective principal amounts of the individual beneficial interests
represented by such Global Security acquired by such persons. Ownership of
beneficial interests in a Global Security will be limited to persons that have
accounts with the Depository ("participants") or persons that may hold
interests through participants. Ownership of beneficial interests by
participants in a Global Security will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained by the
Depository or its nominee for such Global Security. Ownership of beneficial
interests in such Global Security by persons that hold through participants
will be shown on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by such
participant. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests
in a Global Security.
Payment of principal of, premium, if any, on and interest on Notes
represented by any such Global Security will be made to the Depository or its
nominee, as the case may be, as the sole registered owner and the sole Holder
of the Notes represented thereby for all purposes under the Indenture. None of
the Company, the Trustee, any agent of the Company or the Initial Purchasers
will have any responsibility or liability for any aspect of the Depository's
reports relating to or payments made on account of beneficial ownership
interests in a Global Security representing any Notes or for maintaining,
supervising or reviewing any of the Depository's records relating to such
beneficial ownership interests.
The Company has been advised by the Depository that upon receipt of any
payment of principal of, premium, if any, on or interest on any Global
Security, the Depository will immediately credit, on its book-entry
registration and transfer system, the accounts of participants with payments
in amounts proportionate to their respective beneficial interests in the
principal or face amount of such Global Security, as shown on the records of
the Depository. The Company expects that payments by participants to owners of
beneficial interests in a Global Security held through such participants will
be governed by standing instructions and customary practices as is now the
case with securities held for customer accounts registered in "street name"
and will be the sole responsibility of such participants.
So long as the Depository or its nominee, is the registered owner or holder
of such Global Security, the Depository or such nominee, as the case may be,
will be considered the sole owner or holder of the Notes represented by such
Global Security for the purposes of receiving payment on the Notes, receiving
notices and for all other purposes under the Indenture and the Notes.
Beneficial interests in Notes will be evidenced only by, and transfers thereof
will be effected only through, records maintained by the Depository and its
participants. Except as provided above, owners of beneficial interests in a
Global Security will not be entitled to and will not be considered the holders
of such Global Security for any purposes under the Indenture. Accordingly,
each person owning a beneficial
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interest in a Global Security must rely on the procedures of the Depository
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a
holder under the Indenture. The Company understands that under existing
industry practices, if the Company requests any action of holders or an owner
of a beneficial interest in a Global Security desires to give or take any
action that a Holder is entitled to give or take under the Indenture, the
Depository would authorize the participants holding the relevant beneficial
interest to give or take such action, and such participants would authorize
beneficial owners owning through such participants to give or take such action
or would otherwise act upon the instructions of beneficial owners owning
through them.
The Depository has advised the Company that it will take any action
permitted to be taken by a Holder of Notes (including the presentation of
Notes for exchange as described below) only at the direction of one or more
participants to whose account with the Depository interests in a Global
Security are credited and only in respect of such portion of the aggregate
principal amount of the Notes as to which such participant or participants has
or have given such direction.
The Depository has advised the Company that the Depository is a limited-
purpose trust company organized under the Banking Law of the State of New
York, a "banking organization" within the meaning of 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 under the Exchange Act. The Depository was created to hold the
securities of its participants and to facilitate the clearance and settlement
of securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations some of whom
(or their representatives) own the Depository. Access to the Depository's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a participant, either directly or indirectly.
CERTIFICATED NOTES
The Notes represented by a Global Security are exchangeable for certificated
Notes only if (i) the Depository notifies the Company that it is unwilling or
unable to continue as a depository for such Global Security or if at any time
the Depository ceases to be a clearing agency registered under the Exchange
Act, and a successor depository is not appointed by the Company within 90
days, (ii) the Company executes and delivers to the Trustee a notice that such
Global Security shall be so transferable, registrable and exchangeable, and
such transfer shall be registrable or (iii) there shall have occurred and be
continuing an Event of Default or an event which, with the giving of notice or
lapse of time or both, would constitute an Event of Default with respect to
the Notes represented by such Global Security. Any Global Security that is
exchangeable for certificated Notes pursuant to the preceding sentence will be
transferred to, and registered and exchanged for, certificated Notes in
authorized denominations and registered in such names as the Depository or its
nominee holding such Global Security may direct. Subject to the foregoing, a
Global Security is not exchangeable, except for a Global Security of like
denomination to be registered in the name of the Depository or its nominee. If
a Global Security becomes exchangeable for certificated Notes, (i)
certificated Notes will be issued only in fully registered form in
denominations of $1,000 or an integral multiple thereof, (ii) payment of
principal, premium, any repurchase price, and interest on the certificated
Notes will be payable, and the transfer of the certificated Notes will be
registrable, at the office or agency of the Company maintained for such
purposes and (iii) no service charge will be made for any issuance of the
certificated Notes, although the Company may require payment of a sum
sufficient to cover any transfer tax, assessment or similar governmental
charge imposed in connection therewith. In addition, such certificates
representing Outstanding Notes will bear a legend reflecting the restrictions
on
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transfer thereof (unless the Company determines otherwise in accordance with
applicable law) subject, with respect to such Notes, to the provisions of such
legend.
CERTAIN COVENANTS
Limitation on Indebtedness. The Indenture provides that the Company will
not, and it will not permit any of its Restricted Subsidiaries to, directly or
indirectly, Incur any Indebtedness (other than Permitted Indebtedness) unless,
after giving pro forma effect to the incurrence of such Indebtedness and the
receipt and application of the proceeds thereof, (i) no Default or Event of
Default would occur as a consequence of, or be continuing following, such
Incurrence and application and (ii) the Consolidated Interest Coverage Ratio
would exceed 2.5 to 1.0.
"Permitted Indebtedness" means any and all of the following: (i)
Indebtedness arising under the Indenture, including without limitation the
Notes and the Subsidiary Guaranties; (ii) Indebtedness under the Senior Credit
Facilities, to the extent that the aggregate principal amount of all
Indebtedness under the Senior Credit Facilities (whether incurred pursuant to
this clause (ii) or otherwise), together with all Indebtedness Incurred
pursuant to clause (ix) of this paragraph in respect of Indebtedness
previously Incurred pursuant to this clause (ii), at any one time outstanding
does not exceed the greater of (a) $100.0 million and (b) an amount equal to
the sum of (1) $30.0 million and (2) 15% of Adjusted Consolidated Net Tangible
Assets determined as of the date of the Incurrence of such Indebtedness;
provided, however, that the maximum amount available to be outstanding under
the Senior Credit Facilities as Permitted Indebtedness pursuant to this clause
(ii) shall be permanently reduced by the amount of Net Available Cash from
Asset Sales used to repay Indebtedness under the Senior Credit Facilities and
not subsequently reinvested in Additional Assets or used to permanently reduce
other Indebtedness to the extent permitted pursuant to the provisions of the
Indenture described under "--Limitation on Asset Sales;" (iii) Indebtedness to
the Company or any of its Wholly Owned Restricted Subsidiaries by any of its
Restricted Subsidiaries or Indebtedness of the Company to any of its Wholly
Owned Restricted Subsidiaries (but only so long as such Indebtedness is held
by the Company or a Wholly Owned Restricted Subsidiary); (iv) Indebtedness in
respect of bid, performance or surety obligations issued by or for the account
of the Company or any Restricted Subsidiary in the ordinary course of
business, including guaranties and letters of credit functioning as or
supporting such bid, performance or surety obligations (in each case other
than for an obligation for money borrowed); (v) Indebtedness under Permitted
Hedging Agreements; (vi) in-kind obligations relating to oil or gas balancing
positions arising in the ordinary course of business that are customary in the
Oil and Gas Business; (vii) Indebtedness outstanding on the Issue Date (which
is not repaid with the proceeds of the Offering) not otherwise permitted in
clauses (i) through (vi) above; (viii) Indebtedness not otherwise permitted to
be Incurred pursuant to this paragraph (excluding any Indebtedness Incurred
pursuant to the provisions of the Indenture described in the immediately
preceding paragraph), provided that the aggregate principal amount of all
Indebtedness Incurred pursuant to this clause (viii), together with all
Indebtedness Incurred pursuant to clause (ix) of this paragraph in respect of
Indebtedness previously Incurred pursuant to this clause (viii), at any one
time outstanding does not exceed $10.0 million; (ix) Indebtedness Incurred in
exchange for, or the proceeds of which are used to refinance, (a) Indebtedness
referred to in clauses (i) through (viii) of this paragraph (including
Indebtedness previously Incurred pursuant to this clause (ix)) and (b)
Indebtedness Incurred pursuant to the provisions of the Indenture described in
the immediately preceding paragraph, provided that such Indebtedness is
Permitted Refinancing Indebtedness; and (x) Indebtedness consisting of
obligations in respect of purchase price adjustments, indemnities or
Guaranties in connection with the acquisition or disposition of assets.
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any Lien on or with respect to
any Property of the Company or such Restricted Subsidiary, whether owned on
the Issue Date or acquired after the Issue Date, or any interest therein or
any income or profits
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therefrom, unless the Notes (and, in the case of a Restricted Subsidiary which
is a Subsidiary Guarantor, the Subsidiary Guaranty of such Subsidiary) are
secured equally and ratably with (or prior to) any and all other obligations
secured by such Lien, except that the Company and its Restricted Subsidiaries
may enter into, create, incur, assume or suffer to exist Liens securing Senior
Indebtedness, Liens securing Indebtedness of a Restricted Subsidiary that is
not a Subsidiary Guarantor and Permitted Liens.
"Permitted Liens" means any and all of the following: (i) Liens existing as
of the Issue Date; (ii) Liens securing the Notes, the Subsidiary Guaranties
and other obligations arising under the Indenture; (iii) any Lien existing on
any Property (including future improvements thereon, accessions thereto and
proceeds thereof) of a Person at the time such Person is merged or
consolidated with or into the Company or a Subsidiary Guarantor or becomes a
Restricted Subsidiary that is a Subsidiary Guarantor (and not incurred in
anticipation of or in connection with such transaction), provided that such
Liens are not extended to other Property of the Company or the Subsidiary
Guarantors; (iv) any Lien existing on any Property (including future
improvements thereon, accessions thereto and proceeds thereof) at the time of
the acquisition thereof (and not incurred in anticipation of or in connection
with such transaction), provided that such Liens are not extended to other
Property of the Company or the Subsidiary Guarantors; (v) any Lien incurred in
the ordinary course of business incidental to the conduct of the business of
the Company or the Subsidiary Guarantors or the ownership of their Property
(including, without limitation, (a) easements, rights of way and similar
encumbrances, (b) rights or title of lessors under leases (other than Capital
Lease Obligations), (c) rights of collecting banks having rights of setoff,
revocation, refund or chargeback with respect to money or instruments of the
Company or the Subsidiary Guarantors or on deposit with or in the possession
of such banks, (d) Liens imposed by law, including without limitation, Liens
under workers' compensation or similar legislation and mechanics', carriers',
warehousemens', materialmens', suppliers' and vendors' Liens, (e) Liens
incurred to secure performance of obligations with respect to statutory or
regulatory requirements, performance or return-of-money bonds, surety bonds or
other obligations of a like nature and incurred in a manner consistent with
industry practice and (f) Liens on deposits made in the ordinary course of
business), in each case which are not incurred in connection with the
borrowing of money, the obtaining of advances or the payment of the deferred
purchase price of Property (other than Trade Accounts Payable) and which do
not in the aggregate impair in any material respect the use of Property in the
operation of the business of the Company and its Restricted Subsidiaries taken
as a whole; (vi) Liens for taxes, assessments and governmental charges not yet
due or the validity of which are being contested in good faith by appropriate
proceedings, promptly instituted and diligently conducted, and for which
adequate reserves have been established to the extent required by GAAP; (vii)
Liens incurred to secure appeal bonds and judgment and attachment Liens, in
each case in connection with litigation or legal proceedings that are being
contested in good faith by appropriate proceedings so long as reserves have
been established to the extent required by GAAP as in effect at such time and
so long as such Liens do not encumber assets by an amount in excess of $15.0
million; (viii) Liens securing Permitted Hedging Agreements of the Company and
its Restricted Subsidiaries; (ix) Oil and Gas Liens Incurred in the ordinary
course of the business of the Company and its Restricted Subsidiaries; (x)
purchase money security interests (including, without limitation, Capital
Lease Obligations) granted in connection with the acquisition of fixed assets
in the ordinary course of business of the Company and its Restricted
Subsidiaries, provided, that (a) such Liens attach only to the Property
(including future improvements thereon, accessions thereto and proceeds
thereof) so acquired with the purchase money Indebtedness secured thereby and
(b) the Indebtedness secured by such Liens is not in excess of the purchase
price of such Property; (xi) Liens resulting from the deposit of funds or
evidences of Indebtedness in trust for the purpose of decreasing or defeasing
Indebtedness of the Company or any of its Subsidiaries so long as such deposit
of funds is permitted by the provisions of the Indenture described under "--
Limitation on Restricted Payments;" (xii) Liens resulting from a pledge of
Capital Stock of a Person that is not a Restricted Subsidiary; (xiii) Liens to
secure any permitted extension, renewal, refinancing, refunding or exchange
(or successive
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extensions, renewals, refinancings, refundings or exchanges), in whole or in
part, of or for any Indebtedness secured by Liens referred to in clauses (i),
(ii), (iii), (iv) and (x) above; provided, however, that (a) such new Lien
shall be limited to all or part of the same Property (including future
improvements thereon, accessions thereto and proceeds thereof) that secured
the original Lien and (b) the Indebtedness secured by such Lien at such time
is not increased to any amount greater than the sum of (1) the outstanding
principal amount or, if greater, the committed amount of the Indebtedness
secured by such original Lien immediately prior to such extension, renewal,
refinancing, refunding or exchange and (2) an amount necessary to pay any fees
and expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement; (xiv) 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; and (xv) Liens in favor of the Company or a Subsidiary Guarantor.
Notwithstanding anything in this paragraph to the contrary, the term
"Permitted Liens" does not include Liens resulting from the creation,
incurrence, issuance, assumption or Guarantee of any Production Payment and
Reserve Sale other than (a) Production Payments and Reserve Sales in
connection with the acquisition of Properties after the Issue Date, provided
that any such Liens created in connection therewith are created, incurred,
issued, assumed or guaranteed in connection with the financing of, and within
60 days after the acquisition of, the Property that is subject thereto, (b)
Production Payments and Reserve Sales, other than those described in clause
(a) of this sentence, to the extent such Production Payments and Reserve Sales
constitute Asset Sales made pursuant to and in compliance with the provisions
of the Indenture described under "--Limitation on Asset Sales," or (c) Oil and
Gas Liens that are not Dollar-Denominated Production Payments or Volumetric
Production Payments, that are incurred in the ordinary course of business of
the Company and its Restricted Subsidiaries, and that may be deemed under the
definition of Production Payments and Reserve Sales to constitute Production
Payments and Reserve Sales.
Limitation on Restricted Payments.
(a) The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment if, at the time of and after giving effect to the proposed
Restricted Payment, (i) any Default or Event of Default would have occurred
and be continuing, (ii) the Company could not incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
provisions of the Indenture described under "--Limitation on Indebtedness" or
(iii) the aggregate amount expended or declared for all Restricted Payments
from the Issue Date would exceed the sum (without duplication) of the
following:
(A) 50% of the aggregate Consolidated Net Income of the Company accrued
on a cumulative basis commencing on the last day of the fiscal quarter
immediately preceding the Issue Date, and ending on the last day of the
fiscal quarter ending on or immediately preceding the date of such proposed
Restricted Payment (or, if such aggregate Consolidated Net Income shall be
a loss, minus 100% of such loss), plus
(B) the aggregate net cash proceeds, or the Fair Market Value of Property
other than cash, received by the Company on or after the Issue Date from
the issuance or sale (other than to a Subsidiary of the Company) of Capital
Stock of the Company or any options, warrants or rights to purchase Capital
Stock of the Company, plus
(C) the aggregate net cash proceeds or the Fair Market Value of Property
other than cash received by the Company as capital contributions to the
Company (other than from a Subsidiary of the Company) on or after the Issue
Date, plus
(D) the aggregate net cash proceeds received by the Company upon the
exercise of any options, warrants or rights to purchase shares of Capital
Stock of the Company (other than from a Subsidiary of the Company) on or
after the Issue Date, plus
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(E) the aggregate net cash proceeds received on or after the Issue Date
by the Company from the issuance or sale (other than to any Subsidiary of
the Company) of convertible debt or convertible Redeemable Stock that has
been converted into or exchanged for Capital Stock of the Company, together
with the aggregate cash received by the Company at the time of such
conversion or exchange, plus
(F) to the extent not otherwise included in the Company's Consolidated
Net Income, an amount equal to the net reduction in Investments made by the
Company and its Restricted Subsidiaries subsequent to the Issue Date in any
Person resulting from (1) payments of interest on debt, dividends,
repayments of loans or advances or other transfers or distributions of
Property, in each case to the Company or any Restricted Subsidiary from any
Person other than the Company or a Restricted Subsidiary, and in an amount
not to exceed the book value of such Investments previously made in such
Person that were treated as Restricted Payments, or (2) the designation of
any Unrestricted Subsidiary as a Restricted Subsidiary, and in an amount
not to exceed the lesser of (x) the book value of all Investments
previously made in such Unrestricted Subsidiary that were treated as a
Restricted Payments and (y) the Fair Market Value of such Unrestricted
Subsidiary, plus
(G) $10.0 million.
(b) The limitations set forth in paragraph (a) above will not prevent the
Company or any Restricted Subsidiary from making the following Restricted
Payments so long as, at the time thereof, no Default or Event of Default shall
have occurred and be continuing (except in the case of clause (i) below under
which the payment of a dividend is permitted, so long as the declaration of
such dividend was made in compliance with the provisions under "Limitation on
Restricted Payments"):
(i) the payment of any dividend on Capital Stock of the Company or any
Restricted Subsidiary within 60 days after the declaration thereof, if at
such declaration date such dividend could have been paid in compliance with
paragraph (a) above;
(ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any Restricted Subsidiary, in
exchange for, or out of the aggregate net cash proceeds of, a substantially
concurrent issuance and sale (other than to a Subsidiary of the Company) of
Capital Stock of the Company;
(iii) the making of any principal payment on or the repurchase,
redemption, defeasance or other acquisition or retirement for value, prior
to any scheduled principal payment, scheduled sinking fund payment or
maturity, of any Pari Passu Indebtedness or Subordinated Indebtedness
(other than Redeemable Stock) in exchange for, or out of the aggregate net
cash proceeds of, a substantially concurrent issuance and sale (other than
to a Subsidiary of the Company) of Capital Stock of the Company;
(iv) the making of any principal payment on or the repurchase,
redemption, defeasance or other acquisition or retirement for value of Pari
Passu Indebtedness or Subordinated Indebtedness in exchange for, or out of
the aggregate net cash proceeds of, a substantially concurrent Incurrence
(other than a sale to a Subsidiary of the Company) of Pari Passu
Indebtedness or Subordinated Indebtedness so long as such new Indebtedness
is Permitted Refinancing Indebtedness and such new Indebtedness (A) has an
Average Life to Stated Maturity that is longer than the Average Life to
Stated Maturity of the Notes and (B) has a Stated Maturity for its final
scheduled principal payment that is at least 91 days later than the Stated
Maturity of the final scheduled principal payment of the Notes; and
(v) loans made to officers, directors or employees of the Company or any
Restricted Subsidiary approved by the Board of Directors (or a duly
authorized officer), the proceeds of which are used solely (A) to purchase
common stock of the Company in connection with a restricted stock or
employee stock purchase plan, or to exercise stock options received
pursuant to an employee or director stock option plan or other incentive
plan, in a principal amount not to exceed
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the exercise price of such stock options or (B) to refinance loans,
together with accrued interest thereon, made pursuant to item (A) of this
clause (v).
The actions described in clauses (i), (ii), (iii) and (v) of this paragraph
(b) shall be Restricted Payments that shall be permitted to be taken in
accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under 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 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
Restricted Payments that shall be permitted to be taken in accordance with
this paragraph (b) but shall not reduce the amount that would otherwise be
available for Restricted Payments under paragraph (a).
Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Indenture provides that the Company will not (i) permit any
Restricted Subsidiary to sell or otherwise issue any Capital Stock other than
to the Company or one of its Wholly Owned Restricted Subsidiaries or
(ii) permit any Person other than the Company or a Wholly Owned Restricted
Subsidiary to own any Capital Stock of any other Restricted Subsidiary,
except, in each case, for (a) directors' qualifying shares, (b) the Capital
Stock of a Restricted Subsidiary owned by a Person at the time such Restricted
Subsidiary became a Restricted Subsidiary or acquired by such Person in
connection with the formation of the Restricted Subsidiary, or transfers
thereof, (c) a sale of all of the Capital Stock of a Restricted Subsidiary
owned by the Company or its Subsidiaries effected in accordance with the
provisions of the Indenture described under "--Limitation on Asset Sales," or
(d) any sale or issuance of Capital Stock of a Foreign Subsidiary that is
required to be issued to or owned by the government of a foreign jurisdiction
or individual or corporate citizens of such foreign jurisdiction in order for
such Foreign Subsidiary to transact business in such foreign jurisdiction,
provided, that any such sale or issuance shall be deemed to be an Asset Sale
to the extent the percentage of the total outstanding Voting Stock of such
Foreign Subsidiary owned directly and indirectly by the Company is reduced as
a result of such sale or issuance and any such sale or issuance must be made
in compliance with the provisions of the Indenture described under "--
Limitation on Asset Sales."
Limitation on Asset Sales. The Indenture provides that the Company will not,
and will not permit any Restricted Subsidiary to, consummate 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 shares and assets subject to such Asset Sale and (ii)
all of the consideration paid to the Company or such Restricted Subsidiary in
connection with such Asset Sale is in the form of cash, cash equivalents,
Liquid Securities, Exchanged Properties 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), liabilities of any Subsidiary
Guarantor that made such Asset Sale (other than liabilities of a Subsidiary
Guarantor that are by their terms subordinated to such Subsidiary Guarantor's
Subsidiary Guaranty) or liabilities of any Restricted Subsidiary that made
such Asset Sale and which is not a Subsidiary Guarantor, in each case as a
result of which the Company and its remaining Restricted Subsidiaries are no
longer liable ("Permitted Consideration"); provided, however, that the Company
and its Restricted Subsidiaries shall be permitted to receive Property other
than Permitted Consideration, so long as the aggregate Fair Market Value of
all such Property other than Permitted Consideration received from Asset Sales
and held by the Company or any Restricted Subsidiary at any one time shall not
exceed 7.5% of Adjusted Consolidated Net Tangible Assets.
The Net Available Cash from Asset Sales by the Company or a Restricted
Subsidiary may be applied by the Company or such Restricted Subsidiary, to the
extent the Company or such Restricted Subsidiary elects (or is required by the
terms of any Senior Indebtedness of the Company or Indebtedness of such
Restricted Subsidiary), to (i) prepay, repay or purchase Senior Indebtedness
of the Company or a Subsidiary Guarantor or Indebtedness of such Restricted
Subsidiary (in each case excluding Indebtedness owed to the Company or an
Affiliate of the Company), (ii) to reinvest in
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Additional Assets (including by means of an Investment in Additional Assets by
a Restricted Subsidiary with Net Available Cash received by the Company or
another Restricted Subsidiary) or (iii) purchase Notes or purchase both Notes
and one or more series or issues of other Pari Passu Indebtedness on a pro
rata basis (excluding Notes and Pari Passu Indebtedness owned by the Company
or an Affiliate of the Company).
Any Net Available Cash from an Asset Sale not applied in accordance with the
preceding paragraph within 365 days from the date of such Asset Sale shall
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $5.0 million, the Company will be required to make an offer to
purchase Notes having an aggregate principal amount equal to the aggregate
amount of Excess Proceeds (the "Prepayment Offer") at a purchase price equal
to 100% of the principal amount of such Notes plus accrued and unpaid
interest, if any, to the Purchase Date (as defined) in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
the Indenture, but, if the terms of any Pari Passu Indebtedness require that a
Pari Passu Offer be made contemporaneously with the Prepayment Offer, then the
Excess Proceeds shall be prorated between the Prepayment Offer and such Pari
Passu Offer in accordance with the aggregate outstanding principal amounts of
the Notes and such Pari Passu Indebtedness, and the aggregate principal amount
of Notes for which the Prepayment Offer is made shall be reduced accordingly.
If the aggregate principal amount of Notes tendered by Holders thereof exceeds
the amount of available Excess Proceeds, then such Excess Proceeds will be
allocated pro rata according to the principal amount of the Notes tendered and
the Trustee will select the Notes to be purchased in accordance with the
Indenture. To the extent that any portion of the amount of Excess Proceeds
remains after compliance with the second sentence of this paragraph and
provided that all Holders of Notes have been given the opportunity to tender
their Notes for purchase as described in the following paragraph in accordance
with the Indenture, the Company or such Restricted Subsidiary may use such
remaining amount for general corporate purposes and the amount of Excess
Proceeds will be reset to zero.
Within five days after the 365th day following the date of an Asset Sale,
the Company shall, if it is obligated to make an offer to purchase the Notes
pursuant to the preceding paragraph, send a written Prepayment Offer notice,
by first-class mail, to the Holders of the Notes (the "Prepayment Offer
Notice"), accompanied by such information regarding the Company and its
Subsidiaries as the Company in good faith believes will enable such Holders of
the Notes to make an informed decision with respect to the Prepayment Offer.
The Prepayment Offer Notice will state, among other things, (i) that the
Company is offering to purchase Notes pursuant to the provisions of the
Indenture, (ii) that any Note (or any portion thereof) accepted for payment
(and duly paid on the Purchase Date) pursuant to the Prepayment Offer shall
cease to accrue interest on the Purchase Date, (iii) that any Securities (or
portions thereof) not properly tendered will continue to accrue interest, (iv)
the purchase price and purchase date, which shall be, subject to any contrary
requirements of applicable law, no less than 30 days nor more than 60 days
after the date the Prepayment Offer Notice is mailed (the "Purchase Date"),
(v) the aggregate principal amount of Notes to be purchased, (vi) a
description of the procedure which Holders of Notes must follow in order to
tender their Notes and the procedures that Holders of Notes must follow in
order to withdraw an election to tender their Notes for payment, and (vii) all
other instructions and materials necessary to enable Holders to tender Notes
pursuant to the Prepayment Offer.
The Company will comply, to the extent applicable, with the requirements of
Rules 13e-4 and 14e-1 under the Exchange Act and any other securities laws or
regulations thereunder to the extent such laws and regulations are applicable
in connection with the purchase of Notes as described above. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions relating to the Prepayment Offer, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations described above by virtue thereof.
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There can be no assurance that the Company and the Subsidiary Guarantors
will be able to fund any Prepayment Offer. The Credit Agreement contains, and
any future credit agreements or other agreements relating to indebtedness
(including Senior Indebtedness or Pari Passu Indebtedness) to which the
Company or a Subsidiary Guarantor becomes a party may contain, restrictions on
the repurchase of Notes. If a Prepayment Offer is required to be made at a
time when such restrictions are in effect, such 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 and may constitute a
default under the terms of any other Indebtedness of the Company or the
Subsidiary Guarantors then outstanding. In such circumstances, the
subordination provisions in the Indenture would likely prohibit payments to
Holders of Notes. See "--Subordination."
Incurrence of Layered Indebtedness. The Indenture provides that (i) the
Company will not Incur any Indebtedness which is subordinated or junior in
right of payment to any Senior Indebtedness of the Company unless such
Indebtedness constitutes Indebtedness which is junior to, or pari passu with,
the Notes in right of payment and (ii) no Subsidiary Guarantor will incur any
Indebtedness that is subordinated or junior in right of payment to any Senior
Indebtedness of such Subsidiary Guarantor unless such Indebtedness constitutes
Indebtedness which is junior to, or pari passu with, such Subsidiary
Guarantor's Subsidiary Guaranty in right of payment.
Limitation on Transactions with Affiliates. The Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, conduct any business or enter into any transaction or
series of transactions (including, but not limited to, the sale, transfer,
disposition, purchase, exchange or lease of Property, the making of any
Investment, the giving of any Guarantee or the rendering of any service) with
or for the benefit of any Affiliate of the Company (other than the Company or
a Wholly Owned Restricted Subsidiary), unless (i) such transaction or series
of transactions is on terms no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained in a comparable arm's-
length transaction with a Person that is not an Affiliate of the Company or
such Restricted Subsidiary, and (ii) with respect to a transaction or series
of transactions involving aggregate payments by or to the Company or such
Restricted Subsidiary having a Fair Market Value equal to or in excess of (a)
$1.0 million but less than $5.0 million, an officer of the Company, in his
good faith judgment, believes such transaction or series of transactions
complies with clause (i) of this paragraph, as evidenced by an Officer's
Certificate delivered to the Trustee, (b) $5.0 million but less than $15.0
million, the Board of Directors of the Company (including a majority of the
disinterested members of the Board of Directors of the Company) approves such
transaction or series of transactions and, in its good faith judgment,
believes that such transaction or series of transactions complies with clause
(i) of this paragraph, as evidenced by a certified resolution delivered to the
Trustee or (c) $15.0 million, (1) the Company receives 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, a written opinion that such
transaction (or series of transactions) is fair, from a financial point of
view, to the Company or such Restricted Subsidiary and (2) the Board of
Directors of the Company (including a majority of the disinterested members of
the Board of Directors of the Company) approves such transaction or series of
transactions and, in its good faith judgment, believes that such transaction
or series of transactions complies with clause (i) of this paragraph, as
evidenced by a certified resolution delivered to the Trustee.
The limitations of the preceding paragraph do not apply to (i) the payment
of reasonable and customary regular fees to directors of the Company or any of
its Restricted Subsidiaries who are not employees of the Company or any of its
Restricted Subsidiaries, (ii) indemnities of officers and directors of the
Company or any Subsidiary consistent with such Person's bylaws and applicable
statutory provisions, (iii) the Company's and its Restricted Subsidiaries'
employee compensation and other benefit arrangements, (iv) loans made (a) to
officers, directors or employees of the Company or
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any Restricted Subsidiary approved by the Board of Directors (or by a duly
authorized officer), the proceeds of which are used solely to purchase common
stock of the Company in connection with a restricted stock or employee stock
purchase plan, or to exercise stock options received pursuant to an employee
or director stock option plan or other incentive plan, in a principal amount
not to exceed the exercise price of such stock options, or (b) to refinance
loans, together with accrued interest thereon, made pursuant to this clause
(iv), (v) advances and loans to officers, directors and employees of the
Company or any Subsidiary in the ordinary course of business, provided such
loans and advances (excluding loans or advances made pursuant to the preceding
clause (iv)) do not exceed $2.0 million at any one time outstanding or (vi)
Investments in Unrestricted Subsidiaries which are deemed to be Restricted
Payments under the provisions under "Limitations on Restricted Payments."
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
assume or otherwise cause or suffer to exist or become effective, or enter
into any agreement with any Person that would cause to become effective, any
consensual encumbrance or restriction on the legal right of any Restricted
Subsidiary to (i) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock or Redeemable Stock held
by the Company or a Subsidiary Guarantor, (ii) pay any Indebtedness or other
obligation owed to the Company or any Subsidiary Guarantor, (iii) make any
Investments in the Company or any Subsidiary Guarantor, or (iv) transfer any
of its property or assets to the Company or any Subsidiary Guarantor. Such
limitation will not apply (a) with respect to clauses (iii) and (iv) only, to
encumbrances and restrictions (1) in existence under or by reason of any
agreements in effect on the Issue Date, (2) required under Senior Credit
Facilities that are not more restrictive than those in effect under the Senior
Credit Facilities on the Issue Date, (3) in existence with respect to a
Restricted Subsidiary at the time it became a Restricted Subsidiary if (A)
such encumbrance or restriction was not created in anticipation of or in
connection with the transactions pursuant to which the Restricted Subsidiary
became a Restricted Subsidiary and (B) immediately following such transaction,
on a pro forma basis, the Company could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the provisions of
the Indenture described under "--Limitation on Indebtedness" or (4) which
result from the renewal, refinancing, extension or amendment of an agreement
referred to in the immediately preceding clauses (1), (2) and (3), provided,
such replacement or encumbrance or restriction is no more restrictive to the
Company or Restricted Subsidiary and is not materially less favorable to the
Holders of Notes than those under or pursuant to the agreement evidencing the
Indebtedness so extended, renewed, refinanced or replaced, and (b) with
respect to clause (iv) only, to (1) any restriction on the sale, transfer or
other disposition of assets or Property as a result of a Lien permitted under
the provisions of the Indenture described under "--Limitation on Liens," (2)
any encumbrance or restriction arising in connection with an acquisition of
Property, so long as such encumbrance or restriction relates solely to the
Property so acquired (including future improvements thereon, accessions
thereto and proceeds thereof) and was not created in anticipation of or in
connection with such acquisition, (3) customary provisions restricting
subletting or assignment of leases and customary provisions in other
agreements that restrict assignment of such agreements or rights thereunder,
(4) any encumbrance or restriction due to applicable law, (5) customary
restrictions contained in asset sale agreements limiting the transfer of such
assets pending the closing of such sale and (6) restrictions contained in
purchase money obligations for Property acquired in the ordinary course of
business with respect to transfers of such Property.
Restricted and Unrestricted Subsidiaries. Unless defined or designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
or any of its Restricted Subsidiaries shall be classified as a Restricted
Subsidiary subject to the provisions of the next paragraph. The Company may
designate a Subsidiary (including a newly formed or newly acquired Subsidiary)
of the Company or any of its Restricted Subsidiaries as an Unrestricted
Subsidiary if (i) such Subsidiary does not at such time own any Capital Stock,
Redeemable Stock or Indebtedness of,
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or own or hold any Lien on any property of, the Company or any other
Restricted Subsidiary, (ii) such Subsidiary does not at such time have any
Indebtedness or other obligations which, if in default, would result (with the
passage of time or notice or otherwise) in a default on any Indebtedness of
the Company or any Restricted Subsidiary and (iii)(a) such designation is
effective immediately upon such Subsidiary becoming a Subsidiary of the
Company or of a Restricted Subsidiary, (b) the Subsidiary to be so designated
has total assets of $1,000 or less or (c) if such Subsidiary has total assets
greater than $1,000, then such redesignation as an Unrestricted Subsidiary is
deemed to constitute a Restricted Payment in an amount equal to the Fair
Market Value of the Company's direct and indirect ownership interest in such
Subsidiary, and such Restricted Payment would be permitted to be made at the
time of such designation under the provisions of the Indenture described under
"--Limitation on Restricted Payments." Except as provided in clauses (iii)(b)
and (c) of this paragraph, no Restricted Subsidiary may be redesignated as an
Unrestricted Subsidiary. The designation of an Unrestricted Subsidiary or
removal of such designation shall be made by the Board of Directors of the
Company or a committee thereof pursuant to a certified resolution delivered to
the Trustee and shall be effective as of the date specified in the applicable
certified resolution, which shall not be prior to the date such certified
resolution is delivered to the Trustee.
The Company will not, and will not permit any of its Restricted Subsidiaries
to, take any action or enter into any transaction or series of transactions
that would result in a Person becoming a Restricted Subsidiary (whether
through an acquisition or otherwise, but excluding the creation by the Company
of a new Wholly Owned Restricted Subsidiary) unless, after giving effect to
such action, transaction or series of transactions, on a pro forma basis, (i)
the Company could Incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the provisions of the Indenture described
under "--Limitation on Indebtedness" and (ii) no Default or Event of Default
would occur or be continuing.
MERGER, CONSOLIDATION AND SALE OF SUBSTANTIALLY ALL ASSETS
The Indenture provides that (i) the Company will not merge or consolidate
with or into any other Person (whether or not the Company is the surviving
entity), and (ii) the Company will not and will not permit its Restricted
Subsidiaries to, directly or indirectly, sell, transfer, assign, lease, convey
or otherwise dispose of all or substantially all of the Property of the
Company and its Restricted Subsidiaries taken as a whole to any Person in any
one transaction or a series of transactions (including, without limitation,
dispositions pursuant to mergers, consolidations, Investments and Production
Payments and Reserve Sales), in each case unless: (a) the Surviving Entity (as
defined) shall be a corporation organized and existing under the laws of the
United States of America or a State thereof or the District of Columbia; (b)
in the case of a transaction described in clause (ii) above, such Property
shall have been transferred as an entirety or virtually as an entirety to one
Person; (c) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis, no Default or
Event of Default shall have occurred and be continuing; (d) except in the case
of a merger of the Company with a Restricted Subsidiary, immediately after
giving effect to such transaction or series of transactions on a pro forma
basis, the Surviving Entity would be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the
provisions of the Indenture described under "--Limitation on Indebtedness;"
(e) except in the case of a merger of the Company with a Restricted
Subsidiary, immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Surviving Entity shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company immediately prior to the transaction or series of transactions;
(f) if the Company is not the Surviving Entity, then (1) the Surviving Entity
shall have executed and delivered to the Trustee a supplemental indenture
satisfactory to the Trustee pursuant to which the Surviving Entity assumes the
obligations of the Company under the Indenture and the Notes, (2) each
Subsidiary Guarantor (unless it is the Surviving Entity) shall have executed
and delivered to the Trustee a supplemental indenture
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satisfactory to the Trustee confirming that such Subsidiary Guarantor's
Subsidiary Guaranty remains in full force and effect and guarantees the
Surviving Entity's obligations under the Indenture and the Notes, and (3) in
the case of a transaction described in clause (ii) above in which the
transferee assumes all of the obligations of the Company under the Indenture
and the Notes, the Company shall be released and shall no longer be considered
an obligor under the Indenture and the Notes; and (g) the Company, and if the
Company is not the Surviving Entity the Surviving Entity, shall have delivered
to the Trustee an Officer's Certificate (attaching the calculations to
demonstrate compliance with (d) and (e) above) and an Opinion of Counsel, each
stating that such merger, consolidation or disposition and any such
supplemental indentures comply with the terms of the Indenture. The Term
"Surviving Entity" shall mean the Person referred to in clauses (i) and (ii)
above (1) formed by or surviving any such merger or consolidation involving
the Company or (2) to which any sale, transfer, assignment, lease, conveyance
or other disposition is made.
With respect to each transaction or series of transactions described above,
giving effect to such transaction or series of transactions on a pro forma
basis shall include, without limitation, (i) treating any Indebtedness not
previously the obligation of the Company or any of its Restricted Subsidiaries
which becomes an obligation of the Company or any of its Restricted
Subsidiaries in connection with or as a result of such transaction or series
of transactions as having been incurred at the time of the transaction or
series of transactions and (ii) giving effect to any Indebtedness incurred or
anticipated to be incurred in connection with such transaction or series of
transactions.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the SEC, so long as any Notes are outstanding, the Company will
file with the SEC and furnish to the Holders of Notes all quarterly and annual
financial information required to be contained in a filing with the SEC on
Forms 10-Q and 10-K, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
consolidated financial statements only, a report thereon by the Company's
independent auditors.
REGISTRATION AGREEMENT
The Company, the Initial Subsidiary Guarantors and the Initial Purchasers
entered into the Registration Agreement on May 21, 1997, which required the
Company and the Initial Subsidiary Guarantors, among other things, to commence
the Exchange Offer and maintain its effectiveness on the terms set forth
herein. In addition to their obligations in connection with the Exchange Offer
(and assuming the Exchange Offer is consummated prior to October 20, 1997),
the Company and the Initial Subsidiary Guarantors will have a continuing
obligation to register Notes for resale under a Form S-3 Registration
Statement (the "Shelf Registration Statement") in the following circumstances:
(i) an Initial Purchaser holding Private Exchange Notes (as defined in the
Registration Agreement) acquired by it in exchange for Outstanding Notes
having the status of an unsold allotment in the initial distribution of the
Outstanding Notes so requests by notice to the Company within 10 days after
the consummation of the Exchange Offer or (ii) any holder of Outstanding Notes
(other than a Participating Broker-Dealer) is ineligible to participate in the
Exchange Offer (see "The Exchange Offer--Resales of Exchange Notes") or does
not receive freely tradable Exchange Notes in the Exchange Offer (other than
due solely to the status of such holder as an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) and so notifies the
Company within 10 days after the consummation of the Exchange Offer. If the
Company is required to file a Shelf Registration Statement, it must keep the
Shelf Registration Statement effective under the Securities Act to permit
resales thereunder until May 21, 1999, or such shorter period ending when all
of the Notes covered by such Shelf Registration Statement have been sold.
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In the event of the filing of a Shelf Registration Statement, the Company
will provide to each holder of the Notes covered thereby 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 of the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Agreement which are applicable to such a holder (including
certain indemnification obligations). In addition, each holder of Notes to be
covered by the Shelf Registration Statement will be required to deliver to the
Company information to be used in connection with 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 "Description of the Outstanding
Notes."
Pursuant to the Registration Agreement, each holder of Notes is deemed to
have agreed that, upon receipt of notice from the Company of the occurrence of
any event or the discovery of any fact which makes any statement contained or
incorporated by reference in the prospectus that is a part of the Shelf
Registration Statement (or in the case of Participating Broker-Dealers, this
Prospectus) untrue in any material respect or which causes such prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference therein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain
other events specified in the Registration Agreement, such holder (or
Participating Broker-Dealer, 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 and has
furnished copies of the amended or supplemented prospectus to each such holder
(or Participating Broker-Dealer, as the case may be) or until the Company has
given notice that the sale of such Notes may be resumed, as the case may be.
Notwithstanding that the Company may suspend the sale of such Notes under such
circumstances, the Company has no obligation to extend the relevant period
during which it is required to keep effective the Shelf Registration Statement
(or the period during which Participating Broker-Dealers are entitled to use
this Prospectus in connection with the resale of Exchange Notes, as the case
may be).
The summary herein of certain provisions of the Registration Agreement is
not complete and is subject to, and is qualified in its entirety by reference
to, all the provisions of the Registration Agreement, a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Additional Assets" means (i) any Property (other than cash, Permitted
Short-Term Investments or securities) used in the Oil and Gas Business or any
business ancillary thereto, (ii) Investments in any other Person engaged in
the Oil and Gas Business or any business ancillary thereto (including the
acquisition from third parties of Capital Stock of such Person) made in
compliance with the provisions of the Indenture described under "--Certain
Covenants--Limitation on Restricted Payments" and as a result of which such
other Person becomes a Restricted Subsidiary in compliance with the provisions
of the Indenture described under "--Certain Covenants--Restricted and
Unrestricted Subsidiaries," (iii) the acquisition from third parties of
Capital Stock of a Restricted Subsidiary, (iv) the costs of acquiring,
exploiting, developing and exploring in respect of oil and gas properties or
(v) Permitted Business Investments.
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"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination, the remainder of:
(i) the sum of (a) 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, federal or foreign income
taxes, as estimated by the Company and confirmed 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 for which
audited financial statements are available, as increased by, as of the date
of determination, the estimated discounted future net revenues from (1)
estimated proved oil and gas reserves acquired since such year-end, which
reserves were not reflected in such year-end reserve report, and (2)
estimated oil and gas reserves attributable to upward revisions of
estimates of proved oil and gas reserves since such year-end due to
exploration, development or exploitation activities, in each case
calculated in accordance with SEC guidelines (utilizing the prices utilized
in such year-end reserve report), and decreased by, as of the date of
determination, the estimated discounted future net revenues from (3)
estimated proved oil and gas reserves produced or disposed of since such
year-end and (4) estimated oil and gas reserves attributable to downward
revisions of estimates of proved oil and gas reserves since such year-end
due to changes in geological conditions or other factors which would, in
accordance with standard industry practice, cause such revisions, in each
case calculated 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 (1) through (4), such
increases and decreases shall be as estimated by the Company's petroleum
engineers, unless there is a Material Change as a result of such
acquisitions, dispositions or revisions, in which event the discounted
future net revenues utilized for purposes of this clause (i)(a) shall be
confirmed in writing by a nationally recognized firm of independent
petroleum engineers, (b) 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, (c) the Net Working
Capital on a date no earlier than the date of the Company's latest annual
or quarterly financial statements and (d) the greater of (1) the net book
value on a date no earlier than the date of the Company's latest annual or
quarterly financial statements and (2) 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
(ii) the sum of (a) minority interests, (b) any net gas balancing
liabilities of the Company and its Restricted Subsidiaries reflected in the
Company's latest audited financial statements, (c) to the extent included
in (i)(a) 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 (determined, if applicable, using the schedules
specified with respect thereto) and (d) 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 (i)(a) above, would be
necessary to fully satisfy the payment obligations of the Company and its
Restricted Subsidiaries with respect to Dollar-Denominated Production
Payments (determined, if applicable, using the schedules specified with
respect thereto).
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
amount by which the fair value of the Property 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
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incurred or assumed on such date), but excluding liabilities under the
Subsidiary Guaranty, of such Subsidiary Guarantor at such date.
"Affiliate" of any specified Person means any other Person (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person or (ii)
which beneficially owns or holds directly or indirectly 10% or more of any
class of the Voting Stock of such specified Person or of any Subsidiary of
such specified Person. For the purposes of this definition, "control," when
used with respect to any specified Person, means the power to direct the
management and policies of such Person directly or indirectly, whether through
the ownership of Voting Stock, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Sale" means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (collectively, "dispositions," and including,
without limitation, dispositions pursuant to any consolidation or merger) by
such Person or any of its Restricted Subsidiaries in any single transaction or
series of transactions of (i) shares of Capital Stock or other ownership
interests of another Person (including Capital Stock of Restricted
Subsidiaries and Unrestricted Subsidiaries) or (ii) any other Property of such
Person or any of its Restricted Subsidiaries; provided, however, that the term
"Asset Sale" shall not include: (a) the disposition of Permitted Short-Term
Investments, inventory, accounts receivable or other Property (excluding the
disposition of oil and gas in place and other interests in real property
unless made in connection with a Permitted Business Investment) in the
ordinary course of business; (b) the disposition of Property received in
settlement of debts owing to the Company or any Restricted Subsidiary as a
result of foreclosure, perfection or enforcement of any Lien or debt, which
debts were owing to the Company or any Restricted Subsidiary in the ordinary
course of business of the Company or such Restricted Subsidiary; (c) any
disposition that constitutes a Restricted Payment made in compliance with the
provisions of the Indenture described under "--Certain Covenants--Limitation
on Restricted Payments;" (d) when used with respect to the Company, any
disposition of all or substantially all of the Property of the Company
permitted pursuant to the provisions of the Indenture described under "--
Merger, Consolidation and Sale of Substantially All Assets;" (e) the
disposition of any Property by the Company or a Restricted Subsidiary to the
Company or a Wholly Owned Restricted Subsidiary; (f) the disposition of any
asset with a Fair Market Value of less than $1 million; or (g) any Production
Payment and Reserve Sale created, incurred, issued, assumed or guaranteed in
connection with the financing of, and within 60 days after the acquisition of,
the Property that is subject thereto.
"Assigned Restricted Subsidiary Indebtedness" means Indebtedness of a
Restricted Subsidiary to the Company that the Company has assigned to the
lenders under any Senior Credit Facility, as collateral securing Indebtedness
of the Company under such Senior Credit Facility.
"Average Life" means, with respect to any Indebtedness, at any date of
determination, the quotient obtained by dividing (i) the sum of the products
of (a) 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 (b) the
amount of each such principal payment by (ii) the sum of all such principal
payments.
"Capital Lease Obligation" means any obligation which is required to be
classified and accounted for as a capital lease obligation in accordance with
GAAP, and the amount of Indebtedness represented by such obligation shall be
the capitalized amount of such obligation determined in accordance with GAAP,
and the Stated Maturity thereof shall be the date of the last payment date of
rent or any other amount due in respect of such obligation. For purposes of
the provisions of the Indenture described under "--Certain Covenants--
Limitation on Liens," a Capital Lease Obligation shall be deemed to be secured
by a Lien on the Property being leased.
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"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however
designated) in such Person and any rights (other than debt securities
convertible into an equity interest), warrants or options to subscribe for or
to acquire an equity interest in such Person; provided, however, that "Capital
Stock" shall not include Redeemable Stock.
"Consolidated Interest Coverage Ratio" means, as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of (i) the aggregate amount
of EBITDA of the Company and its consolidated Restricted Subsidiaries for the
four full fiscal quarters immediately prior to the Transaction Date for which
financial statements are available to (ii) the aggregate Consolidated Interest
Expense of the Company and its Restricted Subsidiaries that is anticipated to
accrue during a period consisting of the fiscal quarter in which the
Transaction Date occurs and the three fiscal quarters immediately subsequent
thereto (based upon the pro forma amount and maturity of, and interest
payments in respect of, Indebtedness of the Company and its Restricted
Subsidiaries expected by the Company to be outstanding on the Transaction
Date), assuming for the purposes of this measurement the continuation of
market interest rates prevailing on the Transaction Date and base interest
rates in respect of floating interest rate obligations equal to the base
interest rates on such obligations in effect as of the Transaction Date;
provided, that if the Company or any of its Restricted Subsidiaries is a party
to any Interest Rate Protection Agreement which would have the effect of
changing the interest rate on any Indebtedness of the Company or any of its
Restricted Subsidiaries for such four quarter period (or a portion thereof),
the resulting rate shall be used for such four quarter period or portion
thereof; provided further that any Consolidated Interest Expense with respect
to Indebtedness Incurred or retired by the Company or any of its Restricted
Subsidiaries during the fiscal quarter in which the Transaction Date occurs
shall be calculated as if such Indebtedness was so Incurred or retired on the
first day of the fiscal quarter in which the Transaction Date occurs. In
addition, if since the beginning of the four full fiscal quarter period
preceding the Transaction Date, (a) the Company or any of its Restricted
Subsidiaries shall have engaged in any Asset Sale, EBITDA for such period
shall be reduced by an amount equal to the EBITDA (if positive), or increased
by an amount equal to the EBITDA (if negative), directly attributable to the
assets which are the subject of such Asset Sale for such period calculated on
a pro forma basis as if such Asset Sale and any related retirement of
Indebtedness had occurred on the first day of such period or (b) the Company
or any of its Restricted Subsidiaries shall have acquired any material assets,
EBITDA shall be calculated on a pro forma basis as if such asset acquisitions
had occurred on the first day of such four fiscal quarter period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, (i) the sum of (a) the aggregate amount of cash
and noncash interest expense (including capitalized interest) of such Person
and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP in respect of Indebtedness
(including, without limitation, (1) any amortization of debt discount, (2) net
costs associated with Interest Rate Protection Agreements (including any
amortization of discounts), (3) the interest portion of any deferred payment
obligation, (4) all accrued interest and (5) all commissions, discounts,
commitment fees, origination fees and other similar fees and charges owed with
respect to the Senior Credit Facilities and other Indebtedness) paid, accrued
or scheduled to be paid or accrued during such period; (b) Redeemable Stock
dividends of such Person (and of its Restricted Subsidiaries if paid to a
Person other than such Person or its Restricted Subsidiaries) declared and
payable other than in kind; (c) the portion of any rental obligation of such
Person or its Restricted Subsidiaries in respect of any Capital Lease
Obligation allocable to interest expense in accordance with GAAP; (d) the
portion of any rental obligation of such Person or its Restricted Subsidiaries
in respect of any Sale and Leaseback Transaction that is Indebtedness
allocable to interest expense (determined as if such obligation were treated
as a Capital Lease Obligation); and (e) to the extent any Indebtedness of any
other Person (other than Restricted Subsidiaries) is Guaranteed by such Person
or any of its Restricted
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Subsidiaries, the aggregate amount of interest paid, accrued or scheduled to
be paid or accrued by such other Person during such period attributable to any
such Indebtedness; less (ii) to the extent included in (i) above, amortization
or write-off of deferred financing costs of such Person and its Restricted
Subsidiaries during such period; in the case of both (i) and (ii) above, after
elimination of intercompany accounts among such Person and its Restricted
Subsidiaries and as determined in accordance with GAAP.
"Consolidated Net Income" of any Person means, for any period, the aggregate
net income (or net loss, as the case may be) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom, without
duplication, (i) items classified as extraordinary gains or losses net of tax
(less all fees and expenses relating thereto); (ii) any gain or loss, net of
taxes, on the sale or other disposition of assets (less all fees and expenses
relating thereto and including the Capital Stock of any other Person) (but in
no event shall this clause (ii) apply to the sale in the ordinary course of
business of oil, gas or other hydrocarbons produced or manufactured or other
personal property other than oil and gas in place); (iii) the net income of
any Subsidiary of such specified Person to the extent the transfer to that
Person of that income is restricted by contract or otherwise, except for any
cash dividends or cash distributions actually paid by such Subsidiary to such
Person during such period; (iv) the net income (or loss) of any other Person
in which such specified Person or any of its Restricted Subsidiaries has an
interest (which interest does not cause the net income of such other Person to
be consolidated with the net income of such specified Person in accordance
with GAAP or is an interest in a consolidated Unrestricted Subsidiary), except
to the extent of the amount of cash dividends or other cash distributions
actually paid to such Person or its Restricted Subsidiaries by such other
Person during such period; (v) the net income of any Person acquired by such
specified Person or any of its Restricted Subsidiaries in a pooling-of-
interests transaction for any period prior to the date of such acquisition;
(vi) any gain or loss, net of taxes, realized on the termination of any
employee pension benefit plan; (vii) any adjustments of a deferred tax
liability or asset pursuant to Statement of Financial Accounting Standards No.
109 which result from changes in enacted tax laws or rates; and (viii) the
cumulative effect of a change in accounting principles.
"Consolidated Net Worth" of any Person means the stockholders' equity of
such Person and its Restricted Subsidiaries, as determined on a consolidated
basis in accordance with GAAP, less (to the extent included in stockholders'
equity) amounts attributable to Redeemable Stock of such Person or its
Restricted Subsidiaries.
"Credit Agreement" means the Credit Agreement, dated June 23, 1994, as
amended from time to time, between the Company, The Wiser Oil Company of
Canada, NationsBank of Texas, N.A., as agent, and certain banks.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Designated Senior Indebtedness," when used with respect to the Company
means (i) any Senior Indebtedness of the Company under the Credit Agreement,
and (ii) any Senior Indebtedness of the Company which has, at the time of
determination, an aggregate principal amount outstanding of at least $10.0
million that is specifically designated in the instrument evidencing such
Senior Indebtedness and is designated in a notice delivered by the Company to
the holders or a Representative of the holders of such Senior Indebtedness and
the Trustee as "Designated Senior Indebtedness" of the Company. When used with
respect to a Subsidiary Guarantor, "Designated Senior Indebtedness" means (i)
any Assigned Restricted Subsidiary Indebtedness of such Subsidiary Guarantor,
(ii) any Indebtedness of such Subsidiary Guarantor under the Credit Agreement
or a guarantee thereof and (iii) any Senior Indebtedness of such Subsidiary
Guarantor which has, at the time of determination, an aggregate principal
amount outstanding of at least $10.0 million and that is
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specifically designated in the instrument evidencing such Senior Indebtedness
and is designated in a notice delivered by the Subsidiary Guarantor to the
holders or a Representative of the holders of such Senior Indebtedness and the
Trustee as "Designated Senior Indebtedness" of the Subsidiary Guarantor.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"EBITDA" means with respect to any Person for any period, the Consolidated
Net Income of such Person for such period, plus (i) the sum of, to the extent
reflected in the consolidated income statement of such Person and its
Restricted Subsidiaries for such period from which Consolidated Net Income is
determined and deducted in the determination of such Consolidated Net Income,
without duplication, (a) income tax expense (but excluding income tax expense
relating to sales or other disposition of assets (including the Capital Stock
of any other Person) the gains and losses from which are excluded in the
determination of such Consolidated Net Income), (b) Consolidated Interest
Expense, (c) depreciation and depletion expense, (d) amortization expense, (e)
exploration expense, and (f) any other noncash charges including, without
limitation, unrealized foreign exchange losses; less (ii) the sum of, to the
extent reflected in the consolidated income statement of such Person and its
Restricted Subsidiaries for such period from which Consolidated Net Income is
determined and added in the determination of such Consolidated Net Income,
without duplication (a) income tax recovery (but excluding income tax recovery
relating to sales or other dispositions of assets (excluding the Capital Stock
of any other Person) the gains and losses from which are included in the
determination of such Consolidated Net Income) and (b) unrealized foreign
exchange gains.
"Equity Offering" means a bona fide underwritten sale to the public of
Capital Stock of the Company pursuant to a registration statement (other than
a Form S-8 or any other form relating to securities issuable under any
employee benefit plan of the Company) that is declared effective by the SEC
following the Issue Date.
"Event of Default" has the meaning set forth under the caption "--Events of
Default and Notice."
"Exchanged Properties" means properties used or useful in the Oil and Gas
Business received by the Company or a Restricted Subsidiary in trade or as a
portion of the total consideration for other such properties.
"Exchange Rate Contract" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or any combination thereof, entered into for the
purpose of limiting or managing exchange rate risks.
"Fair Market Value" means, with respect to any assets to be transferred
pursuant to any Asset Sale or Sale and Leaseback Transaction or any non-cash
consideration or property transferred or received by any Person, the fair
market value of such consideration or property as determined in good faith by
(i) any officer of the Company if such fair market value is less than $5.0
million and (ii) the Board of Directors of the Company as evidenced by a
certified resolution delivered to the Trustee if such fair market value is
equal to or in excess of $5.0 million; provided that if such resolution
indicates that such fair market value is equal to or in excess of $15.0
million and such transaction involves any Affiliate of the Company (other than
a Restricted Subsidiary), such resolution shall be accompanied by the written
opinion of 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, to
the effect that such consideration or property is fair, from a financial point
of view, to such Person.
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"Foreign Subsidiary" means a Restricted Subsidiary (other than The Wiser Oil
Company of Canada or any successor thereto) that is formed in a jurisdiction
other than the United States or a State thereof or the District of Columbia,
that engages in the Oil and Gas Business exclusively outside the United States
of America and that is treated as a corporation or an association taxable as a
corporation for U.S. federal income tax purposes.
"GAAP" means United States generally accepted accounting principles as in
effect on the date of the Indenture, unless stated otherwise.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, and including, without limitation, any Lien on
the assets of such Person securing obligations to pay Indebtedness of the
primary obligor and any obligation of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
to purchase (or to advance or supply funds for the purchase or payment of) any
security for the payment of such Indebtedness, (ii) to purchase Property,
securities or services for the purpose of assuring the holder of such
Indebtedness of the payment of such Indebtedness, or (iii) to maintain working
capital, equity capital or other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such
Indebtedness (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have
meanings correlative to the foregoing); provided, however, that a Guarantee by
any Person shall not include (a) endorsements by such Person for collection or
deposit, in either case, in the ordinary course of business or (b) a
contractual commitment by one Person to invest in another Person for so long
as such Investment is reasonably expected to constitute a Permitted Investment
under clause (ii) of the definition of Permitted Investments.
"Holder" means the Person in whose name a Note is registered on the
Securities Register.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, Guarantee or become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or obligation on the balance sheet of such Person (and
"Incurrence", "Incurred", "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results in an obligation of such Person that exists at such time, and is not
theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed an Incurrence of such Indebtedness. For purposes of this definition,
Indebtedness of the Company or a Restricted Subsidiary held by a Wholly Owned
Subsidiary shall be deemed to be Incurred by the Company or such Restricted
Subsidiary in the event such Wholly Owned Subsidiary ceases to be a Wholly
Owned Subsidiary or in the event such Indebtedness is transferred to a Person
other than the Company or a Wholly Owned Subsidiary. For purposes of this
definition, any non-interest bearing or other discount Indebtedness shall be
deemed to have been incurred only on the date of original issue thereof.
"Indebtedness" means at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any Obligation of such Person for borrowed
money, (ii) any Obligation of such Person evidenced by bonds, debentures,
notes, Guarantees or other similar instruments, including, without limitation,
any such Obligations Incurred in connection with the acquisition of Property,
assets or businesses, (iii) any reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person, (iv) any Obligation of such Person
issued or assumed as the deferred purchase price of Property or services
(other than Trade Accounts Payable and other accrued current liabilities
incurred in the ordinary course of business), (v) any Capital Lease Obligation
of such Person, (vi) the maximum fixed redemption or repurchase price of
Redeemable
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Stock of such Person at the time of determination, (vii) any payment
obligation of such Person under Exchange Rate Contracts, Interest Rate
Protection Agreements or Oil and Gas Hedging Contracts at the time of
determination, (viii) any obligation to pay rent or other payment amounts of
such Person with respect to any Sale and Leaseback Transaction to which such
Person is a party and (ix) any obligation of the type referred to in clauses
(i) through (viii) of this paragraph of another Person and all dividends of
another Person the payment of which, in either case, such Person has
Guaranteed or is responsible or liable, directly or indirectly, as obligor,
Guarantor or otherwise; provided that Indebtedness shall not include
Production Payments and Reserve Sales. For purposes of this definition, the
maximum fixed repurchase price of any Redeemable Stock that does not have a
fixed repurchase price shall be calculated in accordance with the terms of
such Redeemable Stock as if such Redeemable Stock were repurchased on any date
on which Indebtedness shall be required to be determined pursuant to the
Indenture; provided, however, that if such Redeemable Stock is not then
permitted to be repurchased, the repurchase price shall be the book value of
such Redeemable Stock. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional Obligations
as described above and the maximum liability at such date in respect of any
contingent Obligations described above.
"Initial Subsidiary Guarantors" means Wiser Oil Delaware, Inc., a Delaware
corporation, The Wiser Marketing Company, a Delaware corporation, Wiser
Delaware LLC, a Delaware limited liability company, T.W.O.C., Inc., a Delaware
corporation, and The Wiser Oil Company of Canada, a Nova Scotia unlimited
liability company, and any successors thereto.
"Interest Rate Protection Agreement" means, with respect to any Person, any
interest rate swap agreement, forward rate agreement, interest rate cap or
collar agreement or other financial agreement or arrangement entered into for
the purpose of limiting or managing interest rate risks, to or under which
such Person is a party or otherwise obligated.
"Investment" means, with respect to any Person (i) any amount paid by such
Person, directly or indirectly, to any other Person for Capital Stock or other
Property of, or as a capital contribution to, any other Person or (ii) any
direct or indirect loan or advance to any other Person (other than accounts
receivable of such Person arising in the ordinary course of business);
provided, however, that Investments shall not include extensions of trade
credit on commercially reasonable terms in accordance with normal trade
practices and any increase in the equity ownership in any Person resulting
from retained earnings of such Person.
"Issue Date" means the date on which the Notes first were issued under the
Indenture.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest,
lien (statutory or other), charge, easement, encumbrance, preference, priority
or other security or similar agreement or preferential arrangement of any kind
or nature whatsoever on or with respect to such Property (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing). For purposes
of the provisions of the Indenture described under "--Certain Covenants--
Limitation on Liens," a Capital Lease Obligation shall be deemed to be secured
by a Lien on the property being leased.
"Liquid Securities" means securities (i) of an issuer that is not an
Affiliate of the Company, (ii) that are publicly traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market and (iii)
as to which the Company is not subject to any restrictions on sale or transfer
(including any volume restrictions under Rule 144 under the Securities Act or
any other restrictions imposed by the Securities Act) or as to which a
registration statement under the Securities Act covering the resale thereof is
in effect for as long as the securities are held; provided, that securities
meeting the requirements of clauses (i), (ii) and (iii) above shall be treated
as Liquid Securities from
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the date of receipt thereof until and only until the earlier of (x) the date
on which such securities are sold or exchanged for cash or Permitted Short-
Term Investments and (y) 120 days following the date of receipt of such
securities. If such securities are not sold or exchanged for cash or Permitted
Short-Term Investments within 120 days of receipt thereof, for purposes of
determining whether the transaction pursuant to which the Company or a
Restricted Subsidiary received the securities was in compliance with the
provisions of the Indenture described under "--Certain Covenants--Limitation
on Asset Sales," such securities shall be deemed not to have been Liquid
Securities at any time.
"Material Change" means an increase or decrease (except to the extent
resulting from changes in prices) of more than 30% during a fiscal quarter in
the estimated discounted future net revenues from proved oil and gas reserves
of the Company and its Restricted Subsidiaries, calculated in accordance with
clause (i)(a) 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 with respect to which the Company's estimate of the discounted future
net revenues from proved oil and gas reserves has been confirmed by
independent petroleum engineers and (ii) any dispositions of Properties during
such quarter that were disposed of in compliance with the provisions of the
Indenture described under "--Certain Covenants--Limitation on Asset Sales."
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Cash" from an Asset Sale means cash proceeds received
therefrom (including (i) any cash proceeds received by way of deferred payment
of principal pursuant to a note or installment receivable or otherwise, but
only as and when received and (ii) the Fair Market Value of Liquid Securities
and Permitted Short-Term Investments, and excluding (i) any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to such properties or assets and
(ii) except to the extent subsequently converted to cash, Liquid Securities or
Permitted Short-Term Investments within 240 days after such Asset Sale,
consideration constituting Exchanged Properties or consideration other than
Permitted Consideration), in each case net of (a) all legal, title and
recording expenses, commissions and other fees and expenses incurred, and all
federal, state, foreign and local taxes required to be paid or accrued as a
liability under GAAP as a consequence of such Asset Sale, (b) all payments
(which payments are made in a manner that results in the permanent reduction
in the balance of such Indebtedness and, if applicable, a permanent reduction
in any outstanding commitment for future incurrences of Indebtedness
thereunder) made on any Indebtedness (but specifically excluding Indebtedness
of the Company and its Restricted Subsidiaries assumed in connection with or
in anticipation of such Asset Sale) which is secured by any assets subject to
such Asset Sale, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Sale or by applicable law, be repaid out of the proceeds from such Asset
Sale, (c) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Sale and (d) the deduction of appropriate amounts to be provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated with
the assets disposed of in such Asset Sale and retained by the Company or any
Restricted Subsidiary after such Asset Sale (to the extent such reserves are
not subsequently reversed within 365 days after such Asset Sale); provided,
however, that if any consideration for an Asset Sale (which would otherwise
constitute Net Available Cash) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, such
consideration (or any portion thereof) shall become Net Available Cash only at
such time as it is released to such Person or its Restricted Subsidiaries from
escrow; and provided, further, however, that any Exchanged Properties and any
consideration other than Permitted Consideration received in connection with
an Asset Sale which is subsequently converted to cash, Liquid Securities or
Permitted Short-Term Investments within 240 days after such Asset Sale shall
be deemed to be Net Available Cash at such time and shall thereafter
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be applied in accordance with the provisions of the Indenture described under
"--Certain Covenants--Limitation on Asset Sales."
"Net Working Capital" means (i) all current assets of the Company and its
Restricted Subsidiaries, less (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.
"Obligation" means any principal, interest, premium, penalty, fee and any
other liability payable under the documentation governing any Indebtedness.
"Oil and Gas Business" means the business of exploiting, exploring for,
developing, acquiring, producing, processing, gathering, marketing, storing,
selling, hedging, swapping and transporting hydrocarbons and other related
energy businesses.
"Oil and Gas Hedging Contract" means, with respect to any Person, any
agreement or arrangement, or any combination thereof, financially tied to oil
and gas or other hydrocarbon prices, transportation or basis costs or
differentials, or similar factors, that is customary in the Oil and Gas
Business and is entered into for the purpose of limiting or managing risks
associated with fluctuations in such prices, costs, differentials or similar
factors.
"Oil and Gas Liens" means (i) Liens on any specific property or any interest
therein, construction thereon or improvement thereto to secure all or any part
of the costs incurred for surveying, exploration, drilling, extraction,
development, operation, production, construction, alteration, repair or
improvement of, in, under or on such property and the plugging and abandonment
of wells located thereon (it being understood that, in the case of oil and gas
producing properties, or any interest therein, costs incurred for
"development" shall include costs incurred for all facilities relating to such
properties or to projects, ventures or other arrangements of which such
properties form a part or which relate to such properties or interests); (ii)
Liens on an oil or gas producing property to secure obligations Incurred or
guarantees of obligations Incurred in connection with or necessarily
incidental to commitments for the purchase or sale of, or the transportation
or distribution of, the products derived from such property; (iii) Liens
arising under partnership agreements, oil and gas leases, overriding royalty
agreements, net profits agreements, production payment agreements, royalty
trust agreements, master limited partnership agreements, farm-out agreements,
division orders, contracts for the sale, purchase, exchange, transportation,
gathering or processing of oil, gas or other hydrocarbons, unitizations and
pooling designations, declarations, orders and agreements, development
agreements, operating agreements, production sales contracts, area of mutual
interest agreements, gas balancing or deferred production agreements,
injection, repressuring and recycling agreements, salt water or other disposal
agreements, seismic or geophysical permits or agreements, and other agreements
which are customary in the Oil and Gas Business, provided in all instances
that such Liens are limited to the assets that are the subject of the relevant
agreement; (iv) Liens arising in connection with Production Payments and
Reserve Sales; and (v) Liens on pipelines or pipeline facilities that arise by
operation of law.
"Pari Passu Indebtedness" means any Indebtedness of the Company (or a
Subsidiary Guarantor) that is pari passu in right of payment to the Notes (or
a Subsidiary Guaranty, as appropriate).
"Pari Passu Offer" means an offer by the Company or a Subsidiary Guarantor
to purchase all or a portion of Pari Passu Indebtedness to the extent required
by the indenture or other agreement or instrument pursuant to which such Pari
Passu Indebtedness was issued.
"Permitted Business Investments" means Investments and expenditures made in
the ordinary course of, and of a nature that is or shall have become customary
in, the Oil and Gas Business as a
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means of actively engaging therein through agreements, transactions, interests
or arrangements which permit one to share risks or costs, comply with
regulatory requirements regarding local ownership or satisfy other objectives
customarily achieved through the conduct of Oil and Gas Business jointly with
third parties, including, without limitation, (i) ownership interests in oil
and gas properties or gathering, transportation, processing, storage or
related systems and (ii) Investments and expenditures in the form of or
pursuant to operating agreements, processing agreements, farm-in agreements,
farm-out agreements, development agreements, area of mutual interest
agreements, unitization agreements, pooling arrangements, joint bidding
agreements, service contracts, joint venture agreements, partnership
agreements (whether general or limited), subscription agreements, stock
purchase agreements and other similar agreements with third parties (including
Unrestricted Subsidiaries).
"Permitted Consideration" has the meaning assigned to such term in "--
Certain Covenants --Limitation on Asset Sales."
"Permitted Hedging Agreements" means (i) Exchange Rate Contracts and Oil and
Gas Hedging Contracts to the extent entered into to limit or manage risks
incurred in the ordinary course of business and (ii) Interest Rate Protection
Agreements but only to the extent that the stated aggregate notional amount
thereunder does not exceed 100% of the aggregate principal amount of the
Indebtedness of the Company or a Restricted Subsidiary covered by such
Interest Rate Protection Agreements at the time such agreements were entered
into.
"Permitted Investments" means any and all of the following: (i) Permitted
Short-Term Investments; (ii) Investments in property, plant and equipment used
in the ordinary course of business and Permitted Business Investments; (iii)
Investments by any Restricted Subsidiary in the Company; (iv) Investments by
the Company or any Restricted Subsidiary in any Restricted Subsidiary; (v)
Investments by the Company or any Restricted Subsidiary in a Person where that
Person becomes a Restricted Subsidiary or transfers or assigns all of its
assets to the Company (including the acquisition from a third party of the
Capital Stock of a Restricted Subsidiary or any other Person) if such Person
or a Subsidiary of such Person will, as a result of the making of such
Investment and all other contemporaneous related transactions, become a
Restricted Subsidiary or be merged or consolidated with or transfer or convey
all or substantially all of its assets to the Company or a Restricted
Subsidiary; (vi) Investments in the form of securities received from Asset
Sales, provided that such Asset Sales are made in compliance with the
provisions of the Indenture described under "--Certain Covenants--Limitation
on Asset Sales;" (vii) Investments in negotiable instruments held for
collection, lease, utility and other similar deposits, and stock, obligations
or other securities received in settlement of debts (including, without
limitation, under any bankruptcy or other similar proceeding) owing to the
Company or any of its Restricted Subsidiaries as a result of foreclosure,
perfection or enforcement of any Liens or Indebtedness, in each of the
foregoing cases in the ordinary course of business of the Company or such
Restricted Subsidiary; (viii) Investments in the form of Permitted Hedging
Agreements of the Company and its Restricted Subsidiaries; (ix) relocation
allowances, advances and loans to officers, directors and employees of the
Company or any of its Restricted Subsidiaries in the ordinary course of
business, provided such items do not exceed in the aggregate $2.0 million at
any one time outstanding; and (x) Investments pursuant to any agreement or
obligation of the Company or any of its Restricted Subsidiaries as in effect
on the Issue Date (other than Investments described in clauses (i) through
(ix) above).
"Permitted Refinancing Indebtedness" means Indebtedness ("new Indebtedness")
Incurred in exchange for, or proceeds of which are used to refinance, other
Indebtedness ("old Indebtedness"), provided, however, that (i) such new
Indebtedness is in an aggregate principal amount not in excess of the sum of
(a) the aggregate principal amount then outstanding of the old Indebtedness
(or, if such old Indebtedness 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), and (b) an
amount necessary to pay any fees and expenses, including premiums related to
such exchange
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or refinancing, (ii) such new Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the old Indebtedness, (iii) such new Indebtedness
has an Average Life to Stated Maturity at the time such new Indebtedness is
Incurred that is equal to or greater than the Average Life to Stated Maturity
of the old Indebtedness at such time and (iv) such new Indebtedness is
subordinated in right of payment to Senior Indebtedness of the Company (or, if
applicable, Senior Indebtedness of a Subsidiary Guarantor) and the Notes (or,
if applicable, the Subsidiary Guaranties) to at least the same extent, if any,
as the old Indebtedness.
"Permitted Short-Term Investments" means (i) Investments in U.S. Government
Obligations maturing within one year of the date of acquisition thereof, (ii)
Investments in demand accounts, time deposit accounts, certificates of
deposit, bankers acceptances and money market deposits maturing within one
year of the date of acquisition thereof issued by a bank or trust company
which is organized under the laws of the United States of America or any State
thereof or the District of Columbia that is a member of the Federal Reserve
System having capital, surplus and undivided profits aggregating in excess of
$500.0 million and whose long-term indebtedness is rated "A" (or higher)
according to Moody's, (iii) Investments in demand accounts, time deposit
accounts, certificates of deposit, bankers acceptances and money market
deposits maturing within one year of the date of acquisition thereof issued by
a Canadian bank to which the Bank Act (Canada) applies having capital, surplus
and undivided profits aggregating in excess of U.S. $500.0 million, (iv)
Investments in deposits available for withdrawal on demand with any commercial
bank that is organized under the laws of any country in which the Company or
any Restricted Subsidiary maintains an office or is engaged in the Oil and Gas
Business, provided that (a) all such deposits have been made in such accounts
in the ordinary course of business and (b) such deposits do not at any one
time exceed $20.0 million in the aggregate, (v) repurchase and reverse
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) entered into with a bank
meeting the qualifications described in either clause (ii) or (iii), (vi)
Investments in commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America or any State thereof or the District of Columbia with a rating at the
time as of which any Investment therein is made of "P-1" (or higher) according
to Moody's or "A-1" (or higher) according to S&P and (vii) Investments in any
money market mutual fund having assets in excess of $250.0 million
substantially all of which consist of other obligations of the types described
in clauses (i), (ii), (v) and (vi) hereof.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, unlimited liability company, trust, estate,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks 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; provided, however, that
"Preferred Stock" shall not include Redeemable Stock.
"principal" of any Indebtedness (including the Notes) means the principal
amount of such Indebtedness plus the premium, if any, on such Indebtedness.
"Production Payments and Reserve Sales" means the grant or transfer by the
Company or a Restricted Subsidiary to any Person of a royalty, overriding
royalty, net profits interest, production payment (whether volumetric or
dollar denominated), partnership or other interest in oil and gas properties,
reserves or the right to receive all or a portion of the production or the
proceeds from the sale of production attributable to such properties where the
holder of such interest has recourse solely to such production or proceeds of
production, subject to the obligation of the grantor or transferor to operate
and maintain, or cause the subject interests to be operated and maintained, in
a reasonably
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prudent manner or other customary standard or subject to the obligation of the
grantor or transferor to indemnify for environmental, title or other matters
customary in the Oil and Gas Business.
"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 and other securities
issued by any other Person (but excluding Capital Stock or other securities
issued by such first mentioned Person).
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or otherwise (including on the
happening of an event), is or could become required to be redeemed for cash or
other Property or is or could become redeemable for cash or other Property at
the option of the holder thereof, in whole or in part, on or prior to the
first anniversary of the Stated Maturity of the Notes; or is or could become
exchangeable at the option of the holder thereof for Indebtedness at any time
in whole or in part, on or prior to the first anniversary of the Stated
Maturity of the Notes; provided, however, that Redeemable Stock shall not
include any security by virtue of the fact that it may be exchanged or
converted at the option of the holder for Capital Stock of the Company having
no preference as to dividends or liquidation over any other Capital Stock of
the Company.
"Representative" means the trustee, agent or representative expressly
authorized to act in such capacity, if any, for an issue of Senior
Indebtedness.
"Restricted Payment" means (i) a dividend or other distribution declared or
paid on the Capital Stock or Redeemable Stock of the Company or to the
Company's stockholders (other than dividends, distributions or payments made
solely in Capital Stock of the Company or in options, warrants or other rights
to purchase or acquire Capital Stock or Redeemable Stock), or declared and
paid to any Person other than the Company or any of its Restricted
Subsidiaries on the Capital Stock or Redeemable Stock of any Restricted
Subsidiary, (ii) a payment made by the Company or any of its Restricted
Subsidiaries (other than to the Company or any Restricted Subsidiary) to
purchase, redeem, acquire or retire any Capital Stock or Redeemable Stock or
any options, warrants or other rights to acquire such Capital Stock or
Redeemable Stock of the Company or of a Restricted Subsidiary, (iii) a payment
made by the Company or any of its Restricted Subsidiaries to redeem,
repurchase, defease or otherwise acquire or retire for value (including
pursuant to mandatory repurchase covenants), prior to any scheduled maturity,
scheduled sinking fund or scheduled mandatory redemption, any Pari Passu
Indebtedness or any Indebtedness of the Company which is subordinate (whether
pursuant to its terms or by operation of law) in right of payment to the Notes
except (a) to the extent Pari Passu Indebtedness may be purchased out of Net
Available Cash in compliance with the provisions of the Indenture described
under "--Limitation on Asset Sales," (b) a Pari Passu Offer, (c) to the extent
of Excess Proceeds remaining after compliance with the provisions of the
Indenture described under "--Certain Covenants--Limitation on Asset Sales,"
and to the extent required by the indenture or other agreement or instrument
pursuant to which any Subordinated Indebtedness was issued, an offer to
purchase such Subordinated Indebtedness upon a disposition of assets, and (d)
upon a "Change of Control" (even if such event is not a Change of Control
under the Indenture) to the extent required by the indenture or other
agreement or instrument pursuant to which any Pari Passu Indebtedness or
Subordinated Indebtedness was issued provided the Company is then in
compliance with the provisions of the Indenture described under "--Purchase at
the Option of Holders Upon a Change of Control," (iv) an Investment (other
than a Permitted Investment) by the Company or a Restricted Subsidiary in any
Person other than the Company or a Restricted Subsidiary, or (v) the sale or
issuance of Capital Stock of a Restricted Subsidiary to a Person other than
the Company or another Restricted Subsidiary if the result thereof is that
such Restricted Subsidiary shall cease to be a Restricted Subsidiary, in which
event the amount of such "Restricted Payment" shall be the Fair Market Value
of the remaining interest, if any, in such former Restricted Subsidiary held
by the Company and its other Restricted Subsidiaries.
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"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated an Unrestricted Subsidiary in the manner provided in the
covenant described under "--Certain Covenants--Restricted and Unrestricted
Subsidiaries."
"S&P " means Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies, Inc., and its successors.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement (excluding, however, any such arrangement
between such Person and a Wholly Owned Restricted Subsidiary of such Person or
between one or more Wholly Owned Restricted Subsidiaries of such Person)
pursuant to which Property is sold or transferred by such Person or a
Restricted Subsidiary of such Person and is thereafter leased back from the
purchaser or transferee thereof by such Person or one of its Restricted
Subsidiaries.
"Senior Credit Facilities" means collectively, one or more senior credit
facilities or commercial paper facilities with banks or other institutional
lenders (including, without limitation, the credit facility pursuant to the
Credit Agreement), together with any guaranties, security and related
documents, as all such credit facilities and documents may be amended,
supplemented, extended, increased, refinanced or replaced from time to time.
"Senior Indebtedness" when used with respect to the Company means the
Obligations of the Company with respect to Indebtedness of the Company
(including all Indebtedness under the Senior Credit Facilities), whether
outstanding on the date of the Indenture or hereafter created, incurred or
assumed, and any renewal, refunding, refinancing, replacement or extension
thereof, 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; provided that Senior Indebtedness of the Company shall
not include (i) Indebtedness of the Company to a Subsidiary of the Company,
(ii) amounts owed for goods, materials or services purchased in the ordinary
course of business, (iii) Indebtedness incurred in violation of the Indenture,
(iv) amounts payable or any other Indebtedness to employees of the Company or
any Subsidiary of the Company, (v) any liability for federal, state, local or
other taxes owed or owing by the Company, (vi) any Indebtedness of the Company
that, when incurred and without regard to any election under Section 1111(b)
of the United States Bankruptcy Code, was without recourse to the Company,
(vii) Pari Passu or Subordinated Indebtedness of the Company, (viii)
Indebtedness of the Company that is represented by Redeemable Stock, and
(ix) Indebtedness evidenced by the Notes. When used with respect to a
Subsidiary Guarantor, "Senior Indebtedness" means the Obligations of a
Subsidiary Guarantor with respect to Indebtedness (including all Indebtedness
under the Senior Credit Facilities) of such Subsidiary Guarantor, whether
outstanding on the date of the Indenture or hereafter created, incurred or
assumed, and any renewal, refunding, refinancing, replacement or extension
thereof, 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 Subsidiary Guaranties; provided that Senior Indebtedness of a
Subsidiary Guarantor shall not include (i) Indebtedness of such Subsidiary
Guarantor to the Company or a Subsidiary of the Company (other than Assigned
Restricted Subsidiary Indebtedness), (ii) amounts owed for goods, materials or
services purchased in the ordinary course of business, (iii) Indebtedness
incurred in violation of the Indenture, (iv) amounts payable or any other
Indebtedness to employees of the Company or any Subsidiary of the Company, (v)
any liability for federal, state, local or other taxes owed or owing by such
Subsidiary Guarantor, (vi) any Indebtedness of such Subsidiary Guarantor that,
when incurred and without regard to any election under Section 1111(b) of the
United States Bankruptcy Code, was without recourse to such Subsidiary
Guarantor, (vii) Pari Passu or Subordinated Indebtedness of such Subsidiary
Guarantor, (viii) Indebtedness of such Subsidiary Guarantor that is
represented by Redeemable Stock, and (ix) Indebtedness evidenced by the Notes
and the Subsidiary Guaranties.
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"Significant Subsidiary" means, at any date of determination, any Subsidiary
of a Person that, together with its Subsidiaries, (i) for the most recent
fiscal year of such Person, accounted for more than 5% of the consolidated
revenues of such Person and its Subsidiaries or (ii) as of the end of such
fiscal year, was the owner of more than 5% of the consolidated assets of such
Person and its Subsidiaries.
"Stated Maturity," when used with respect to any security or any installment
of principal thereof or interest thereon, means the date specified in such
security as the fixed date on which the principal of such security or such
installment of principal or interest is due and payable, including pursuant to
any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Indebtedness" means Indebtedness of the Company (or a
Subsidiary Guarantor) that is expressly subordinated in right of payment to
the Notes (or a Subsidiary Guaranty, as appropriate).
"Subsidiary" of a Person means (i) another Person which is a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned
or controlled by (a) the first Person, (b) the first Person and one or more of
its Subsidiaries or (c) one or more of the first Person's Subsidiaries or
(ii) another Person which is not a corporation (x) at least 50% of the
ownership interest of which and (y) the power to elect or direct the election
of a majority of the directors or other governing body of which are controlled
by Persons referred to in clause (a), (b) or (c) above.
"Subsidiary Guarantors" means (i) as of the Issue Date, the Initial
Subsidiary Guarantors, and (ii) thereafter, unless released from their
Subsidiary Guaranties as permitted by the Indenture, the Initial Subsidiary
Guarantors and any other Restricted Subsidiary that becomes a guarantor of the
Notes in compliance with the provisions of the Indenture and executes a
supplemental indenture agreeing to be bound by the terms of the Indenture.
"Subsidiary Guaranty" means an unconditional, unsecured senior subordinated
guaranty of the Notes given by any Restricted Subsidiary pursuant to the terms
of the Indenture.
"Trade Accounts Payable" means accounts payable or other obligations of the
Company or any Restricted Subsidiary to trade creditors created or assumed by
the Company or such Restricted Subsidiary in the ordinary course of business
in connection with the obtaining of goods or services.
"Unrestricted Subsidiary" means (i) each Subsidiary of the Company that the
Company has designated pursuant to the provision of the Indenture described
under "--Certain Covenants--Restricted and Unrestricted Subsidiaries" as an
Unrestricted Subsidiary and (ii) any Subsidiary of an Unrestricted Subsidiary.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the timely payment of which
its full faith and credit is pledged or (ii) 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 receipt; provided,
however, 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.
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Government Obligation or the specific payment of principal of or interest on
the U.S. Government Obligation evidenced by such depository receipt.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent (i) 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 or (ii) such
Restricted Subsidiary does substantially all of its business in one or more
foreign jurisdictions and is required by the applicable laws and regulations
of such foreign jurisdiction to be partially owned by the government of any
such foreign jurisdiction or individual or corporate citizens of such foreign
jurisdiction in order for such Restricted Subsidiary to transact business in
such foreign jurisdiction, provided that the Company, directly or indirectly,
owns the remaining Capital Stock or ownership interest in such Restricted
Subsidiary and, by contract or otherwise, controls the management and business
of such Restricted Subsidiary and derives the economic benefits of ownership
of such Restricted Subsidiary to substantially the same extent as if such
Restricted Subsidiary were a Wholly Owned Subsidiary.
"Wholly Owned Subsidiary" means any Subsidiary of the Company to the extent
(i) 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 the Company or (ii) such Subsidiary does
substantially all of its business in one or more foreign jurisdictions and is
required by the applicable laws and regulations of any such foreign
jurisdiction to be partially owned by the government of such foreign
jurisdiction or individual or corporate citizens of such foreign jurisdiction
in order for such Subsidiary to transact business in such foreign
jurisdiction, provided that the Company, directly or indirectly, owns the
remaining Capital Stock or ownership interest in such Subsidiary and, by
contract or otherwise, controls the management and business of such Subsidiary
and derives the economic benefits of ownership of such Subsidiary to
substantially the same extent as if such Subsidiary were a Wholly Owned
Subsidiary.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company and the Subsidiary Guarantors will
be discharged from all their obligations with respect to the Notes (except for
certain obligations to exchange or register the transfer of Notes, to replace
stolen, lost or mutilated Notes, to maintain paying agencies and to hold
moneys for payment in trust) upon the deposit in trust for the benefit of the
Holders of the Notes of money or U.S. Government Obligations, or a combination
thereof, which, through the payment of principal, premium, if any, and
interest in respect thereof in accordance with their terms, will provide money
in an amount sufficient to pay the principal of and any premium and interest
on the Notes at Stated Maturity thereof or on earlier redemption in accordance
with the terms of the Indenture and the Notes. Such defeasance or discharge
may occur only if, among other things, the Company has delivered to the
Trustee an Opinion of Counsel to the effect that (i) the Company has received
from, or there has been published by, the United States Internal Revenue
Service a ruling or (ii) since the date of the Indenture there has been a
change in the applicable federal income tax law, in either case to the effect
that Holders of the Notes will not recognize gain or loss for federal income
tax purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the
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same amount, in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge were not to occur; and that the
resulting trust will not be an "Investment Company" within the meaning of the
Investment Company Act of 1940 unless such trust is qualified thereunder or
exempt from regulation thereunder.
The Indenture provides that if the Company takes certain actions described
below, it may omit to comply with certain covenants, including those described
under "--Purchase at the Option of Holders Upon a Change of Control," "--
Certain Covenants" and in clauses (d) and (e) under the first paragraph of "--
Merger, Consolidation and Sale of Substantially All Assets," and the
occurrence of certain Events of Default, which are described below in clause
(iii) (with respect to such covenants) and clauses (iv) and (v) under "--
Events of Default and Notice" will be deemed not to be or result in an Event
of Default. The Company, in order to exercise such option, will be required to
deposit, in trust for the benefit of the Holders of the Notes, money or U.S.
Government Obligations, or a combination thereof, which, through the payment
of principal, premium, if any, and interest in respect thereof in accordance
with their terms, will provide money in an amount sufficient to pay the
principal of and any premium and interest on the Notes at Stated Maturity
thereof or on earlier redemption in accordance with the terms of the Indenture
and the Notes. The Company will also be required, among other things, to
deliver to the Trustee an Opinion of Counsel to the effect that Holders of the
Notes will not recognize gain or loss for federal income tax purposes as a
result of such deposit and defeasance of certain obligations and will be
subject to federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such deposit and defeasance were
not to occur; and that the resulting trust will not be an "Investment Company"
within the meaning of the Investment Company Act of 1940 unless such trust is
qualified thereunder or exempt from regulation thereunder. If the Company were
to exercise this option and the Notes were declared due and payable because of
the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations so deposited in trust would be sufficient to pay
amounts due on the Notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the Notes upon any acceleration resulting
from such Event of Default. In such case, the Company would remain liable for
such payments.
EVENTS OF DEFAULT AND NOTICE
The following are summaries of Events of Default under the Indenture with
respect to the Notes: (i) failure to pay any interest on the Notes when due,
continued for 30 days; (ii) failure to pay principal of (or premium, if any,
on) the Notes when due; (iii) failure to perform any other covenant of the
Company or any Subsidiary Guarantor in the Indenture, continued for 60 days
after written notice as provided in the Indenture; (iv) 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 (whether resulting from maturity, acceleration, mandatory
redemption or otherwise), 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
$5.0 million; (v) one or more final judgments or orders by a court of
competent jurisdiction are entered against the Company or any Restricted
Subsidiary in an uninsured or unindemnified aggregate amount outstanding at
any time in excess of $5.0 million and such judgments or orders are not
discharged, waived, stayed, satisfied or bonded for a period of 60 consecutive
days; (vi) certain events of bankruptcy, insolvency or reorganization with
respect to the Company, or any Restricted Subsidiary that, together with its
Subsidiaries, (a) accounted for more than 5% of the consolidated revenues of
the Company and its Restricted Subsidiaries, taken as a whole, for the most
recently completed fiscal year of the Company, or (b) was the owner of more
than 5% of the consolidated assets of the Company and its Restricted
Subsidiaries, taken as a whole, at the end of such fiscal year, all as shown
in the case of (a) and (b) on the consolidated financial statements of the
Company and its Restricted Subsidiaries for such fiscal year; or (vii) a
Subsidiary Guaranty ceases to be in full force and effect
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(other than in accordance with the terms of the Indenture and such Subsidiary
Guaranty) or a Subsidiary Guarantor denies or disaffirms its obligations under
its Subsidiary Guaranty.
The Indenture provides that if an Event of Default (other than an Event of
Default described in clause (vi) above) with respect to the Notes at the time
outstanding shall occur and be continuing, either the Trustee or the Holders
of at least 25% in aggregate principal amount of the outstanding Notes by
notice as provided in the Indenture may declare the principal amount of the
Notes to be due and payable immediately. If an Event of Default described in
clause (vi) above with respect to the Notes at the time outstanding shall
occur, the principal amount of all the Notes will automatically, and without
any action by the Trustee or any Holder, become immediately due and payable.
After any such acceleration, but before a judgment or decree based on
acceleration, the Holders of at least a majority in aggregate principal amount
of the outstanding Notes may, under certain circumstances, rescind and annul
such acceleration if all Events of Default, other than the nonpayment of
accelerated principal (or other specified amount), have been cured or waived
as provided in the Indenture.
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 will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Holders of the
Notes, unless such Holders shall have offered to the Trustee reasonable
indemnity. Subject to such provisions for the indemnification of the Trustee,
the Holders of at least a majority in aggregate principal amount of the
outstanding Notes will 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 with respect to the
Notes.
No Holder of Notes will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or a trustee,
or for any other remedy thereunder, unless (i) such Holder has previously
given to the Trustee written notice of a continuing Event of Default with
respect to the Notes, (ii) the Holders of at least 25% in aggregate principal
amount of the outstanding Notes have made written request, and such Holder or
Holders have offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee and (iii) the Trustee has failed to institute such
proceeding and has not received from the Holders of at least a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request, within 60 days after such notice, request and offer.
However, such limitations do not apply to a suit instituted by a Holder of
Notes for the enforcement of payment of the principal of or any premium or
interest on such Notes on or after the applicable due date specified in such
Notes.
MODIFICATION OF THE INDENTURE; WAIVER
The Indenture provides that modifications and amendments of the Indenture
may be made by the Company, the Subsidiary Guarantors and the Trustee without
the consent of any Holders of Notes in certain limited circumstances,
including (i) to cure any ambiguity, omission, defect or inconsistency, (ii)
to provide for the assumption of the obligations of the Company under the
Indenture upon the merger, consolidation or sale or other disposition of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole and certain other events specified in the
provisions of the Indenture described under "--Merger, Consolidation and Sale
of Substantially All Assets," (iii) to provide for uncertificated Notes in
addition to or in place of certificated Notes, (iv) to comply with any
requirement of the SEC in order to effect or maintain the qualification of the
Indenture under the 1939 Act, (v) to make any change that does not adversely
affect the rights of any Holder of Notes in any material respect, (vi) to add
or remove Subsidiary Guarantors pursuant to the procedure set forth in the
Indenture and (vii) certain other modifications and amendments as set forth in
the Indenture.
The Indenture contains provisions permitting the Company, the Subsidiary
Guarantors and the Trustee, with the written consent of the Holders of not
less than a majority in aggregate principal
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amount of the outstanding Notes, to execute supplemental indentures or
amendments adding any provisions to or changing or eliminating any of the
provisions of the Indenture or modifying the rights of the Holders of the
Notes, except that no such supplemental indenture, amendment or waiver may,
without the consent of all the Holders of outstanding Notes, among other
things, (i) reduce the principal amount of Notes whose Holders must consent to
an amendment or waiver, (ii) reduce the rate of or change the time for payment
of interest on any Notes, (iii) change the currency in which any amount due in
respect of the Notes is payable, (iv) reduce the principal of or any premium
on or change the Stated Maturity of any Notes or alter the redemption or
repurchase provisions with respect thereto, (v) reduce the relative ranking of
any Notes, (vi) release any security that may have been granted to the Trustee
in respect of the Notes (except as contemplated in the documents under which
such security was granted to the Trustee) or (vii) make certain other
significant amendments or modifications as specified in the Indenture.
The Holders of at least a majority in principal amount of the outstanding
Notes may waive compliance by the Company with certain restrictive provisions
of the Indenture. The Holders of at least a majority in principal amount of
the outstanding Notes may waive any past default under the Indenture, except a
default in the payment of principal, premium or interest and certain covenants
and provisions of the Indenture which cannot be amended without the consent of
the Holders of each outstanding Note.
NOTICES
Notices to Holders of the Notes will be given by mail to the addresses of
such Holders as they may appear in the Security Register.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance with
the internal laws of the State of New York without reference to principles of
conflicts of law.
TRUSTEE
Texas Commerce Bank National Association is the initial Trustee under the
Indenture. The Trustee maintains normal banking relationships with the Company
and its Subsidiaries and may perform certain services for and transact other
business with the Company and its Subsidiaries from time to time in the
ordinary course of business. Texas Commerce Bank National Association is also
serving as the Exchange Agent for the Exchange Offer.
DESCRIPTION OF THE OUTSTANDING NOTES
The terms of the Outstanding Notes are identical in all material respects to
the Exchange Notes, except that the Outstanding Notes have not been registered
under the Securities Act, are subject to certain restrictions on transfer and
are entitled to certain registration rights under the Registration Agreement
(which rights terminate upon the consummation of the Exchange Offer, except
under limited circumstances) (see "Description of the Exchange Notes--
Registration Agreement"). In addition, the Outstanding Notes provide that if
(i) by July 21, 1997, neither an exchange offer registration statement nor a
resale shelf registration statement has been filed, (ii) by September 18,
1997, neither an exchange offer registration statement has been declared
effective nor a resale shelf registration statement has been filed, (iii) by
October 20, 1997, neither an exchange offer has been consummated nor a resale
shelf registration statement has been declared effective or (iv) either the
exchange offer registration statement or the resale shelf registration
statement has been declared effective and such registration statement ceases
to be effective or usable (subject to certain
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exceptions) in connection with resales of Outstanding Notes during periods
specified in the Registration Agreement (each such event referred to in
clauses (i) through (iv), a "Registration Default"), interest ("Special
Interest") will accrue on the Outstanding Notes (in addition to the stated
interest on the Outstanding Notes) from and including the date on which any
such Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. Special Interest will accrue at a rate
of 0.5% per annum during the 90-day period immediately following the
occurrence of any Registration Default and shall increase by 0.25% per annum
with respect to each subsequent 90-day period, but in no event shall such rate
exceed 1.50% per annum. The Exchange Notes are not entitled to any such
Special Interest (subject to certain limited exceptions). The Outstanding
Notes and the Exchange Notes will constitute a single series of debt
securities under the Indenture. See "Description of the Exchange Notes."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
consequences generally applicable to a holder that exchanges Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer, but does not purport to be
a complete analysis of all the potential tax considerations relating thereto.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), existing, temporary and proposed Treasury Regulations, Internal
Revenue Service ("IRS") rulings and judicial decisions now in effect, all of
which are subject to change (possibly with retroactive effect) or different
interpretations. This summary deals (i) only with holders ("Holders") that
hold Outstanding Notes and will hold Exchange Notes received therefor as
"capital assets" (within the meaning of Section 1221 of the Code) and (ii)
primarily with Holders that are citizens or residents of the United States, or
any state thereof, or a corporation or other entity created or organized under
the laws of the United States, or any political subdivision thereof, an estate
the income of which is subject to United States federal income tax regardless
of source or that is otherwise subject to United States federal income tax on
a net income basis in respect of the Notes, or a trust whose administration is
subject to the primary supervision of a United States court and which has one
or more United States fiduciaries who have the authority to control all
substantial decisions of the trust ("U.S. Holders"). This summary does not
address tax considerations arising under the laws of any foreign, state or
local jurisdiction or applicable to investors that may be subject to special
tax rules, such as banks, tax-exempt organizations, insurance companies,
dealers in securities or currencies or persons that will hold Notes as a
position in a hedging transaction, "straddle" or "conversion transaction" or
other integrated investment transaction for tax purposes. The Company has not
sought any ruling from the IRS with respect to the statements made and the
conclusions reached in the following summary, and there can be no assurance
that the IRS will agree with such statements and conclusions.
INVESTORS CONSIDERING THE EXCHANGE OF OUTSTANDING NOTES FOR EXCHANGE NOTES
PURSUANT TO THE EXCHANGE OFFER SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR PARTICIPATION
IN THE EXCHANGE OFFER AND THEIR OWNERSHIP AND DISPOSITION OF THE EXCHANGE
NOTES, AND THE EFFECT THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX
CONSEQUENCES.
THE EXCHANGE OFFER
Pursuant to recently issued Treasury Regulations, the exchange of
Outstanding Notes for Exchange Notes pursuant to the Exchange Offer should not
constitute a significant modification of the terms of the Notes and,
accordingly, such exchange should not be treated as a taxable event for
federal income tax purposes. Therefore, such exchange should have no federal
income tax consequences to U.S. Holders of Outstanding Notes, and each U.S.
Holder of Exchange Notes will
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continue to be required to include interest on the Exchange Notes in its gross
income in accordance with its method of accounting for federal income tax
purposes.
PAYMENT OF INTEREST AND SPECIAL INTEREST
Interest on an Outstanding Note or Exchange Note generally will be
includable in the income of a U.S. Holder as ordinary income at the time such
interest is received or accrued, in accordance with such U.S. Holder's method
of accounting for United States federal income tax purposes. The Outstanding
Notes were treated by the Company as issued without original issue discount
("OID") within the meaning of the Code. Had the Company failed to effect the
Exchange Offer on a timely basis, Special Interest would have accrued on the
Outstanding Notes. Because the Company determined that, when the Outstanding
Notes were issued, there was only a remote possibility that events would occur
which would cause the Special Interest to accrue on the Outstanding Notes, the
Company determined that the Special Interest should not be taken into account
in concluding that the Outstanding Notes were issued without OID.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Subject to the discussion of the Exchange Offer above, upon the sale,
exchange or redemption of an Outstanding Note or Exchange Note, a U.S. Holder
generally will recognize capital gain or loss equal to the difference between
(i) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent such amount
is attributable to accrued interest income or market discount not previously
included in income which is taxable as ordinary income) and (ii) such U.S.
Holder's adjusted tax basis in the Outstanding Note or Exchange Note. A U.S.
Holder's adjusted tax basis in an Outstanding Note or Exchange Note generally
will equal the cost of the Outstanding Note or Exchange Note to such U.S.
Holder increased by the amount of interest income on the Outstanding Note or
Exchange Note previously taken into income by the U.S. Holder but not yet
received by the U.S. Holder and by the amount of any market discount
previously taken into income by the U.S. Holder, and reduced by the amount of
any bond premium amortized by the U.S. Holder with respect to the Outstanding
Notes or Exchange Notes and by any principal payments on the Outstanding Notes
or Exchange Notes. Gain or loss realized by a U.S. Holder on the sale,
exchange, redemption or other disposition of an Outstanding Note or an
Exchange Note generally will be long-term capital gain or loss if the U.S.
Holder's holding period in the Outstanding Note or Exchange Note is more than
one year at the time of disposition (subject to the market discount rules
discussed below).
AMORTIZABLE BOND PREMIUM
Generally, the excess of a U.S. Holder's tax basis in an Outstanding Note or
Exchange Note over the amount payable at maturity is bond premium that the
U.S. Holder may elect to amortize under Section 171 of the Code on a yield to
maturity basis over the period from the U.S. Holder's acquisition date to the
maturity date of the Outstanding Note or Exchange Note. The amortizable bond
premium is treated as an offset to interest income on the Outstanding Note or
Exchange Note for United States federal income tax purposes. A U.S. Holder who
elects to amortize bond premium must reduce its tax basis in the Outstanding
Note or Exchange Note by the deductions allowable for amortizable bond
premium. An election to amortize bond premium is revocable only with the
consent of the IRS and applies to all obligations owned or acquired by the
U.S. Holder on or after the first day of the taxable year to which the
election applies.
An Outstanding Note or Exchange Note may be called or submitted for
redemption at a premium prior to maturity. See "Description of the Exchange
Notes--Optional Redemption." An earlier call date is treated as the maturity
date of the Outstanding Note or Exchange Note and the amount of bond premium
is determined by treating the amount payable on such call date as the amount
payable at
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maturity, if such a calculation produces a smaller bond premium than the
method described in the preceding paragraph. If a U.S. Holder is required to
amortize and deduct the bond premium by reference to a certain call date, the
Outstanding Note or Exchange Note will be treated as maturing on that date for
the amount then payable. If the Outstanding Note or Exchange Note is not
redeemed on that call date, the Outstanding Note or Exchange Note will be
treated as reissued on that date for the amount of the call price on that
date. If an Outstanding Note or Exchange Note purchased at a premium is
redeemed prior to its maturity, a U.S. Holder who has elected to deduct the
bond premium may be permitted to deduct any remaining unamortized bond premium
as an ordinary loss in the taxable year of the redemption.
MARKET DISCOUNT
The resale of Outstanding Notes or Exchange Notes may be affected by the
market discount provisions of the Code. A U.S. Holder has market discount if
an Outstanding Note or Exchange Note is purchased (other than at original
issue) at an amount below the stated redemption price at maturity of the
Outstanding Note or Exchange Note. A de minimis amount of market discount is
ignored. A U.S. Holder of an Outstanding Note or Exchange Note with market
discount must either elect to include market discount in income as it accrues
or treat a portion of the gain recognized on the disposition or retirement of
the Outstanding Note or Exchange Note as ordinary income. The amount of gain
treated as ordinary income would equal the lesser of (i) the gain recognized
(or the appreciation, in the case of a nontaxable transaction such as a gift)
or (ii) the portion of the market discount that accrued on a ratable basis
(or, if elected, on a constant interest rate basis) while the Outstanding Note
or Exchange Note was held by the U.S. Holder.
A U.S. Holder who acquires an Outstanding Note or Exchange Note at a market
discount also may be required to defer a portion of any interest expense that
otherwise may be deductible on any indebtedness incurred or maintained to
purchase or carry such Outstanding Note or Exchange Note until the U.S. Holder
disposes of the Outstanding Note or Exchange Note in a taxable transaction.
Moreover, to the extent of any accrued market discount on such Outstanding
Note or Exchange Note, any partial principal payment with respect to an
Outstanding Note or Exchange Note will be includible as ordinary income upon
receipt, as will the fair market value of the Outstanding Note or Exchange
Note on certain otherwise non-taxable transfers (such as gifts).
A U.S. Holder of Outstanding Notes or Exchange Notes acquired at a market
discount may elect for United States federal income tax purposes to include
market discount in gross income as the discount accrues, either on a straight-
line basis or on a constant interest rate basis. This current inclusion
election, once made, applies to all market discount obligations acquired by
the U.S. Holder on or after the first day of the first taxable year to which
the election applies, and may not be revoked without the consent of the IRS.
If a U.S. Holder of Outstanding Notes or Exchange Notes makes such an
election, the foregoing rules with respect to the recognition of ordinary
income on sales and other dispositions of such debt instruments and on any
partial principal payment with respect to the Outstanding Notes or Exchange
Notes, and the deferral of interest deductions on indebtedness incurred or
maintained to purchase or carry such debt instruments, would not apply.
NON-U.S. HOLDERS
Under present United States federal income and estate tax law and subject to
the discussion of backup withholding below:
(a) Payments of interest on the Outstanding Notes or the Exchange Notes
by the Company or any agent of the Company to any holder of an Outstanding
Note or an Exchange Note that is not a U.S. Holder (a "Non-U.S. Holder")
will not be subject to United States federal withholding tax, provided that
such interest income is not effectively connected with a United States
trade or business of the Non-U.S. Holder and provided that (i) the Non-U.S.
Holder does not actually or
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constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote; (ii) the Non-U.S. Holder
is not a controlled foreign corporation that is related to the Company
through stock ownership; (iii) either (A) the beneficial owner of the
Outstanding Notes or the Exchange Notes certifies (by submitting to the
Company or its agent a Form W-8 (or a suitable substitute form)) in
compliance with applicable laws and regulations to the Company or its
agent, under penalties of perjury, that it is not a "United States person"
as defined in the Code and provides its name and address or (B) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
(a "financial institution") holds the Outstanding Notes on behalf of the
beneficial owner and provides a statement to the Company or its agent in
which it certifies that a Form W-8 (or a suitable substitute form) has been
received from the beneficial owner by it or by a financial institution
between it and the beneficial owner and furnishes the payor with a copy
thereof; and (iv) the Non-U.S. Holder is not a bank which acquired the
Outstanding Notes or Exchange Notes in consideration for an extension of
credit made pursuant to a loan agreement entered into the ordinary course
of business. A Non-U.S. Holder that is not exempt from tax under these
rules will be subject to United States federal income tax withholding at a
rate of 30% unless the interest is effectively connected with the conduct
of a United States trade or business, in which case the interest will be
subject to the United States federal income tax on net income that applies
to United States persons generally. Non-U.S. Holders should consult
applicable income tax treaties, which may include different rules.
(b) A Non-U.S. Holder will generally not be subject to United States
federal withholding tax on gain realized on the sale, exchange or
redemption of an Outstanding Note or an Exchange Note unless (i) the gain
is effectively connected with a United States trade or business of the Non-
U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an individual,
such Holder is present in the United States for a period or periods
aggregating 183 days or more during the taxable year of the disposition or
(iii) the Holder is subject to tax pursuant to the provisions of the Code
applicable to certain United States expatriates. If the Company is a
"United States real property holding corporation" within the meaning of the
Code, a Non-U.S. Holder may be subject to United States federal income tax
with respect to gain realized on the disposition, which tax may be required
to be withheld. The amount withheld in accordance with these rules will be
creditable against the Non-U.S. Holder's United States federal income tax
liability and may entitle the Non-U.S. Holder to a refund upon furnishing
the required information to the IRS. Non-U.S. Holders should consult
applicable income tax treaties, which may provide different rules.
(c) An Outstanding Note or an Exchange Note held by an individual who at
the time of death is not a citizen or resident of the United States will
not be subject to United States federal estate tax as a result of such
individual's death if, at the time of such death, the individual did not
actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote and the
income on the Outstanding Notes or the Exchange Notes would not have been
effectively connected with the conduct of a trade or business by the
individual in the United States.
Recently proposed Treasury regulations that would be effective January 1,
1998, provide for several alternative methods for Non-U.S. Holders or
"qualified intermediaries" who hold the Outstanding Notes or the Exchange
Notes on behalf of Non-U.S. Holders to obtain an exemption from withholding on
interest payments. The proposed Treasury regulations also would require, in
the case of Outstanding Notes or Exchange Notes held by a foreign partnership,
that (i) the certification described in clause (a) (iii) of the preceding
paragraph be provided by the partners rather than by the foreign partnership
and (ii) the partnership provide certain information to the payor, including a
United States taxpayer identification number. A look-through rule would apply
in the case of tiered partnerships. There can be no assurance as to whether
the proposed Treasury regulations will be adopted or as to the provisions that
they will include if and when adopted in temporary or final form.
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Except to the extent that an applicable treaty otherwise provides, a Non-
U.S. Holder generally will be taxed in the same manner as a U.S. Holder with
respect to interest if the interest income is effectively connected with a
United States trade or business of the Non-U.S. Holder. Effectively connected
interest received by a corporate Non-U.S. Holder may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
(or, if applicable, a lower treaty rate). Even through such effectively
connected interest is subject to income tax, and may be subject to the branch
profits tax, it is not subject to withholding tax if the Non-U.S. Holder
delivers a properly executed IRS Form 4224 to the payor.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements may apply to principal and
interest payments on an Outstanding Note or Exchange Note and to payments of
the proceeds of the sale of an Outstanding Note or Exchange Note. A 31% backup
withholding tax may apply to such payments unless the Holder (i) is a
corporation, Non-U.S. Holder or comes within certain other exempt categories
and, when required, demonstrates its exemption, or (ii) provides a correct
taxpayer identification number, certifies as to no loss of exemption from
backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. A Holder of an Outstanding Note or Exchange Note who
does not provide the Company with the Holder's correct taxpayer identification
number may be subject to penalties imposed by the IRS. Any amounts withheld
under the backup withholding rules from a payment to a Holder will be allowed
as a credit against such Holder's United States federal income tax, provided
that the required information is furnished to the IRS.
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PLAN OF DISTRIBUTION
Based on interpretations of the staff of the Division of Corporation Finance
of the SEC set forth in no-action letters issued to third parties, the Company
believes that, except as described below, Exchange Notes issued pursuant to
the Exchange Offer may be offered for resale, resold and otherwise transferred
by the respective holders thereof without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that (i) such Exchange Notes are acquired in the ordinary course of
such holder's business and (ii) such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
of the Exchange Notes. A holder of Outstanding Notes that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act or that is
a broker-dealer that purchased Outstanding Notes from the Company to resell
pursuant to an exemption from registration under the Securities Act (a) cannot
rely on such interpretations by the staff of the Division of Corporation
Finance of the SEC, (b) will not be permitted or entitled to tender such
Outstanding Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Outstanding Notes unless
such sale or transfer is made pursuant to an exemption from such requirements.
In addition, any holder who tenders Outstanding Notes in the Exchange Offer
with the intention or for the purpose of participating in a distribution of
the Exchange Notes cannot rely on such interpretations by the staff of the
Division of Corporation Finance of the SEC and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing selling security
holders information required by Item 507 of Regulation S-K under the
Securities Act. To date, the staff of the Division of Corporation Finance of
the SEC has taken the position that a broker-dealer that has acquired
securities in exchange for securities that were acquired by such broker-dealer
as a result of market-making activities or other trading activities may
fulfill the prospectus delivery requirements with the prospectus contained in
an exchange offer registration statement.
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make
certain representations to the Company set forth in "The Exchange Offer--
Acceptance for Exchange and Issuance of Exchange Notes."
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such Exchange Notes. This Prospectus may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired as a result of market-making
activities or other trading activities. Subject to certain provisions set
forth in the Registration Agreement, the Company has agreed that, for a period
of up to 90 days after the consummation of the Exchange Offer, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Risk Factors--Lack of Public Market" and "The Exchange
Offer--Resales of Exchange Notes."
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
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be an "underwriter" within the meaning of the Securities Act and any profit
from any such resale of Exchange Notes and any commissions or concessions
received by any such person may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Subject to certain provisions set forth in the Registration Agreement, for a
period of 90 days after the date the Exchange Offer is consummated, the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. The Company has
agreed to pay the expenses incident to the Exchange Offer, other than any
discounts or commissions incurred upon the sale of the Notes. The Company will
indemnify each Participating Broker-Dealer selling Exchange Notes during a
period not to exceed 90 days after the consummation of the Exchange Offer
against certain liabilities, including liabilities under the Securities Act.
The Company has agreed with the Initial Purchasers not to offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or announce
the offering of, any debt securities issued or guaranteed by the Company
(other than the Notes) for a period expiring on October 18, 1997, without the
prior written consent of Salomon Brothers Inc.
LEGAL MATTERS
The validity of the Exchange Notes issued pursuant to the Exchange Offer
will be passed upon for the Company by Thompson & Knight, A Professional
Corporation, Dallas, Texas.
EXPERTS
The Company's audited Consolidated Financial Statements at December 31,
1996, 1995 and 1994, included in this Prospectus have been audited by Arthur
Andersen LLP, independent auditors, as stated in their report appearing
herein.
The information set forth in this Prospectus relating to the Company's
proved reserves, estimated future net revenues and Present Values is taken
from the respective reports of DeGolyer and MacNaughton (with respect to the
Company's United States properties) and Gilbert Lausten Jung Associates Ltd.
(with respect to the Company's Canadian properties), each of which is a firm
of independent petroleum engineers.
AVAILABLE INFORMATION
The Company is currently subject to the periodic reporting and other
informational requirements of the Exchange Act and in accordance therewith
files reports, proxy statements and other information with the SEC. Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities of the SEC, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, as well as at the following
Regional Offices: Seven World Trade Center, Suite 1300, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the SEC
by mail at prescribed rates. Requests should be directed to the SEC's Public
Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC also maintains a website at http://www.sec.gov
that contains reports, proxy statements and other information. The Company's
common stock is listed on the New York Stock Exchange. Reports, proxy and
information statements
125
<PAGE>
and other information relating to the Company can be inspected at the offices
of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
In addition, for so long as any of the Outstanding Notes remains outstanding,
the Company and the Subsidiary Guarantors have agreed to make available to any
prospective purchaser of the Outstanding Notes or beneficial owner of the
Outstanding Notes in connection with any sale thereof the information required
by Rule 144A(d)(4) under the Securities Act. Any such request should be
directed to The Wiser Oil Company, 8115 Preston Road, Suite 400, Dallas, Texas
75225, Attention: Corporate Secretary, Telephone (214) 265-0080.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Company and the Initial Subsidiary
Guarantors with the SEC under the Securities Act. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC, and reference is hereby made to the Registration Statement and to the
exhibits relating thereto for further information with respect to the Company
and the Notes. Any statements contained herein concerning the provisions of
any document are not necessarily complete, and, in each instance, reference is
made to a copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the SEC. Each such statement is qualified in
its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1996, Quarterly Report on Form 10-Q for the quarter ended March 31, 1997,
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, Current
Report on Form 8-K filed with the SEC on May 28, 1997 (Date of Event: May 22,
1997) and definitive Proxy Statement relating to its 1997 annual meeting of
stockholders are incorporated by reference in this Prospectus. All documents
filed by the Company with the SEC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the Exchange Offer shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained herein or in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that such statement is modified
or replaced by a statement contained in this Prospectus or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference in this Prospectus. Any such statement so modified or superseded
shall not be deemed, except as so modified or replaced, to constitute a part
of this Prospectus. The Company will provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any or all of the documents referred to
above that have been or may be incorporated in this Prospectus by reference
(other than exhibits to such documents unless the exhibits are specifically
incorporated by reference in this Prospectus). Written or oral requests for
such copies should be directed to The Wiser Oil Company, 8115 Preston Road,
Suite 400, Dallas, Texas 75225, Attention: Corporate Secretary, Telephone
(214) 265-0080.
126
<PAGE>
GLOSSARY OF OIL AND GAS TERMS
The following are abbreviations and definitions of terms commonly used in
the oil and gas industry that are used in this Prospectus.
"BBL" means a barrel of 42 U.S. gallons.
"BCF" means billion cubic feet.
"BOE" means barrels of oil equivalent, converting volumes of natural gas to
oil equivalent volumes using a ratio of six Mcf of natural gas to one Bbl of
oil.
"COMPLETION" means the installation of permanent equipment for the
production of oil or gas.
"DEVELOPMENT WELL" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.
"DRY HOLE" OR "DRY WELL" means 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" means a well drilled to find and produce oil or gas
reserves not classified as proved, to find a new production reservoir in a
field previously found to be productive of oil or gas in another reservoir or
to extend a known reservoir.
"FARM-IN" means an agreement pursuant to which the owner of a working
interest in an oil and gas lease assigns the working interest or a portion
thereof to another party who desires to drill on the leased acreage.
Generally, the assignee is required to drill one or more wells in order to
earn its interest in the acreage. The assignor usually retains a royalty or
reversionary interest in the lease. The interest received by an assignee is a
"farm-in."
"GROSS" when used with respect to acres or wells, refers to the total acres
or wells in which the Company has a working interest.
"INFILL DRILLING" means drilling of an additional well or wells provided for
by an existing spacing order to more adequately drain a reservoir.
"MBBL" means thousand Bbls.
"MBOE" means thousand BOE.
"MCF" means thousand cubic feet.
"MMBOE" means million BOE.
"MMBTU" means one million British Thermal Units. British Thermal Unit means
the quantity of heat required to raise the temperature of one pound of water
by one degree Fahrenheit.
"MMCF" means million cubic feet.
"NET" when used with respect to acres or wells, refers to gross acres or
wells multiplied, in each case, by the percentage working interest owned by
the Company.
"NET PRODUCTION" means production that is owned by the Company less
royalties and production due others.
127
<PAGE>
"NGL" means natural gas liquid.
"OPERATOR" means the individual or company responsible for the exploration,
development and production of an oil or gas well or lease.
"PRESENT VALUE" when used with respect to oil and gas reserves, means the
estimated future gross revenues to be generated from the production of proved
reserves calculated in accordance with the guidelines of the SEC, net of
estimated production and future development costs, using prices and costs as
of the date of estimation without future escalation (except to the extent a
contract specifically provides otherwise), without giving effect to non-
property related expenses such as general and administrative expenses, debt
service, future income tax expense and depreciation, depletion and
amortization, and discounted using an annual discount rate of 10%.
"PRODUCTIVE WELLS" OR "PRODUCING WELLS" consist of producing wells and wells
capable of production, including wells waiting on pipeline connections.
"PROVED DEVELOPED RESERVES" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery will be
included as "proved developed reserves" only after testing by a pilot project
or after the operation of an installed program has confirmed through
production response that increased recovery will be achieved.
"PROVED RESERVES" means the estimated quantities of crude oil, natural gas
and NGLs which upon analysis of geological and engineering data appear with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
(i) Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation tests. The
area of a reservoir considered proved includes (A) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.
(ii) Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for
the engineering analysis on which the project or program was based.
(iii) Estimates of proved reserves do not include the following: (A) oil
that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural gas
and NGLs, the recovery of which is subject to reasonable doubt because of
uncertainty as to geology, reservoir characteristics or economic factors;
(C) crude oil, natural gas, and NGLs, that may occur in undrilled
prospects; and (D) crude oil, natural gas and NGLs that may be recovered
from oil shales, coal, gilsonite and other such resources.
"PROVED UNDEVELOPED RESERVES" means 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 completion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved
128
<PAGE>
undeveloped reserves be attributable to any acreage for which an application
of fluid injection or other improved recovery technique is contemplated,
unless such techniques have been proved effective by actual tests in the area
and in the same reservoir.
"RECOMPLETION" means the completion for production of an existing well bore
in another formation from that in which the well has been previously
completed.
"RESERVES" means proved reserves.
"RESERVOIR" means a porous and permeable underground formation containing a
natural accumulation of producible oil and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
"ROYALTY" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not
require the owner to pay any portion of the costs of drilling or operating the
wells on the leased acreage. Royalties may be either landowner's royalties,
which are reserved by the owner of the leased acreage at the time the lease is
granted, or overriding royalties, which are usually reserved by an owner of
the leasehold in connection with a transfer to a subsequent owner.
"2-D SEISMIC" means an advanced technology method by which a cross-section
of the earth's subsurface is created through the interpretation of reflecting
seismic data collected along a single source profile.
"3-D SEISMIC" means an advanced technology method by which a three
dimensional image of the earth's subsurface is created through the
interpretation of reflection seismic data collected over surface grid. 3-D
seismic surveys allow for a more detailed understanding of the subsurface than
do conventional surveys and contribute significantly to field appraisal,
development and production.
"STEP-OUT WELL" means a well drilled adjacent to a proven well but located
in an unproven area; a well drilled as a "step-out" from a proven territory in
an effort to ascertain the extent and boundaries of a producing formation.
"WORKING INTEREST" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will generally be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties.
"WORKOVER" means operations on a producing well to restore or increase
production.
129
<PAGE>
THE WISER OIL COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Statements of Income and Retained Earnings.................... F-3
Consolidated Balance Sheets................................................ F-4
Consolidated Statements of Cash Flows...................................... F-5
Notes to Consolidated Financial Statements................................. F-6
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of The Wiser Oil Company:
We have audited the accompanying consolidated balance sheets of The Wiser
Oil Company (a Delaware corporation) and subsidiaries as of December 31, 1996,
1995 and 1994 and the related consolidated statements of income and retained
earnings and cash flows for the years then ended. 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 audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Wiser Oil
Company and subsidiaries as of December 31, 1996, 1995 and 1994 and the
results of their operations and their cash flows in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, during
1995, the Company changed its method of accounting for the impairment of long-
lived assets.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 18, 1997
F-2
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- -------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales............... $39,269 $32,473 $72,012 $54,400 $53,559
Dividends and interest.......... 457 398 683 1,241 1,641
Marketable security sales
gains.......................... 1,813 6,832 12,977 13,101 7,475
Other........................... 1,860 227 1,017 2,939 2,681
------- ------- ------- ------- -------
43,399 39,930 86,689 71,681 65,356
------- ------- ------- ------- -------
Costs and Expenses:
Production and operating........ 13,561 11,491 23,970 20,690 22,313
Purchased natural gas........... 773 642 1,462 727 759
Depreciation, depletion and am-
ortization..................... 11,010 9,850 19,653 19,778 18,313
Property impairments............ -- 12,112 12,112 4,893 --
Exploration..................... 4,139 2,196 4,176 5,801 4,130
General and administrative...... 4,931 4,940 9,364 8,193 6,502
Interest expense................ 3,355 2,728 5,452 5,618 3,907
------- ------- ------- ------- -------
37,769 43,959 76,189 65,700 55,924
------- ------- ------- ------- -------
Income (Loss) Before Income Tax-
es............................... 5,630 (4,029) 10,500 5,981 9,432
Income Tax Expense (Benefit)...... 1,433 (173) 4,072 3,788 444
------- ------- ------- ------- -------
NET INCOME (LOSS)................. 4,197 (3,856) 6,428 2,193 8,988
Retained Earnings, beginning of
period........................... 66,385 61,030 61,030 62,414 57,002
Dividends Paid.................... (537) (536) (1,073) (3,577) (3,576)
------- ------- ------- ------- -------
Retained Earnings, end of period.. $70,045 $56,638 $66,385 $61,030 $62,414
======= ======= ======= ======= =======
Average Outstanding Shares........ 8,950 8,939 8,954 8,939 8,941
======= ======= ======= ======= =======
Earnings (Loss) Per Share......... $ .47 $ (.43) $ .72 $ .25 $ 1.01
======= ======= ======= ======= =======
Cash Dividends Per Share.......... $ .06 $ .06 $ .12 $ .40 $ .40
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------
1997 1996 1995 1994
----------- --------- --------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........ $ 28,110 $ 5,870 $ 1,397 $ 2,714
Accounts receivable.............. 10,581 14,091 10,426 10,900
Inventories...................... 1,756 1,289 1,517 1,144
Prepaid expenses................. 528 473 833 852
--------- --------- --------- --------
Total current assets........... 40,975 21,723 14,173 15,610
--------- --------- --------- --------
Marketable Securities.............. 6,075 7,176 19,592 27,337
Property, Plant and Equipment, at
cost:
Oil and gas properties
(successful efforts method)..... 319,885 306,716 265,692 250,156
Other properties................. 5,062 4,974 4,422 5,443
--------- --------- --------- --------
324,947 311,690 270,114 255,599
Accumulated depreciation and de-
pletion......................... (120,705) (131,972) (101,025) (88,228)
--------- --------- --------- --------
Net Property, Plant and Equipment.. 204,242 179,718 169,089 167,371
Other Assets....................... 4,151 -- 553 473
--------- --------- --------- --------
$ 255,443 $ 208,617 $ 203,407 $210,791
========= ========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQ-
UITY
Current Liabilities:
Accounts payable................. $ 11,168 $ 14,996 $ 10,143 $ 9,562
Accrued income taxes............. 2,215 1,697 1,527 1,518
Accrued liabilities.............. 2,682 1,537 1,449 2,139
Current portion of long term
debt............................ -- -- 20 78
--------- --------- --------- --------
Total current liabilities...... 16,065 18,230 13,139 13,297
--------- --------- --------- --------
Long Term Debt..................... 124,261 78,654 74,171 78,013
Deferred Benefit Cost.............. 1,531 1,496 1,120 1,052
Deferred Income Taxes.............. 11,113 10,975 12,699 13,002
Other Long Term Liabilities........ -- -- 1,146 --
Stockholders' Equity:
Common stock--$3 par value
20,000,000 shares
authorized; 9,126,294 shares is-
sued at June 30, 1997 and
9,115,572 shares issued at De-
cember 31, 1996, 1995 and 1994,
respectively; 8,950,090 shares
outstanding at June 30, 1997 and
8,939,368 shares outstanding at
December 31, 1996, 1995 and
1994, respectively.............. 27,379 27,347 27,347 27,347
Paid-in capital.................. 3,208 3,078 3,078 3,078
Retained earnings................ 70,045 66,385 61,030 62,414
Marketable securities valuation
adjustment...................... 3,728 4,328 11,684 16,013
Foreign currency translation..... 842 853 722 (696)
Treasury stock; 176,204 shares,
at cost at June 30, 1997 and
December 31, 1996, 1995 and
1994............................ (2,729) (2,729) (2,729) (2,729)
--------- --------- --------- --------
Total stockholders' equity..... 102,473 99,262 101,132 105,427
--------- --------- --------- --------
$ 255,443 $ 208,617 $ 203,407 $210,791
========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating
Activities:
Net income (loss)........... $ 4,197 $ (3,856) $ 6,428 $ 2,193 $ 8,988
Adjustments to reconcile net
income to operating cash
flows:
Depreciation, depletion
and amortization......... 11,010 9,850 19,653 19,778 18,313
Deferred income taxes..... 449 (1,031) 2,056 1,914 (1,145)
Marketable securities &
property sale gains...... (3,595) (6,871) (13,099) (14,092) (9,367)
Foreign currency transla-
tion..................... (11) (14) (2) (34) 87
Property impairments ..... -- 12,112 12,112 4,893 --
Exploration expense....... 4,139 2,196 4,176 5,801 4,130
Other Changes--
Accounts receivable..... 3,510 414 (3,665) 474 (1,473)
Inventories............. (467) 91 228 (373) (344)
Prepaid expenses........ (55) 80 360 19 (204)
Other assets............ -- 32 553 (80) 11
Accounts payable........ (3,828) 330 4,853 661 3,438
Accrued income taxes.... 518 (393) 170 9 1,516
Accrued liabilities..... 1,145 255 88 (690) 424
Deferred benefits cost.. 35 237 376 68 (40)
-------- -------- -------- -------- --------
Operating Cash Flows.. 17,047 13,432 34,287 20,541 24,334
-------- -------- -------- -------- --------
Cash Flows From Investing
Activities:
Capital and exploration
expenditures............. (40,762) (19,983) (47,115) (30,153) (74,610)
Proceeds from sales of
property, plant and
equipment................ 2,945 172 1,022 1,280 13,581
Proceeds from marketable
security sales........... 1,929 7,416 14,035 14,492 8,250
-------- -------- -------- -------- --------
Investing Cash Flows.... (35,888) (12,395) (32,058) (14,381) (52,779)
-------- -------- -------- -------- --------
Cash Flows From Financing
Activities:
Long term debt issued..... 125,000 14,454 25,508 11,170 55,600
Payments on long term debt
and other
liabilities.............. (78,654) (14,172) (22,191) (15,070) (24,364)
Debt issuance costs and
fees..................... (4,890) -- -- -- --
Common stock issued....... 162 -- -- -- --
Dividends paid............ (537) (536) (1,073) (3,577) (3,576)
-------- -------- -------- -------- --------
Financing Cash Flows.... 41,081 (254) 2,244 (7,477) 27,660
-------- -------- -------- -------- --------
Net Increase (Decrease) In
Cash....................... 22,240 783 4,473 (1,317) (785)
Cash and Cash Equivalents,
beginning of period........ 5,870 1,397 1,397 2,714 3,499
-------- -------- -------- -------- --------
Cash and Cash Equivalents,
end of period.............. $ 28,110 $ 2,180 $ 5,870 $ 1,397 $ 2,714
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation--The consolidated financial statements
include the accounts of The Wiser Oil Company (the "Company"), a Delaware
corporation, and its wholly owned subsidiaries: T.W.O.C., Inc., The Wiser
Marketing Company, Maljamar Wiser Inc., Maljamar Development Partnership,
L.P., and The Wiser Oil Company of Canada ("Wiser Canada"). T.W.O.C., Inc. is
a Delaware holding company responsible for the management of investment
activities. The Wiser Marketing Company functions as a natural gas marketer
and broker. Maljamar Wiser Inc. was formed in 1995 and is a wholly owned
subsidiary of the Company. It was formed in order for the Company to fund its
$53,000,000 development of the Maljamar area with the use of nonrecourse debt.
The Maljamar Development Partnership, L.P. was formed in 1995 for the same
reason. The Company is the limited partner of the Maljamar Development
Partnership, L.P. and owns 99% of the partnership. Maljamar Wiser Inc. owns 1%
of the Maljamar Development Partnership, L.P. as a general partner. Wiser
Canada was formed in 1994 to conduct the Company's Canadian activities. Prior
to the formation of Wiser Canada, the Company's oil and gas operations were
conducted primarily in the United States. Intercompany accounts and
transactions have been eliminated. Certain reclassifications have been made to
conform prior years' amounts to current presentation.
b. Risks and Uncertainties--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.
c. Oil and Gas Properties--The Company is engaged in the exploration and
development of oil and gas in the United States and Canada. The Company
follows the "successful efforts" method of accounting for its oil and gas
properties. Under this method of accounting, all costs of property
acquisitions and exploratory wells are initially capitalized. If an
exploratory well is unsuccessful, the capitalized costs of drilling the well,
net of any salvage value, are charged to expense. The capitalized costs of
unproven properties are periodically assessed to determine whether their value
has been impaired, and if such impairment is indicated, a loss is recognized.
Geological and geophysical costs and the costs of retaining undeveloped
properties are expensed as incurred. Expenditures for maintenance and repairs
are charged to expense, and renewals and betterments are capitalized. Upon
disposal, the asset and related accumulated depreciation, depletion and
amortization are removed from the accounts, and any resulting gain or loss is
reflected currently in income.
Prior to 1995, the Company evaluated the carrying value of its oil and gas
properties based on undiscounted future net revenues on a company wide basis.
During 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires the Company to
assess the need for an impairment of capitalized costs of oil and gas
properties on a property-by-property basis. If an impairment is indicated
based on undiscounted expected future cash flows, then an impairment is
recognized to the extent that net capitalized costs exceed discounted future
cash flows. During 1996 and 1995, the Company provided impairments of
$12,112,000 and $4,893,000, respectively. Management's estimate of future cash
flows is based on their estimate of reserves and prices. It is reasonably
possible that a change in reserve or price estimates could occur in the near
term and adversely impact management's estimate of future cash flows and
consequently the carrying value of properties.
F-6
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
d. Depreciation and Depletion--Depreciation and depletion of the capitalized
costs of producing oil and gas properties are computed for individual
properties using the units-of-production method based on total proved
reserves. Depreciation of transportation, office and other properties is
computed generally using the straight-line method over the estimated useful
lives of these assets.
e. Cash and Cash Equivalents--Cash equivalents generally consist of short-
term investments maturing in three months or less from the date of
acquisition. These investments of $3,801,000 in 1996, $504,000 in 1995 and
$1,662,000 in 1994 are recorded at cost plus accrued interest, which
approximates market.
f. Inventories--Oil and gas product inventories are recorded at the average
cost of production. Materials and supplies are recorded at the lower of
average cost or market.
g. Accrued Liabilities--Accrued liabilities include accrued vacation and
payroll of $576,000 in 1996, $535,000 in 1995 and $519,000 in 1994.
h. Postretirement Benefits--SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," has no significant impact on the
Company. The Company has no significant liabilities for postretirement
benefits, other than pensions, and has historically recognized such
liabilities as they are incurred.
i. Gas Imbalances--Gas imbalances are accounted for using the sales method.
The Company's net imbalance position is not material at December 31, 1996,
1995 and 1994.
j. Hedging Arrangements--During 1995 and 1996, the Company entered into
numerous oil price collar agreements to hedge against price fluctuations
during 1997. The Company is exposed to losses in the event of nonperformance
by the counter parties to its hedging agreements.
These arrangements are summarized as follows:
<TABLE>
<CAPTION>
DAILY VOLUME FLOOR PRICE CEILING PRICE
BEGINNING DATES ENDING DATE (BBLS) (PER BBL) (PER BBL)
- --------------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
January 1, 1997 December 31, 1997 1,000 $16.00 $18.85
January 1, 1997 December 31, 1997 1,000 21.80(1) 25.55(1)
January 1, 1997 March 31, 1997 2,000 16.00 19.41
April 1, 1997 June 30, 1997 2,000 17.00 19.00
July 1, 1997 September 30, 1997 2,000 17.00 19.00
</TABLE>
- --------
(1)Canadian Dollars
In addition, the Company has hedged 367 barrels per day of natural gas
liquids production from January 1, 1997 to March 31, 1997 at a weighted
average price of $18.76 per barrel. Gains or losses from hedging transactions
are recognized as oil and gas sales in the accompanying Consolidated
Statements of Income and Retained Earnings as the underlying hedged production
is sold. As of December 31, 1994, the Company had deferred $135,017 in net
gains related to hedging activities. As of December 31, 1996 and 1995, the
Company had no deferred net gains or net losses related to hedging activities.
During 1996, revenues from oil and gas production were reduced $6,923,000 as a
result of hedging activities. The Company did not incur any material hedging
gains or losses in 1995 or 1994.
F-7
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
k. Foreign Currency Translation--The functional currency of Wiser Canada is
the Canadian dollar. In accordance with SFAS No. 52, "Foreign Currency
Translation," Wiser Canada's financial statements have been translated from
Canadian dollars to U.S. dollars with the cumulative translation adjustment
gain of $853,000 for 1996, $722,000 for 1995 and a loss of $696,000 for 1994
classified in Stockholders' Equity.
2. MARKETABLE SECURITIES
During 1993, the Company adopted the accounting procedures as established by
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under SFAS No. 115, marketable securities, such as those owned by
the Company, are classified as available-for-sale securities and are to be
reported at market value, with unrealized gains and losses, net of income
taxes, excluded from earnings and reported as a separate component of
stockholders' equity. The market value of these securities at December 31,
1996, 1995 and 1994 were $7,176,000, $19,592,000 and $27,337,000 respectively.
The Company liquidated a portion of its marketable securities portfolio and
recognized a pretax gain of $12,977,000, $13,101,000 and $7,475,000 for 1996,
1995 and 1994 respectively.
3. LONG TERM DEBT
On June 23, 1994, the Company entered into a Credit Agreement with
NationsBank of Texas, N.A. as agent, which provides for a term loan to Wiser
Canada and a revolving credit facility to the Company. The Credit Agreement
provides the Company with up to a $150 million line of credit through
September 30, 2000. The amounts available for borrowing are determined under
formulas related to oil and gas reserves. The Company's borrowing base at
December 31, 1996 was $80,000,000. The indebtedness outstanding under the
Credit Agreement is secured by a pledge of 66% of the Company's ownership
interests in Wiser Canada. Available loan and interest options are base rate
loans, at the bank's prime interest rate and one to six month term loans with
fixed interest at either the LIBOR or CD rate plus 0.625%. The average
interest rate during 1996 under the Credit Agreement was 6.04%. A 0.25%
commitment fee is paid on the unused borrowing base. The Credit Agreement
requires the Company to, among other things, maintain certain minimum net
worth and current ratio requirements as well as certain restrictions on sales
of assets, payment of dividends, incurrence of indebtedness and hedged
transactions.
On November 29, 1995, the Company entered into a credit agreement with
NationsBank of Texas, N.A. as agent (the "Maljamar Credit Facility"). The
Maljamar Credit Facility provides the Company with up to a $50 million
nonrecourse facility to develop the expanded Maljamar project area. The
amounts available for borrowing are determined under formulas related to oil
and gas reserves and capital spent on the Maljamar area properties offset by
net operating income from these same properties. The Company's borrowing base
at December 31, 1996 was $40,000,000. Available loan and interest options are
base rate loans, at the bank's prime interest rate and one to six month term
loans with fixed interest at LIBOR plus 2.0%. The average interest rate during
1996 under the Maljamar Credit Facility was 7.51%. A 0.375% commitment fee is
paid on the unused borrowing base. The Maljamar Credit Facility requires the
Company to, among other things, maintain certain minimum collateral value
requirements as well as certain restrictions on sales of assets, payment of
dividends and incurrence of indebtedness. In addition, the credit agreement
also requires the Company to hedge a portion of its crude oil production.
The Company paid $4,971,000 in interest during 1996, $5,618,000 during 1995,
and $3,889,000 during 1994.
F-8
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Maljamar Credit Facility--7.63% and 7.94% interest
rate at December 31, 1996 and 1995, respectively.... $20,654 $ 1,171 $ --
Credit Agreement--6.31%, 6.38% and 6.56% interest
rate at December 31, 1996, 1995 and 1994,
respectively ....................................... 58,000 73,000 78,000
Other, at 11.00%..................................... -- 20 91
------- ------- -------
78,654 74,191 78,091
Less current maturities.............................. -- (20) (78)
------- ------- -------
$78,654 $74,171 $78,013
======= ======= =======
</TABLE>
The annual requirements for reduction of principal of long term debt
outstanding as of December 31, 1996 are estimated as follows (in thousands):
<TABLE>
<S> <C>
1997...................................... $ --
1998...................................... 20,654
1999...................................... 7,998
2000...................................... 10,664
Thereafter................................ 39,338
-------
$78,654
=======
</TABLE>
4. PROPERTY ACQUISITIONS AND SALES
During 1995, the Company traded some of its Permian Basin properties for
properties located mainly in New Mexico (The Skelly Unit) and West Virginia.
The acquisition of these properties was accounted for as an exchange of
similar assets. As a result of these trades, Wiser's total proved reserves as
of December 31, 1995 increased by 5,846,000 BOE.
On June 24, 1994, the Company acquired the Eagle Properties, which consist
of certain oil and gas properties located in Alberta, Canada, for $52 million
dollars. The purchase was funded through the Company's Credit Agreement, see
Note 3, and with existing cash and cash equivalents. The purchase method of
accounting was followed.
Unaudited pro forma results of operations, as if the 1994 acquisition of the
Eagle Properties took place at January 1, 1994, are as follows (in thousands):
<TABLE>
<CAPTION>
1994(1)
-------
<S> <C>
Revenues.................................. $63,888
Expenses.................................. 57,341
-------
Net Income................................ $ 6,547
=======
Earnings per share........................ $ .73
=======
</TABLE>
- --------
(1) The pro forma results exclude the gain of $1.9 million of property sales
recognized in 1994.
F-9
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES
The Company provides deferred income taxes for differences between the tax
reporting basis and the financial reporting basis of assets and liabilities.
The Company follows the accounting procedures as established by SFAS No. 109,
"Accounting for Income Taxes." The Company paid $900,000 in 1996, $1,967,000
in 1995 and $0 income taxes in 1994.
Income tax expense (benefit) for the three years ended December 31, 1996
were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Current:
Federal............................................. $1,911 $1,607 $ 1,473
State............................................... 105 150 116
------ ------ -------
2,016 1,757 1,589
------ ------ -------
Deferred:
Federal............................................. 1,919 1,934 1,085
State............................................... 137 97 107
Reversal of valuation allowance..................... -- -- (2,337)
------ ------ -------
2,056 2,031 (1,145)
------ ------ -------
Total income tax expense.............................. $4,072 $3,788 $ 444
====== ====== =======
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate....................... 34.0% 34.0% 34.0%
Statutory depletion in excess of cost basis............. (2.0) (1.7) (2.2)
Non-deductibility of foreign operating loss............. 22.6 55.4 8.6
Reversal of tax credit valuation allowance.............. -- -- (24.8)
State taxes net of FIT benefits......................... 1.5 1.6 2.0
Dividends received credit............................... (1.2) (4.4) (3.8)
Nonconventional fuels credit............................ (14.6) (22.4) (14.1)
Other, net.............................................. (1.5) 0.8 5.0
----- ----- -----
Effective tax rate...................................... 38.8% 63.3% 4.7%
===== ===== =====
</TABLE>
F-10
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The deferred tax liabilities and assets for the three years ended December
31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Deferred tax liabilities (assets):
Intangible drilling and development cost............. $12,998 $ 9,203 $ 7,052
Marketable securities valuation adjustment........... 2,229 6,015 8,241
Deferred pensions and compensation................... (579) (527) (520)
Alternative minimum tax credit carryforwards......... (2,318) (2,429) (2,010)
Property impairment reserve.......................... (1,767) (277) --
Excess property basis on Wiser Canada................ (4,051) (3,930) (3,978)
Valuation allowance.................................. 4,600 4,479 3,978
Other................................................ (137) 165 239
------- ------- -------
$10,975 $12,699 $13,002
======= ======= =======
</TABLE>
The Company will only realize the benefits of alternative minimum tax credit
carryforwards by generating future regular tax liability in excess of
alternative minimum tax liability. Prior to 1994, a valuation allowance was
provided due to the uncertainty of realizing these tax credits. Due to the
Company's sale of a portion of its marketable securities portfolio during
1996, 1995 and 1994, and the Company's plans relating to its remaining
marketable securities, the Company believes it is more likely than not that
the alternative minimum tax credit carryforwards will be fully utilized.
Accordingly, during 1994 the valuation allowance was reversed. As of December
31, 1996, a valuation allowance has been provided against Canadian net
deferred tax assets of $4,051,000 and United States deferred tax assets of
$549,000.
6. OIL AND GAS PRODUCING ACTIVITIES
Set forth below is certain information regarding the aggregate capitalized
costs of oil and gas properties and costs incurred in oil and gas property
acquisitions, exploration and development activities (in thousands):
<TABLE>
<CAPTION>
U.S. CANADA TOTAL
--------- -------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1996:
Capitalization Costs:
Proved properties............................. $ 226,411 $ 62,937 $ 289,348
Unproved properties........................... 9,659 7,709 17,368
--------- -------- ---------
236,070 70,646 306,716
Accumulated depreciation, depletion and
amortization.................................. (100,016) (29,094) (129,110)
--------- -------- ---------
Net capitalized costs.......................... $ 136,054 $ 41,552 $ 177,606
========= ======== =========
Costs Incurred during 1996:
Property acquisition.......................... $ 1,782 $ 1,054 $ 2,836
Exploration................................... 875 1,888 2,763
Development................................... 33,994 6,230 40,224
Gas plants.................................... 408 -- 408
</TABLE>
F-11
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
U.S. CANADA TOTAL
-------- -------- --------
<S> <C> <C> <C>
DECEMBER 31, 1995:
Capitalization Costs:
Proved properties............................... $191,567 $ 56,427 $247,994
Unproved properties............................. 10,110 7,588 17,698
-------- -------- --------
201,677 64,015 265,692
Accumulated depreciation, depletion and
amortization.................................... (81,561) (16,766) (98,327)
-------- -------- --------
Net capitalized costs............................ $120,116 $ 47,249 $167,365
======== ======== ========
Costs Incurred during 1995:
Property acquisition............................ $ 3,027 $ 3,210 $ 6,237
Exploration..................................... 2,753 2,270 5,023
Development..................................... 12,477 4,123 16,600
Gas plants...................................... 3,192 -- 3,192
DECEMBER 31, 1994:
Capitalization Costs:
Proved properties............................... $183,978 $ 47,629 $231,607
Unproved properties............................. 11,427 7,122 18,549
-------- -------- --------
195,405 54,751 250,156
Accumulated depreciation, depletion and
amortization.................................... (80,189) (3,555) (83,744)
-------- -------- --------
Net capitalized costs............................ $115,216 $ 51,196 $166,412
======== ======== ========
Costs Incurred during 1994:
Property acquisition............................ $ 2,544 $ 52,988 $ 55,532
Exploration..................................... 2,036 2,057 4,093
Development..................................... 11,059 1,727 12,786
Gas plants...................................... 775 -- 775
</TABLE>
7. EMPLOYEE PENSION PLAN
The Company has a noncontributory defined benefit pension plan, which covers
substantially all full-time employees. Plan participants become fully vested
after five years of continuous service. The retirement benefit formula is
based on the employee's earnings, length of service and age at retirement.
Contributions required to fund plan benefits are determined according to the
Projected Unit Credit Method. The assets of the plan are primarily invested in
equity and debt securities.
The net periodic pension costs were determined as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Current service cost................................... $ 381 $ 368 $ 362
Interest cost on projected benefit obligation.......... 824 802 779
Actual return on assets................................ 1,890 (1,575) (37)
Net amortization and deferral.......................... (2,652) 932 (648)
------- ------- -----
Net periodic pension cost.............................. $ 443 $ 527 $ 456
======= ======= =====
</TABLE>
F-12
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The principal assumptions for 1996, 1995 and 1994 utilized in computing
pension expense include an 8.0% discount rate and a 5.0% rate of increase in
compensation levels. The assumed rate of return on plan assets was 9% for 1996
and 8.5% for 1995 and 1994. An amendment to the pension plan, effective
January 1, 1993, reduced the normal retirement age from 65 years to 62 years.
The following table presents the actuarial valuation of the plan's funded
status, as of December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Actuarial present value of pension benefits obliga-
tions:
Vested............................................. $8,155 $ 9,817 $ 9,369
Nonvested.......................................... 415 354 172
------ ------- -------
Accumulated........................................ 8,570 10,171 9,541
Projected salary increases......................... 751 705 1,069
------ ------- -------
Projected benefits obligations..................... 9,321 10,876 10,610
Plan assets at fair value.......................... 8,010 10,247 9,315
------ ------- -------
Plan assets less than projected benefits
obligations....................................... $1,311 $ 629 $ 1,295
====== ======= =======
Items not yet recognized:
Unrecognized net gain.............................. $ 473 $ 1,169 $ 490
Unamortized transition amount...................... 121 208 241
Unamortized prior service cost..................... (957) (1,106) (1,254)
------ ------- -------
Net pension liability.............................. $ 948 $ 900 $ 772
====== ======= =======
</TABLE>
8. EMPLOYEE SAVINGS PLAN
The Company has a qualified Savings Plan available to all employees. An
employee may elect to have up to 15% of the employee's base monthly
compensation, exclusive of other forms of special or extra compensation,
withheld and placed in the Savings Plan account. On a monthly basis, the
Company contributes to this account an amount equal to 50% of the employee's
contribution, limited to 3% of the employee's base compensation. Company
contributions to the Savings Plan were $126,000, $122,000 and $116,000, in
1996, 1995 and 1994, respectively.
F-13
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. BUSINESS SEGMENT INFORMATION
The Company operates in one industry segment, the exploration for and
production of reserves of oil and gas, with sales made to domestic and
Canadian energy customers.
The following table summarizes the activity of the Company by geographic
area for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
U.S. CANADA TOTAL
-------- -------- --------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Total revenues..................................... $ 69,595 $ 17,094 $ 86,689
Cost and expenses:
Production and operating.......................... 20,288 3,682 23,970
Purchased natural gas............................. 1,462 -- 1,462
Exploration....................................... 1,837 2,339 4,176
Depreciation, depletion and amortization.......... 11,783 7,870 19,653
Property impairments.............................. 7,276 4,836 12,112
Other operating .................................. 9,475 5,341 14,816
-------- -------- --------
52,121 24,068 76,189
-------- -------- --------
Pretax income (loss)............................... 17,474 (6,974) 10,500
Income tax expense................................. 4,072 -- 4,072
-------- -------- --------
Results of operations.............................. $ 13,402 $ (6,974) $ 6,428
======== ======== ========
Identifiable assets................................ $161,687 $ 46,930 $208,617
======== ======== ========
YEAR ENDED DECEMBER 31, 1995:
Total revenues..................................... $ 57,839 $ 13,842 $ 71,681
Cost and expenses:
Production and operating.......................... 17,555 3,135 20,690
Purchased natural gas............................. 727 -- 727
Abandonments...................................... 4,173 1,628 5,801
Exploration....................................... 11,418 8,360 19,778
Depreciation, depletion and amortization.......... -- 4,893 4,893
Other operating................................... 8,250 5,561 13,811
-------- -------- --------
42,123 23,577 65,700
-------- -------- --------
Pretax income (loss)............................... 15,716 (9,735) 5,981
Income tax expense................................. 3,788 -- 3,788
-------- -------- --------
Results of operations.............................. $ 11,928 $ (9,735) $ 2,193
======== ======== ========
Identifiable assets................................ $152,710 $50,034 $202,744
======== ======== ========
</TABLE>
F-14
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
U.S. CANADA TOTAL
-------- ------- --------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
Total revenues...................................... $ 58,586 $ 6,770 $ 65,356
Cost and expenses:
Production and operating........................... 20,598 1,715 22,313
Purchased natural gas.............................. 759 -- 759
Exploration........................................ 2,757 1,373 4,130
Depreciation, depletion and amortization........... 14,737 3,576 18,313
Other operating ................................... 7,921 2,488 10,409
-------- ------- --------
46,772 9,152 55,924
-------- ------- --------
Pretax income (loss)................................ 11,814 (2,382) 9,432
Income tax expense.................................. 444 -- 444
-------- ------- --------
Results of operations............................... $ 11,370 $(2,382) $ 8,988
======== ======= ========
Identifiable assets................................. $157,498 $54,075 $211,573
======== ======= ========
</TABLE>
Annually, four or five of the Company's purchasers of oil and gas
individually account for 10% to 35% of gross revenues. In Canada, one
purchaser accounts for approximately 75% of Wiser Canada's sales. However, due
to the nature of the oil and gas industry, the Company is not dependent upon
any of these purchasers. The loss of any major purchaser would not have a
material adverse impact on the Company's business.
10. STOCK OPTION PLANS
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but does
not require companies to record compensation cost for stock-based employee
compensation plans at fair value. During 1996, the Company adopted the
disclosure provisions of SFAS No. 123. The Company continues to apply the
accounting provisions of APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations to account for stock-based
compensation. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
The Company has two stock option plans, the 1991 Stock Incentive Plan ("1991
Incentive Plan") and the 1991 Non-Employee Directors' Stock Option Plan ("1991
Directors' Plan"). The 1991 Incentive Plan provides for the issuance of ten
year options with a variable vesting period and a grant price equal to fair
market value. The 1991 Directors' Plan provides for the issuance of five year
options with a six month vesting period and a grant price equal to or above
market value.
F-15
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's two stock option plans at December
31, 1996, 1995 and 1994 and changes during the years then ended follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ ----------------
EXERCISE EXERCISE EXERCISE
SHARES PRICE(1) SHARES PRICE(1) SHARES PRICE(1)
-------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 254,500 $16.88 253,500 $17.20 95,750 $15.95
Granted................. 647,250 14.35 16,000 13.81 157,750 17.36
Exercised............... -- -- -- -- -- --
Expired and cancelled... (22,250) 16.88 (15,000) 17.36 -- --
-------- ------ -------- ------ ------- ------
Outstanding at end of
year................... 879,500 $15.02 254,500 $16.88 253,500 $17.20
======== ====== ======== ====== ======= ======
Exercisable at end of
year................... 145,650 $16.47 56,725 $16.59 60,000 $16.70
======== ====== ======== ====== ======= ======
Fair value of options
granted(1)............. $ 4.30 $ 4.08
======== ========
</TABLE>
- --------
(1) Weighted average per option granted.
657,500 of the 879,500 options outstanding at December 31, 1996 have
exercise prices between $11 and $15, with a weighted average exercise price of
$14.35 and a weighted average remaining contractual life of 9.6 years. 14,500
of these options are currently exercisable with a weighted average exercise
price of $13.70. The remaining 222,000 options have exercise prices between
$15 and $19, with a weighted average exercise price of $17.02 and a weighted
average contractual life of 6.6 years. 131,150 of these options are currently
exercisable with a weighted average exercise price of $16.78.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995 for both the 1991 Incentive Plan
and the 1991 Directors' Plan:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Risk free interest rate.................................... 6.36% 6.01%
Expected dividend yields................................... .84% .87%
Expected lives, in years................................... 4.85 5.00
Expected volatility........................................ 22.22% 22.05%
</TABLE>
Had compensation cost been determined consistent with SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Net income--as reported (in thousands).................... $6,428 $2,193
Net income--pro forma (in thousands)...................... 5,576 2,179
Earnings per share--as reported........................... $ .72 $ .25
Earnings per share--pro forma............................. .62 .24
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
11. PREFERRED STOCK
In addition to Common Stock, the Company is authorized to issue 300,000
shares of Preferred Stock with a par value of $10 per share, none of which has
been issued.
F-16
<PAGE>
THE WISER OIL COMPANY
SUPPLEMENTAL FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (UNAUDITED)
The following pages include unaudited supplemental financial information as
currently required by the Securities and Exchange Commission (SEC) and the
Financial Accounting Standards Board.
12. OIL AND GAS RESERVES
ESTIMATED QUANTITIES OF OIL AND GAS RESERVES (UNAUDITED)
Proved reserves are the estimated quantities of crude oil, natural gas and
natural gas liquids, which upon analysis of geological and engineering data
appear with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved developed
reserves are proved reserves which can be expected to be recovered through
existing wells with existing equipment and under existing operating
conditions.
The estimation of reserves requires substantial judgment on the part of
petroleum engineers and may result in imprecise determinations, particularly
with respect to new discoveries. Accordingly, it is expected that the
estimates of reserves will change as future production and development
information becomes available and that revisions in these estimates could be
significant.
F-17
<PAGE>
Following is a reconciliation of the Company's estimated net quantities of
proved oil and gas reserves, as estimated by independent petroleum
consultants.
<TABLE>
<CAPTION>
OIL (MBBLS) GAS (MMCF)
---------------------- ------------------------
U.S. CANADA TOTAL U.S. CANADA TOTAL
------ ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993..... 21,242 -- 21,242 103,317 -- 103,317
Revisions of previous
estimates.................. 1,801 -- 1,801 (2,205) -- (2,205)
Properties sold and
abandoned.................. (1,513) -- (1,513) (7,031) -- (7,031)
Reserves purchased in
place...................... 97 3,666 3,763 314 21,395 21,709
Extensions, discoveries and
other additions............ 343 71 414 1,488 1,249 2,737
Production.................. (1,957) (320) (2,277) (9,335) (1,272) (10,607)
------ ----- ------ ------- ------ -------
Balance December 31, 1994..... 20,013 3,417 23,430 86,548 21,372 107,920
Revisions of previous
estimates.................. 4,322 563 4,885 4,912 (1,140) 3,772
Properties sold and
abandoned.................. (187) -- (187) (333) -- (333)
Reserves purchased in
place...................... 5,825 307 6,132 695 1,132 1,827
Extensions, discoveries and
other additions............ 124 157 281 2,046 6,354 8,400
Production.................. (1,657) (676) (2,333) (8,918) (2,753) (11,671)
------ ----- ------ ------- ------ -------
Balance December 31, 1995..... 28,440 3,768 32,208 84,950 24,965 109,915
Revisions of previous
estimates.................. (301) (25) (326) 2,738 (535) 2,203
Properties sold and
abandoned.................. (78) -- (78) (72) -- (72)
Reserves purchased in
place...................... 12 -- 12 17 505 522
Extensions, discoveries and
other additions............ 2,040 533 2,573 10,787 1,705 12,492
Production.................. (2,033) (744) (2,777) (8,874) (2,809) (11,683)
------ ----- ------ ------- ------ -------
Balance December 31, 1996..... 28,080 3,532 31,612 89,546 23,831 113,377
====== ===== ====== ======= ====== =======
Proved Developed Reserves:
Balance, December 31, 1993.. 17,112 -- 17,112 96,069 -- 96,069
Balance, December 31, 1994
(1)........................ 15,950 3,209 19,159 84,715 13,655 98,370
Balance, December 31, 1995
(1)........................ 17,939 3,617 21,556 77,915 24,111 102,026
Balance, December 31, 1996
(1)........................ 24,892 3,225 28,117 80,652 22,477 103,129
</TABLE>
- --------
(1) Canadian reserve volumes as assigned by third party engineers have been
increased to reflect the effect of the Alberta Royalty Tax Credit refund.
Total proved and proved developed reserves were increased by 364 MBbl and
2,323 MMcf for 1994, 397 MBbl and 2,744 MMcf for 1995 and 186 MBbl and
1,258 MMcf for 1996.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS OF PROVED OIL AND GAS
RESERVES (UNAUDITED)
The Company has estimated the standardized measure of discounted future net
cash flows and changes therein relating to proved oil and gas reserves in
accordance with the standards established by SFAS No. 69, "Disclosure About
Oil and Gas Producing Activities". The estimates of future cash inflows and
future production and development costs are based on current year end sales
prices for oil and gas, estimated future production of proved reserves and
estimated future production and development costs of proved reserves based on
current costs and economic conditions.
This standardized measure of discounted future net cash flows is an attempt
by the Financial Accounting Standards Board to provide the users of financial
statements with information regarding future net cash flows from proved
reserves. However, the users of these financial statements should
F-18
<PAGE>
use extreme caution in evaluating this information. The assumptions required
to be used in these computations are subjective and arbitrary. Had other
equally valid assumptions been used, significantly different results of
discounted future net cash flows would result. Therefore, these estimates do
not necessarily reflect the current value of the Company's proved reserves or
the current value of discounted future net cash flows for the proved reserves.
The following are the Company's estimated standardized measure of discounted
future net cash flows from proved reserves (in thousands):
<TABLE>
<CAPTION>
U.S. CANADA TOTAL
---------- -------- ----------
<S> <C> <C> <C>
December 31, 1996:
Future cash flows........................... $1,029,971 $116,203 $1,146,174
Future production and development costs..... (415,276) (25,175) (440,451)
Future income tax expense................... (172,024) -- (172,024)
---------- -------- ----------
Future net cash flows....................... 442,671 91,028 533,699
10% Annual discount for estimated timing of
cash flows................................. (187,332) (29,187) (216,519)
---------- -------- ----------
Standardized measure of discounted future
net cash flows............................. $ 255,339 $ 61,841 $ 317,180
========== ======== ==========
December 31, 1995:
Future cash flows........................... $ 679,754 $ 90,978 $ 770,732
Future production and development costs..... (343,867) (25,828) (369,695)
Future income tax expense................... (74,433) -- (74,433)
---------- -------- ----------
Future net cash flows....................... 261,454 65,150 326,604
10% Annual discount for estimated timing of
cash flows................................. (111,193) (20,809) (132,002)
---------- -------- ----------
Standardized measure of discounted future
net cash flows............................. $ 150,261 $ 44,341 $ 194,602
========== ======== ==========
December 31, 1994:
Future cash flows........................... $ 449,797 $ 79,208 $ 529,005
Future production and development costs..... (234,189) (22,040) (256,229)
Future income tax expense................... (34,690) -- (34,690)
---------- -------- ----------
Future net cash flows....................... 180,918 57,168 238,086
10% Annual discount for estimated timing of
cash flows................................. (77,178) (18,876) (96,054)
---------- -------- ----------
Standardized measure of discounted future
net cash flows............................. $ 103,740 $ 38,292 $ 142,032
========== ======== ==========
The following are the sources of changes in the standardized measure of
discounted net cash flows (in thousands):
<CAPTION>
1996 1995 1994
---------- -------- ----------
<S> <C> <C> <C>
Standardized measure, beginning of year...... $ 194,602 $142,032 $ 112,423
Sales, net of production costs............... (46,580) (32,907) (29,949)
Net change in price and production cost...... 142,806 19,536 6,471
Reserves purchased in place.................. 581 26,087 46,169
Extensions, discoveries and improved
recoveries.................................. 42,582 9,297 4,543
Change in future development cost............ 27,080 12,652 (14,265)
Revision of previous quantity estimates and
disposals................................... 314 26,525 5,080
Sales of reserves in place................... (987) (798) (9,562)
Accretion of discount........................ 23,542 16,081 13,715
Changes in timing and other.................. (10,440) (1,863) 1,455
Net change in income taxes................... (56,320) (22,040) 5,952
---------- -------- ----------
Standardized measure, end of year............ $ 317,180 $194,602 $ 142,032
========== ======== ==========
</TABLE>
F-19
<PAGE>
13. QUARTERLY FINANCIAL DATA
The supplementary financial data in the table below for each quarterly
period within the years ended December 31, 1996 and 1995 are derived from the
unaudited consolidated financial statements of the Company.
<TABLE>
<CAPTION>
NET
INCOME EARNINGS
REVENUES (LOSS) (LOSS) PER SHARE
--------------- --------------- ---------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
1996:
First................... $ 18,567 $ 1,511 $ .17
Second(1)............... 21,363 (5,368) (.60)
Third................... 19,468 2,444 .27
Fourth.................. 27,291 7,841 .88
1995:
First................... $ 16,247 $ 1,238 $ .14
Second.................. 14,583 (720) (.08)
Third................... 18,265 1,854 .21
Fourth(2)............... 22,586 (179) (.02)
</TABLE>
- --------
(1) During the second quarter of 1996, the Company recognized an impairment
write-down of oil and gas properties of $12,112,000 before income taxes.
(2) During the fourth quarter of 1995, the Company recognized an impairment
write-down of oil and gas properties of $4,893,000 before income taxes.
14. SUMMARY OF GUARANTIES OF 9 1/2% SENIOR SUBORDINATED NOTES
In May 1997, the Company issued $125 million aggregate principal amount of
its 9 1/2% Senior Subordinated Notes due 2007 pursuant to an offering exempt
from registration under the Securities Act of 1933. The notes are unsecured
obligations of the Company, subordinated in right of payment to all existing
and any future senior indebtedness of the Company. The notes rank pari passu
with any future senior subordinated indebtedness and senior to any future
junior subordinated indebtedness of the Company. The notes are fully and
unconditionally guaranteed, jointly and severally, on an unsecured, senior
subordinated basis by certain wholly owned subsidiaries of the Company (the
"Subsidiary Guarantors"). At the time of the initial issuance of the notes,
Wiser Oil Delaware, Inc., The Wiser Marketing Company, Wiser Delaware LLC,
T.W.O.C., Inc. and The Wiser Oil Company of Canada were the Subsidiary
Guarantors (the "Initial Subsidiary Guarantors"). Except for two wholly owned
subsidiaries that are inconsequential to the Company on a consolidated basis,
the Initial Subsidiary Guarantors comprise all of the Company's direct and
indirect subsidiaries.
Sections 13 and 15(d) of the Securities Exchange Act of 1934 require
presentation of the following unaudited summarized financial information of
the Subsidiary Guarantors. The Company has not presented separate financial
statements and other disclosures concerning each Subsidiary Guarantor because
such information is not material to investors. There are no significant
contractual restrictions on distributions from each of the Subsidiary
Guarantors to the Company.
F-20
<PAGE>
SUMMARIZED COMBINED FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
SUBSIDIARY GUARANTORS
---------------------------------------
THE WISER
WISER T.W.O.C., MARKETING COMBINED
CANADA (1) INC. COMPANY TOTAL
---------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES
For the Six Months Ended June 30,
1997................................. $ 7,401 $ 1,908 $1,087 $ 10,396
For the Six Months Ended June 30,
1996................................. 8,066 7,158 987 16,211
For the Year Ended December 31, 1996.. 17,095 16,304 2,237 35,636
For the Year Ended December 31, 1995.. 13,842 15,884 1,217 30,943
For the Year Ended December 31, 1994.. 6,770 10,149 1,118 18,037
INCOME (LOSS) BEFORE INCOME TAXES
For the Six Months Ended June 30,
1997................................. $ (2,920) $ 1,900 $ 116 $ (904)
For the Six Months Ended June 30,
1996................................. (5,888) 7,150 146 1,408
For the Year Ended December 31, 1996.. (6,973) 16,287 338 9,652
For the Year Ended December 31, 1995.. (9,736) 15,867 131 6,262
For the Year Ended December 31, 1994.. (2,382) 10,132 139 7,889
NET INCOME (LOSS)
For the Six Months Ended June 30,
1997................................. $ (2,920) $ 1,409 $ 86 $ (1,425)
For the Six Months Ended June 30,
1996................................. (4,416) 6,856 140 2,580
For the Year Ended December 31, 1996.. (6,973) 12,492 259 5,778
For the Year Ended December 31, 1995.. (9,736) 12,043 99 2,406
For the Year Ended December 31, 1994.. (2,382) 9,751 134 7,503
CURRENT ASSETS
June 30, 1997......................... $ 3,965 $ 140 $ 575 $ 4,680
December 31, 1996..................... 4,958 53 170 5,181
December 31, 1995..................... 3,039 27 94 3,160
December 31, 1994..................... 4,797 177 81 5,055
TOTAL ASSETS
June 30, 1997......................... $ 46,124 $ 6,289 $ 575 $ 52,988
December 31, 1996..................... 39,132 7,229 718 47,079
December 31, 1995..................... 43,763 19,619 332 63,714
December 31, 1994..................... 53,293 27,521 247 81,061
CURRENT LIABILITIES
June 30, 1997......................... $ 6,321 $ -- $ 247 $ 6,568
December 31, 1996..................... 4,931 -- 508 5,439
December 31, 1995..................... 2,779 -- 200 2,979
December 31, 1994..................... 4,371 -- 231 4,602
NONCURRENT LIABILITIES
June 30, 1997......................... $ -- $ 1,916 $ -- $ 1,916
December 31, 1996..................... 52,439 2,227 -- 54,666
December 31, 1995..................... 52,380 6,007 -- 58,387
December 31, 1994..................... 52,000 8,225 -- 60,225
STOCKHOLDERS' EQUITY (DEFICIT)
June 30, 1997......................... $ 39,803 $ 4,373 $ 328 $ 44,504
December 31, 1996..................... (18,238) 5,002 210 (13,026)
December 31, 1995..................... (11,396) 13,612 132 2,348
December 31, 1994..................... (3,078) 19,297 16 16,235
</TABLE>
- --------
(1) Includes the accounts of Wiser Oil Delaware, Inc., Wiser Delaware LLC and
The Wiser Oil Company of Canada.
F-21
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE CON-
SUMMATION OF THE EXCHANGE OFFER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAK-
ING 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.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 17
Disclosure Regarding Forward-Looking Statements........................... 26
The Exchange Offer........................................................ 27
Use of Proceeds........................................................... 38
Capitalization............................................................ 39
Selected Consolidated Financial and Operating Data........................ 40
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 43
Business and Properties................................................... 52
Management................................................................ 77
Description of Certain Senior Indebtedness................................ 80
Description of the Exchange Notes......................................... 82
Description of the Outstanding Notes...................................... 118
Certain Federal Income Tax Considerations................................. 119
Plan of Distribution...................................................... 124
Legal Matters............................................................. 125
Experts................................................................... 125
Available Information..................................................... 125
Incorporation of Certain Documents by Reference........................... 126
Glossary of Oil and Gas Terms............................................. 127
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$125,000,000
EXCHANGE OFFER
LOGO
THE WISER OIL COMPANY
9 1/2% SENIOR SUBORDINATED
NOTES DUE 2007
---------------
PROSPECTUS
---------------
DATED , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with Section 102(b)(7) of the Delaware General Corporation Law
("DGCL"), the Company's Certificate of Incorporation includes a provision that
eliminates, to the fullest extent permitted by law, the personal liability of
members of its Board of Directors to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director. Such provision
does not eliminate or limit the liability of a director (1) for any breach of
a director's duty of loyalty to the Company or its stockholders, (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of a law, (3) for paying an unlawful dividend or approving
an illegal stock purchase or redemption (as provided in Section 174 of the
DGCL) or (4) for any transaction from which the director derived an improper
personal benefit.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding brought by reason
of the fact that such person 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, if such person acted in good faith
and in a manner that he reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe his conduct was unlawful.
In a derivative action (i.e., one brought by or in the right of the
corporation), indemnification may be made for expenses actually and reasonably
incurred by any officer or director in connection with the defense or
settlement of such an action or suit if such person acted in good faith and in
a manner that he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine that such
person is fairly and reasonably entitled to indemnity for such expenses
despite such adjudication of liability.
The DGCL also permits a corporation to purchase and maintain insurance on
behalf of any person who is or was a director or officer against any liability
asserted against him and incurred by him in such capacity, or arising out of
his status as such, whether or not the corporation has the power to indemnify
him against that liability under Section 145 of the DGCL.
Article THIRTEENTH of the Company's Certificate of Incorporation and Section
8.4 of its Bylaws, as amended, generally provide for the indemnification of
and advancement of litigation expenses to the Company's directors and officers
and such other persons designated by the Board of Directors of the Company as
entitled to the benefits of indemnification against all liabilities, losses
and expenses incurred in connection with any claim, action, suit or proceeding
in which any of them become involved by reason of their service rendered to
the Company or, at its request, to another entity; provided, however, that no
such right to indemnification shall exist with respect to an action brought by
an indemnitee against the Company unless certain conditions set forth in such
provisions are satisfied. The provisions of the Company's Certificate of
Incorporation and Bylaws are not exclusive of any other indemnification rights
to which an indemnitee may be entitled, whether by contract or otherwise. The
Company may also purchase liability insurance on behalf of its directors and
officers, whether or not it would have the obligation or power to indemnify
any of them under the terms of its Certificate of Incorporation.
II-1
<PAGE>
ITEM 21(A). EXHIBITS.
The information required by this Item 21(a) is set forth in the Index to
Exhibits accompanying this Registration Statement and is incorporated herein
by reference.
ITEM 22. UNDERTAKINGS.
The undersigned Co-Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act, each filing of an annual
report pursuant to section 13(a) or section 15(d) of the Exchange Act that is
incorporated by reference in the Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Co-
Registrants pursuant to the provisions described under Item 20 above, or
otherwise, the Co-Registrants have been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. If a claim for indemnification against
such liabilities (other than the payment by the Co-Registrants of expenses
incurred or paid by a director, officer or controlling person of the Co-
Registrants in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Co-Registrants will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Co-Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in the
documents filed subsequent to the effective date of the Registration Statement
when it became effective.
The undersigned Co-Registrants undertake to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, EACH OF THE CO-
REGISTRANTS HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF DALLAS AND STATE OF TEXAS ON THE 5TH DAY OF SEPTEMBER, 1997.
The Wiser Oil Company
/s/ Andrew J. Shoup, Jr.
By:__________________________________
ANDREW J. SHOUP, JR.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Wiser Oil Delaware, Inc.
/s/ Andrew J. Shoup, Jr.
By:__________________________________
ANDREW J. SHOUP, JR.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Wiser Delaware LLC
/s/ Andrew J. Shoup, Jr.
By:__________________________________
ANDREW J. SHOUP, JR.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
The Wiser Marketing Company
/s/ Andrew J. Shoup, Jr.
By:__________________________________
ANDREW J. SHOUP, JR.
CHAIRMAN OF THE BOARD
The Wiser Oil Company of Canada
/s/ Andrew J. Shoup, Jr.
By:__________________________________
ANDREW J. SHOUP, JR.
CHAIRMAN OF THE BOARD
T.W.O.C., Inc.
/s/ Andrew J. Shoup, Jr.
By:__________________________________
ANDREW J. SHOUP, JR.
CHAIRMAN OF THE BOARD AND
PRESIDENT
II-3
<PAGE>
THE WISER OIL COMPANY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
/s/ Andrew J. Shoup, Jr. President, Chief
- ------------------------------------- Executive Officer September 5,
ANDREW J. SHOUP, JR. and Director 1997
(principal
executive officer)
Director
Paul D. Neuenschwander*
- -------------------------------------
PAUL D. NEUENSCHWANDER
Director
C. Frayer Kimball, III*
- -------------------------------------
C. FRAYER KIMBALL, III
Director
Howard G. Hamilton*
- -------------------------------------
HOWARD G. HAMILTON
Director
A.W. Schenck, III*
- -------------------------------------
A.W. SCHENCK, III
Director
John W. Cushing, III*
- -------------------------------------
JOHN W. CUSHING, III
Director
Lorne H. Larson*
- -------------------------------------
LORNE H. LARSON
Director
Jon L. Mosle, Jr.*
- -------------------------------------
JON L. MOSLE, JR.
/s/ Lawrence J. Finn Vice President
- ------------------------------------- Finance and Chief September 5,
LAWRENCE J. FINN Financial Officer 1997
(principal
financial and
accounting officer)
*By: /s/ Andrew J. Shoup, Jr. September 5,
----------------------------------- 1997
ANDREW J. SHOUP, JR.
ATTORNEY-IN-FACT
II-4
<PAGE>
WISER OIL DELAWARE, INC.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
/s/ Andrew J. Shoup, Jr. President, Chief
- ------------------------------------- Executive Officer September 5,
ANDREW J. SHOUP, JR. and Director 1997
(principal
executive officer)
Vice President and
A. Wayne Ritter* Director
- -------------------------------------
A. WAYNE RITTER
/s/ Lawrence J. Finn Vice President,
- ------------------------------------- Treasurer and September 5,
LAWRENCE J. FINN Director (principal 1997
financial and
accounting officer)
*By: /s/ Andrew J. Shoup, Jr. September 5,
----------------------------------- 1997
ANDREW J. SHOUP, JR.
ATTORNEY-IN-FACT
II-5
<PAGE>
WISER DELAWARE LLC
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
/s/ Andrew J. Shoup, Jr. President and Chief
- ------------------------------------- Executive Officer September 5,
ANDREW J. SHOUP, JR. (principal 1997
executive officer)
The Wiser Oil Company Member
September 5,
1997
By: /s/ Andrew J. Shoup, Jr.
-----------------------------------
ANDREW J. SHOUP, JR. President and
Chief Executive Officer
Wiser Oil Delaware, Inc. Member
September 5,
1997
By: /s/ Andrew J. Shoup, Jr.
-----------------------------------
ANDREW J. SHOUP, JR. President and
Chief Executive Officer
/s/ Lawrence J. Finn Vice President and
- ------------------------------------- Treasurer September 5,
LAWRENCE J. FINN (principal 1997
financial and
accounting officer)
II-6
<PAGE>
THE WISER MARKETING COMPANY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
/s/ Andrew J. Shoup, Jr. Chairman of the
- ------------------------------------- Board and Director September 5,
ANDREW J. SHOUP, JR. (principal 1997
executive officer)
President (principal
Joe E. Caldwell* executive officer)
- -------------------------------------
JOE E. CALDWELL
Director
A. Wayne Ritter*
- -------------------------------------
A. WAYNE RITTER
/s/ Lawrence J. Finn Vice President and
- ------------------------------------- Director (principal September 5,
LAWRENCE J. FINN financial and 1997
accounting officer)
*By: /s/ Andrew J. Shoup, Jr. September 5,
----------------------------------- 1997
ANDREW J. SHOUP, JR.
ATTORNEY-IN-FACT
II-7
<PAGE>
THE WISER OIL COMPANY OF CANADA
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
/s/ Andrew J. Shoup, Jr. Chairman of the
- ------------------------------------- Board and Director September 5,
ANDREW J. SHOUP, JR. (principal 1997
executive officer)
President and
Allan J. Simus* Director (principal
- ------------------------------------- executive officer)
ALLAN J. SIMUS
/s/ Lawrence J. Finn Vice President
- ------------------------------------- (principal September 5,
LAWRENCE J. FINN financial and 1997
accounting officer)
/s/ Andrew J. Shoup, Jr. September 5,
1997
*By: ___________________________
ANDREW J. SHOUP, JR.
ATTORNEY-IN-FACT
II-8
<PAGE>
T.W.O.C., INC.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
/s/ Andrew J. Shoup, Jr. Chairman of the
- ------------------------------------- Board, President September 5,
ANDREW J. SHOUP, JR. and Director 1997
(principal
executive officer)
Vice President and
A. Wayne Ritter* Director
- -------------------------------------
A. WAYNE RITTER
Director
Peter C. Fulweiler*
- -------------------------------------
PETER C. FULWEILER
Director
Henry H. Beckler*
- -------------------------------------
HENRY H. BECKLER
/s/ Lawrence J. Finn Vice President and
- ------------------------------------- Director (principal September 5,
LAWRENCE J. FINN financial and 1997
accounting officer)
/s/ Andrew J. Shoup, Jr. September 5,
1997
*By: ___________________________
ANDREW J. SHOUP, JR.
ATTORNEY-IN-FACT
II-9
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.1* Indenture dated May 21, 1997, among the Co-Registrants and Texas
Commerce Bank National Association, as Trustee.
4.2* Form of 9 1/2% Senior Subordinated Notes due 2007 (included in the
Indenture filed as Exhibit 4.1).
4.3* Registration Agreement dated May 21, 1997, among the Co-Registrants
and Salomon Brothers Inc, NationsBanc Capital Markets, Inc. and
Nesbitt Burns Securities Inc., as the Initial Purchasers.
4.4 Credit Agreement dated June 23, 1994 among The Wiser Oil Company and
The Wiser Oil Company of Canada, as Borrowers, and NationsBank of
Texas, N.A. ("NationsBank"), as Agent, and Certain Financial
Institutions listed on the Signature Pages Thereto, as Banks,
incorporated by reference to Exhibit 10.1 to the report on Form 8-K
dated July 11, 1994 as amended August 17, 1994.
4.5* First Amendment to Credit Agreement dated November 29, 1995 among The
Wiser Oil Company and The Wiser Oil Company of Canada, as Borrowers,
and NationsBank, as Agent, and Certain Financial Institutions Listed
on the Signature Pages Thereto, as Banks.
4.6* Second Amendment to Credit Agreement dated May 20, 1997 among The
Wiser Oil Company and The Wiser Oil Company of Canada, Inc., as
Borrowers, and NationsBank, as Agent, and Certain Financial
Institutions Listed on the Signature Pages thereto, as Banks.
4.7* Guaranty Agreement dated May 20, 1997, by Wiser Oil Delaware, Inc., in
favor of NationsBank and PNC Bank, National Association ("PNC").
4.8* Guaranty Agreement dated May 20, 1997, by Wiser Delaware LLC, in favor
of NationsBank and PNC.
4.9* Guaranty Agreement dated May 20, 1997, by The Wiser Marketing Company
in favor of NationsBank and PNC.
4.10* Guaranty Agreement dated May 20, 1997, by The Wiser Oil Company of
Canada in favor of NationsBank and PNC.
4.11* Guaranty Agreement dated May 20, 1997, by T.W.O.C., Inc. in favor of
NationsBank and PNC.
5* Opinion of Thompson & Knight, A Professional Corporation, regarding
legality.
12.1** Statement of Computation of Ratio of Earnings to Fixed Charges.
12.2** Statement of Computation of Ratio of EBITDAX to Fixed Charges.
12.3** Statement of Computation of Ratio of Total Debt to EBITDAX.
23.1* Consent of Thompson & Knight, A Professional Corporation (contained in
its opinion filed as Exhibit 5).
23.2** Consent of Arthur Andersen LLP.
23.3* Consent of DeGolyer and MacNaughton.
23.4* Consent of Gilbert Lausten Jung Associates Ltd.
24* Powers of Attorney (powers of attorney pursuant to which amendments to
the Registration Statement may be filed were included on the signature
pages of the original Registration Statement).
25* Statement of Eligibility of Texas Commerce Bank National Association,
as trustee.
99.1** Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
* Filed previously
** Filed herewith
<PAGE>
EXHIBIT 12.1
THE WISER OIL COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
-------------- -----------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income
taxes.................. $5,630 $(4,029) $10,500 $ 5,981 $ 9,432 $(1,075) $(235)
Add fixed charges--
interest expense....... 3,355 2,728 5,452 5,618 3,907 530 31
------ ------- ------- ------- ------- ------- -----
Adjusted earnings....... $8,985 $(1,301) $15,952 $11,599 $13,339 $ (545) $(204)
====== ======= ======= ======= ======= ======= =====
Fixed charge coverage... 2.7x (0.5x) 2.9x 2.1x 3.4x (1.0x)(1) (6.6x)(1)
====== ======= ======= ======= ======= ======= =====
</TABLE>
- --------
(1) Reported as N/A. See "Selected Consolidated Financial and Operating Data"
in the Prospectus.
<PAGE>
EXHIBIT 12.2
THE WISER OIL COMPANY
COMPUTATION OF RATIO OF EBITDAX TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------- -------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $ 4,197 $ 3,856 $ 6,428 $ 2,193 $ 8,988 $ 1,016 $ 477
Add (deduct):
Income tax expense.... 1,433 (173) 4,072 3,788 444 (2,091) (712)
Interest expense...... 3,355 2,728 5,452 5,618 3,907 530 31
Depreciation, deple-
tion and amortiza-
tion................. 11,010 9,850 19,653 19,778 18,313 14,659 13,803
Exploration costs..... 4,139 2,196 4,176 5,801 4,130 3,639 6,308
Property impairments.. -- 12,112 12,112 4,893 -- 693 --
Marketable security
sales gains.......... (1,813) (6,832) (12,977) (13,101) (7,475) -- --
Dividends and inter-
est.................. (457) (398) (683) (1,241) (1,641) (1,855) (2,000)
------- ------- ------- ------- ------- ------- -------
EBITDAX............... $21,864 $15,627 $38,233 $27,729 $26,666 $16,591 $17,907
======= ======= ======= ======= ======= ======= =======
Fixed charges--
interest expense..... $ 3,355 $ 2,728 $ 5,452 $ 5,618 $ 3,907 $ 530 $ 31
======= ======= ======= ======= ======= ======= =======
Fixed charge coverage. 6.5x 5.7x 7.0x 4.9x 6.8x 31.3x 577.6x(1)
======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) Reported as N/M. See "Selected Consolidated Financial and Operating Data"
in the Prospectus.
<PAGE>
EXHIBIT 12.3
THE WISER OIL COMPANY
COMPUTATION OF RATIO OF TOTAL DEBT TO EBITDAX
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
--------------- -------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $ 6,428 $ 2,193 $ 8,988 $ 1,016 $ 477
Add (deduct):
Income tax expense.... 4,072 3,788 444 (2,091) (712)
Interest expense...... 5,452 5,618 3,907 530 31
Depreciation, deple-
tion and amortiza-
tion................. 19,653 19,778 18,313 14,659 13,803
Exploration costs..... 4,176 5,801 4,130 3,639 6,308
Property impairments.. 12,112 4,893 -- 693 --
Marketable security
sales gains.......... (12,977) (13,101) (7,475) -- --
Dividends and inter-
est.................. (683) (1,241) (1,641) (1,855) (2,000)
------- ------- ------- ------- -------
EBITDAX $38,233 $27,729 $26,666 $16,591 $17,907
======= ======= ======= ======= =======
Total Debt:
Current portion of
long term debt....... $ -- $ 20 $ 78 $ 78 $ 78
Long term debt........ 78,654 74,171 78,013 46,777 135
------- ------- ------- ------- -------
Total debt........... $78,654 $74,191 $78,091 $46,855 $ 213
======= ======= ======= ======= =======
Ratio of total debt to
EBITDAX................ N/A N/A 2.1x 2.7x 2.9x 2.8x 0.0x(1)
======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) Reported as N/M. See "Selected Consolidated Financial and Operating Data"
in the Prospectus.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference and the use of our report dated February 18, 1997 included in or
made a part of this amendment no. 1 to the registration statement on Form S-4
and The Wiser Oil Company's Form 10-K for the year ended December 31, 1996.
ARTHUR ANDERSEN LLP
Dallas, Texas
September 5, 1997
<PAGE>
EXHIBIT 99.1
THE WISER OIL COMPANY
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE ITS
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007 THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ___________, 1997, UNLESS EXTENDED
(THE "EXPIRATION DATE")
EXCHANGE AGENT:
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
<TABLE>
<CAPTION>
<S> <C>
By Mail: By Overnight Courier:
Texas Commerce Bank National Association Texas Commerce Bank National Association
Attn: Frank Ivins--Personal and Confidential Attn: Frank Ivins--Personal and Confidential
P.O. Box 2320 1201 Main Street, One Main Place, 18th Floor
Dallas, Texas 75221-2320 Dallas, Texas 75202
By Hand: By Facsimile Transmission:
Texas Commerce Bank National Association (for Eligible Institutions only)
Attn: Frank Ivins--Personal and Confidential Texas Commerce Bank National Association
1201 Main Street, One Main Place, 18th Floor Attn: Frank Ivins--Personal and Confidential
Dallas, Texas 75202 (214) 672-5746
or Confirm by Telephone:
Texas Commerce Bank National Association (214) 672-5678
Corporate Trust Securities Window
North Building, Room 234, Window 20
55 Water Street
New York, New York 10041
</TABLE>
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 (as the same may be amended or supplemented from
time to time, the "Prospectus") of The Wiser Oil Company, a Delaware corporation
(the "Company"), and this Letter of Transmittal (which together constitute the
"Exchange Offer"), relating to the offer by the Company to exchange up to
$125,000,000 aggregate principal amount of its 9 1/2% Senior Subordinated Notes
due 2007 (the "Exchange Notes") that have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), for a like aggregate principal
amount of its outstanding 9 1/2% Senior Subordinated Notes due 2007 (the
"Outstanding Notes"). The terms of the Exchange Notes are identical in all
material respects to the terms of the Outstanding Notes, except for certain
transfer restrictions and registration rights relating to the Outstanding Notes
and except for certain provisions providing for an increase in the interest rate
on the Outstanding Notes under certain circumstances relating to the timing of
the
-1-
<PAGE>
Exchange Offer. 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 and time to which the Exchange Offer is extended.
The Company shall make a public announcement of any extension of the Exchange
Offer 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 Outstanding Notes if
either (i) certificates for such Outstanding Notes are to be forwarded herewith
or (ii) delivery of Outstanding Notes is to be made by book-entry transfer of
such Outstanding Notes into the Exchange Agent's account at the book-entry
transfer facility system (the "Book-Entry Transfer Facility") of The Depository
Trust Company (the "Depository") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering
Outstanding Notes." Holders of Outstanding Notes who wish to tender their
Outstanding Notes and whose Outstanding Notes are not immediately available or
who cannot complete the procedures for book-entry transfer or deliver this
Letter of Transmittal or other required documents to the Exchange Agent prior to
the Expiration Date must tender their Outstanding Notes according to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer--Procedures for Tendering Outstanding Notes--Guaranteed
Delivery." See Instruction 2. 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 (i) any person in
whose name Outstanding Notes are registered on the books of the Company, (ii)
any other person who has obtained a properly completed bond power from the
registered holder or (iii) any person whose Outstanding Notes are held of record
by the Depository who desires to deliver such Outstanding Notes by book-entry
transfer at the Depository. 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 Outstanding 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 Outstanding 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.
-2-
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
DESCRIPTION OF OUTSTANDING NOTES TENDERED
- ----------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered
Holder(s) Exactly as Name(s) Appear(s) Aggregate Principal Principal
on Outstanding Notes (Please Fill In, Registered Amount Represented Amount
If Blank) Number(s)/*/ by Note(s) Tendered**
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, any tendering holder of Outstanding Notes will be deemed to have tendered
the entire aggregate principal amount represented by such Outstanding Notes. All tenders must be in a
principal amount of $1,000 or integral multiples of $1,000.
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE ENCLOSED HEREWITH.
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER INTO THE EXCHANGE AGENT'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-------------------------------------------------------------------------
Account Number:
----------------------------------------------------------------------------------------
Transaction Code Number:
-------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) of Outstanding Notes:
--------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------------------------------------------
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:
-----------------------------------------------------------------------------------------------
(Include Zip Code)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and conditions of the Exchange Offer, the undersigned hereby
tenders to the Company for exchange the principal amount of Outstanding Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Outstanding 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 Outstanding Notes
tendered for exchange hereby. The undersigned hereby irrevocably constitutes
and appoints the Exchange Agent as its agent and attorney-in-fact (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 Outstanding
Notes with full power of substitution to (i) deliver such Outstanding Notes, or
transfer ownership of such Outstanding 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 Outstanding Notes
for transfer on the books of the Company and receive for the account of the
Company all benefits and otherwise exercise all rights of beneficial ownership
of such Outstanding 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 (i) the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the
Outstanding Notes tendered hereby and to acquire the Exchange Notes issuable
upon the exchange of such tendered Outstanding Notes, (ii) when the Outstanding
Notes are accepted for exchange, the Company will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and (iii) the Outstanding Notes tendered hereby are not subject
to any adverse claims or proxies. The undersigned hereby 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 Outstanding Notes tendered pursuant to the
Exchange Offer.
The undersigned acknowledges that the Company is making the Exchange Offer in
reliance on a position of the staff of the Division of Corporation Finance of
the Securities and Exchange Commission (the "SEC") as set forth in certain
interpretive letters addressed to third parties in other transactions. Based on
these interpretations by the staff of the Division of Corporation Finance, and
subject to the three immediately following sentences, the Company believes that
the Exchange Notes issued pursuant to the Exchange Offer in exchange for
Outstanding Notes may be offered for resale, resold and otherwise transferred by
a holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that (i) such Exchange Notes are acquired in the
ordinary course of such holder's business and (ii) such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. However, any holder of the Outstanding Notes who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or any broker-dealer who purchased Outstanding 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 of the staff
of the Division of Corporation Finance of the SEC set forth in the above
mentioned interpretive letters, (ii) will not be permitted or entitled to tender
such Outstanding 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 other transfer of such Outstanding Notes unless such
sale or transfer is made pursuant to an exemption from such requirements. In
addition, any holder who tenders Outstanding Notes in the Exchange Offer with
the intention or for the purpose of participating in a distribution of the
Exchange Notes cannot rely on such interpretations of the staff of the Division
of Corporation Finance of the SEC referred to above and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. A broker-dealer who is not an
"affiliate" of the Company may participate in the Exchange Offer with respect to
Outstanding Notes acquired for its own account as a result of market-making
activities or other trading activities, provided that (i) in connection with any
resales of Exchange Notes received by the broker-dealer in exchange for such
Outstanding Notes, the broker-dealer delivers a prospectus meeting the
requirements of the Securities Act, and (ii) the broker-dealer has not entered
into any arrangement or understanding with any person to participate in a
distribution (within
-5-
<PAGE>
the meaning of the Securities Act) of such Exchange Notes. In the event that
applicable interpretations by the staff of the Division of Corporation Finance
of the SEC change or otherwise do not permit resales of the Exchange Notes
without compliance with the registration and prospectus delivery requirements of
the Securities Act, holders of Exchange Notes who transfer Exchange Notes in
violation of the prospectus delivery provisions of the Securities Act or without
an exemption from registration thereunder may incur liability thereunder.
By tendering Outstanding Notes and executing this Letter of Transmittal, the
undersigned hereby represents and agrees that (i) neither the undersigned nor
any beneficial owner of the tendered Outstanding Notes is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act, (ii) any
Exchange Notes are being acquired in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is the
undersigned, (iii) neither the undersigned nor such beneficial owner has an
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Notes and (iv) if
such beneficial owner is not a broker-dealer, neither the undersigned nor such
beneficial owner is engaged in or intends to engage in a distribution (within
the meaning of the Securities Act) of such Exchange Notes. If the undersigned
or such beneficial owner is a broker-dealer that is receiving Exchange Notes for
its own account in exchange for Outstanding Notes pursuant to the Exchange
Offer, the undersigned acknowledges that the Outstanding Notes to be exchanged
for the Exchange Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, and agrees that it or such
other person will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes; however, by
so acknowledging and by delivering a prospectus, the undersigned or such
beneficial owner will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
Based on the position taken by the staff of the Division of Corporation
Finance of the SEC in the interpretive letters referred to above, the Company
believes that broker-dealers who acquired Outstanding Notes for their own
accounts, as a result of market-making activities or other trading activities
("Participating Broker-Dealers"), may fulfill the prospectus delivery
requirements with respect to the Exchange Notes received upon exchange of such
Outstanding Notes (other than Outstanding Notes that represent an unsold
allotment from the original sale of the Outstanding Notes) with a prospectus
meeting the requirements of the Securities Act that may be the prospectus
prepared for an exchange offer so long as it contains a description of the plan
of distribution with respect to the resale of such Exchange Notes. Accordingly,
the Company has agreed that, subject to the provisions of the Registration
Agreement (as defined in the Prospectus), a Participating Broker-Dealer may use
the Prospectus in connection with resales of Exchange Notes received in exchange
for Outstanding Notes where such Outstanding Notes were acquired by such
Participating Broker-Dealer for its own account as a result of market-making
activities or other trading activities, for a period of up to 90 days after
consummation of the Exchange Offer. In that regard, each Participating Broker-
Dealer, by tendering such Outstanding Notes and executing this Letter of
Transmittal, agrees that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact that makes any statement
contained or incorporated by reference in the Prospectus untrue in any material
respect or that causes the Prospectus to omit to state a material fact necessary
in order to make the statements contained or incorporated by reference therein,
in light of the circumstances under which they were made, not misleading, or of
the occurrence of certain other events specified in the Registration Agreement,
such Participating Broker-Dealer will suspend the sale of Exchange Notes
pursuant to the Prospectus until the Company has amended or supplemented the
Prospectus to correct such misstatement or omission and the Company has
furnished copies of the amended or supplemented Prospectus to the Participating
Broker-Dealer or until the Company has given notice that the sale of the
Exchange Notes may be resumed, as the case may be. Notwithstanding that the
Company may suspend the sale of the Exchange Notes under such circumstances, the
Company has no obligation to extend the 90-day period referred to above during
which Participating Broker-Dealers are entitled to use the Prospectus in
connection with the resale of Exchange Notes.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange Outstanding Notes validly tendered and not withdrawn as,
if and when the Company gives oral or written notice thereof to the Exchange
Agent of the Company's acceptance of such Outstanding Notes for exchange
pursuant to the Exchange Offer. If any tendered Outstanding Notes are not
accepted for exchange because of an invalid tender, the occurrence of certain
other events set forth in the Prospectus or otherwise, certificates for any such
unaccepted Outstanding Notes will be returned to the undersigned or, in the case
of Outstanding Notes tendered pursuant to the procedures for book-entry transfer
described in the Prospectus under the caption "The Exchange Offer - Acceptance
-6-
<PAGE>
for Exchange and Issuance of Exchange Notes," such Outstanding Notes will be
credited to an account maintained by with the Depository for the Outstanding
Notes, without expense, 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 for exchange of
Outstanding Notes tendered pursuant to the procedures described under the
caption "The Exchange Offer--Procedures for Tendering Outstanding Notes" 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. The undersigned recognizes that, under
certain circumstances set forth in the Prospectus, the Company may not be
required to accept for exchange any of the Outstanding Notes tendered hereby.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions," the undersigned hereby directs that the Exchange Notes be issued
in the name(s) of the undersigned or, in the case of a book-entry transfer of
Outstanding Notes, that such Exchange Notes be credited to the account indicated
above maintained with the Depository. If applicable, Outstanding Notes not
exchanged or not accepted for exchange will be issued to the undersigned or, in
the case of a book-entry transfer of Outstanding Notes, will be credited to the
account indicated above maintained with the Depository. Similarly, unless
otherwise indicated in the box entitled "Special Delivery Instructions,"
certificates for Exchange Notes will be delivered to the undersigned at the
address shown below the undersigned's signature(s). The undersigned recognizes
that in the case of a book-entry transfer of the Outstanding Notes, the Company
has no obligation to deliver certificated Exchange Notes or certificated
Outstanding Notes not exchanged or not accepted for exchange, as the case may
be, to the undersigned, except in certain limited circumstances described in the
Prospectus under the caption "Description of the Exchange Notes--Certificated
Notes." If Outstanding Notes are surrendered by holder(s) that have completed
either the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions," signature(s) on this Letter of Transmittal must
be guaranteed by an Eligible Institution.
-7-
<PAGE>
- ---------------------------------------- -------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6) (SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY if the Exchange To be completed ONLY if the Exchange
Notes are to be issued in the name of Notes are to be mailed or delivered
someone other than the undersigned. to someone other than the undersigned,
or to the undersigned at an address
Name: other than that shown below the
-------------------------------- undersigned's signature.
(Please Type or Print)
Name:
Address: --------------------------------
----------------------------- (Please Type or Print)
- ------------------------------------- Address:
(Include Zip Code) -----------------------------
[ ] Credit Exchange Notes by book-entry -------------------------------------
transfer to an account at the Book-Entry (Include Zip Code)
Transfer Facility other than the account
indicated above
-------------------------------------
Book-Entry Transfer Facility Account (Tax Identification or
Number: Social Security Number)
- -------------------------------------
- -------------------------------------
(Tax Identification or
Social Security Number)
- ---------------------------------------- -------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT
PLEASE SIGN HERE WHETHER OR NOT
OUTSTANDING NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
(Signature(s) of Registered Holders of Outstanding Notes)
Dated _____, 1997
(The above lines must be signed by the registered holder(s) of Outstanding Notes
as its/their name(s) appear(s) on the Outstanding Notes or on a security
position listing, or by person(s) authorized to become registered holder(s) by a
properly completed and executed bond power from the registered holder(s), a copy
of which, together with the information required in accordance with the
restrictions on transfer applicable to the Outstanding Notes, must be
transmitted with this Letter of Transmittal. If Outstanding Notes to which this
Letter of Transmittal relates 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:
-------------------------------------------------
Tax Identification or Social Security No.
---------------------------------------
- --------------------------------------------------------------------------------
-9-
<PAGE>
- --------------------------------------------------------------------------------
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
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-10-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF
THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Outstanding Notes or Book-
Entry Confirmations. In order for Outstanding Notes to be validly tendered
pursuant to the Exchange Offer, (a) the Exchange Agent must receive prior to the
Expiration Date this Letter of Transmittal (or facsimile thereof), properly
completed and duly executed with any required signature guarantees and any other
required documents, and either (i) the certificates for such Outstanding Notes
or (ii) a confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Outstanding Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the procedures for book-entry transfer set forth
in the Prospectus under the caption "The Exchange Offer--Procedures for
Tendering Outstanding Notes," if available, or (b) the Exchange Agent must
receive prior to the Expiration Date a Book-Entry Confirmation of such
Outstanding Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility with an Agent's Message and any other required documents, or (c) the
holder must comply with the guaranteed delivery procedures set forth in
Instruction 2 below. 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 the Book-Entry
Transfer Facility has received an express acknowledgment from the participant in
the Book-Entry Transfer Facility tendering Outstanding Notes which are the
subject of such Book-Entry Confirmation that such participant has received and
agrees to be bound by the terms of this Letter of Transmittal, and that the
Company may enforce such agreement against the participant.
The method of delivery of certificates for Outstanding Notes, this Letter of
Transmittal and all other required documents is at the option and risk of the
holder and, except as otherwise provided below, the delivery will be deemed made
only when actually received by the Exchange Agent. If delivery is by mail,
registered mail, return receipt requested, properly insured, or an overnight
delivery service is recommended. In all cases, sufficient time should be
allowed to ensure timely delivery. No Letter of Transmittal or Outstanding
Notes should be sent to the Company.
2. Guaranteed Delivery Procedures. If a holder desires to tender
Outstanding Notes pursuant to the Exchange Offer and (i) the certificates for
such Outstanding Notes are not immediately available, (ii) such holder cannot
complete the procedures for book-entry transfer of the Outstanding Notes on a
timely basis or (iii) time will not permit this Letter of Transmittal or other
required documents to reach the Exchange Agent before the Expiration Date, such
Outstanding Notes may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures set forth in the Prospectus are
complied with. Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution (as defined in the Prospectus), (ii) prior to
the Expiration Date, the Exchange Agent must have received from such Eligible
Institution a properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail, hand delivery or overnight courier) setting
forth the name and address of the tendering holder, the name(s) in which such
Outstanding Notes are registered, and, if possible, the certificate numbers of
the Outstanding Notes to be tendered and (iii) the certificates representing all
tendered Outstanding Notes, in proper form for transfer, or a Book-Entry
Confirmation with respect to such Outstanding Notes, together with this Letter
of Transmittal or an Agent's Message, and any other required documents, are
received by the Exchange Agent within five New York Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery.
Any holder of Outstanding Notes who wishes to tender Outstanding 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 Outstanding Notes according to the guaranteed delivery procedures
set forth above.
See "The Exchange Offer--Procedures for Tendering Outstanding Notes--
Guaranteed Delivery Procedures" section of the Prospectus.
-11-
<PAGE>
3. Tender by Holder. Only a holder of Outstanding Notes may tender such
Outstanding Notes in the Exchange Offer. Any beneficial owner whose Outstanding
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such Outstanding Notes in the
Exchange Offer should contact such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on its own behalf, such owner must, prior to
completing and executing this Letter of Transmittal and delivering its
Outstanding Notes, either make appropriate arrangements to register ownership of
the Outstanding Notes in such owner's name or obtain a properly completed bond
power from the registered holder.
4. Partial Tenders. Tenders of Outstanding Notes will be accepted only in a
principal amount of $1,000 or integral multiples of $1,000. If less than the
entire principal amount of any Outstanding Notes is tendered, the tendering
holder should fill in the principal amount tendered in the fourth column of the
box entitled "Description of Outstanding Notes Tendered" above. The entire
principal amount of Outstanding Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated. If the entire principal
amount of all Outstanding Notes is not tendered, then Outstanding Notes for the
principal amount of Outstanding Notes not tendered and Exchange Notes issued in
exchange for any Outstanding Notes accepted will be sent to the holder at his or
her registered address, or, in the case of a book-entry transfer of Outstanding
Notes, will be credited to the account of the undersigned maintained at the
Depository, promptly after the Expiration Date.
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 Outstanding Notes tendered
hereby, the signature must correspond with the name(s) as written on the face of
the Outstanding 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 Outstanding
Notes.
If any tendered Outstanding Notes are owned of record by two or more joint
holders, all such holders must sign this Letter of Transmittal.
If a number of Outstanding Notes registered in different names are tendered,
it will be necessary to complete, sign and submit as many separate copies of
this Letter of Transmittal as there are different registrations of Outstanding
Notes.
If this Letter of Transmittal (or facsimile hereof) or any Outstanding 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.
If this Letter of Transmittal is signed by a person other than the registered
holder or holders of Outstanding Notes listed and tendered hereby, the
Outstanding Notes surrendered for exchange must be endorsed or accompanied by
appropriate bond powers, signed exactly as the name or names of the holder(s)
appear(s) on such Outstanding Notes, and also must be accompanied by such
opinions of counsel, certifications and other information as the Company or the
Trustee with respect to the Outstanding Notes may require in accordance with the
restrictions on transfer applicable to the Outstanding Notes. Signatures on
such Outstanding Notes or bond powers must be guaranteed by an Eligible
Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Outstanding Notes are tendered: (i) by a
registered holder of such Outstanding Notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
this Letter of Transmittal or (ii) for the account of an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s) on
this Letter of Transmittal.
6. Special Issuance 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 are to
-12-
<PAGE>
be issued or sent (or credited), if different from the name and address of the
person signing this Letter of Transmittal (or the account of such person at the
Book-Entry Transfer Facility). In the case of issuance in a different name, the
taxpayer identification or social security number of the person named must also
be indicated.
If no instructions are given, the Exchange Notes will be issued in the name
of and sent to the acting holder of the Outstanding Notes or deposited at such
holder's account at the Book-Entry Transfer Facility.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Outstanding Notes pursuant to the Exchange Offer.
If, however, Exchange Notes are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of the Outstanding Notes
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Outstanding 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 OUTSTANDING NOTES LISTED IN THIS LETTER
OF TRANSMITTAL.
8. Substitute Form W-9. Under U.S. federal income tax law, a holder whose
tendered Outstanding Notes are accepted for exchange is required to provide the
Exchange Agent with such holder's correct taxpayer identification number ("TIN")
on Substitute Form W-9 below. If the holder is an individual, the TIN is his or
her Social Security number. If the Exchange Agent is not provided with the
correct TIN, the Internal Revenue Service (the "IRS") may subject the holder or
other payee to a $50 penalty. In addition, any payment made to such holder
pursuant to the Exchange Offer may be subject to a 31% backup withholding tax.
To prevent backup withholding on any payment made to a holder or other payee
pursuant to the Exchange Offer, the holder is required to notify the Exchange
Agent of the holder's current TIN (or the TIN of any other payee) by completing
the form below, certifying that the TIN provided on Substitute Form W-9 is
correct (or that such holder is awaiting a TIN) and that (i) the holder is
exempt from backup withholding, (ii) the holder has not been notified by the IRS
that the holder is subject to backup withholding as a result of failure to
report all interest or dividends or (iii) the IRS has notified the holder that
the holder is no longer subject to backup withholding.
The box in Part 3 of the Substitute Form W-9 should be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 3 is checked, the
holder must also complete the Certificate of Awaiting Taxpayer Identification
Number below in order to avoid backup withholding. Notwithstanding that the box
in Part 3 has been checked and the Certificate of Awaiting Taxpayer
Identification Number has been completed, if the Exchange Agent is not provided
a TIN within 60 days of its receipt of the Substitute Form W-9, the Exchange
Agent will withhold 31% of all payments made after such 60 day period until a
TIN is provided to the Exchange Agent.
The holder is required to give the Exchange Agent the TIN of the record owner
of the Outstanding Notes. If the Outstanding Notes are registered in more than
one name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) are not subject to these backup
withholding and reporting requirements. Such holders may nevertheless complete
the attached Substitute Form W-9 below and write "exempt" on the face thereof to
avoid possible erroneous backup withholding. A foreign person may qualify as an
exempt recipient by submitting to the Exchange Agent a properly completed IRS
Form W-8 signed under penalties of perjury attesting to its exempt status. A
Form W-8 may be obtained from the Exchange Agent. Please consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which holders are exempt from backup
withholding.
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<PAGE>
If backup withholding applies, the Exchange Agent is required to withhold 31%
of any payment paid to the holder or other payee. Backup withholding is not an
additional U.S. federal income tax. Rather, the U.S. federal income tax
liability of a person subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of tax, a
refund may be obtained from the IRS provided the required information is
furnished.
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) and acceptance for exchange of any tendered
Outstanding Notes and the validity and form of any other required documents will
be determined by the Company, in its sole discretion, whose determination will
be final and binding. The Company reserves the absolute right, in its sole and
absolute discretion, to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for, may in the view of
counsel to the Company, be unlawful. No tender of Outstanding Notes will be
deemed to have been validly made until all irregularities with respect to such
tender have been cured or waived. Neither the Company, any affiliate or
assignee of the Company, the Exchange Agent nor any person shall be under any
duty to give notification of any irregularities in tenders or incur any
liability for failure to give such notification. The Company also reserves the
absolute right, subject to applicable law, to waive any conditions of the
Exchange Offer or any condition or irregularity in any tender of Outstanding
Notes of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders. The Company's
interpretation of the terms and conditions of the Exchange Offer (including 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 Outstanding Notes must be cured within such time as the Company shall
determine.
10. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of Outstanding Notes on transmittal of this Letter of
Transmittal will be accepted.
11. Mutilated, Lost, Stolen or Destroyed Outstanding Notes. Any holder whose
Outstanding Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated above for further instructions.
12. 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.
13. Withdrawal. Except as otherwise provided herein or in the Prospectus,
tenders of Outstanding Notes pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date but not thereafter. To be effective, a
written notice of withdrawal or (for participants in the Book-Entry Transfer
Facility) electronic transmission of such notice through the Depository's
Automated Tender Offer Program must be received by the Exchange Agent by 5:00
p.m., New York City time, on the Expiration Date. Any such notice of withdrawal
must (i) specify the person named in this Letter of Transmittal as having
tendered Outstanding Notes to be withdrawn, (ii) identify the Outstanding Notes
to be withdrawn (including the certificate number or numbers and the aggregate
principal amount of such Outstanding Notes), (iii) contain a statement that such
person is withdrawing its election to have such Outstanding Notes exchanged,
(iv) be signed by the person in the same manner as the original signature on
this Letter of Transmittal by which such Outstanding Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Outstanding Notes
register the transfer of such Outstanding Notes in the name of the person
withdrawing the tender and (v) specify the name of the registered holder of such
Outstanding Notes, as set forth on the Outstanding Notes, if different from that
of the person who tendered such Outstanding Notes. If Outstanding Notes have
been tendered pursuant to the procedures for book-entry transfer set forth in
the Prospectus under the caption "The Exchange Offer--Procedures for Tendering
Outstanding Notes," the notice of withdrawal must specify the name and number of
the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Outstanding Notes and otherwise comply with the procedures of such
facility. Withdrawals of tenders of Outstanding Notes may not be
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<PAGE>
rescinded. Outstanding Notes properly withdrawn will not be deemed validly
tendered for purposes of the Exchange Offer, but may be retendered at any
subsequent time prior to the Expiration Date by following the procedures
described in the Prospectus under the caption "The Exchange Offer--Procedures
for Tendering Outstanding Notes."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF OR
AN AGENT'S MESSAGE (TOGETHER WITH THE OUTSTANDING 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.
-15-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
PAYER'S NAME: Texas Commerce Bank National Association
- ---------------------------------------------------------------------------------------------
PAYEE'S NAME:
- ---------------------------------------------------------------------------------------------
BUSINESS NAME (IF DIFFERENT):
- ---------------------------------------------------------------------------------------------
ADDRESS:
- ---------------------------------------------------------------------------------------------
MARK APPROPRIATE | | INDIVIDUAL/SOLE PROPRIETOR | | CORPORATION | | PARTNERSHIP | | OTHER
BOX: | | | | | | | |
- ---------------------------------------------------------------------------------------------
SUBSTITUTE | PART 1-PLEASE PROVIDE YOUR TIN IN |
| THE BOX AT RIGHT AND CERTIFY BY | ------------------------
| SIGNING AND DATING BELOW. | Social Security Number(s)
FORM W-9 | |
| |OR
| | ------------------------
| | Employer Identification
| | Number(s)
|--------------------------------------------|----------------------------
DEPARTMENT OF THE |PART 2- |PART 3-
TREASURY INTERNAL |CERTIFICATION - Under Penalties of Perjury, |Awaiting TIN [ ]
REVENUE SEVICE |I certify that: |
| |
|(1) The number shown on this form is |
| my correct taxpayer identification |
| number (or I am waiting for a |
| number to be issued for me), and |
|(2) I am not subject to backup |
| withholding because: (a) I am |
| exempt from backup withholding, or |
| (b) I have not been notified by the |
| Internal Revenue Service (IRS) that I |
| am subject to backup withholding as |
| a result of a failure to report all |
| interest or dividends, or (c) the IRS |
| has notified me that I am no longer |
| subject to backup withholding. |
|--------------------------------------------|----------------------------
PAYER'S REQUEST | CERTIFICATION INSTRUCTIONS - You must cross out item (2) above if you
FOR TAXPAYER | have been notified by the IRS that you are currently subject to backup
IDENTIFICATION | withholding because you have failed to report all interest or dividends
NUMBER ("TIN") | on your tax return.
| SIGNATURE DATE
| -------------------------------------- ------------------
- -------------------|-------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY IMPOSED
BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF ANY
PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
NOTE: 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 (1) 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 (2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within 60 days, 31% of
all reportable payments made to me thereafter will be withheld until I provide a taxpayer
identification number.
SIGNATURE DATE
------------------------------------------------------------ ---------------
- ---------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer -
Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-
0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
- -------------------------------------- --------------------------------------
For this type of Give the For this type Give the EMPLOYER
account: SOCIAL SECURITY of account: IDENTIFICATION
number of - number of -
- -------------------------------------- --------------------------------------
1. An individual's The individual 6. A valid trust, Legal entity (Do
account estate or not furnish the
pension trust identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated
in the account
title.) (4)
2. Two or more The actual owner 7. Corporate The corporation
individuals of the account or, account
(joint account) if combined funds,
the first individual
on the account (1)
3. Custodian The minor (2) 8. Association, The organization
account of a club, religious,
minor (Uniform charitable,
Gift to Minors educational, or
Act) other tax-exempt
organization
account
4. a. The usual The grantor-trustee 9. Partnership The partnership
revocable (1)
savings
trust
account
(grantor is
also
trustee)
b. So-called The actual owner 10. A broker or The broker or
trust (1) registered nominee
account nominee
that is not
a legal or
valid trust
under State
law
5. Sole The owner (3) 11. Account with The public entity
proprietorship the Department
account Agriculture in
the name of a
public entity
(such as a
State or local
government,
school district
or prison) that
receives
agricultural
program
payments.
- -------------------------------------- --------------------------------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name. You may also enter your business or
"doing business as" name. You may use either your social security number
or, if you have one, your employer identification number.
(4) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name listed, the number
will be considered to be that of the first name listed.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
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<PAGE>
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at a local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number. You may also obtain Form SS-4 by calling the IRS at 1-800-TAX-FORM.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
. An organization exempt from tax under section 501(a), or an individual
retirement account.
. The United States or any wholly-owned agency or instrumentality thereof.
. A State, The District of Columbia, a possession of the United States, or any
political subdivision or wholly-owned agency or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or and
wholly-owned agency or instrumentality thereof.
. An international organization or any wholly-owned agency or instrumentality
thereof.
Payees specifically exempted from backup withholding on interest and dividend
payments include the following:
. A corporation.
. A financial institution.
. A registered dealer in securities or commodities registered in the U.S., the
District of Columbia, or a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947.
. An entity registered at all times during the tax year under the Investment
Company Act of 1940.
. A foreign central bank of issue.
. A middleman known in the investment community as a nominee or who is listed in
the most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends not paid in money.
. Payments made by certain foreign organizations.
. Section 404(k) payments made by an ESOP. Payments of interest not generally
subject to backup withholding include the following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
Exempt payees described above may file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE
FORM, AND RETURN IT TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A, 6045, 6050A, 6050N, and
their regulations.
Privacy Act Notice. Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes and to help verify the accuracy of tax returns. The IRS also may
provide this information to the Department of Justice for civil and criminal
litigation and to cities, states, and the District of Columbia to carry out
their tax laws. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) Penalty for Failure to Furnish Taxpayer identification Number.-If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) Civil Penalty for False information With Respect to Withholding.-If you make
a false statement with no reasonable basis that results in no backup
withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information.-Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
-18-
<PAGE>
EXHIBIT 99.2
THE WISER OIL COMPANY
NOTICE OF GUARANTEED DELIVERY
OFFER TO EXCHANGE ITS
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007 THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
Registered holders of outstanding 9 1/2% Senior Subordinated Notes due 2007
(the "Outstanding Notes") of The Wiser Oil Company (the "Company"), who wish to
tender their Outstanding Notes in exchange for a like principal amount of the
Company's 9 1/2% Senior Subordinated Notes due 2007 (the "Exchange Notes"), and
whose Outstanding Notes are not immediately available or who cannot complete the
procedures for book-entry transfer or deliver the Letter of Transmittal or other
required documents to Texas Commerce Bank National Association (the "Exchange
Agent") prior to the Expiration Date (as defined below), must use this Notice of
Guaranteed Delivery, or one substantially equivalent hereto, to accept the
Exchange Offer of the Company, made pursuant to the Prospectus dated _________,
1997 (as the same may be amended from time to time, the "Prospectus"). This
Notice of Guaranteed Delivery may be delivered by hand or overnight courier
service or sent by facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier service) or mailed to the
Exchange Agent. See "The Exchange Offer--Procedures for Tendering Outstanding
Notes--Guaranteed Delivery" in the Prospectus. Capitalized terms not used herein
are defined in the Prospectus.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON _______________, 1997, UNLESS EXTENDED (THE "EXPIRATION
DATE")
The Exchange Agent for the Exchange Offer is:
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By Mail: By Overnight Courier:
Texas Commerce Bank Texas Commerce Bank
National Association National Association
Attn: Frank Ivins-Personal and Attn: Frank Ivins-Personal and
Confidential Confidential
P.O. Box 2320 1201 Main Street, One Main Place,
Dallas, Texas 75221-2320 18th Floor
Dallas, Texas 75202
By Hand: By Facsimile Transmission:
Texas Commerce Bank (for Eligible Institutions Only)
National Association Texas Commerce Bank
Attn: Frank Ivins-Personal and National Association
Confidential Attn: Frank Ivins-Personal and
1201 Main Street, One Main Place Confidential
18th Floor (214) 672-5746
Dallas, Texas 75221-2320 Confirm by Telephone:
or (214) 672-5678
Texas Commerce Bank
National Association
Corporate Trust Securities Window
North Building, Room 234, Window 20
55 Water Street
New York, New York 10041
-1-
<PAGE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER 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, such signature guarantee must appear in
the applicable space provided on the Letter of Transmittal for Guarantee of
Signatures.
-2-
<PAGE>
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions contained in the Prospectus
and the accompanying Letter of Transmittal, receipt of which is hereby
acknowledged, the undersigned hereby tenders to the Company the principal amount
of Outstanding Notes set forth below, pursuant to the guaranteed delivery
procedures described in "The Exchange Offer--Procedures for Tendering
Outstanding Notes--Guaranteed Delivery" section of the Prospectus.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
NAME AND ADDRESS OF REGISTERED HOLDER CERTIFICATE NUMBER(S) PRINCIPAL AMOUNT
AS IT APPEARS ON THE OUTSTANDING NOTES OF OUTSTANDING NOTES TENDERED OF OUTSTANDING NOTES TENDERED/*/
- ---------------------------------------- ----------------------------- --------------------------------
<S> <C> <C>
- ---------------------------------------- ----------------------------- --------------------------------
- ---------------------------------------- ----------------------------- --------------------------------
- ---------------------------------------- ----------------------------- --------------------------------
- ---------------------------------------- ----------------------------- --------------------------------
</TABLE>
/*/ Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
All authority herein conferred or agreed to be conferred shall survive the
death, incapacity or dissolution of the undersigned, and every obligation of the
undersigned hereunder shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
x
----------------------------------- -------------------------------------
x
----------------------------------- -------------------------------------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:______________________________________________
Must be signed by the holder(s) of Outstanding Notes as their name(s)
appear(s) on certificates for Outstanding Notes or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement 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 set forth his or her full title below. If Outstanding Notes
will be delivered by book-entry transfer to The Depository Trust Company,
provide account number.
-3-
<PAGE>
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
Capacity:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
Address(es):
-------------------------------------------------------------
-------------------------------------------------------------
Account Number:
-------------------------------------------------------------
-4-
<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, or is otherwise an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, hereby guarantees (i) to deliver to the
Exchange Agent at one of its addresses set forth above, the certificates
representing the Outstanding Notes being tendered hereby, in proper form for
transfer, or (ii) confirmation of book-entry transfer of such Outstanding Notes
into the Exchange Agent's account at The Depository Trust Company, in each case
together with a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) or an Agent's Message, and any other required documents
within five New York Stock Exchange, Inc. trading days after the date of
execution of this Notice of Guaranteed Delivery.
- ------------------------------ -------------------------------------
Name of Firm (Authorized Signature)
- ------------------------------ -------------------------------------
Address Title
- ------------------------------ -------------------------------------
(Zip Code) Name (Please type or print)
- ------------------------------ -------------------------------------
Area Code and Telephone Number Date
NOTE: DO NOT SEND CERTIFICATES OF OUTSTANDING NOTES WITH THIS NOTICE OF
GUARANTEED DELIVERY. CERTIFICATES OF OUTSTANDING NOTES SHOULD BE SENT
ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
-5-
