AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1997
REGISTRATION NO. 333-21813
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BELLWETHER EXPLORATION COMPANY
ODYSSEY PETROLEUM COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 1311 76-0437769
DELAWARE 1311 76-0447672
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
1331 LAMAR, SUITE 1455, HOUSTON, TEXAS J. DARBY SERE
77010 1331 LAMAR, SUITE 1455, HOUSTON, TEXAS 77010
TELEPHONE: (713) 650-1025 TELEPHONE: (713) 650-1025
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
TELEPHONE NUMBER INCLUDING INCLUDING AREA CODE, OF AGENT FOR SERVICE)
AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
</TABLE>
------------------------
COPIES TO:
BUTLER & BINION, L.L.P. BAKER & BOTTS, L.L.P.
1000 LOUISIANA, SUITE 1600 2001 ROSS AVENUE
HOUSTON, TEXAS 77002 DALLAS, TEXAS 75201
ATTN: GEORGE G. YOUNG III ATTN: KERRY C.L. NORTH
TELEPHONE: (713) 237-3605 TELEPHONE: (214) 953-6707
TELECOPY: (713) 237-3202 TELECOPY: (214) 953-6503
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practical following the effective date of this Registration Statement.
If any securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus, one to be
used in connection with the offering of Common Stock ("Common Stock
Prospectus") and the other to be used in connection with the concurrent
offering of % Senior Subordinated Notes due 2007 (the "Notes Prospectus").
The closing of the offering being made pursuant to the Notes Prospectus and the
closing of the offering being made pursuant to the Common Stock Prospectus are
each conditioned on the consummation of the other and on the consummation of the
Pending Acquisition as described herein. The form of Common Stock Prospectus
immediately follows this page and is followed by the form of Notes Prospectus.
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED APRIL 3, 1997
PROSPECTUS
APRIL __, 1997
4,875,000 SHARES
BELLWETHER EXPLORATION COMPANY
COMMON STOCK
Of the 4,875,000 Shares of Common Stock offered hereby (the "Common Stock
Offering"), 4,400,000 Shares are being sold by Bellwether Exploration Company
("Bellwether" or the "Company") and 475,000 Shares are being sold by Selling
Stockholders. The Company will not receive any part of the proceeds of the sale
of Shares by the Selling Stockholders. The Common Stock is traded on the Nasdaq
National Market under the symbol "BELW." On April 2, 1997, the closing price
of the Common Stock was $9.50 per share.
The Common Stock Offering is being conducted concurrently with an offering
(the "Notes Offering") of % Senior Subordinated Notes due 2007 (the
"Notes") of the Company. The proceeds of the Common Stock Offering and the
Notes Offering, together with bank indebtedness, will be used to finance the
Pending Acquisition described herein and to refinance existing indebtedness. The
Common Stock Offering and the Notes Offering (collectively, the "Offerings")
are each conditioned on the consummation of the other and on the consummation of
the Pending Acquisition.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON
STOCK.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS PROCEEDS TO
THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
Total(3)............................. $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $1,400,000.
(3) THE SELLING STOCKHOLDERS AND THE COMPANY HAVE GRANTED THE UNDERWRITERS
OPTIONS, EXERCISABLE WITHIN 30 DAYS HEREOF, TO PURCHASE UP TO AN AGGREGATE
OF 719,264 AND 11,986 ADDITIONAL SHARES, RESPECTIVELY, AT THE PRICE TO THE
PUBLIC LESS UNDERWRITING DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF
COVERING OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTIONS
IN FULL, THE TOTAL PRICE TO THE PUBLIC, UNDERWRITING DISCOUNTS AND
COMMISSIONS, PROCEEDS TO THE COMPANY AND PROCEEDS TO THE SELLING
STOCKHOLDERS WILL BE $ , $ , $ AND $ ,
RESPECTIVELY. SEE "UNDERWRITING."
The Shares of Common Stock are offered by the several Underwriters when, as
and if issued to and accepted by them, subject to various prior conditions,
including their right to reject orders in whole or in part. It is expected that
delivery of Share certificates will be made in New York, New York on or about
April __, 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN & CO.
PRINCIPAL FINANCIAL SECURITIES, INC.
<PAGE>
[INSIDE COVER PAGE]
MAP
CERTAIN PERSONS PARTICIPATING IN THE COMMON STOCK OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH
THE COMMON STOCK OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON
STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THE COMMON STOCK OFFERING, CERTAIN UNDERWRITERS AND
SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE HEREIN. REFERENCES TO
"BELLWETHER" OR THE "COMPANY" HEREIN INCLUDE BELLWETHER EXPLORATION COMPANY
AND ITS PREDECESSORS AND SUBSIDIARIES UNLESS THE CONTEXT OTHERWISE REQUIRES.
BELLWETHER'S FISCAL YEAR ENDS ON JUNE 30. PRO FORMA INFORMATION REGARDING
BELLWETHER GIVES EFFECT TO THE PENDING ACQUISITION, THE OFFERINGS AND THE OTHER
TRANSACTIONS DESCRIBED UNDER "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA" (COLLECTIVELY, THE "TRANSACTIONS") AS IF THEY OCCURRED ON THE
DATES INDICATED. THE ESTIMATES AS OF JUNE 30, 1996 OF THE COMPANY'S NET PROVED
RESERVES ARE BASED ON THE REPORT OF WILLIAMSON PETROLEUM CONSULTANTS INC.
("WILLIAMSON"), AND THE ESTIMATES OF NET PROVED RESERVES OF THE ACQUIRED
PROPERTIES (AS HEREINAFTER DEFINED) ARE DERIVED FROM A RESERVE REPORT PREPARED
BY THE COMPANY AND AUDITED BY RYDER SCOTT COMPANY PETROLEUM ENGINEERS ("RYDER
SCOTT"). UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES
THE UNDERWRITERS' OVER-ALLOTMENT OPTIONS IN THE COMMON STOCK OFFERING WILL NOT
BE EXERCISED. CERTAIN TERMS RELATING TO THE OIL AND GAS INDUSTRY ARE DEFINED IN
"GLOSSARY."
THE COMPANY
Bellwether is an independent energy company primarily engaged in the
acquisition, exploitation, development and exploration of oil and gas
properties. The Company has grown and diversified its reserve base through the
acquisition of oil and gas properties and the subsequent development of these
properties. Bellwether's estimated net proved reserves have increased at a
compounded annual growth rate of 65.9%, from 1.6 MMBOE as of June 30, 1993 to
7.3 MMBOE as of June 30, 1996. During this period, average net daily production
increased at a compounded annual growth rate of 73.6%, from 618.0 BOE/d in
fiscal 1993 to 3,235.0 BOE/d in fiscal 1996, and EBITDA increased at a
compounded annual growth rate of 89.0%, from $1.6 million in fiscal 1993 to
$10.8 million in fiscal 1996. The Company's net cash flows from operations have
increased at a compounded annual growth rate of 67.4%, from $1.6 million in
fiscal 1993 to $7.5 million in fiscal 1996. The Company believes its primary
strengths are a demonstrated ability to identify and acquire properties which
have significant potential for further exploitation, development and
exploration, an inventory of development and exploration projects, expertise in
the use of advanced technologies such as 3-D seismic and horizontal drilling and
a conservative capital structure supportive of continued investment in its core
properties as well as additional acquisitions.
The Company has recently agreed to acquire (the "Pending Acquisition")
the oil and gas properties (the "Acquired Properties") and associated working
capital owned by partnerships and other entities (the "Sellers") managed or
sponsored by Torch Energy Advisors Incorporated ("Torch"). Bellwether believes
that the Pending Acquisition provides the opportunity to significantly increase
reserves and cash flow at an attractive price while providing opportunities for
future reserve growth through exploitation and exploration activities. On a pro
forma basis, Bellwether's estimated net proved reserves as of June 30, 1996 were
46.6 MMBOE (86% developed and 62% natural gas) with a PV-10 Value (pre-tax) of
$260.1 million. Pro forma average daily net production was 22.7 MBOE/d for
fiscal 1996 and pro forma EBITDA for fiscal 1996 was $74.9 million, excluding
non-recurring gas contract settlements payable to the Company aggregating $18.9
million. Following the Pending Acquisition, the Company's properties will be
concentrated in Texas, Louisiana, Alabama, California and the Gulf of Mexico.
BUSINESS STRATEGY
Bellwether's strategy is to maximize long-term shareholder value through
aggressive growth in reserves and cash flow using advanced technologies,
implementation of a low cost structure and maintenance of a capital structure
supportive of growth. Bellwether expects the additional cash flows from the
3
<PAGE>
Acquired Properties will finance a significant portion of its growth strategy.
Key elements of this strategy are:
OPPORTUNISTIC ACQUISITIONS
Bellwether seeks to acquire properties that have produced significant
quantities of oil and gas and have upside potential which can be exploited using
3-D seismic, computer aided exploration ("CAEX"), horizontal drilling,
workovers and other enhanced recovery techniques. Such acquisitions have
included the Fausse Pointe field in south Louisiana, the Cove field offshore
Texas and the Fort Trinidad field in east Texas.
EXPLOITATION AND DEVELOPMENT OF PROPERTIES
The Company actively pursues the exploitation of its properties through
recompletions, waterfloods and development wells, including horizontal drilling.
Examples of recent exploitation successes include a five well workover program
and two development wells in the Cove field, which increased Bellwether's
average net production in this field from 1.0 MMcf/d in January 1996 to 11.1
MMcf/d in February 1997. In addition, the Company recently drilled a successful
horizontal development well into the Buda formation in the Fort Trinidad field
which tested in January 1997 at 420 Bbls/d of oil. Bellwether also initiated a
waterflood project in the Fort Trinidad field during fiscal 1996. Future planned
exploitation projects include in excess of 20 horizontal drilling locations in
the Buda and Glen Rose B formations in the Fort Trinidad field and up to three
horizontal drilling locations to exploit the Company's exploratory success in
the Giddings field in the Austin Chalk formation. In addition, because the
Sellers were formed to distribute net cash flows rather than reinvest in the
exploitation of the Acquired Properties, the Company believes that such
properties will provide significant exploitation and development opportunities.
The Company's exploitation budget for fiscal 1997 is $8.6 million, of which
approximately $4.8 million had been spent as of December 31, 1996. During fiscal
1997, the capital expenditures on the Acquired Properties are estimated to be
$23.2 million of which $5.7 million had been spent as of December 31, 1996. For
fiscal 1998, the Company has identified exploitation projects totaling $25.2
million (including amounts to be spent on the Acquired Properties).
EXPLORATION ACTIVITIES
The Company's exploration activities focus on projects with potential for
substantial reserve increases. In January 1997, the Company completed a
successful exploration well in the Austin Chalk formation in the Giddings field
in central Texas. Exploration projects in the remainder of fiscal 1997 and in
fiscal 1998 include multiple wells in the Fausse Pointe field and an exploration
well west of the Cove field, both of which are operated by the Company. In
addition, the Company also expects the Acquired Properties to present
exploration opportunities. For example, in the Ship Shoal complex in the Gulf of
Mexico, the Sellers declined to acquire available 3-D seismic surveys and to
participate in six offshore exploration or exploitation wells in 1996, all of
which were successful. The Company plans to acquire this and other 3-D seismic
surveys of the Acquired Properties and to participate in future wells based on
its interpretation of the data. During fiscal 1997, the Company has budgeted
$4.8 million for exploration, of which $2.1 million had been spent as of
December 31, 1996. For fiscal 1998, the Company has identified exploration
projects totaling $17.6 million (including amounts to be spent on the Acquired
Properties).
ADVANCED TECHNOLOGY
The Company seeks to improve the efficiency and reduce the risks associated
with its exploration and exploitation activities using advanced technologies.
These advanced technologies include 3-D seismic, CAEX techniques and horizontal
drilling. The Company acquired a 3-D survey on the Cove field, conducted a 3-D
survey on the Fausse Pointe field and plans to acquire three 3-D surveys on
certain of the Acquired Properties. The Company believes its existing properties
and the Acquired Properties will benefit from the application of advanced
technologies.
4
<PAGE>
TORCH RELATIONSHIP
The Company operates under an Administrative Services Agreement with Torch.
Torch has a staff of 39 geologists, geophysicists, reservoir engineers and
landmen and 59 financial personnel and professionals. The Company believes that
its relationship with Torch provides it with access to acquisition opportunities
and financial and technical expertise that are generally only available to
significantly larger companies. In addition, the fees payable to Torch reduce
significantly on a BOE basis as the Company's asset base and production grow.
LOW COST STRUCTURE
The Company's cost structure will benefit from the Pending Acquisition and
the Company believes that its larger asset and production base will allow it to
maintain a low cost structure prospectively. Because general and administrative
costs are spread over higher production, pro forma general and administrative
costs per BOE in fiscal 1996 and the six months ended December 31, 1996 were
$1.01 and $0.99, respectively, compared with $2.55 and $2.37, respectively, on a
historical basis.
PENDING ACQUISITION
In March 1997, the Company agreed to purchase the Acquired Properties and
an estimated $18.0 million of working capital for $188.3 million, plus a
contingent payment of up to $9.0 million, the actual amount of which will be
based on 1997 gas prices (the "Contingent Payment"). The effective date of the
Pending Acquisition is July 1, 1996 and the estimated net adjusted purchase
price assuming an April 8, 1997 closing date is $141.9 million plus the
Contingent Payment. As of June 30, 1996, estimated net proved reserves
attributable to the Acquired Properties were 39.2 MMBOE (89% developed and 59%
gas) with a PV-10 Value (pre-tax) of $212.0 million.
The Company will finance the cash portion of the Pending Acquisition and
related fees, estimated to aggregate $173.8 million, including repayment of an
estimated $12.0 million of existing indebtedness with the proceeds of the
Offerings (estimated to be $144.6 million) and $29.3 million of borrowings under
its new credit facility ("New Credit Facility"). Torch and a subsidiary of
Torchmark Corporation ("Torchmark"), the parent corporation of a Selling
Stockholder, have interests in the Acquired Properties and will receive an
estimated $18.0 million and $12.7 million, respectively, of the purchase price
paid for the Acquired Properties. Torch and Torchmark will also receive fees
payable in cash and Common Stock in connection with the Pending Acquisition
aggregating an estimated $3.3 million. See "Risk Factors -- Conflicts of
Interest" and "Transactions with Related Persons." The Pending Acquisition
will close simultaneously with the Offerings, except that Bellwether has agreed
to acquire the interest of one investor which owns less than $2.2 million of
properties on April 15, 1997. See "Business and Properties_-- Structure of the
Pending Acquisition."
The Company has identified for divestiture non-core properties representing
approximately 10% of the estimated net proved reserves attributable to the
Acquired Properties as of June 30, 1996. These properties are primarily small
working interests in geographically diverse locations, with generally low
production rates and cash flows, and limited potential for development. The
Company expects to sell these properties during fiscal 1997 and fiscal 1998. The
net proceeds from these divestitures, which will be used to repay indebtedness,
are currently estimated to be $15 million, but will depend on prevailing market
conditions at the time of sale.
The Company's address is 1331 Lamar, Suite 1455, Houston, TX 77010, and its
phone number is (713) 650-1025.
5
<PAGE>
THE COMMON STOCK OFFERING
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<S> <C>
Shares of Common Stock offered by the
Company............................ 4,400,000 shares
Shares of Common Stock offered by the
Selling Stockholders............... 475,000 shares
Shares of Common Stock outstanding
after the Offerings(a)(b):......... 13,707,979 shares
Notes Offering....................... Concurrently with the Common Stock Offering, the
Company is offering $100,000,000 aggregate
principal amount of Notes to the public. The
closings of the Common Stock Offering and the Notes
Offering are contingent upon each other and upon
the consummation of the Pending Acquisition. See
"Notes Offering."
Use of Proceeds...................... The Company will use the proceeds of the Common
Stock Offering and the Notes Offering, together
with bank borrowings under the New Credit Facility
(collectively, the "Financing"), to finance the
cash portion of the Pending Acquisition, to repay
bank borrowings under the Company's existing credit
facility and to pay transaction costs. See "Use of
Proceeds."
Nasdaq National Market symbol........ "BELW"
</TABLE>
- -----------------------------
(a) Excludes 1,115,325 shares of Common Stock issuable upon exercise of
incentive stock options currently outstanding, 187,500 shares of Common
Stock issuable upon exercise of a warrant held by a subsidiary of Torchmark,
and 60,000 shares of Common Stock issuable upon exercise of warrants held by
Howard, Weil, Labouisse, Friedrichs Incorporated and Principal Financial
Securities, Inc.
(b) Includes 150,000 shares of Common Stock to be issued to Torch for advisory
services rendered in connection with the Pending Acquisition. Excludes
100,000 shares of Common Stock issuable upon the exercise of warrants to be
issued to Torch for advisory services.
RISK FACTORS
See "Risk Factors" for a discussion of certain matters that should be
considered in evaluating an investment in the Common Stock.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables set forth summary historical financial data of the
Company for the three fiscal years ended June 30, 1996, and the six months ended
December 31, 1995 and 1996, as well as summary unaudited pro forma financial
data of the Company for the fiscal year ended June 30, 1996 and the six months
ended December 31, 1996. Pro forma statement of operations data give effect to
the Transactions as if they occurred on June 30, 1995 and pro forma balance
sheet data give effect to the Transactions as if they occurred on December 31,
1996. The unaudited financial information as of December 31, 1996, and for the
six months ended December 31, 1995 and 1996 has been prepared by the Company in
accordance with generally accepted accounting principles and reflects all
adjustments (consisting of normal recurring adjustments) necessary for a fair
statement, in all material respects, of the results for the interim periods
presented. Certain financial statement items in the interim 1995 period have
been reclassified to conform to the interim 1996 presentation. The unaudited pro
forma financial data are not necessarily indicative of the financial results
that would have occurred had the Transactions been effective on and as of the
dates indicated and should not be viewed as indicative of operations in future
periods. These data should be read in conjunction with "Capitalization,"
"Unaudited Pro Forma Condensed Consolidated Financial Data," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------------------------- --------------------------------
1994 1995 1996 1995 1996
--------- -------- --------------------- --------- --------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gas revenues..................... $ 2,620 $ 4,864 $ 9,856 $ 63,765 $ 4,186 $ 6,759 $34,418
Oil revenues..................... 1,086 3,643 5,810 48,111 2,956 3,087 24,619
Gas plant and gas gathering
revenues(a).................... 6,930 10,705 8,719 8,802 4,923 3,879 3,881
Interest income and other........ 63 97 116 20,291 (b) 57 53 393(b)
--------- -------- -------- --------- --------- ------- ---------
Total revenues..................... 10,699 19,309 24,501 140,969 12,122 13,778 63,311
--------- -------- -------- --------- --------- ------- ---------
Expenses:
Operating expenses............... 5,307 8,934 10,502 38,644 5,453 4,888 19,394
General and administrative
expenses....................... 1,234 2,739 3,013 8,362 1,559 1,452 3,439
Depreciation, depletion and
amortization................... 2,489 5,269 8,148 42,969 3,866 4,167 18,299
Interest expense................. 721 1,245 1,657 12,664 956 520 6,557
Other expense.................... -- -- 153 153 155 -- --
--------- -------- -------- --------- --------- ------- ---------
Total expenses..................... 9,751 18,187 23,473 102,792 11,989 11,027 47,689
--------- -------- -------- --------- --------- ------- ---------
Income before income taxes and
minority interest in gas plant
ventures......................... 948 1,122 1,028 38,177 133 2,751 15,622
Net income......................... $ 814 $ 941 $ 982 $ 24,387 $ 1 $ 1,733 $ 9,842
========= ======== ======== ========= ========= ======= =========
Net income per share(c).............. $ 0.27 $ 0.12 $ 0.11 $ 1.79 $ 0.00 $ 0.19 $ 0.72
========= ======== ======== ========= ========= ======= =========
Weighted average common and common
equivalent shares outstanding(c)... 3,006 7,713 9,052 13,602 9,045 9,118 13,668
========= ======== ======== ========= ========= ======= =========
OTHER FINANCIAL DATA:
Capital expenditures............... $ 22,034 $ 41,901 $ 6,999 -- $ 1,174 $ 7,475 --
EBITDA(d).......................... $ 4,158 $ 7,636 $ 10,833 $ 74,943 (e) $ 4,955 $ 7,438 $40,602(e)
EBITDA/interest expense............ 5.77 6.13 6.54 5.92 5.18 14.30 6.19
Net cash flows provided by
operating activities............. $ 3,122 $ 5,283 $ 7,485 -- $ 3,496 $ 7,105 --
Net cash flows (used in) provided
by investing activities.......... $ (9,423) $(27,289) $ 3,542 -- $ (1,174) $(5,810) --
Net cash flows provided by (used
in) by financing activities...... $ 7,334 $ 21,642 $(11,332) -- $ (1,000) $(1,628) --
Ratio of earnings to fixed
charges(f)....................... 2.31 1.90 1.62 4.01 1.14 6.29 3.38
</TABLE>
7
<PAGE>
DECEMBER 31, 1996
-------------------------
ACTUAL PRO FORMA
BALANCE SHEET DATA:
Working capital.................. $ 4,357 $ 22,393
Total assets..................... 68,982 240,122
Long term debt, net of current
maturities...................... 11,000 128,251
Stockholders' equity............. 48,751 92,215
- -----------------------------
(a) In March 1996 Bellwether assumed a contract to purchase gas at $4.50 per
MMBtu (the "Contract Assumption"), for which Bellwether received $9.9
million. As a result of this transaction, Bellwether ceased to recognize gas
gathering revenues and expenses. Historical gas gathering revenues were $2.4
million, $5.0 million and $3.4 million, respectively, for the years ended
June 30, 1994, 1995 and 1996, and $2.5 million for the six months ended
December 31, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- Six Months
Ended December 31, 1995 Compared With December 31, 1996 -- Revenues."
(b) Includes $18.9 million and $(124,000), respectively, of revenues and
expenses attributable to non-recurring gas contract settlements for the year
ended June 30, 1996 and the six months ended
December 31, 1996.
(c) Restated to reflect a 1-for-8 reverse stock split consummated in fiscal
1994.
(d) EBITDA is defined as income before income taxes, interest, depreciation,
depletion and amortization. Management of the Company believes that EBITDA
may provide additional information about the Company's ability to meet its
future requirements for debt service, capital expenditures and working
capital. EBITDA is a financial measure commonly used in the Company's
industry and should not be considered in isolation or as a substitute for
net income, cash flow provided by operating activities or other income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of the Company's profitability or liquidity.
(e) Pro forma EBITDA for the year ended June 30, 1996 and for the six months
ended December 31, 1996 exclude $18.9 million and $(124,000), respectively,
of revenues and expenses attributable to non-recurring gas contract
settlements.
(f) For purposes of computing the ratio of earnings to fixed charges,
"Earnings" are consolidated earnings (loss) from continuing operations
before tax, exclusive of the period's undistributed equity earnings of
affiliated companies, plus fixed charges. "Fixed charges" are comprised of
interest on indebtedness, amortization of debt issuance costs and that
portion of capital lease expense which is deemed to be representative of an
interest factor.
8
<PAGE>
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, SIX MONTHS ENDED DECEMBER 31,
----------------------------------------- ----------------------------------
1994 1995 1996 1995 1996
------------------ --------------------
PRO PRO
ACTUAL FORMA(a) ACTUAL FORMA(b)
<S> <C> <C> <C> <C> <C> <C> <C>
PRODUCTION DATA:
Oil (MBbls)........................ 71 216 334 3,124 184 143 1,302
Gas (MMcf)......................... 1,206 2,932 5,099 31,080 2,428 2,814 12,962
Oil equivalent (MBOE).............. 272 705 1,184 8,304 589 612 3,462
AVERAGE SALES PRICE(C):
Oil (per Bbl)...................... $ 15.27 $ 16.89 $17.81 $15.40 $ 16.04 $21.59 $18.91
Gas (per Mcf)(d)................... 2.17 1.66 2.02 2.05 1.72 2.40 2.66
COSTS PER BOE:
Production costs, including ad
valorem and severance taxes...... $ 4.75 $ 4.05 $ 4.49 $ 4.03 $ 4.16 $ 5.00 $ 5.07
Depreciation, depletion and
amortization..................... 5.71 5.52 5.86 4.90 5.39 6.09 5.00
General and administrative......... 4.54 3.89 2.55 1.01 2.65 2.37 0.99
GAS PLANT DATA:
Net gas processed (MMcf)........... 10,746 8,780 7,548 7,548 3,679 3,172 3,172
Net NGL sales (MBbls).............. 375 382 321 321 158 173 173
Average sales price per Bbl........ $ 10.50 $ 12.18 $13.02 $13.02 $ 11.72 $18.10 $18.10
</TABLE>
- -----------------------------
(a) Gives effect to the Transactions as if they had occurred on June 30, 1995.
(b) Gives effect to the Transactions as if they had occurred on June 30, 1996.
(c) Average sales price does not include the effect of hedge transactions.
(d) Average sales price for natural gas includes revenues received from the sale
of natural gas liquids removed from the Company's gas production.
The following table sets forth historical reserve information derived from
reserve reports prepared by the Company's independent reserve engineers and pro
forma reserve information derived from such reserve reports together with a
reserve report regarding the Acquired Properties prepared by the Company and
audited by Ryder Scott.
SUMMARY RESERVE DATA
<TABLE>
<CAPTION>
AS OF JUNE 30,
---------------------------------------------
1994 1995 1996
-----------------------
PRO
ACTUAL FORMA(a)
<S> <C> <C> <C> <C>
ESTIMATED NET PROVED RESERVES:
Oil (MBbls)........................ 393 2,597 1,808 17,858
Gas (MMcf)......................... 10,671 30,159 33,196 172,253
Oil equivalent (MBOE).............. 2,172 7,623 7,341 46,567
PV-10 Value (pre-tax) ($000)....... 12,044 37,291 48,140 260,132
Standardized measure of discounted
future net cash flows (after-tax)
($000)........................... 12,044 37,291 45,176 223,262
</TABLE>
- -----------------------------
(a) Gives effect to the Transactions as if they had occurred on June 30, 1995.
9
<PAGE>
RISK FACTORS
THIS PROSPECTUS INCLUDES "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 ("EXCHANGE
ACT"). ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION, STATEMENTS UNDER "PROSPECTUS
SUMMARY," "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS AND PROPERTIES" REGARDING THE COMPANY'S FINANCIAL
POSITION, ESTIMATED QUANTITIES AND NET PRESENT VALUES OF RESERVES, BUSINESS
STRATEGY, PLANS AND OBJECTIVES FOR FUTURE OPERATIONS AND COVENANT COMPLIANCE,
ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UPON WHICH SUCH FORWARD-LOOKING STATEMENTS ARE BASED ARE REASONABLE,
IT CAN GIVE NO ASSURANCES THAT SUCH ASSUMPTIONS WILL PROVE TO HAVE BEEN CORRECT.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED BELOW AND
ELSEWHERE IN THIS PROSPECTUS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE
EXPRESSLY QUALIFIED BY THE CAUTIONARY STATEMENTS. PROSPECTIVE PURCHASERS OF
SECURITIES OFFERED HEREBY SHOULD CAREFULLY CONSIDER, TOGETHER WITH OTHER
INFORMATION IN THIS PROSPECTUS, THE FOLLOWING FACTORS THAT AFFECT THE COMPANY.
VOLATILITY OF OIL AND GAS PRICES AND MARKETS
The Company's financial condition, operating results, future growth and the
carrying value of its oil and gas properties are substantially dependent on
prevailing prices of oil and gas. The Company's ability to maintain or increase
its borrowing capacity and to obtain additional capital on attractive terms is
also substantially dependent upon oil and gas prices. Prices for oil and gas are
subject to large 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 control of the Company. These factors include
weather conditions in the United States, the condition of the United States
economy, the actions of the Organization of Petroleum Exporting Countries,
governmental regulation, political stability in the Middle East and elsewhere,
the foreign supply of oil and gas, the price of foreign imports and the
availability of alternate fuel sources. Any substantial and extended decline in
the price of oil or gas would have an adverse effect on the Company's carrying
value of its proved reserves, its borrowing capacity, its ability to obtain
additional capital, and its revenues, profitability and cash flows.
Volatile oil and gas prices make it difficult to estimate the value of
producing properties in connection with acquisitions and often cause disruption
in the market for oil and gas producing properties, as buyers and sellers have
difficulty agreeing on such value. Price volatility also makes it difficult to
budget for and project the return on acquisitions and exploitation, development
and exploration projects.
The availability of a ready market for the Company's oil and natural gas
production also depends on a number of factors, including the demand for and
supply of oil and natural gas and the proximity of reserves to, and the capacity
of, oil and natural gas gathering systems, pipelines or trucking and terminal
facilities. Wells may temporarily be shut-in for lack of a market or due to
inadequacy or unavailability of pipeline or gathering system capacity.
ABILITY TO REPLACE RESERVES
The Company's future performance depends upon its ability to find, develop
and acquire additional oil and gas reserves that are economically recoverable.
The proved reserves of Bellwether will generally decline as reserves are
depleted. The Company therefore must locate and develop or acquire new oil and
gas reserves to replace those being depleted by production. Because the
Company's reserves on a pro forma basis are characterized by relatively rapid
decline rates, without successful exploration, development or acquisition
activities, the Company's revenues will decline rapidly. No assurances can be
given that the Company will be able to find and develop or acquire additional
reserves at an acceptable cost.
10
<PAGE>
ACQUISITION RISKS
The Company's rapid growth in recent years has been attributable in
significant part to acquisitions of oil and gas properties. The Company expects
to continue to evaluate and, where appropriate, pursue acquisition opportunities
on terms management considers favorable to the Company. There can be no
assurance that suitable acquisition candidates will be identified in the future,
or that the Company will be able to finance such acquisitions on favorable
terms. In addition, the Company competes against other companies for
acquisitions, and there can be no assurances that the Company will be successful
in the acquisition of any material property interests. Further, there can be no
assurances that any future acquisitions made by the Company will be integrated
successfully into the Company's operations or will achieve desired profitability
objectives.
The successful acquisition of producing properties requires an assessment
of recoverable reserves, exploration and exploitation potential, future oil and
natural gas prices, operating costs, potential environmental and other
liabilities and other factors beyond the Company's control. In connection with
such an assessment, the Company performs a review of the properties that it
believes to be generally consistent with industry practices. Nonetheless, the
resulting assessments are necessarily inexact and their accuracy inherently
uncertain, and such a review may not reveal all existing or potential problems,
nor will it necessarily permit the Company to become sufficiently familiar with
the properties to fully assess their merits and deficiencies. Inspections may
not always be performed on every well, and structural and environmental problems
are not necessarily observable even when an inspection is undertaken. In
addition, sellers of properties may be unwilling or financially unable to
indemnify the Company for known liabilities at the time of an acquisition.
Additionally, significant acquisitions can change the nature of the
operations and business of the Company depending upon the character of the
acquired properties, which may be substantially different in operating and
geologic characteristics or geographic location than existing properties. While
the Company's pro forma operations will be focused in Texas, Louisiana, Alabama,
California and the Gulf of Mexico, there is no assurance that the Company will
not pursue acquisitions or properties located in other geographic areas.
In connection with the Pending Acquisition, Bellwether will assume or
otherwise become liable for all obligations with respect to operations of the
Acquired Properties, including environmental and operational liabilities,
unknown liabilities, and liabilities arising prior to the closing date.
DRILLING RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive 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
natural gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain and cost overruns are common.
The Company's drilling operations may be curtailed, delayed or canceled as a
result of numerous factors, many of which are beyond the Company's control,
including title problems, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of equipment and services.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital
expenditures for the exploitation, exploration, acquisition and production of
oil and gas reserves. Historically, the Company has financed these expenditures
primarily with cash generated by operations, proceeds from bank borrowings and
sales of its Common Stock. The Company believes that it will have sufficient
cash flows provided by operating activities, the proceeds of the Offerings and
borrowings under the New Credit Facility to fund such planned capital
expenditures. If revenues or the Company's borrowing base decrease as a result
of lower oil and gas prices, operating difficulties or declines in reserves, the
Company may have limited ability to expend the
11
<PAGE>
capital necessary to undertake or complete future drilling programs. There can
be no assurance that additional debt or equity financing or cash generated by
operations will be available to meet these requirements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity."
SIGNIFICANT LEVERAGE AND DEBT SERVICE
Following the Pending Acquisition and the Offerings, the Company will be
highly leveraged with pro forma outstanding indebtedness of $129.3 million. On a
pro forma basis, as of December 31, 1996, the Company's ratio of total debt to
total capitalization would have been 58.2% compared with 18.4% on a historical
basis. The Company intends to sell properties, for estimated proceeds of $15
million, to reduce such indebtedness. The Company has not identified a purchaser
for these properties and no assurance can be given of the ability of the Company
to sell such properties, the price that will be received or as to whether the
sales price of such assets will exceed the book value of such assets.
The Company's level of indebtedness will have several important effects on
its future operations, including (i) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of interest on its
indebtedness and will not be available for other purposes, (ii) covenants
contained in the Company's debt obligations will require the Company to meet
certain financial tests, and other restrictions will limit its ability to borrow
additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in its business, including
possible acquisition activities and (iii) the Company's ability to obtain
financing in the future for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired. The Company's
ability to meet its debt service obligations and to reduce its total
indebtedness will be dependent upon the Company's future performance, which will
be subject to general economic conditions and to financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control. There can be no assurance that the Company's future performance will
not be adversely affected by such economic conditions and financial, business
and other factors. See " -- Volatility of Oil and Gas Prices and Markets,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Capital Resources and Liquidity."
ADMINISTRATIVE SERVICES AGREEMENT; RELIANCE ON TORCH
The Company currently has eight employees. The Company is party to an
Administrative Services Agreement with Torch, pursuant to which Torch performs
certain administrative and technical functions for the Company, including
financial, accounting, legal, geological, engineering and technical support. The
Company believes that its relationship with Torch provides the Company with
access to professional, technical and administrative personnel not otherwise
available to a company of its size. Bellwether believes that if the
Administrative Services Agreement were terminated Bellwether could, over time,
hire experienced personnel and acquire the accounting and reporting systems and
other assets necessary to replace Torch. However, the unanticipated termination
of the Administrative Services Agreement could have a material adverse effect
upon the Company. The Administrative Services Agreement may be terminated by
Bellwether upon one year's prior notice and may not be terminated by Torch prior
to December 31, 1999. See "Transactions with Related Persons -- Relationship
with Torch and Affiliates."
CONFLICTS OF INTEREST
Torch and Bellwether have a common director and certain common officers.
Certain members of the Boards of Directors and management of Torch and
Bellwether were therefore subject to conflicts of interest in connection with
negotiating or approving the terms of the Pending Acquisition and the fees to be
received by Torch in connection with the Pending Acquisition. In addition, under
the Administrative Services Agreement, Bellwether relies on Torch to perform
title, environmental, operational and other due diligence reviews of acquisition
prospects, and Bellwether does not have personnel to independently perform all
of these functions in connection with the acquisition of the Acquired
Properties. Bellwether therefore relied on Torch to perform certain of these
functions in connection with the Pending Acquisition.
12
<PAGE>
Torch owns interests in each of the Sellers, and will receive an estimated
$18.0 million of the purchase price paid in connection with the Pending
Acquisition. Torch will also receive 150,000 shares of Common Stock and warrants
to purchase an aggregate of 100,000 shares of Common Stock at 120% of the price
to the public in the Common Stock Offering at any time for five years following
the closing of the Pending Acquisition as fees for advisory services in
connection with the Pending Acquisition.
Torchmark, which prior to the Offerings beneficially owned interests in
certain of the Sellers, will receive an estimated $12.7 million of the purchase
price paid in connection with the Pending Acquisition. In connection with the
Pending Acquisition, Torchmark, Torch and all investors in the Sellers will
settle certain disagreements relating to fees and other amounts paid by the
Sellers to Torch for oil and gas marketing and sales of non-strategic
properties. Pursuant to an existing agreement with Torch, Torchmark will make a
cash payment on behalf of Torch to such investors in order to settle such
disagreements. Torchmark, Torch, such investors and their agents and affiliates
will release each other from any liability arising out of, or related to, among
other things, such matters. In connection with such settlement, Bellwether will
pay Torchmark $1.5 million and (as successor to the Sellers as a result of the
Pending Acquisition) also will be released by the investors from all such
liabilities. See "Transactions with Related Persons -- Pending Acquisition."
Bellwether formed a special committee of its Board of Directors (the
"Special Committee") composed of directors who are not employees of the
Company and who are not affiliated with Torch to consider and approve the terms
of the acquisition of the Acquired Properties and the fees paid to Torch. The
Special Committee retained legal counsel to advise it in connection with its
duties, and retained Ryder Scott to audit the reserve estimates prepared by
Torch on behalf of the Company in connection with the determination of the
purchase price for the Acquired Properties. In addition, the Special Committee
retained Principal Financial Securities, Inc. ("Principal") to advise it in
connection with the terms of the acquisition of the Acquired Properties.
Principal is also an underwriter in the Common Stock Offering. Principal issued
its opinion that the Pending Acquisition is fair to the Company from a financial
point of view and the Special Committee approved the terms of the purchase of
the Acquired Properties and fees payable to Torch prior to the execution of the
definitive agreement for the Pending Acquisition. No assurances can be made,
however, that the terms of the purchase of the Acquired Properties or the fees
paid to Torch are as favorable to the Company as the terms that would have been
negotiated in a transaction between persons who were not affiliates.
Torch also renders administrative services to Nuevo Energy Company, a
publicly traded independent oil and gas company ("Nuevo"), and may manage or
render management or administrative services for other energy companies in the
future. These services may include the review and recommendation of potential
acquisitions. It is possible that conflicts may occur between Nuevo and
Bellwether in connection with possible acquisitions or otherwise in connection
with the services rendered by Torch. Although the Administrative Services
Agreement provides for procedures to reconcile conflicts of interest between
Nuevo and the Company, no assurances can be made that such procedures will fully
protect the Company from losses which may occur if a conflict between the
Company and Nuevo arises. In addition, Nuevo and the Company have two common
directors. See "Transactions with Related Persons -- Relationship with Torch
and Affiliates."
ESTIMATES OF OIL AND GAS RESERVES
This Prospectus contains estimates of oil and gas reserves owned by the
Company on June 30, 1994, 1995 and 1996, and the future net cash flows
attributable to those reserves, prepared by independent petroleum engineers. In
addition, the Prospectus contains estimates of oil and gas reserves attributable
to the Acquired Properties, and the future net cash flows attributable to those
reserves, prepared by the Company and audited by Ryder Scott. There are numerous
uncertainties inherent in estimating quantities of proved reserves and cash
flows attributable to such reserves, including factors beyond the control of the
Company and the reserve engineers. Reserve engineering is a subjective process
of estimating underground accumulations of oil and gas that cannot be measured
in an exact manner. The accuracy of an estimate of quantities of reserves, or of
cash flows attributable to such reserves, is a function of the available data,
assumptions
13
<PAGE>
regarding future oil and gas prices and expenditures for future development and
exploitation activities, and of engineering and geological interpretation and
judgment. Additionally, reserves and future cash flows may be subject to
material downward or upward revisions based upon production history, development
and exploitation activities and prices of oil and gas. Actual future production,
revenue, taxes, development expenditures, operating expenses, quantities of
recoverable reserves and the value of cash flows from such reserves may vary
significantly from the assumptions and estimates set forth herein. In addition,
reserve engineers may make different estimates of reserves and cash flows based
on the same available data. In calculating reserves on a MBOE basis, gas was
converted to oil equivalent at the ratio of six Mcf of gas to one Bbl of oil.
While this ratio approximates the energy equivalency of gas to oil on a Btu
basis, it may not represent the relative prices received by the Company on the
sale of its oil and gas production.
The estimated quantities of proved reserves and the discounted present
value of future net cash flows attributable to estimated proved reserves set
forth in this Prospectus were prepared or audited by the reserve engineers in
accordance with the rules of the Securities and Exchange Commission (the
"SEC"), and are not intended to represent the fair market value of such
reserves.
HEDGING OF PRODUCTION
Part of the Company's business strategy is to reduce its exposure to the
volatility of oil and gas prices by hedging a portion of its production. In a
typical hedge transaction, the Company will have the right to receive from the
counterparty to the hedge, the excess of the fixed price specified in the hedge
over a floating price based on a market index, multiplied by the quantity
hedged. If the floating price exceeds the fixed price, the Company is required
to pay the counterparty this difference multiplied by the quantity hedged. In
such case, the Company is required to pay the difference regardless of whether
the Company has sufficient production to cover the quantities specified in the
hedge. Significant reductions in production at times when the floating price
exceeds the fixed price could require the Company to make payments under the
hedge agreements even though such payments are not offset by sales of
production. Hedging will also prevent the Company from receiving the full
advantage of increases in oil or gas prices above the fixed amount specified in
the hedge. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General."
OPERATING HAZARDS, OFFSHORE OPERATIONS AND UNINSURED RISKS
Bellwether's operations are subject to risks inherent in the oil and gas
industry, such as blowouts, cratering, explosions, uncontrollable flows of oil,
gas or well fluids, fires, pollution, earthquakes and environmental risks. These
risks 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. Moreover, a portion
of the Company's operations are offshore and therefore are subject to a variety
of operating risks peculiar to the marine environment, such as hurricanes or
other adverse weather conditions, to more extensive governmental regulation,
including regulations that may, in certain circumstances, impose strict
liability for pollution damage, and to interruption or termination of operations
by governmental authorities based on environmental or other considerations.
The Company's operations could result in liability for personal injuries,
property damage, oil spills, discharge of hazardous materials, remediation and
clean-up costs and other environmental damages. The Company could be liable for
environmental damages caused by previous property owners. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could have a material adverse effect on the
Company's financial condition and results of operations. The Company maintains
insurance coverage for its operations, including limited coverage for sudden
environmental damages, but does not believe that insurance coverage for
environmental damages that occur over time is available at a reasonable cost.
Moreover, the Company does not believe that insurance coverage for the full
potential liability that could be caused by sudden environmental damages is
available at a reasonable cost. Accordingly, the Company may be subject to
liability or may lose substantial portions of its properties in the event of
certain environmental damages.
14
<PAGE>
ENVIRONMENTAL AND OTHER REGULATION
The Company's operations are subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise relating
to environmental protection. These laws and regulations require the acquisition
of a permit before drilling commences, restrict the types, quantities and
concentration of various substances that can be released into the environment in
connection with drilling and production activities, limit or prohibit drilling
activities on certain lands lying within wilderness, wetlands and other
protected areas, and impose substantial liabilities for pollution resulting from
the Company's operations. Moreover, the recent trend toward stricter standards
in environmental legislation and regulation is likely to continue. For instance,
legislation has been proposed in Congress from time to time that would
reclassify certain oil and gas exploration and production wastes as "hazardous
wastes" which would make the reclassified wastes subject to much more stringent
handling, disposal and clean-up requirements. If such legislation were to be
enacted, it could have a significant impact on the operating costs of the
Company, as well as the oil and gas industry in general. Initiatives to further
regulate the disposal of oil and gas wastes are also pending in certain states,
and these various initiatives could have a similar impact on the Company.
Management believes that the Company is in substantial compliance with current
applicable environmental laws and regulations.
The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution Act
of 1990, could have a material adverse impact on the Company. See "Business and
Properties -- Competition, Markets and Regulation."
COMPETITION
The Company operates in the highly competitive areas of oil and gas
exploration, development and production. The Company's competitors include major
integrated oil and gas companies and substantial independent energy companies,
many of which possess greater financial and other resources than the Company.
See "Business and Properties -- Competition, Markets and Regulation."
MANDATORY OFFER TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL
The Indenture governing the Notes provides that upon the occurrence of a
Change of Control the Company is required to offer to repurchase any or all of
the outstanding Notes at a price equal to 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase. Generally, a "Change of Control" includes (i) the acquisition
(including any acquisition by merger or consolidation) by any person or group of
more than 50% of the voting stock of the Company, (ii) the sale or transfer of
substantially all of the assets of the Company, (iii) certain replacements of a
majority of the Board of Directors of the Company over a two-year period or (iv)
the liquidation or dissolution of the Company. Should a Change of Control occur,
there is no assurance that the Company will have available funds sufficient to
pay for the Notes tendered for repurchase. In the event an offer to repurchase
is required to be made and the Company does not have available funds sufficient
to pay for Notes tendered for repurchase, an event of default would occur under
the Indenture.
15
<PAGE>
NOTES OFFERING
Concurrently with the Common Stock Offering, the Company is offering $100
million aggregate principal amount of its % Senior Subordinated Notes due
2007. The Common Stock Offering and the Notes Offering are contingent upon each
other and upon the closing of the Pending Acquisition. See "Description of
Indebtedness."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the Nasdaq National Market under the symbol
"BELW." The following table sets forth the high and low sales prices, as
reported by the Nasdaq National Market for the periods indicated. The last
reported sale price for the Common Stock on April 2, 1997 on the Nasdaq National
Market was $9.50 per share. As of June 30, 1996, there were approximately 1,148
record holders of the Common Stock.
PRICE RANGE OF
COMMON STOCK
--------------------
YEAR ENDED JUNE 30, 1995: HIGH LOW
1st Quarter 1994..................... $ 6 1/2 $ 5 1/8
2nd Quarter 1994..................... $ 6 $ 4 5/8
3rd Quarter 1995..................... $ 6 1/4 $ 4 5/8
4th Quarter 1995..................... $ 6 3/4 $ 5 1/2
YEAR ENDED JUNE 30, 1996:
1st Quarter 1995..................... $ 6 1/4 $ 5
2nd Quarter 1995..................... $ 6 1/8 $ 4 1/16
3rd Quarter 1996..................... $ 7 $ 5
4th Quarter 1996..................... $ 8 $ 5 1/2
YEAR ENDED JUNE 30, 1997:
1st Quarter 1996..................... $ 6 7/8 $ 4 3/8
2nd Quarter 1996..................... $ 9 $ 6 1/4
3rd Quarter through April 2, 1997.... $ 11 1/2 $ 7 7/8
The Company has not paid cash dividends on its Common Stock. The Company
presently intends to retain its funds for operations and expansion of its
business. The declaration and payment by the Company of any dividends on its
Common Stock in the future and the amount thereof will depend upon the Company's
operating results, financial condition, cash requirements, future prospects and
other factors deemed relevant by the Company's Board of Directors. The Company's
New Credit Facility and the Notes limit dividends which may be paid on the
Company's capital stock. See "Description of Indebtedness."
16
<PAGE>
USE OF PROCEEDS
The proceeds to the Company from the Offerings (assuming an offering price
of $10 1/8 per share of Common Stock) are estimated to be approximately $144.6
million. The Company intends to use such proceeds, together with borrowings
under its New Credit Facility, to fund the Pending Acquisition and related fees,
estimated to be $173.8 million, including repayment of outstanding indebtedness
under its existing credit facility, estimated to be $12.0 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity." The closing of the Offerings
are conditioned upon the simultaneous closing of the Pending Acquisition.
As of December 31, 1996, $11.0 million was outstanding under the Company's
existing credit facility. The existing credit facility matures in October 2000.
Borrowings under the existing credit facility bear interest, at the election of
the Company, at floating rates based upon the bank's prime rate, the London
Interbank Offered Rate ("LIBOR") or the federal funds rate. The interest rate
on outstanding borrowings at December 31, 1996 was 6.4%.
Following the Offerings and the repayment of amounts outstanding under the
existing credit facility, the Company is expected to have approximately $60.7
million of available borrowing capacity under the New Credit Facility. See
"Description of Indebtedness" for a discussion of the terms of the New Credit
Facility.
The following table sets forth the sources and uses of the estimated net
proceeds of the Offerings and borrowings under the Company's New Credit
Facility:
Sources (in thousands):
Common Stock Offering........... $ 44,550
Notes Offering.................. 100,000
New Credit Facility............. 29,251
----------
Total...................... $ 173,801
==========
Uses (in thousands):
Pending Acquisition............. $ 141,904
Repay existing credit
facility....................... 12,000
Contingent Payment(a)........... 9,011
Payments to Torchmark........... 1,500
Fees and expenses(b)............ 9,386
----------
Total...................... $ 173,801
==========
- ------------------------------
(a) Represents the maximum amount of the Contingent Payment which will be
deposited in escrow at closing. The actual amount of the Contingent Payment
will be determined 30 days following the closing based on actual and future
gas prices in 1997. If the amount of the Contingent Payment is less than $9
million, the difference will be returned to the Company and used to reduce
borrowings under the New Credit Facility.
(b) Includes underwriting expenses associated with the Offerings.
17
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1996, the historical
cash position and capitalization of the Company and such cash position and
capitalization giving pro forma effect to the Transactions. See "Use of
Proceeds." This table should be read in conjunction with the "Unaudited Pro
Forma Condensed Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements, including the Notes thereto.
DECEMBER 31, 1996
------------------------
HISTORICAL PRO FORMA
(IN THOUSANDS, EXCEPT
SHARE DATA)
Cash and cash equivalents............... $ 450 $ 529
========== =========
Current maturities of long-term debt.... $ -- $ --
========== =========
Long-term debt (excluding current
maturities)
% Senior Subordinated Notes... $ -- $ 100,000
Existing credit facility........... 11,000 --
New Credit Facility................ -- 28,251
Stockholders' equity:
Preferred Stock, $0.01 par value,
1,000,000 shares authorized,
none issued or outstanding....... -- --
Common Stock, $0.01 par value,
15,000,000 shares authorized,
9,152,979 shares issued and
outstanding, 13,702,979 shares
pro forma(a)(b).................. 92 137
Capital in excess of par value.......... 42,059 85,478
Retained earnings....................... 6,600 6,600
---------- ---------
Total stockholders' equity.............. 48,751 92,215
---------- ---------
Total capitalization.................... $ 59,751 $ 220,466
========== =========
- ------------------------------
(a) Excludes 1,115,325 shares of Common Stock issuable upon exercise of
incentive stock options currently outstanding, 187,500 shares of Common
Stock issuable upon exercise of warrants held by a subsidiary of Torchmark
(the "Torchmark Warrants"), and 60,000 shares of Common Stock issuable
upon exercise of warrants held by Howard, Weil, Labouisse, Friedrichs
Incorporated and Principal. In connection with the Common Stock Offering,
Bellwether and Torchmark have agreed that Torchmark will use 62,500 shares
issuable upon exercise of the Torchmark Warrants to pay a portion of the
exercise price of the warrants, such stock to be valued at the price to the
public in the Common Stock Offering. Accordingly, the maximum number of
shares of Common Stock issuable in connection with the Common Stock Offering
is 125,000. The subsidiary of Torchmark, which is a Selling Stockholder, has
granted the Underwriters an option to purchase 212,696 shares of Common
Stock solely to cover over-allotments, if any, including shares issuable
upon exercise of the Torchmark Warrants.
(b) Includes 150,000 shares of Common Stock to be issued to Torch for advisory
services rendered in connection with the Pending Acquisition. Excludes
100,000 shares of Common Stock issuable upon exercise of warrants to be
issued to Torch for such advisory services.
18
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited pro forma condensed consolidated balance sheet as of December
31, 1996 gives effect to the Transactions as if they occurred on December 31,
1996. The unaudited pro forma condensed consolidated statements of operations
for the year ended June 30, 1996 and the six months ended December 31, 1996 give
effect to the Transactions as if they had occurred at the beginning of the
periods presented.
The following unaudited pro forma financial data have been included as
required by the rules of the SEC and are provided for comparative purposes only.
The unaudited pro forma financial data presented are based upon the historical
consolidated financial statements of Bellwether and the historical statement of
assets (other than productive oil and gas assets) and liabilities and the
related statements of revenues and direct operating expenses of the Acquired
Properties and should be read in conjunction with such financial statements and
the related notes thereto which are included elsewhere herein.
The pro forma financial data are based upon assumptions and include
adjustments as explained in the notes to the unaudited pro forma condensed
consolidated financial statements, and the actual recording of the transactions
could differ. The unaudited pro forma financial data are not necessarily
indicative of the financial results that would have occurred had the
Transactions been effective on and as of the dates indicated and should not be
viewed as indicative of operations in future periods.
19
<PAGE>
BELLWETHER EXPLORATION COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- UNAUDITED
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
------------------------------------------------------------
ADJUSTMENTS
FOR THE ADJUSTMENTS PRO FORMA
PENDING FOR THE FOR THE
HISTORICAL ACQUISITION FINANCING TRANSACTIONS
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....... $ 450 $ (153,713)(a) $ 153,792(b) $ 529
Accounts and other
receivables................... 7,599 27,382(a) -- 34,981
Other........................... 586 -- -- 586
----------- ----------- ----------- ------------
Total current assets....... 8,635 (126,331) 153,792 36,096
----------- ----------- ----------- ------------
Oil and gas properties (full cost
method)............................ 83,473 129,508(a) -- 212,981
Gas plant facilities................. 12,843 -- -- 12,843
----------- ----------- ----------- ------------
96,316 129,508 -- 225,824
Accumulated depreciation, depletion
and amortization................... (36,561) -- -- (36,561)
----------- ----------- ----------- ------------
59,755 129,508 -- 189,263
Other................................ 592 9,011(a) 5,160(b) 14,763
----------- ----------- ----------- ------------
Total assets............... $ 68,982 $ 12,188 $ 158,952 $240,122
=========== =========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities................... $ 4,278 $ 9,425(a) $ -- $ 13,703
Current maturities of long term
debt.......................... -- -- -- --
----------- ----------- ----------- ------------
Total current
liabilities............. 4,278 9,425 -- 13,703
----------- ----------- ----------- ------------
Other liabilities.................... 1,148 -- -- 1,148
Existing credit facility............. 11,000 -- (11,000)(b) --
New credit facility.................. -- -- 28,251(b) 28,251
Senior Subordinated Notes............ -- -- 100,000(b) 100,000
Deferred income taxes................ 3,805 1,000(a) -- 4,805
Stockholders' Equity................. 48,751 1,763(a) 41,701(b) 92,215
----------- ----------- ----------- ------------
Total liabilities and
Stockholders' equity.... $ 68,982 $ 12,188 $ 158,952 $240,122
=========== =========== =========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
20
<PAGE>
BELLWETHER EXPLORATION COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS -- UNAUDITED
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
------------------------------------------------------------
ADJUSTMENTS
FOR THE ADJUSTMENTS PRO FORMA
PENDING FOR THE FOR THE
HISTORICAL ACQUISITION FINANCING TRANSACTIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas revenues............ $ 15,666 $ 96,210(c) $ -- $111,876
Gas plant and gas gathering
revenues...................... 8,719 83(c) -- 8,802
Interest and other income....... 116 20,175(c) -- 20,291
---------- ----------- ----------- ------------
Total revenues............. 24,501 116,468 -- 140,969
---------- ----------- ----------- ------------
Costs and Expenses:
Production expenses............. 5,317 28,142(c) -- 33,459
Gas plant and gas gathering
expenses...................... 5,185 -- -- 5,185
Depreciation, depletion and
amortization.................. 8,148 34,821(e) -- 42,969
General and administrative
expenses...................... 3,013 5,349(d) -- 8,362
Interest expense................ 1,657 -- 11,007(h) 12,664
Other expenses.................. 153 -- -- 153
---------- ----------- ----------- ------------
Total costs and expenses... 23,473 68,312 11,007 102,792
---------- ----------- ----------- ------------
Income before income taxes........... 1,028 48,156 (11,007) 38,177
Provision for income taxes........... 46 17,817(f) (4,073)(i) 13,790
---------- ----------- ----------- ------------
$ 982 $ 30,339 $ (6,934) $ 24,387
========== =========== =========== ============
Net income per share................. $ 0.11 $ 1.79
========== ============
Weighted average common and common
equivalent shares outstanding...... 9,052 150(g) 4,400(j) 13,602
========== =========== =========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
21
<PAGE>
BELLWETHER EXPLORATION COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS -- UNAUDITED
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
----------------------------------------------------------
ADJUSTMENTS
FOR THE ADJUSTMENTS PRO FORMA
PENDING FOR THE FOR THE
HISTORICAL ACQUISITION FINANCING TRANSACTIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas revenues............ $ 9,846 $49,191(k) $-- $ 59,037
Gas plant revenues.............. 3,879 2(k) -- 3,881
Interest and other income....... 53 340(k) -- 393
---------- ----------- ----------- ------------
Total revenues............. 13,778 49,533 -- 63,311
---------- ----------- ----------- ------------
Costs and Expenses:
Production expenses............. 3,061 14,506(k) -- 17,567
Gas plant expenses.............. 1,827 -- -- 1,827
Depreciation, depletion and
amortization.................. 4,167 14,132(l) -- 18,299
General and administrative
expenses...................... 1,452 1,987(d) -- 3,439
Interest expense................ 520 -- 6,037(h) 6,557
---------- ----------- ----------- ------------
Total costs and expenses... 11,027 30,625 6,037 47,689
---------- ----------- ----------- ------------
Income before income taxes........... 2,751 18,908 (6,037) 15,622
Provision for income taxes........... 1,018 6,996(f) (2,234)(i) 5,780
---------- ----------- ----------- ------------
$ 1,733 $11,912 $(3,803) $ 9,842
========== =========== =========== ============
Net income per share................. $ 0.19 $ 0.72
========== ============
Weighted average common and common
equivalent shares outstanding...... 9,118 150(g) 4,400(j) 13,668
========== =========== =========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
22
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) To record the purchase of the Acquired Properties and working capital
pursuant to the transaction. The allocation of the pro forma purchase
price under the purchase method of accounting is presented in the tables
below.
The pro forma purchase price entries are as follows:
Purchase price....................... $ 188,348
Estimated purchase price adjustments,
including distributions of cash
flows from the Acquired Properties
from the effective date to the
assumed closing date of April 8,
1997............................... (46,444)
----------
141,904
Estimated acquisition fees:
Common stock issued to Torch
(150,000 shares @ $9.75)...... 1,463
Warrants issued to Torch
(100,000 shares exercisable
within five years @ 120% of
the offering price)........... 300
Payment to Torchmark............ 1,500
----------
3,263
Escrow of funds reserved for pricing
adjustments........................ 9,011
Legal and other acquisition costs.... 1,377
----------
Total purchase price................. $ 155,555
==========
Purchase allocation:
Acquisition costs allocated to
oil and gas properties........ $ 129,508
Working capital................. 18,036
Escrow account.................. 9,011
Deferred income taxes........... (1,000)
----------
Total purchase allocation....... $ 155,555
==========
(b) To record the effect of the financing transactions required to purchase
the Acquired Properties.
Senior credit facility............... $ 28,251
Senior subordinated notes............ 100,000
Common stock......................... 44
Additional paid in capital (assuming
an offering price of $10.125 for
the Common Stock).................. 41,657
Deferred financing costs............. (5,160)
Existing credit facilities........... (11,000)
----------
Cash received from the financing
transactions....................... $ 153,792
==========
(c) To reflect the historical consolidated operations of the Acquired
Properties for the fiscal year ended June 30, 1996. Certain additions and
deductions to revenues and expenses have been made to convert such
operations from a calendar year to the fiscal year ended June 30, 1996.
See "Statements of Assets Acquired (Other than Productive Oil and Gas
Properties) and Liabilities" and related "Statements of Revenues and
Direct Operating Expenses" included elsewhere in this Prospectus.
(d) To adjust general and administrative expenses including management fees to
give effect to the increase in the Torch fee pursuant to the
Administrative Services Agreement due to the acquisition of the Acquired
Properties. Annual general and administrative, production overhead and
direct general and administrative expenses will increase $750,000 and
$375,000 for the year ended June 30, 1996 and for the six months ended
December 31, 1996, respectively. Annual management fees will increase $4.6
million and $1.6 million for the year ended June 30, 1996 and for the six
months ended December 31, 1996, respectively, pursuant to the
Administrative Services Agreement.
23
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
General and administrative services are provided to Bellwether by Torch
for an annual fee based on (i) 1/12 of 2% per month of total assets
excluding cash, and (ii) 2.0% of operating cash flows (net income plus
depletion, depreciation and amortization and deferred income taxes).
Additionally, 20% of operator's overhead on wells operated by Torch are
credited to management fees.
(e) To adjust depreciation, depletion and amortization to give effect to the
acquisition of the Acquired Properties under the full cost method of
accounting to the amount which would have been recorded had the
acquisition of the Acquired Properties occurred at July 1, 1995. The pro
forma adjustment assumes a depreciation, depletion and amortization rate
per BOE of $4.90 for the year ended June 30, 1996 based upon depletable
costs of $268.8 million, including $51.9 million of future development
costs and plugging and abandonment costs, and proved reserves of 54.9
MMBOE at June 30, 1995.
(f) To adjust federal and state income taxes for the acquisition of the
Acquired Properties at Bellwether's effective rate of 37%.
(g) To increase the weighted average common shares outstanding for 150,000
shares of Common Stock to be issued to Torch for the acquisition of the
Acquired Properties.
(h) To adjust interest expense to give effect to the portion of the Acquired
Properties financed under the New Credit Facility and through issuance of
the Notes.
The pro forma interest expense related to the New Credit Facility was $2.4
million for the year ended June 30, 1996, including the amortization of
$1.0 million of deferred and other financing costs. The pro forma interest
expense related to the New Credit Facility was $1.2 million for the six
months ended December 31, 1996, including the amortization of $726,000 of
deferred and other financing costs. The New Credit Facility has an annual
interest rate of London Interbank Offered Rate ("LIBOR") plus 1.00%.
The pro forma interest related to the Notes was $9.8 million for the year
ended June 30, 1996, at an assumed interest rate of 9.5% and including the
amortization of $325,000 of deferred financing costs. The pro forma
interest expense related to the Notes was $4.9 million for the six months
ended December 31, 1996, at an assumed interest rate of 9.5% and including
amortization of $163,000 of deferred financing costs. The Notes mature in
2007. No principal payments are required prior to 2007.
(i) To reflect the decrease in income taxes resulting from additional interest
incurred as a result of the Offerings.
(j) To increase the weighted average common shares outstanding for issuance of
4,400,000 shares of Common Stock in the Common Stock Offering.
(k) To reflect the historical consolidated operations of the Acquired
Properties for the six months ended December 31, 1996. See "Statement of
Assets Acquired (Other than Productive Oil and Gas Properties) and
Liabilities" and the related "Statements of Revenues and Direct
Operating Expenses" included elsewhere in this Prospectus.
(l) To adjust depreciation, depletion and amortization to give effect to the
acquisition of the Acquired Properties under the full cost method of
accounting to the amount which would have been recorded had the acquisition
of the Acquired Properties occurred at July 1, 1996. The pro forma
adjustment assumes a depreciation, depletion and amortization rate per BOE
of $5.00 for the six months ended December 31, 1996 based upon depletable
costs of $232.9 million, including $48.3 million of future development
costs and plugging and abandonment costs, and proved reserves of 46.6 MMBOE
at June 30, 1996.
24
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURE
The following tables set forth certain unaudited pro forma information
concerning Bellwether's proved oil and gas reserves at June 30, 1996, giving
effect to the acquisition of the Acquired Properties as if they had occurred on
June 30, 1995. There are numerous uncertainties inherent in estimating the
quantities of proved reserves and projecting future rates of production and
timing of development expenditures. The following reserve data represent
estimates only and should not be construed as being exact. The proved oil and
gas reserve information is as of June 30, 1996 and reflects prices and costs in
effect as of such date.
RESERVES:
<TABLE>
<CAPTION>
OIL AND CONDENSATE (MBBLS) NATURAL GAS (MMCF) MBOE
------------------------------------ ------------------------------------ ----------
ACQUIRED ACQUIRED
BELLWETHER PROPERTIES PRO FORMA BELLWETHER PROPERTIES PRO FORMA BELLWETHER
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995................... 2,597 18,840 21,437 30,159 165,038 195,197 7,624
Extensions and discoveries.............. 89 89 7,128 7,128 1,277
Purchase of minerals in-place........... 4 4 176 176 33
Revision of previous estimates.......... (534) (534) 2,855 2,855 (58)
Production(a)........................... (334) (2,790) (3,124) (5,099) (25,981) (31,080) (1,184)
Sales of minerals in-place.............. (14) (14) (2,023) (2,023) (351)
---------- ----------- --------- ---------- ----------- --------- ----------
Balance, June 30, 1996.................. 1,808 16,050 17,858 33,196 139,057 172,253 7,341
========== =========== ========= ========== =========== ========= ==========
Proved developed reserves............... 1,494 13,536 15,030 22,698 128,242 150,940 5,277
========== =========== ========= ========== =========== ========= ==========
</TABLE>
ACQUIRED
PROPERTIES PRO FORMA
Balance, July 1, 1995................... 46,346 53,970
Extensions and discoveries.............. -- 1,277
Purchase of minerals in-place........... -- 33
Revision of previous estimates.......... -- (58)
Production(a)........................... (7,120) (8,304)
Sales of minerals in-place.............. -- (351)
----------- ---------
Balance, June 30, 1996.................. 39,226 46,567
=========== =========
Proved developed reserves............... 34,910 40,187
=========== =========
- -----------------------------
(a) Excludes 253 MBbls of natural gas liquids which were produced in fiscal
1996.
STANDARD MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL &
GAS RESERVES:
<TABLE>
<CAPTION>
ACQUIRED
BELLWETHER PROPERTIES PRO FORMA
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows..................... $113,554 $ 562,930 $676,484
Future production costs................. (33,131) (210,084) (243,215)
Future development costs................ (8,961) (42,921) (51,882)
---------- ---------- ---------
Future net inflows before income
taxes................................. 71,462 309,925 381,387
Income taxes............................ (11,095) (49,570) (60,665)
---------- ---------- ---------
Future net cash flows................... 60,367 260,355 320,722
10% discount factor..................... (15,191) (82,269) (97,460)
---------- ---------- ---------
Standardized measure of discounted
future net cash flows................. $ 45,176 $ 178,086 $223,262
========== ========== =========
</TABLE>
25
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
CHANGES TO STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO
PROVED OIL AND GAS RESERVES:
<TABLE>
<CAPTION>
ACQUIRED
BELLWETHER PROPERTIES PRO FORMA
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure, June 30,
1995............................... $ 37,291 $ 207,418 $244,709
Sales, net of production
costs......................... (10,349) (68,068) (78,417)
Purchases of reserves in
place......................... 246 -- 246
Net changes in prices and
production costs.............. 11,458 -- 11,458
Net changes in income taxes..... (2,958) -- (2,958)
Extensions, discoveries and
improved recovery, net of
future production and
development costs............. 7,709 -- 7,709
Changes in estimated future
development costs............. 497 -- 497
Development costs incurred
during the period............. 883 -- 883
Revisions of quantity
estimates..................... (438) -- (438)
Accretion of discount........... 3,729 20,742 24,471
Sales of reserves in place...... (1,614) -- (1,614)
Changes in production rates and
other......................... (1,278) 17,994 16,716
----------- ----------- ----------
Standardized measure, June 30,
1996............................... $ 45,176 $ 178,086 $223,262
=========== =========== ==========
</TABLE>
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data with respect to the Company for the periods and as of the dates indicated.
The consolidated financial data and notes thereto for the two years ended June
30, 1993 were derived from the historical consolidated financial statements and
notes thereto of the Company which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants and such information for the three
years ended June 30, 1996 were derived from such statements and notes thereto
which have been audited by Deloitte & Touche LLP, independent auditors. The
consolidated financial data for the six months ended December 31, 1995 and 1996
have been derived from unaudited condensed consolidated financial statements,
which management believes includes all adjustments necessary to make a fair
presentation of the results for such unaudited interim periods. The Consolidated
Financial Statements of the Company and notes thereto for June 30, 1994, 1995
and 1996, and the six months ended December 31, 1995 and 1996 are included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gas revenues..................... $ 1,528 $ 1,807 $ 2,620 $ 4,864 $ 9,856 $ 4,186 $ 6,759
Oil revenues..................... 1,246 1,708 1,086 3,643 5,810 2,956 3,087
Gas plant and gas gathering
revenues(a).................... 51 23 6,930 10,705 8,719 4,923 3,879
Interest income and other........ 82 116 63 97 116 57 53
--------- --------- --------- --------- --------- --------- ---------
Total revenues.............. 2,907 3,654 10,699 19,309 24,501 12,122 13,778
--------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Production expenses.............. 904 1,273 1,294 2,856 5,317 2,447 3,061
Gas plant and gas gathering
expenses(a).................... -- -- 4,013 6,078 5,185 3,006 1,827
General and administrative
expenses....................... 676 787 1,234 2,739 3,013 1,559 1,452
Depreciation, depletion and
amortization................... 1,113 1,455 2,489 5,269 8,148 3,866 4,167
Interest expense................. 21 77 721 1,245 1,657 956 520
Other expenses................... -- -- -- -- 153 155 --
--------- --------- --------- --------- --------- --------- ---------
Total cost and expenses..... 2,714 3,592 9,751 18,187 23,473 11,989 11,027
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and
minority interest.................. 193 62 948 1,122 1,028 133 2,751
Provision for income taxes........... 65 21 -- 9 46 132 1,018
Minority interest in gas plant
ventures........................... -- -- 134 172 -- -- --
Extraordinary income(b).............. 65 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income........................... $ 193 $ 41 $ 814 $ 941 $ 982 $ 1 $ 1,733
========= ========= ========= ========= ========= ========= =========
Net income per share(c).............. $ 0.08 $ 0.02 $ 0.27 $ 0.12 $ 0.11 $ 0.00 $ 0.19
========= ========= ========= ========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding(c)... 2,289 2,289 3,006 7,713 9,052 9,045 9,118
========= ========= ========= ========= ========= ========= =========
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
27
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Capital expenditures............. $ 4,315 $ 2,289 $ 22,034 $ 41,901 $ 6,999 $ 1,174 $ 7,475
EBITDA(d)........................ $ 1,327 $ 1,594 $ 4,158 $ 7,636 $ 10,833 $ 4,955 $ 7,438
EBITDA/Interest expense.......... 63.19 20.70 5.77 6.13 6.54 5.18 14.30
Net cash flows provided by
operating activities........... $ 2,401 $ 1,555 $ 3,122 $ 5,283 $ 7,485 $ 3,496 $ 7,105
Net cash flows (used in) provided
by investing activities........ $ (1,204) $ (1,390) $ (9,423) $ (27,289) $ 3,542 $ (1,174) $ (5,810)
Net cash flows provided by (used
in) financing activities....... $ 1,000 $ (2,146) $ 7,334 $ 21,642 $ (11,332) $ (1,000) $ (1,628)
Ratio of earnings to fixed
charges(e)..................... 10.19 1.81 2.31 1.90 1.62 1.14 6.29
BALANCE SHEET DATA (END OF PERIOD):
Working capital.................. $ 406 $ 414 $ (249) $ (1,246) $ 5,168 $ 4,357
Total assets..................... 14,140 12,480 35,870 74,650 67,225 68,982
Total debt (net of current
maturities).................... 1,000 1,000 12,796 18,525 13,048 11,000
Stockholders' equity............. 10,729 10,770 18,372 45,447 46,597 48,751
</TABLE>
- -----------------------------
(a) In March 1996 Bellwether assumed a contract to purchase gas at $4.50 per
MMBtu, for which Bellwether received $9.9 million. As a result of this
transaction, Bellwether ceased to recognize gas gathering revenues and
expenses. Historical gas gathering revenues were $2.4 million, $5.0 million
and $3.4 million, respectively, for the years ended June 30, 1994, 1995 and
1996, and $2.5 million for the six months ended December 31, 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Six Months Ended December 31, 1995
Compared With December 31, 1996 -- Revenues."
(b) Extraordinary income in 1992 represents reductions of income taxes resulting
from utilization of loss carryforwards.
(c) Restated to reflect a 1-for-8 reverse stock split consummated in fiscal
1994.
(d) EBITDA is defined as income before income taxes, interest, depreciation,
depletion and amortization. Management of the Company believes that EBITDA
may provide additional information about the Company's ability to meet its
future requirements for debt service, capital expenditures and working
capital. EBITDA is a financial measure commonly used in the Company's
industry and should not be considered in isolation or as a substitute for
net income, cash flow provided by operating activities or other income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of the Company's profitability or liquidity.
(e) For purposes of computing the ratio of earnings to fixed charges,
"Earnings" are consolidated earnings (loss) from continuing operations
before tax, exclusive of the period's undistributed equity earnings of
affiliated companies, plus fixed charges. "Fixed charges" are comprised of
interest on indebtedness, amortization of debt issuance costs and that
portion of capital lease expense which is deemed to be representative of an
interest factor.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Bellwether is an independent energy company primarily engaged in the
acquisition, exploitation, development and exploration of oil and gas
properties. The Company has grown and diversified its operations through the
acquisition of oil and gas properties and the subsequent development of these
properties. The Company's results of operations have been significantly affected
by its success in acquiring oil and gas properties and its ability to maintain
or increase production through its exploitation activities. Fluctuations in oil
and gas prices have also significantly affected the Company's results.
The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
in a "full cost pool" as incurred. Oil and gas properties in the pool, plus
estimated future expenditures to develop proved reserves and future abandonment,
site reclamation and dismantlement costs, are depleted and charged to operations
using the unit of production method based on the ratio of current production to
total proved recoverable oil and gas reserves. To the extent that such
capitalized costs (net of depreciation, depletion and amortization) exceed the
discounted future net revenues on an after-tax basis of estimated proved oil and
gas reserves, such excess costs are charged to operations. Once incurred, the
writedown of oil and gas properties is not reversible at a later date even if
oil and gas prices increase. Sharp declines in oil and gas prices may cause
companies who report on the full cost method, such as Bellwether, to write down
their oil and gas properties, thereby decreasing earnings during such period.
The Company periodically uses derivative financial instruments to manage
oil and gas price risk. Settlements of gains and losses on price swap contracts
are generally based upon the difference between the contract price and the
average closing NYMEX or other floating index price and are reported as a
component of oil and gas revenue. Gains or losses attributable to the
termination of swap contracts are deferred and recognized in revenue when the
hedged oil and gas is sold. The Company has hedged 300 Bbls of oil per day at a
NYMEX price of $22.17 per Bbl for the calendar months of April through October
1997. For March 1997, the Company has hedged 6 million MMBtu of gas per day at
$2.94 per MMBtu and for April through October 1997 has hedged 6 million MMBtu of
gas per day at $2.21 per MMBtu, based upon the Houston Ship Channel Index.
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RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED WITH DECEMBER 31, 1996
The following table sets forth certain operating information of the Company
for the periods presented:
SIX MONTHS ENDED DECEMBER 31,
-------------------------------------
INCREASE/
1995 1996 (DECREASE)
PRODUCTION DATA:
Oil (MBbls)..................... 184 143 (22.3)%
Gas (MMcf)...................... 2,428 2,814 15.9%
AVERAGE SALES PRICE:
Oil (per Bbl)................... $ 16.04 $ 21.59(a) 34.6%
Gas (per Mcf)(b)................ 1.72 2.40 39.5%
Average unit production cost per
BOE(c)............................. 4.16 5.00 20.2%
Average unit depreciation, depletion
and amortization rate per BOE...... 5.39 6.09 13.0%
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(a) Average sales price does not include the effects of hedge transactions.
(b) Average sales price for natural gas includes revenues received from the sale
of natural gas liquids removed from the Company's gas production.
(c) Includes ad valorem and severance taxes.
REVENUES. Oil and gas revenues for the six months ended December 31, 1996
were $9.8 million or 38.0% higher than oil and gas revenues of $7.1 million for
the same period in 1995. The increase in oil and gas revenues was attributable
primarily to additional production from natural gas well workovers in the
Company's Cove field and increases in oil and gas prices. The effect of hedge
transactions was immaterial.
Gas plant and gas gathering revenues in the six months ended December 31,
1996 were $3.9 million compared with $4.9 million in the same period of 1995.
This decrease is primarily a result of decreased gas gathering revenues of $2.5
million. In March 1996, Bellwether assumed a contract to purchase gas at $4.50
per MMBtu (the "Contract Assumption"), for which Bellwether received $9.9
million. As a result of this transaction, Bellwether ceased to recognize gas
gathering revenues and expenses. In addition, Bellwether wrote off the remaining
book value of the gas gathering system and has recorded a liability to cover the
estimated future losses under the contract, which are charged to the liability
as incurred. See Note 5 of the Notes to the Condensed Consolidated Financial
Statements. Gas plant revenues in the six months ended December 31, 1996
increased by $1.5 million compared to the same period in 1995 due to increased
prices and sales volumes.
EXPENSES. Lease operating expenses for the six months ended December 31,
1996 totaled $3.1 million or 29.2% in excess of the $2.4 million for the six
months ended December 31, 1995. Lease operating expenses per BOE were 20.2%
higher in the six months ended December 31, 1996 when compared to the same
period in 1995, due primarily to higher severance taxes from increases in oil
and gas prices of 34.6% and 39.5%, respectively.
Gas plant and gas gathering expenses were $1.8 million in the six months
ended December 31, 1996 compared with $3.0 million for the prior period,
reflecting the reduction in gas gathering activity relating to the Contract
Assumption somewhat offset by higher payments from gas plant operations to
producers under the Company's percent of proceeds contracts. The higher payments
to producers resulted primarily from higher liquids prices received by the
Company.
Depreciation, depletion and amortization of $4.2 million for the six months
ended December 31, 1996 reflects a 7.7% increase from $3.9 million in the same
period in 1995, primarily because of an increase in oil and gas production and
an increase in the depreciation, depletion and amortization rate per BOE, both
of which were caused by increases in reserves due to the mergers, new drilling
and workovers.
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General and administrative expenses were $1.5 million in the six months
ended December 31, 1996 compared with $1.6 million in the 1995 period.
Interest expense decreased to $520,000 for the six months ended December
31, 1996 from $956,000 in the same period of 1995. The Company used the proceeds
from the Contract Assumption (described below) to reduce its outstanding
indebtedness by $9.5 million.
INCOME TAXES. Provision for federal and state income taxes for the six
months ended December 31, 1996 is 37% of income.
NET INCOME. Net income for the six months ended December 31, 1996 was
approximately $1.7 million as compared to net income of $1,000 in the same
period of 1995.
COMPARISONS OF FISCAL YEARS ENDED JUNE 30, 1994, 1995 AND 1996
The following table sets forth certain oil and gas production information
of the Company for the periods presented:
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
PRODUCTION DATA:
Oil (MBbls)..................... 71 216 334
Gas (MMcf)...................... 1,206 2,932 5,099
AVERAGE SALES PRICE:
Oil (per Bbl)................... $ 15.27 $ 16.89 $ 17.81(a)
Gas (per Mcf)(b)................ 2.17 1.66 2.02(a)
Average unit production cost per
BOE(c)............................. 4.75 4.05 4.49
Average unit depreciation, depletion
and amortization rate per BOE...... 5.71 5.52 5.86
- -----------------------------
(a) Average sales price does not include the effects of hedge transactions.
(b) Average sales price for natural gas includes revenues received from the sale
of natural gas liquids removed from the Company's gas production.
(c) Includes ad valorem and severance taxes.
REVENUES. Oil and gas revenues for fiscal 1996 were $15.7 million, or
84.7% higher than fiscal 1995 oil and gas revenues of $8.5 million. In 1995, oil
and gas revenues were 129.7% higher than the fiscal 1994 oil and gas revenues of
$3.7 million. The Company's acquisition of properties in two transactions are
responsible for the increased revenues during fiscal 1995 and 1996. During the
three year period, the volatility of oil and gas prices directly impacted
revenues. Most significantly, average natural gas sales prices increased in
fiscal 1996 to $2.02 per Mcf from $1.66 per Mcf in fiscal 1995. During fiscal
1996, the Company utilized various hedging transactions to manage a portion of
the risks associated with oil and gas price volatility. As a result of these
hedges, oil and gas revenues were $560,000 lower than what they otherwise would
have been in fiscal 1996.
Gas plant and gas gathering revenues were $8.7 million in fiscal 1996
compared to $10.7 million in fiscal 1995. Gas gathering revenues decreased to
$3.4 million in fiscal 1996 from $5.0 million in fiscal 1995 due to the Contract
Assumption in March 1996. Gas plant revenues were $5.3 million in fiscal 1996,
or 7.0% lower than fiscal 1995 revenues of $5.7 million due primarily to
decreased throughput, partially offset by a 6.9% increase in natural gas liquids
prices. Fiscal 1995 gas plant revenues of $5.7 million were 26.7% higher than
the $4.5 million in fiscal 1994. Such increase was due to the purchase of
interests in the gas plant in July and December 1993 and a 16.0% increase in
prices.
EXPENSES. Production expenses for fiscal 1996 totaled $5.3 million,
compared with $2.9 million in fiscal 1995 and $1.3 million in fiscal 1994. The
82.8% increase in fiscal 1996 over fiscal 1995 and the 123.1% increase between
fiscal 1995 and 1994 were attributable primarily to acquisitions of producing
properties.
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Gas plant and gas gathering expenses were $5.2 million in fiscal 1996
compared to $6.1 million in fiscal 1995. Gas gathering expenses decreased to
$2.4 million in fiscal 1996 from $3.1 million in fiscal 1995 due to the Contract
Assumption in March 1996. Gas plant expenses were $2.8 million or 6.7% lower in
fiscal 1996 than in fiscal 1995 as a result of decreased throughput, offset
partially by higher prices. In fiscal 1995, expenses were 24.6% higher than
fiscal 1994 due to a full year of operations being reflected in fiscal 1995.
Depreciation, depletion and amortization of $8.1 million reflects an
increase of 52.8% for fiscal 1996 over $5.3 million in fiscal 1995. Such
increase reflects a full year of production volumes from acquisitions and a 6.2%
increase in the depreciation, depletion and amortization rate per net equivalent
barrel due to additional costs associated with dry holes drilled in Fausse
Pointe and Cove fields. In fiscal 1995, depreciation, depletion and amortization
was 111.7% higher than the fiscal 1994 amount. This reflects additional
production volumes from acquisitions and a full year of depreciation included
for the Gas Plant and gas gathering facilities.
General and administrative expenses totaled $3.0 million, $2.7 million and
$1.2 million for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively. The fee under the Administrative Service Agreement with Torch
accounted for $337,000 and $578,000 of the increase in general and
administrative expenses in fiscal 1996 and fiscal 1995, respectively, and is due
to the significant growth of assets and cash flows experienced by the Company.
Additionally, acquisitions added to increases in salaries and other
administrative overhead in fiscal 1995 compared with fiscal 1994.
Interest expense increased to $1.6 million in fiscal 1996 from $1.2 million
in fiscal 1995 and $721,000 in fiscal 1994. Such increase is due to the increase
in bank debt which financed a portion of the acquisitions of properties.
Interest rates were 7.3%, 7.9% and 6.2% at June 30, 1996, 1995 and 1994,
respectively.
The Company recorded a provision for income taxes of $46,000 in fiscal
1996. Actual payments of $126,000 in fiscal 1996 and $9,000 in fiscal 1995
relate to alternative minimum tax and state taxes. Prior to the merger with
Hampton Resources Corporation ("Hampton") in 1995, the Company's net operating
loss was sufficient to eliminate any deferred tax liability. Upon merging with
Hampton, the Company was required to record a deferred tax liability of $2.4
million.
NET INCOME. Net income of $982,000 was generated in fiscal 1996, as
compared to $941,000 and $814,000 in fiscal 1995 and fiscal 1994, respectively.
CAPITAL RESOURCES AND LIQUIDITY
The Company's principal sources of capital for the last three years have
been borrowings under credit facilities with banks, cash flows from operations
and public and private sales of equity securities. Borrowings from banks were
$8.5 million, $25.9 million and $0.0 during the years ended June 30, 1994, 1995
and 1996 and cash flow from operations was $3.1 million, $5.3 million and $7.5
million during each of such periods. Increases in cash flows from operations are
primarily attributable to the acquisitions made since 1993. The Company also
issued 3.4 million shares of stock in a public offering in 1994 for total net
proceeds of $17.2 million and issued an aggregate of 3.3 million shares of
common stock in private transactions since July 1, 1993 in exchange for assets.
In addition, during March 1996, the Company agreed to assume the purchase
obligation under a gas purchase contract in the West Monroe field in Louisiana
in exchange for a cash payment of $9.9 million. Under the terms of the contract,
Bellwether and other producers were entitled to sell a specified quantity of gas
for $4.50 per MMBtu. Bellwether supplied a substantial portion of the gas
subject to purchase under the contract. Proceeds from the gas contract
assumption were used to repay indebtedness.
The Company's primary uses of capital have been to fund acquisitions and to
fund its exploration and development operations. Since 1993, the Company has
made two significant acquisitions: (i) the purchase of Odyssey Partners, Ltd.
("Odyssey") in 1994 for $5.6 million and 917,000 shares of Common Stock and
(ii) the purchase of Hampton in 1995 for $21.1 million and 1.0 million shares of
Common Stock. The Company's expenditures for exploration and development were
$1.0 million, $3.4 million and $6.9 million in 1994, 1995 and 1996,
respectively.
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The Company's capital budget for the third and fourth quarters of fiscal
1997 is $8.1 million for its existing properties and $17.5 million for the
Acquired Properties. The Company has identified $42.8 million of projects for
all of such properties for fiscal 1998.
Concurrently with the completion of the Offerings, the Company will enter
into the $90 million New Credit Facility and will use borrowings under the New
Credit Facility, together with the net proceeds from the Offerings, to repay in
full outstanding indebtedness under the existing bank indebtedness. Outstanding
indebtedness under the New Credit Facility upon consummation of the Transactions
is anticipated to be $29.3 million.
The Company believes that the net proceeds of the Offerings, together with
borrowings under the New Credit Facility and internally generated cash flows,
will be sufficient to fund the Transactions and the Company's capital budget
through fiscal 1998.
GAS BALANCING POSITIONS
It is customary in the industry for various working interest partners to
sell more or less than their entitled share of natural gas. The settlement or
disposition of gas balancing positions as of June 30, 1996 is not anticipated to
adversely impact the financial condition of the Company.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 121
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets to Be Disposed Of." SFAS 121 establishes guidance for determining and
measuring asset impairment and the required timing of asset impairment
evaluations. The Company adopted SFAS 121 on July 1, 1996, and it did not have a
material effect on the financial condition and results of operations of the
Company based upon current economic conditions.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 123
In October 1995, the FASB issued Statement No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation" which is effective for the Company
beginning July 1, 1996. SFAS No. 123 permits, but does not require, a
fair-value-based method of accounting for employee stock option plans which
results in compensation expense being recognized in the results of operations
when stock options are granted. The Company plans to continue to use the current
intrinsic-value-based method of accounting for such plans where no compensation
expense is recognized. However, as required by SFAS 123, the Company will
provide pro forma disclosure of net income and earnings per share in the notes
to the consolidated financial statements as if the fair-value-based method of
accounting had been applied.
INFLATION
Inflation has not had a material impact on the Company and is not expected
to have a material effect on the Company in the future.
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BUSINESS AND PROPERTIES
GENERAL
Bellwether is an independent energy company primarily engaged in the
acquisition, exploitation, development and exploration of oil and gas
properties. The Company has grown and diversified its reserve base through the
acquisition of oil and gas properties and the subsequent development of these
properties. Bellwether's estimated net proved reserves have increased at a
compounded annual growth rate of 65.9% from 1.6 MMBOE as of June 30, 1993 to 7.3
MMBOE as of June 30, 1996. During this period, average net daily production
increased at a compounded annual growth rate of 63.1% from 745.0 BOE/d in fiscal
1993 to 3,235.0 BOE/d in fiscal 1996, and EBITDA increased at a compounded
annual growth rate of 89.0% from $1.6 million in fiscal 1993 to $10.8 million in
fiscal 1996. The Company's net cash flows from operations have increased at a
compounded annual growth rate of 67.4%, from $1.6 million in fiscal 1993 to $7.5
million in fiscal 1996. The Company believes its primary strengths are a
demonstrated ability to identify and acquire properties which have significant
potential for further exploitation, development and exploration, an inventory of
development and exploration projects, expertise in the use of advanced
technologies such as 3-D seismic and horizontal drilling and a conservative
capital structure supportive of continued investment in its core properties as
well as additional acquisitions.
The Company has recently entered into letters of intent to acquire the oil
and gas properties and associated working capital owned by partnerships and
other entities managed or sponsored by Torch. Bellwether believes that the
Pending Acquisition provides the opportunity to significantly increase reserves
and cash flow at an attractive price while providing opportunities for future
reserve growth through exploitation and exploration activities. On a pro forma
basis, Bellwether's estimated net proved reserves as of June 30, 1996 were 46.6
MMBOE (86% developed and 62% natural gas), with a PV-10 Value (pre-tax) of
$260.1 million. Pro forma average daily net production was 22.7 MBOE/d for
fiscal 1996 and pro forma EBITDA for fiscal 1996 was $74.9 million, excluding
non-recurring gas contract settlements payable to the Company aggregating $18.9
million. Following the Pending Acquisition, the Company's properties will be
concentrated in Texas, Louisiana, Alabama, California and the Gulf of Mexico.
In fiscal 1994, the Company reincorporated from Colorado to Delaware. The
Company's address is 1331 Lamar, Suite 1455, Houston, Texas 77010, and its phone
number is (713) 650-1025.
BUSINESS STRATEGY
Bellwether's strategy is to maximize long-term shareholder value through
aggressive growth in reserves and cash flow, using advanced technologies,
implementation of a low cost structure and maintenance of a capital structure
supportive of growth. Bellwether expects the additional cash flows from the
Acquired Properties will finance a significant portion of its growth strategy.
Key elements of this strategy are:
OPPORTUNISTIC ACQUISITIONS
Bellwether seeks to acquire properties that have produced significant
quantities of oil and gas and have upside potential which can be exploited using
3-D seismic, CAEX, horizontal drilling, workovers and other enhanced recovery
techniques. Such acquisitions have included the Fausse Pointe field in south
Louisiana, the Cove field offshore Texas and the Fort Trinidad field in east
Texas.
EXPLOITATION AND DEVELOPMENT OF PROPERTIES
The Company actively pursues the exploitation of its properties through
recompletions, waterfloods and development wells, including horizontal drilling.
Examples of recent exploitation successes include a five well workover program
and two development wells in the Cove field, which increased Bellwether's
average net production in this field from 1.0 MMcf/d in January 1996 to 11.1
MMcf/d in February 1997. In addition, the Company recently drilled a successful
horizontal development well into the Buda formation in the Fort Trinidad field
which tested in January 1997 at 420 Bbls/d of oil. Bellwether also initiated a
waterflood project in the Fort Trinidad field during fiscal 1996. Future planned
exploitation projects include in excess of 20 horizontal drilling locations in
the Buda and Glen Rose B formations in the Fort Trinidad
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<PAGE>
field and up to three horizontal drilling locations to exploit the Company's
exploratory success in the Giddings field in the Austin Chalk formation. In
addition, because the Sellers were formed to distribute net cash flows rather
than reinvest in the exploitation of the Acquired Properties, the Company
believes that such properties will provide significant exploitation and
development opportunities. The Company's exploitation budget for fiscal 1997 is
$8.6 million, of which approximately $4.8 million had been spent as of December
31, 1996. During fiscal 1997, the capital expenditures on the Acquired
Properties are estimated to be $23.2 million of which $5.7 million had been
spent as of December 31, 1996. For fiscal 1998, the Company has identified
exploitation projects totaling $25.2 million (including amounts to be spent on
the Acquired Properties).
EXPLORATION ACTIVITIES
The Company's exploration activities focus on projects with potential for
substantial reserve increases. In January 1997, the Company completed a
successful exploration well in the Austin Chalk formation in the Giddings field
in central Texas. Exploration projects in the remainder of fiscal 1997 and in
fiscal 1998 include multiple wells in the Fausse Pointe field and an exploration
well west of the Cove field, both of which are operated by the Company. In
addition, the Company also expects the Acquired Properties to present
exploration opportunities. For example, in the Ship Shoal complex in the Gulf of
Mexico, the Sellers declined to acquire available 3-D seismic surveys and to
participate in six offshore exploration or exploitation wells in 1996, all of
which were successful. The Company plans to acquire this and other 3-D seismic
surveys of the Acquired Properties and to participate in future wells based on
its interpretation of the data. During fiscal 1997, the Company has budgeted
$4.8 million for exploration, of which $2.1 million had been spent as of
December 31, 1996. For fiscal 1998, the Company has identified exploration
projects totaling $17.6 million (including amounts to be spent on the Acquired
Properties).
ADVANCED TECHNOLOGY
The Company seeks to improve the efficiency and reduce the risks associated
with its exploration and exploitation activities using advanced technologies.
These advanced technologies include 3-D seismic, CAEX techniques and horizontal
drilling. The Company acquired a 3-D survey on the Cove field, conducted a 3-D
survey on the Fausse Pointe field and plans to acquire three 3-D surveys on
certain of the Acquired Properties. The Company believes its existing properties
and the Acquired Properties will benefit from the application of advanced
technologies.
TORCH RELATIONSHIP
The Company operates under an Administrative Services Agreement with Torch.
Torch has a staff of 39 geologists, geophysicists, reserve engineers and landmen
and 59 financial personnel and professionals. The Company believes that its
relationship with Torch provides it with access to acquisition opportunities and
financial and technical expertise that are generally only available to
significantly larger companies. In addition, the fees payable to Torch reduce
significantly on a BOE basis as the Company's asset base and production grow.
LOW COST STRUCTURE
The Company's cost structure will benefit from the Pending Acquisition and
the Company believes that its larger asset and production base will allow it to
maintain a low cost structure prospectively. Because general and administrative
costs are spread over higher production, pro forma general and administrative
costs per BOE in fiscal 1996 and the six months ended December 31, 1996 were
$1.01 and $0.99, respectively, compared with $2.55 and $2.37, respectively, on a
historical basis.
PENDING ACQUISITION
In March 1997, the Company agreed to purchase the Acquired Properties and
an estimated $18.0 million of working capital for $188.3 million, plus the
Contingent Payment. The effective date of the Pending Acquisition is July 1,
1996 and the estimated net adjusted purchase price assuming an April 8, 1997
closing date is $141.9 million plus the Contingent Payment. As of June 30, 1996,
estimated net proved reserves
35
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attributable to the Acquired Properties were 39.2 MMBOE (89% developed and 59%
gas) with a PV-10 Value (pre-tax) of $212.0 million.
The Company will finance the cash portion of the Pending Acquisition and
related fees, estimated to aggregate $173.8 million, including the repayment of
an estimated $12.0 million of existing indebtedness, with the proceeds of the
Offerings (estimated to be $144.6 million) and $29.3 million of borrowings under
its New Credit Facility. Torch and a subsidiary of Torchmark, the parent
corporation of a Selling Stockholder, have interests in the Acquired Properties
and will receive an estimated $18.0 million and $12.7 million, respectively, of
the purchase price paid for the Acquired Properties. Torch and Torchmark will
also receive fees payable in cash and Common Stock in connection with the
Pending Acquisition aggregating an estimated $3.3 million. See "Risk Factors --
Conflicts of Interest" and "Transactions with Related Persons." In addition,
certain of the Sellers own properties the production from which qualifies for
tax credits under Section 29 of the Internal Revenue Code of 1986. Torch will
pay such Sellers $250,000 and will enter into agreements with Bellwether which
will transfer the Section 29 tax credits to Torch.
The Company has identified for divestiture non-core properties representing
approximately 10% of the estimated net proved reserves attributable to the
Acquired Properties as of June 30, 1996. These properties are primarily small
working interests in geographically diverse locations, with generally low
production rates and cash flows, and limited potential for development. The
Company expects to sell these properties during fiscal 1997 and fiscal 1998. The
net proceeds from these divestitures, which will be used to repay indebtedness,
is currently estimated to be $15 million, but will depend on prevailing market
conditions at the time of sale.
Because Torch has an equity interest in the Sellers and Torch will receive
fees and other consideration in connection with the Pending Acquisition,
Bellwether's Board of Directors formed the Special Committee composed of four
directors not affiliated with Torch or the Sellers to review and approve the
terms of the purchase of the Acquired Properties. Bellwether retained Principal
to render its opinion to the Special Committee and the Board of Directors that
the Pending Acquisition was fair to Bellwether from a financial point of view.
The Special Committee also retained legal counsel to represent it, and retained
Ryder Scott to audit the report of estimated reserves attributable to the
Acquired Properties prepared by Torch and upon which Bellwether based its offer
for the Acquired Properties. On March , 1996, Principal gave its opinion
to the Special Committee that the Pending Acquisition was fair to Bellwether
from a financial point of view, and on that date the Special Committee approved
the Pending Acquisition and all fees and other consideration to be paid to Torch
in connection therewith.
THE CONTINGENT PAYMENT
In addition to the cash portion of the purchase price, Bellwether has
agreed to pay the Sellers the Contingent Payment up to a maximum of $9.0
million, based on the prices of gas in 1997. The Contingent Payment will equal
the average monthly NYMEX price for gas during 1997 minus $2.10 per MMBtu,
multiplied by 13.6 million (representing 75% of the Company's estimated 1997 gas
production from the Acquired Properties). For months prior to the closing date,
the actual NYMEX prices will be used, and for months after closing, the NYMEX
futures price will be used.
STRUCTURE OF THE PENDING ACQUISITION
The interests of the Sellers in the Acquired Properties were structured
differently to satisfy the investment goals of the investors. Certain Sellers
are limited partnerships which own either working interests or net profits
interests that burden working interests. Several investors made loans secured by
mortgages of working interests or net profits interests owned by the Sellers. In
addition, certain Sellers directly acquired net profits interests burdening
working interests. In general, a subsidiary of Torch owns the working interests
burdened by net profits interests owned by the Sellers.
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The acquisition of the Acquired Properties is structured as a merger of
certain of the Sellers which are limited partnerships into a subsidiary of
Bellwether and the acquisition of general and limited partnership interests in
other partnerships. Each Seller (other than such partnerships) which owns net
profits interests will convey such net profits interests to Bellwether's
subsidiary, and the stock of each subsidiary of Torch which owns working
interests burdened by the net profits interests will be sold by Torch to
Bellwether. Bellwether will merge the subsidiary into Bellwether simultaneously
with the closing of the Offerings and the Pending Acquisition so that a
substantial portion of the Acquired Properties will be held directly by
Bellwether. One of the Sellers has notified Bellwether that, because of public
notice requirements applicable to such Seller, it is unable to execute the
Acquisition Agreement before April 15, 1997. Bellwether will not acquire the
interest of such Seller in the Acquired Properties, or the related interests in
such properties owned by Torch and its affiliates at the closing. Bellwether has
agreed to acquire the interests of such Seller and the related interests of
Torch and its affiliates on April 15, 1997, if such Seller executes the
Acquisition Agreement on or before such date. No assurances can be made that
such Seller will execute the Acquisition Agreement. The net purchase price of
the properties owned by such Seller and the related interests of Torch and its
affiliates is less than $2.2 million, and the failure to acquire such interests
is not expected to have a material effect on Bellwether.
In the purchase agreement covering the Pending Acquisition, the Sellers
will make a special warranty of their title to the properties, and customary
warranties as to power and authority to effect the transactions. Neither the
Sellers nor Torch will make any representation or warranty with respect to
environmental or operational matters with respect to the properties. Bellwether
will assume all such liabilities, including those which are unknown or
contingent, and including those which arise prior to the closing of the Pending
Acquisitions. See "Risk Factors -- Acquisition Risks."
ACQUISITION HISTORY
Bellwether has increased its reserves, production and cash flows through a
series of acquisitions since July 1, 1993. In July 1993, the Company acquired
through a joint venture, for $8.5 million, an interest in the Snyder Gas Plant
and the Diamond M-Sharon Ridge Gas Plant (collectively, the "Gas Plant"), the
operations of which were subsequently consolidated.
In December 1993, the Company acquired by merger Associated Gas Resources,
Inc. ("AGRI"), a corporation owned by an institutional investor and managed by
Torch for a total cost of $7.0 million principally consisting of Common Stock.
AGRI's assets included additional interests in the Gas Plant and a 300 mile gas
gathering system in Union Parish, Louisiana ("Monroe Gathering System"), that
serves the Monroe Gas field.
In August 1994, the Company acquired Odyssey for $9.6 million consisting of
cash and Common Stock. Included among the assets of Odyssey was the Fausse
Pointe field in south Louisiana. The Company has conducted a 54 square mile 3-D
seismic survey and is conducting exploitation and development activities in the
Fausse Pointe field. See "Principal Properties."
In February 1995, the Company completed the acquisition of Hampton for
$25.9 million consisting of cash and Common Stock. Included among the assets of
Hampton were the Cove field and the Fort Trinidad field.
In February 1997, the Company acquired a 25% interest in the Mud Lake field
from Nuevo for a net purchase price of $2.0 million in cash. The Company plans
to commence a 45 square mile 3-D seismic survey in the Mud Lake field in March
1997.
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<PAGE>
PRINCIPAL PROPERTIES
The following table sets forth certain information, as of June 30, 1996,
which relates to the oil and gas properties owned by Bellwether and to the
Acquired Properties:
<TABLE>
<CAPTION>
ESTIMATED PV-10
NET PROVED VALUE
RESERVES 1996 NET PRODUCTION (PRE TAX)
------------------------------ ------------------------------ -----------
OIL GAS OIL GAS (IN
(MBBLS) (MMCF) MBOE (MBBLS) (MMCF) MBOE THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENTLY OWNED PROPERTIES:
Cove field, TX..................... 7 10,401 1,741 2 1,002 169 $ 12,876
Fort Trinidad field, TX............ 454 3,007 955 24 152 49 5,684
Fausse Pointe field, LA............ 127 3,736 750 -- -- -- 4,068
Other.............................. 1,220 16,052 3,895 308 3,945 966 25,512
------- --------- --------- ------- --------- --------- -----------
Total currently owned......... 1,808 33,196 7,341 334 5,099 1,184 $ 48,140
------- --------- --------- ------- --------- --------- -----------
ACQUIRED PROPERTIES:
Waddell Ranch complex, TX.......... 4,086 6,004 5,086 245 849 386 $ 23,338
Blue Creek field, AL............... -- 8,938 1,490 -- 1,075 179 12,946
High Island A-334 field,
Gulf of Mexico................... 290 7,521 1,544 80 3,330 635 11,634
Ship Shoal complex, Gulf of
Mexico........................... 1,042 4,617 1,811 175 527 263 11,095
Pt. Pedernales field, CA........... 4,846 3,236 5,385 802 -- 802 9,453
West Chalkley field, LA............ 31 5,232 903 10 753 135 7,758
Other.............................. 5,755 103,509 23,007 1,478 19,477 4,725 135,768
------- --------- --------- ------- --------- --------- -----------
Total Acquired Properties.. 16,050 139,057 39,226 2,790 26,011 7,125 $ 211,992
======= ========= ========= ======= ========= ========= ===========
Total pro forma.......... 17,858 172,253 46,567 3,124 31,110 8,309 $ 260,132
======= ========= ========= ======= ========= ========= ===========
</TABLE>
The following is a description of the principal properties currently owned
by Bellwether and the Acquired Properties:
CURRENTLY OWNED PROPERTIES
COVE FIELD. The Cove field is located in state waters nine miles offshore
Texas. Bellwether operates the field and controls 2,880 acres with a 90.0%
working (73.0% net revenue) interest in 5 wells (4.5 net) and a 42.1% working
(34.2% net revenue) interest in a sixth well (0.4 net). The Company acquired the
field in February 1995 and subsequently gained access to a 25 square mile 3-D
seismic survey covering the field. Bellwether's exploitation activities have
included a five well workover program and two development wells. These
activities increased net production from 1.0 MMcf/d in January 1996 to 11.1
MMcf/d in February 1997. The Company has budgeted $3.3 million for development
of the Cove field in fiscal 1997 and has identified projects totaling $3.8
million for 1998.
The Company expects to drill an exploration well in July 1997 on acreage
which it owns to the west of the currently producing wells. The targets include
gas production from formations at approximately 14,000 feet and 15,000 feet.
FORT TRINIDAD FIELD. The Fort Trinidad field is located in east Texas.
Bellwether owns a 47.9% working (41.0% net revenue) interest in the Dexter Unit
waterflood and a 38.7% working (32.3% net revenue) interest in the Upper Glen
Rose Unit. The waterflood was initiated in December 1995 in the Dexter reservoir
which had cumulative production of 6.4 MMBbls. In December 1996, net production
from 13 wells (5.5 net) averaged 125 BOE/d. The operator of both units is Parten
Operating Company.
The Company is currently evaluating horizontal drilling development
opportunities for the Buda, Georgetown, Edwards and Glen Rose reservoirs on
19,000 acres that are held by production. Additionally,
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<PAGE>
Bellwether has entered into a joint venture with Moran Resources Company to
develop 2,700 acres with the drilling of three horizontal wells in the Buda
reservoir. The first well was completed in January 1997 and is currently being
tested at 420 Bbls/d. Bellwether owns a 30.0% working (22.5% net revenue)
interest in the drilling program. The Company has budgeted $1.5 million in
development capital for the Fort Trinidad field in fiscal 1997 and has
identified projects totaling $5.6 million in fiscal 1998.
FAUSSE POINTE FIELD. The Fausse Pointe field is located in south
Louisiana. Since its discovery in the mid 1930's, over 50 MMBbls of oil and 200
Bcf of gas have been produced from 19 producing formations ranging in depth from
1,000 feet to 14,000 feet. Bellwether acquired its undeveloped interest in the
field in fiscal 1995 and operates the seismic and drilling program in the field
with a 19.5% working (14.2% net revenue) interest in the 8,250-acre State Lease
No. 293 and a 26.0% working interest (19.9% net revenue interest) in 5,198 acres
of private leases and lease options. In 1995, the Company initiated and
completed a 54 square mile 3-D seismic survey. In 1996, Bellwether drilled a
south flank exploration well which was plugged due to mechanical difficulties
and drilled an unsuccessful east flank exploration well and south flank
development well which was spudded in December 1996. Bellwether expects to drill
a third south flank well in April 1997. The Company has budgeted $4.4 million
for additional development and exploration of the field in fiscal 1997 and has
identified projects totaling $2.5 million for fiscal 1998. Additional drilling
prospects on the north and south flanks are also being evaluated.
ACQUIRED PROPERTIES
WADDELL RANCH COMPLEX. The Waddell Ranch complex, comprising fields
located in west Texas, was discovered in the 1930s. The Acquired Properties
include fee interests, net profits interests and working interests that
approximate a composite 10.2% working (10.0% net revenue) interest in 76,921
gross (7,876 net) acres and 1,350 gross (138 net) wells. Production is from a
number of formations from depths between 2,000 and 6,000 feet, including the
upper Permian Grayburg (3,200 feet), San Andres (3,400 feet) and lower Clearfork
Tubb (4,200 feet) formations. Over 400 MMBbls of oil and 1,000 Bcf of gas have
been produced from over 3,000 wells since the initial discovery. Peak production
rates occurred in the early 1960's but the field has experienced a resurgence of
activity in the 1990's with renewed drilling, waterflood expansion and
completion of a 79 square mile 3-D seismic survey. The resulting net production
has increased from 1.4 MBOE/d in 1990 to 1.7 MBOE/d in December 1996. The
Waddell Ranch complex is operated by Burlington Resources Oil & Gas Company,
with Coastal Management Corporation acting as contract operator. The Company's
estimated capital expenditures for identified exploitation and exploration
projects in this complex for fiscal 1997 is $2.9 million, with identified
projects totaling $2.4 million for fiscal 1998.
BLUE CREEK FIELD. The Blue Creek field is located in the Black Warrior
Basin in Alabama. The Acquired Properties include a 16.1% royalty interest in
9,918 acres with 168 wells. The field was developed from 1988 through 1991 and
produces coalbed methane gas from Pennsylvanian coal seams at depths of 700 feet
to 2,500 feet. Average coal seam thickness is between 10 feet and 35 feet.
Average net production during December 1996 was 3.1 MMcf/d. The field is
operated by River Gas Corporation.
HIGH ISLAND BLOCK A-334 FIELD. The High Island Block A-334 field is
located in federal waters 110 miles southeast of Galveston, Texas in 230 feet of
water. The Acquired Properties include an average 25.0% working (20.8% net
revenue) interest in 10,000 gross (2,500 net) acres with 16 gross (4.0 net)
wells. This field is operated by Union Oil Company of California ("Unocal").
Production is from two gas reservoirs and one oil reservoir at depths ranging
from 3,500 feet to 6,000 feet. Average net production during December 1996 was
1,194 BOE/d. A 3-D seismic survey has been conducted on a portion of this
acreage, and the Company plans to review the survey as part of its due diligence
investigation of the Pending Acquisition.
SHIP SHOAL COMPLEX. The Ship Shoal properties are located in federal
waters 120 miles southwest of New Orleans in 125 feet of water. The complex
comprises working interests in eight blocks which include the Ship Shoal Block
208, Block 230 and Block 239 fields. The Acquired Properties consist of working
interests in the three fields ranging from 9.7% to 29.3% with a 1/6 royalty
burden. The 31 wells (5.8 net) in the complex are operated by Kerr-McGee
Corporation. Production is from a variety of formations ranging
39
<PAGE>
from 2,000 feet to 12,000 feet. The fields have produced over 128 MMBbls of oil
and 649 Bcf of gas since their discovery in 1963. Average net production during
December 1996 was 1.4 MBOE/d. Since 1990, Kerr-McGee has been actively
redeveloping the field and has drilled 11 successful wells including four
exploratory wells. A 3-D seismic survey has been conducted on this acreage, and
the Company plans to purchase the survey as part of its due diligence
investigation of the Pending Acquisition. The Company's estimated capital
expenditures for identified exploitation and exploration projects in this
complex for fiscal 1997 is $4.6 million, with identified projects totaling $6.9
million for fiscal 1998.
POINT PEDERNALES FIELD. The Acquired Properties include a 19.7% working
(16.4% net revenue) interest in 9,500 gross (1,871 net) acres in federal waters
offshore California. The field is located approximately 4.5 miles offshore in
242 feet of water. Production is from the Monterey Shale formation at depths of
between 3,800 feet and 5,300 feet. Average net production from 14 gross (2.8
net) wells during December 1996 was 1.5 MBOE/d. The Point Pedernales field is
operated by Nuevo, which owns the other 80.3% working interest. Torch acts as
contract operator of this field for Nuevo. This property was purchased from
Unocal and six other major oil companies in 1993 and has seen significant
activity with production optimization, de-bottlenecking of facilities and the
drilling of three new wells. The Company has identified capital expenditures of
$3.9 million for two additional wells and a gas processing plant for this field
in fiscal 1997. Pursuant to the 1993 purchase agreement, Bellwether's maximum
realized oil price is capped at $9.00/Bbl for the projected life of this field.
WEST CHALKLEY FIELD. The West Chalkley field is located in south
Louisiana. The Acquired Properties include a 2.4% working (1.8% net revenue)
interest in 5 gross (0.1 net) wells producing from the Miogyp "B" reservoir at
an average depth of 14,400 feet and operated by Exxon Company USA. A sixth well
(0.1 net) is completed in the lower Miogyp at 15,400 feet and operated by Torch.
The Sellers own a 9.3% working (7.0% net revenue) interest in the Torch-operated
well. Average net production for the field during December 1996 was 0.3 MBOE/d.
Future plans include the recompletion of the Torch-operated well to the main
field pay interval.
RESERVES
The following table sets forth certain information regarding the estimated
net proved oil and gas reserves of the Company, the estimated net proved
reserves attributable to the Acquired Properties and the pro forma estimated net
proved reserves of the Company as of June 30, 1996:
ACQUIRED COMPANY
COMPANY PROPERTIES PRO FORMA
Proved developed:
Oil (MBbls)........................ 1,494 13,536 15,030
Gas (MMcf)......................... 22,698 128,242 150,940
MBOE............................... 5,277 34,910 40,187
Proved undeveloped:
Oil (MBbls)........................ 314 2,514 2,828
Gas (MMcf)......................... 10,498 10,815 21,313
MBOE............................... 2,064 4,316 6,380
Total Proved:
Oil (MBbls)........................ 1,808 16,050 17,858
Gas (MMcf)......................... 33,196 139,057 172,253
MBOE............................... 7,341 39,226 46,567
PV-10 Value (pre-tax) ($000)............ $48,140 $ 211,992 $ 260,132
The Company's historical proved reserves were estimated by Williamson,
independent petroleum reserve engineers, whose report is attached as Exhibit A,
and the proved reserves attributable to the Acquired Properties were estimated
by the Company and audited by Ryder Scott, whose report is attached hereto as
Exhibit B. Ryder Scott reviewed properties representing 84% of the PV-10 Value
(pre-tax) of the Acquired Properties.
40
<PAGE>
All of the Company's oil and gas reserves are located onshore in the United
States or in state or federal waters.
In general, estimates of economically recoverable oil and natural gas
reserves and of the future net cash flows therefrom are based upon a number of
variable factors and assumptions, such as historical production from the
properties, assumptions concerning future oil and natural gas prices and future
operating costs and the assumed effects of regulation by governmental agencies,
all of which may vary considerably from actual results. All such estimates are
to some degree speculative, and classifications of reserves are only attempts to
define the degree of speculation involved. Estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group of
properties, classifications of such reserves based on risk of recovery and
estimates of future net cash flows expected therefrom, prepared by different
engineers or by the same engineers at different times, may vary substantially.
The Company's actual production, revenues, severance and excise taxes and
development and operating expenditures with respect to its reserves will vary
from such estimates, and such variances could be material. See "Risk
Factors -- Estimates of Oil and Gas Reserves."
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.
In accordance with applicable requirements of the SEC, the estimated
discounted future net cash flows from estimated proved reserves are based on
prices and costs as of the date of the estimate unless such prices or costs are
contractually determined at such date. Actual future prices and costs may be
materially higher or lower. Actual future net cash flows also will be affected
by factors such as actual production, supply and demand for oil and natural gas,
curtailments or increases in consumption by natural gas purchasers, changes in
governmental regulations or taxation and the impact of inflation on costs. See
"Risk Factors -- Volatility of Oil and Gas Prices and Markets."
ACREAGE
The following table sets forth the acres of developed and undeveloped oil
and gas properties in which the Company held an interest as of June 30, 1996.
Undeveloped acreage is considered to be those 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.
GROSS NET
Developed Acreage....................... 481,446 110,513
Undeveloped Acreage..................... 63,549 56,713
------- ---------
Total.............................. 544,995 167,226
======= =========
PRODUCTIVE WELLS
The following table sets forth Bellwether's gross and net interests in
productive oil and gas wells as of June 30, 1996. Productive wells are producing
wells and wells capable of production.
GROSS NET
Oil Wells............................... 359 60.82
Gas Wells............................... 483 72.98
----- ---------
Total.............................. 842 133.80
===== =========
41
<PAGE>
DRILLING ACTIVITY
The following table sets forth the results of drilling activity by the
Company for the last three fiscal years.
EXPLORATORY WELLS
-------------------------------------------------------
GROSS NET
-------------------------- --------------------------
DRY DRY
PRODUCTIVE HOLES TOTAL PRODUCTIVE HOLES TOTAL
1994.................. 1 1 2 0.10 0.20 0.30
1995.................. 3 4 7 0.27 0.65 0.92
1996.................. 2 3 5 0.34 0.39 0.73
DEVELOPMENT WELLS
-------------------------------------------------------
GROSS NET
-------------------------- --------------------------
DRY DRY
PRODUCTIVE HOLES TOTAL PRODUCTIVE HOLES TOTAL
1994.................. 1 2 3 0.08 0.27 0.35
1995.................. 1 2 3 0.30 0.18 0.48
1996.................. 17 1 18 0.93 0.04 0.97
During the three years ended June 30, 1996, the Company's principal
drilling activities occurred in the continental United States and offshore in
Texas state waters. The Company had three gross (0.66 net) wells drilling at
June 30, 1996.
GAS PLANT
The Company acquired interests in the Snyder Gas Plant and the Diamond
M-Sharon Ridge Gas Plant in 1993. These plants are located in the Horseshoe
Atoll reef area in the Permian Basin of West Texas. The Diamond M-Sharon Ridge
Plant was subsequently dismantled and gas previously processed at the plant is
currently processed at the Snyder Gas Plant. The Gas Plant is a cryogenic gas
plant with 60.0 MMcf/d capacity and a carbon dioxide removal facility. The
Company owns a 11.9% interest in the Gas Plant and a 35.8% interest in gas
processed under contracts with the Diamond M-Sharon Ridge Gas Plant, which
results in an approximate 15% interest in all gas processed by the Gas Plant.
The Company also owns an interest in the 650 mile gathering system connected to
the Gas Plant. The Gas Plant is operated by a subsidiary of Torch.
The Gas Plant operated at 34% of capacity in fiscal 1996. The operator of
the Sacroc Unit, which currently supplies over 70% of the plant's inlet volume,
has identified several areas within the Unit that have not been effectively
flooded and is evaluating a large capital project to initiate carbon dioxide
flooding in these areas. Two other operators in the area have disclosed plans to
commence two additional carbon dioxide flood development programs. No assurance
can be made, however, that any additional deposits of gas will be dedicated to
the Gas Plant.
The Gas Plant generally processes gas under percent of proceeds contracts,
in which the plant is entitled to a percent of the liquids extracted from the
processed gas stream. In these cases the Gas Plant typically retains 60.0% to
66.7% of the extracted liquids. In some cases, the Gas Plant processes gas for a
fixed fee per Mcf. In these instances the Gas Plant does not retain any of the
extracted liquids.
TITLE TO PROPERTIES
Bellwether believes that the title to its oil and gas properties is good
and defensible in accordance with standards generally accepted in the oil and
gas industry, subject to such exceptions which, in the opinion of the Company,
are not so material as to detract substantially from the use or value of such
properties. The Company's properties are typically subject, in one degree or
another, to one or more of the following: royalties and other burdens and
obligations, express or implied, under oil and gas leases; overriding royalties
and other burdens created by the Company or its predecessors in title; a variety
of contractual obligations (including, in some cases, development obligations)
arising under operating agreements,
42
<PAGE>
farmout agreements, production sales contracts and other agreements that may
affect the properties or their titles; back-ins and reversionary interests
arising under purchase agreements and leasehold assignments; liens that arise in
the normal course of operations, such as those for unpaid taxes, statutory liens
securing obligations to unpaid suppliers and contractors and contractual liens
under operating agreements; pooling, unitization and communitization agreements,
declarations and orders; and easements, restrictions, rights-of-way and other
matters that commonly affect oil and gas producing property. To the extent that
such burdens and obligations affect the Company's rights to production revenues,
they have been taken into account in calculating the Company's net revenue
interests and in estimating the size and value of the Company's reserves.
Bellwether believes that the burdens and obligations affecting the Company's
properties are conventional in the industry for properties of the kind owned by
the Company.
OTHER PROPERTIES
The Company's headquarters are located in Houston, Texas, in approximately
1,200 square feet of leased space.
EMPLOYEES
The Company had eight employees on January 1, 1997.
LITIGATION
The Company is a defendant in various legal proceedings and claims which
arise in the ordinary course of Bellwether's business. Bellwether does not
believe the ultimate resolution of such actions will have a material effect on
the Company's financial position or results of operations.
COMPETITION, MARKETS AND REGULATION
COMPETITION
The oil and gas industry is highly competitive in all of its phases.
Bellwether encounters competition from other oil and gas companies in all areas
of the Company's operations, including the acquisition of reserves and producing
properties and the marketing of oil and gas. Many of these companies possess
greater financial and other resources than the Company. Competition for
producing properties is affected by the amount of funds available to the
Company, information about a producing property available to the Company and any
standards established by the Company for the minimum projected return on
investment. Because gathering systems and related facilities are the only
practical method for the intermediate transportation of gas, competition for gas
delivery is presented by other pipelines and gas gathering systems. Competition
may also be presented by alternate fuel sources.
MARKETS
Bellwether's ability to market oil and gas from the Company's wells depends
upon numerous factors beyond the Company's control, including the extent of
domestic production and imports of oil and gas, the proximity of the gas
production to gas pipelines, the availability of capacity in such pipelines, the
demand for oil and gas by utilities and other end users, the availability of
alternate fuel sources, the effects of inclement weather, state and federal
regulation of oil and gas production and federal regulation of gas sold or
transported in interstate commerce. No assurances can be given that Bellwether
will be able to market all of the oil or gas produced by the Company or that
favorable prices can be obtained for the oil and gas Bellwether produces.
In view of the many uncertainties affecting the supply of and demand for
oil, gas and refined petroleum products, the Company is unable to predict future
oil and gas prices and demand or the overall effect such prices and demand will
have on the Company. The marketing of oil and gas by Bellwether can be affected
by a number of factors which are beyond the Company's control, the exact effects
of which cannot be accurately predicted. See "Risk Factors -- Volatility of Oil
and Gas Prices and Markets."
During fiscal 1996, no single customer accounted for more than 10% of the
Company's revenues. Bellwether does not believe that the loss of any of the
Company's oil purchasers would have a material
43
<PAGE>
adverse effect on the Company's operations. Additionally, since substantially
all of the Company's gas sales are on the spot market, the loss of one or more
gas purchasers should not materially and adversely affect the Company's
financial condition.
FEDERAL REGULATION
SALES OF GAS
Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act
deregulated prices for all "first sales" of gas. Thus, all sales of gas by the
Company may be made at market prices, subject to applicable contract provisions.
TRANSPORTATION OF GAS
The rates, terms and conditions applicable to the interstate transportation
of natural gas by pipelines are regulated by the Federal Energy Regulatory
Commission ("FERC") under the Natural Gas Act ("NGA"), as well as under
section 311 of the Natural Gas Policy Act ("NGPA"). Since 1985, the FERC has
implemented regulations intended to make gas transportation more accessible to
gas buyers and sellers on an open-access, nondiscriminatory basis.
Most recently, in Order No. 636, ET SEQ., the FERC promulgated an extensive
set of new regulations requiring all interstate pipelines to "restructure"
their services. The most significant provisions of Order No. 636 (i) require
that interstate pipelines provide firm and interruptible transportation solely
on an "unbundled" basis, separate from their sales service, and convert each
pipeline's bundled firm city-gate sales service into unbundled firm
transportation service; (ii) issue blanket certificates to pipelines to provide
unbundled sales service; (iii) require that pipelines provide firm and
interruptible transportation service on a basis that is equal in quality for all
gas supplies, whether purchased from the pipeline or elsewhere; (iv) require
that pipelines provide a new, non-discriminatory "no-notice" transportation
service; (v) establish two new, generic programs for the reallocation of firm
pipeline capacity; (vi) require that all pipelines offer access to their storage
facilities on a firm and interruptible, open access, contract basis; (vii)
provide pregranted abandonment of unbundled sales and interruptible and
short-term firm transportation service and conditional pregranted abandonment of
long-term transportation service; (viii) modify transportation rate design by
requiring all fixed costs related to transportation to be recovered through the
reservation charge under the straight fixed variable ("SFV") method. The order
also recognized that the elimination of city-gate sales service and the
implementation of unbundled transportation service would result in considerable
costs being incurred by the pipelines. Therefore, Order No. 636 provided
mechanisms for the recovery by pipelines from present, former and future
customers of certain types of "transition" costs likely to occur due to these
new regulations.
In subsequent orders, the FERC substantially upheld the requirements
imposed by Order No. 636. Pursuant to Order No. 636, pipelines and their
customers engaged in extensive negotiations in order to develop and implement
new service relationships under Order No. 636. Tariffs instituting these new
restructured services were placed into effect on all pipelines on or before
November 1, 1993. The final form of the FERC's open-access rules, the tariff and
related provisions by which Order No. 636 ET SEQ. have been implemented by the
interstate pipelines and the flow-through of transition costs are subject to
final administrative and judicial action. In this regard, numerous parties filed
for judicial review of Order No. 636, ET SEQ., and the United States Court of
Appeals for the District of Columbia Circuit recently issued its decision
largely upholding the basic elements of the order. Further review of and
revisions to the FERC's orders is still possible, and related appeals remain
pending. The Company cannot predict the final outcome of the FERC's open-access
series of orders, but the outcome of these proceedings and future action by the
FERC respecting open access transportation could have an effect on the Company's
operations and the costs of transporting and selling natural gas.
The FERC is currently considering several other rules intended to
streamline its regulation of the industry and promote competition. One deals
with pipeline rates. For decades, the principal methodology used to set
interstate pipeline rates has been based on the actual cost to provide that
service. In recent years
44
<PAGE>
regulators have concluded that sufficient competition may exist in certain
markets to allow a relaxation of this historic approach. In January 1996, the
FERC issued a statement of policy and request for comments concerning
alternatives to its traditional cost-of-service ratemaking methodology and set
forth the criteria that the FERC will use to evaluate proposals to charge
market-based rates for the transportation of natural gas. The FERC also
requested comments on whether it should allow gas pipelines the flexibility to
negotiate the terms and conditions of transportation service with prospective
shippers. In another rulemaking, the FERC is considering how to alter its
regulations to promote the fair and effective release and recontracting of
pipeline capacity from one shipper to another, and whether and to what extent
such transactions should be regulated where the market is demonstrably
competitive. In this regard, an experimental pilot program implementing certain
new procedures will be implemented in the 1996-97 winter heating season. Lastly,
the FERC has issued a policy statement on how interstate pipelines can recover
in rates the costs of new facilities. While the policy may affect the Company
and other producer-shippers only indirectly, the policy should enhance
competition in new markets and encourage the construction of gas supply
laterals. As to all of these matters, the Company cannot predict what further
action the FERC will take; however, the Company does not believe that it will be
affected by any action taken materially differently than other natural gas
producers, gatherers and marketers with which it competes.
SALES AND TRANSPORTATION OF OIL
Sales of oil and condensate can be made by the Company at market prices not
subject at this time to price controls. The price that the Company receives from
the sale of these products will be affected by the cost of transporting the
products to market. As required by the Energy Policy Act of 1992, the FERC
revised its regulations governing the transportation rates that may be charged
by oil pipelines. The new rules, which were effective January 1, 1995, provide a
simplified, generally applicable method of regulating such rates by use of an
index for setting rate ceilings. In certain circumstances, the new rules permit
oil pipelines to establish rates using traditional cost of service and other
methods of ratemaking. The FERC's orders were recently affirmed on appeal. The
effect that these new rules may have on moving the Company's products to market
cannot yet be determined. In addition, at the same time as it issued the new
rules, the FERC also issued notices of inquiry regarding market-based pricing
for oil pipeline rates and the information required to be filed for ratemaking
and reporting purposes. It is not possible to predict what rules, if any, the
FERC will ultimately adopt as a result of these inquiry proceedings whether the
pipelines used by the Company will apply for market based or other rates or the
effect that any rules that are adopted or authorizations sought might have on
the cost of moving the Company's products to market.
LEGISLATIVE PROPOSALS
In the past, Congress has been very active in the area of gas regulation.
There are legislative proposals pending in the state legislatures of various
states, which, if enacted, could significantly affect the petroleum industry. At
the present time it is impossible to predict what proposals, if any, might
actually be enacted by Congress or the various state legislatures and what
effect, if any, such proposals might have on the Company's operations.
FEDERAL, STATE OR INDIAN LEASES
In the event the Company conducts operations on federal, state or Indian
oil and gas leases, such operations must comply with numerous regulatory
restrictions, including various nondiscrimination statutes, and certain of such
operations must be conducted pursuant to certain on-site security regulations
and other appropriate permits issued by the Bureau of Land Management ("BLM")
or Minerals Management Service or other appropriate federal or state agencies.
The Mineral Leasing Act of 1920 (the "Mineral Act") prohibits direct or
indirect ownership of any interest in federal onshore oil and gas leases by a
foreign citizen of a country that denies "similar or like privileges" to
citizens of the United States. Such restrictions on citizens of a
"non-reciprocal" country include ownership or holding or controlling stock in
a corporation that holds a federal onshore oil and gas lease. If this
restriction is violated, the corporation's lease can be canceled in a proceeding
instituted by the United States Attorney General. Although the regulations of
the BLM (which administers the Mineral Act)
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<PAGE>
provide for agency designations of nonreciprocal countries, there are presently
no such designations in effect. The Company owns interests in numerous federal
onshore oil and gas leases. It is possible that the Common Stock will be
acquired by citizens of foreign countries, which at some time in the future
might be determined to be non-reciprocal under the Mineral Act.
STATE REGULATION
Most states regulate the production and sale of oil and gas, including
requirements for obtaining drilling permits, the method of developing new
fields, the spacing and operation of wells and the prevention of waste of oil
and gas resources. The rate of production may be regulated and the maximum daily
production allowable from both oil and gas wells may be established on a market
demand or conservation basis or both.
The Company may enter into agreements relating to the construction or
operation of a pipeline system for the transportation of gas. To the extent that
such gas is produced, transported and consumed wholly within one state, such
operations may, in certain instances, be subject to the jurisdiction of such
state's administrative authority charged with the responsibility of regulating
intrastate pipelines. In such event, the rates which the Company could charge
for gas, the transportation of gas, and the construction and operation of such
pipeline would be subject to the rules and regulations governing such matters,
if any, of such administrative authority. In addition, the administrative
authority in certain states have regulatory authority over the gathering of
natural gas, either as public utilities, common carriers and/or common
purchasers of production. As a result of FERC Order No. 636, federal agency
oversight of gathering performed by interstate pipelines has diminished in favor
of increased state oversight of such facilities. Given these recent events, it
is possible that state regulation over the Company's gathering activities, and
respecting gatherers which provide services to the Company, may increase.
ENVIRONMENTAL REGULATION
GENERAL
The Company's activities are subject to existing federal, state and local
laws and regulations governing environmental quality and pollution control.
Although no assurances can be made, the Company anticipates that, absent the
occurrence of an extraordinary event such as those noted under "Risk Factors,"
compliance with existing federal, state and local laws, rules and regulations
regulating the release of materials into the environment or otherwise relating
to the protection of the environment will not have a material effect upon the
capital expenditures, earnings or the competitive position of Bellwether with
respect to the Company's operations. The Company cannot predict what effect
additional regulation or legislation, enforcement policies issued thereunder,
and claims for damages to property, employees, other persons and the environment
resulting from the Company's operations could have on its activities.
Activities of the Company with respect to gas facilities, including the
operation and construction of pipelines, plants and other facilities for
transporting, processing, treating or storing gas and other products, are
subject to stringent environmental regulation by state and federal authorities
including the Environmental Protection Agency ("EPA"). Such regulation can
increase the cost of planning, designing, installing and operating such
facilities. In most instances, the regulatory requirements impose water and air
pollution control measures. Although Bellwether believes that compliance with
environmental regulations will not have a material adverse effect on the
Company, risks of substantial costs and liabilities related to environmental
compliance issues are inherent in oil and gas production operations, and no
assurance can be given that significant costs and liabilities will not be
incurred. Moreover, it is possible that other developments, such as stricter
environmental laws and regulations, and claims for damages to property or
persons resulting from oil and gas production, would result in substantial costs
and liabilities to the Company.
SOLID AND HAZARDOUS WASTE
The Company currently owns or leases, and has in the past owned or leased,
numerous properties that have been used for production of oil and gas for many
years. Although the Company has utilized operating
46
<PAGE>
and disposal practices that were standard in the industry at the time,
hydrocarbons or other solid wastes may have been disposed or released on or
under the properties owned or leased by the Company. In addition, many of these
properties have been operated by third parties. The Company had no control over
such parties' treatment of hydrocarbons or other solid wastes and the manner in
which such substances may have been disposed or released. State and federal laws
applicable to oil and gas wastes and properties have gradually become stricter
over time. Under these new laws, the Company could be required to remove or
remediate previously disposed wastes (including wastes disposed or released by
prior owners or operators) or property contamination (including groundwater
contamination by prior owners or operators) or to perform remedial plugging
operations to prevent future contamination.
The Company generates wastes, including hazardous wastes, that are subject
to the Federal Resource Conservation and Recovery Act ("RCRA") and comparable
state statutes. The EPA has limited the disposal options for certain hazardous
wastes and is considering the adoption of stricter disposal standards for
nonhazardous wastes. Furthermore, it is possible that certain wastes currently
exempt from treatment as "hazardous wastes" generated by the Company's oil and
gas operations may in the future be designated as "hazardous wastes" under
RCRA or other applicable statutes, and therefore be subject to more rigorous and
costly disposal requirements.
SUPERFUND
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons with respect to the release of a "hazardous substance" into the
environment. These persons include the owner and operator of a site and any
party that disposed or arranged for the disposal of the hazardous substance
found at a site. CERCLA also authorizes the EPA and, in some cases, third
parties, to take actions in response to threats to the public health or the
environment and to seek to recover from the responsible classes of persons the
costs of such action. In the course of the Company's operations, Bellwether has
generated and will generate wastes that may fall within CERCLA's definition of
"hazardous substances." The Company may also be an owner of sites on which
"hazardous substances" have been released. The Company may be responsible
under CERCLA for all or part of the costs to clean up sites at which such wastes
have been disposed. At this time, neither the Company nor its predecessors has
been designated as a potentially responsible party under CERCLA with respect to
any such site.
OIL POLLUTION ACT
The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder
impose a variety of regulations on "responsible parties" related to the
prevention of oil spills and liability for damages resulting from such spills in
"waters of the United States." The term "waters of the United States" has
been broadly defined to include inland waterbodies, including wetlands, playa
lakes and intermittent streams. A "responsible party" includes the owner or
operator of a facility or vessel, or the lessee or permittee of the area in
which an offshore facility is located. The OPA assigns liability to each
responsible party for oil removal costs and a variety of public and private
damages. While liability limits apply in some circumstances, a party cannot take
advantage of liability limits if the spill was caused by gross negligence or
willful misconduct or resulted from violation of a federal safety, construction
or operating regulation. If the party fails to report a spill or to cooperate
fully in the cleanup, liability limits also do not apply. Few defenses exist to
the liability imposed by the OPA.
The OPA also imposes ongoing requirements on a responsible party, including
proof of financial responsibility to cover at least some costs in a potential
spill. OPA originally required owners and operators of offshore oil and gas
facilities to establish $150.0 million in financial responsibility. Congress
passed legislation in September 1996 that was subsequently signed by the
President and that would make two significant changes to the original OPA.
First, the amount of financial responsibility that must be demonstrated for an
offshore facility was reduced to $35.0 million if the facility is located
seaward of the seaward boundary of a state, or $10.0 million if the facility is
located landward of such boundary. A higher amount, up to a maximum of $150.0
million, may still be required if justified by the risks of a particular
47
<PAGE>
facility. Second, certain offshore facilities with a worst-case oil spill risk
of 1,000 barrels or less are exempted altogether from the financial
responsibility requirement, unless the President demonstrates a need for it with
respect to a particular facilty. The requirements under OPA may have the
potential to result in the imposition of substantial additional annual costs on
the Company or otherwise materially adversely affect the Company. However, the
impact of the statute is not expected to be any more burdensome to the Company
than it will be to other similarly or less capitalized owners or operators in
the Gulf of Mexico.
AIR EMISSIONS
The operations of the Company are subject to local, state and federal laws
and regulations for the control of emissions from sources of air pollution.
Administrative enforcement actions for failure to comply strictly with air
regulations or permits are generally resolved by payment of monetary fines and
correction of any identified deficiencies. Alternatively, regulatory agencies
could require the Company to cease construction or operation of certain air
emission sources, although the Company believes that in the such case it would
have enough permitted or permittable capacity to continue its operations without
a material adverse effect on any particular producing field.
OSHA
The Company is subject to the requirements of the Federal Occupational
Safety and Health Act ("OSHA") and comparable state statutes. The OSHA hazard
communication standard, the EPA Community Right-to-Know regulations under Title
III of CERCLA and similar state statutes require Bellwether to organize and/or
disclose information about hazardous materials used or produced in the Company's
operations. Certain of this information must be provided to employees, state and
local governmental authorities and local citizens.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table provides information with respect to the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
J.P. Bryan.............................. 57 Chairman of the Board
J. Darby Sere........................... 49 Director, President and Chief Executive Officer
Charles C. Green III.................... 50 Director, Executive Vice President and Chief Financial
Officer
Roland E. Sledge........................ 51 Vice President and Secretary
Michael B. Smith........................ 34 Vice President and Treasurer
C. Barton Groves........................ 59 Director of the Company; President of Odyssey
Kenneth W. Welch........................ 39 Vice President -- Land of Odyssey
Dr. Jack Birks.......................... 77 Director
Vincent H. Buckley...................... 74 Director
Habib Kairouz........................... 30 Director
A.K. McLanahan.......................... 70 Director
Michael D. Watford...................... 43 Director
</TABLE>
Mr. Bryan has been Chairman of the Board of the Company since August 31,
1987, and was Chief Executive Officer of the Company from June 30, 1994 to
January 25, 1995 and from August 1987 to March 6, 1988. Since January 25, 1995,
Mr. Bryan has been Chief Executive Officer of Gulf Canada Resources Limited. He
has been Chairman of the Board of Nuevo since March 1990 and was Chief Executive
Officer of Nuevo from March 1990 to January 1995. Mr. Bryan has also been
Chairman of the Board and Chief Executive Officer of Torch and its predecessor
since January 1, 1985. Mr. Bryan is a member of the Board of Directors of Gulf
Canada Resources Limited, Nuevo and Republic Waste Industries.
Mr. Sere has been Chief Executive Officer of the Company since January 25,
1995, President since March 7, 1988, and a director since March 25, 1988. Mr.
Sere was Chief Executive Officer of the Company from March 7, 1988 to June 29,
1994. He was a consultant with Patrick Petroleum Company, an independent oil and
gas company, from September 1987 to February 1988 and was a co-founder,
President, Chief Executive Officer and a director of Bayou Resources, Inc., an
independent oil and gas exploration and development company, from January 1982
until its acquisition by Patrick Petroleum Company in August 1987. Mr. Sere
served in various positions with Howell Corporation and Howell Petroleum
Corporation, an independent oil and gas company, from 1977 to 1981, the last of
which was Executive Vice President.
Mr. Green has been Executive Vice President and Chief Financial Officer of
the Company since January 1, 1997, a director since February 24, 1997 and an
officer of the Company since December 31, 1992. He was an officer of Torch from
December 1992 through December 1996, serving as Vice Chairman and Chief
Investment Officer of Torch from May 1995 to December 1996, and as President and
Chief Operating Officer for 18 months prior thereto. For over ten years prior to
joining Torch, Mr. Green was President and Chief Operating Officer of Treptow
Development Company, a real estate development company. Previously, at J. P.
Morgan Investment Management, he was Vice President and Senior Portfolio Manager
and Head of International Fixed Income in London (1974-1982) and, in New York,
was Assistant Vice President in the Investment Department (1973-1974) and
Investment Research Officer and Energy Analyst (1969-1973). He has been a
director of Teletouch Communications, Inc. since May 1995. Mr. Green is a
Chartered Financial Analyst.
Mr. Sledge, Vice President and Secretary of the Company since September 1,
1987, is Managing Director, Secretary and General Counsel of Torch and has been
an officer with Torch and its predecessor since July 1983. He was an attorney
with the law firm of Watt, White & Craig, Houston, Texas from 1980 to 1983.
49
<PAGE>
Mr. Smith has been Vice President and Treasurer of the Company since
January 1, 1997 and was Vice President and Chief Financial Officer of the
Company from September 1995 through December 1996. Mr. Smith joined Torch in
April 1995 as Vice President of Acquisitions and Financial Analysis and in
September 1995 became Torch's Chief Financial Officer. Prior to joining Torch,
Mr. Smith held various positions in finance with ARCO beginning August 1989, the
last of which was Financial Advisor in the Corporate Treasury department.
Mr. Groves has been President of Odyssey and a director of the Company
since August 26, 1994. He was President of the managing general partner of
Odyssey Partners, the predecessor in interest of Odyssey, from 1986 to August
1994. Between 1973 and 1986, Mr. Groves held various positions with Diamond
Shamrock Corporation, including President of its Diamond Shamrock Exploration
Company subsidiary.
Mr. Welch has been Vice President -- Land of Odyssey since August 26, 1994.
From 1987 to August 1994, Mr. Welch was Land Manager of the Odyssey Partnership.
Between 1979 and 1987, Mr. Welch held Area Landman and Senior Landman positions
with Enserch Exploration, Inc., Penn Resources, Inc., and Moore McCormack
Energy, Inc.
Dr. Birks has been a Director of the Company since 1988. He is Chairman of
the Board of Midland & Scottish Resources Plc. He is life president of British
Maritime Technology Limited. Dr. Birks served as Chairman of the Board of North
American Gas Investment Trust Plc. from 1989 until his retirement in 1995; as
Chairman of the Board of British Maritime Technology Limited from 1985 to 1995;
as Chairman of the Board of Charterhouse Petroleum Plc from 1982 to 1986; as
Chairman of the Board of London American Energy Inc. from 1982 to 1988; as Vice
Chairman of the Board of Petrofina (UK) Limited from 1986 to 1989; and as a
director of George Wimpey Plc, a construction company, from 1982 to May 1990.
Mr. Buckley has been a Director of the Company since 1987. He has been Of
Counsel to the law firm of Liddell, Sapp, Zivley, Hill & LaBoon since January
1989. He serves as a Director of Enron Cactus III Corporation, Houston, Texas,
an oil and gas company, and as a Director on the Houston Medical Area Advisory
Board of Texas Commerce Bank National Association. Mr. Buckley was President and
Chief Executive Officer of Cockburn Oil Corporation from August 1984 until
September 1, 1988, and was Vice President of Apache Corporation, an oil and gas
company, Denver, Colorado, from October 1982 to August 1984.
Mr. Kairouz has been a director of the Company since August 26, 1994. Since
December 1993 he has been employed by Rho Management Company, Inc., an
investment advisory firm which serves as advisor to the principal investor of
Alpine Investment Partners. Prior to that, Mr. Kairouz was employed for five
years in investment banking at the firms of Jesup & Lamont Securities, Inc. and
more recently, Reich & Co., Inc. Under the agreement pursuant to which the
Company acquired Odyssey, certain former owners ("Owners") of the Odyssey
Partnership acquired the right to designate one representative to the Company's
board of directors. Pursuant to such agreement, until the earlier to occur of
the five-year anniversary of the closing of such acquisition or the date such
Owners no longer own at least 5% of the outstanding Common Stock, the Company is
obligated to nominate and recommend to the Company's Stockholders one
representative of the Owners. Mr. Kairouz is the person so designated by the
Owners.
Mr. McLanahan has been a director of the Company since November 6, 1987. He
has been a First Vice President of PaineWebber Incorporated since January, 1995.
He was a Vice President of Kidder Peabody & Co., Inc., an investment banking
firm from April 1985 until its sale to PaineWebber Incorporated in 1995. From
April 1982 to April 1985 he served as a Senior Vice President and Branch Office
Manager of Donaldson, Lufkin & Jenrette, Inc., an investment banking firm.
Mr. Watford has been a Director of the Company since March 1994. He has
been Chief Executive Officer of Nuevo since January 1995 and President, Chief
Operating Officer, and a member of the Board of Directors of Nuevo since
February 1994. He was President of Torch Energy Marketing, Inc., a subsidiary of
Torch, from 1990 until April 1995 and was Director of Natural Gas Marketing for
Meridian Oil, Inc. from 1985 until 1990. Mr. Watford was employed by Superior
Oil Company from 1981 until 1985 and Shell Oil Company from 1975 until 1981.
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<PAGE>
COMPENSATION OF DIRECTORS
Directors of the Company who are neither officers nor employees of the
Company or Torch received $2,000 for the first quarter meeting of the Board of
Directors and $3,000 per meeting thereafter during the fiscal year ended June
30, 1996, and were reimbursed for reasonable expenses incurred in attending such
meetings. Directors who are officers or employees of the Company or Torch did
not receive any additional compensation for services as members of the Board of
Directors. The Company paid a total of $39,000 in director fees for the fiscal
year ended June 30, 1996. Each non-employee board member also received an annual
grant of 2,000 options under the 1994 Stock Incentive Plan and receives an
annual grant of 4,000 options under the 1996 Stock Incentive Plan ("1996
Plan") following each annual meeting commencing in 1997.
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the past three years
cash compensation and certain other components of the compensation of J. Darby
Sere, the Company's President and Chief Executive Officer, C. Barton Groves,
President of Odyssey and Kenneth W. Welch, Vice President -- Land of Odyssey,
who were the only officers of the Company in fiscal 1996 whose total salary and
bonus exceeded $100,000. All other executive officers of the Company were also
officers or employees of Torch during fiscal 1996 and provided services to the
Company (including holding executive officer positions with Company) pursuant to
the Administrative Services Agreement between the Company and Torch. Executive
officers who perform services for the Company under the Administrative Services
Agreement received no compensation from the Company other than the grant of
stock options under the 1994 Stock Incentive Plan ("1994 Plan") and were all
compensated primarily by Torch.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION ------------------------------------------------
--------------------------------- AWARDS
OTHER ---------------------- PAYOUTS ALL
NAME AND ANNUAL RESTRICTED NUMBER ------- OTHER
PRINCIPAL COMPENSA- STOCK OF LTIP COMPENSA-
POSITION YEAR SALARY BONUS TION(1) AWARD(S) OPTIONS PAYOUTS TION(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Darby Sere ....................... 1996 $ 171,000 $ 50,000(3) $ -- -- --(4) $ -- $ 8,752
President and Chief 1995 158,000 -- -- -- 25,000 -- 8,450
Executive Officer 1994 147,000 16,500 -- -- 234,450 -- 7,561
C. Barton Groves .................... 1996 154,000 30,000(3) -- -- --(4) -- 30,500
President of Odyssey 1995 125,000 -- -- -- 165,000 -- 21,013
1994 -- -- -- -- -- -- --
Kenneth W. Welch .................... 1996 98,000 15,000(3) -- -- --(4) -- 10,750
Vice President -- Land 1995 80,486 -- -- -- 82,500 -- 7,899
of Odyssey 1994 -- -- -- -- -- -- --
</TABLE>
- -----------------------------
(1) These amounts do not include the value of the benefit to Mr. Sere of the use
of a Company-owned automobile used primarily for commuting to the Company;
the expense of a $7,110 per month disability insurance policy under which
Mr. Sere is the insured, the premiums of which are paid by the Company; and
the expenses of Mr. Sere's membership in certain professional and athletic
clubs. While some personal benefit may be derived from the foregoing, the
expenses are considered by the Company to be ordinary, necessary and
reasonable to its business and such expenses did not exceed 10% of Mr.
Sere's salary in fiscal 1996.
(2) Represents premiums paid on a $500,000 term life insurance policy for Mr.
Sere and an annual payment pursuant to a Simplified Employee Pension Plan
for Mr. Sere, Mr. Groves and Mr. Welch. Also includes $17,000 per year for
personal benefit plans paid to Mr. Groves in lieu of certain Company
benefits and amounts paid for a car allowance for Mr. Groves and Mr. Welch.
(3) Represents the bonuses paid during fiscal 1996 based upon performance in
fiscal 1995. On October 1, 1996, Messrs. Sere, Groves and Welch were granted
bonuses of $70,000, $32,500 and $17,500, respectively, in recognition of
their performance during fiscal 1996.
(4) Represents the number of options granted during fiscal 1996 based upon
performance in fiscal 1995. On September 16, 1996, Messrs. Sere, Groves and
Welch were granted, subject to stockholder approval of
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
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<PAGE>
the 1996 Plan, options to purchase 55,000, 15,000 and 7,500 shares of Common
Stock, respectively, in recognition of their performance during fiscal 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No option or stock appreciation rights grants were made in fiscal year
1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth certain information concerning the exercise
in fiscal 1996 of options to purchase Common Stock by the executive officers
named in the Summary Compensation Table and the number and value of unexercised
options to purchase Common Stock held by such individuals at June 30, 1996. Also
reported are the values for "in-the-money" options which represent the
positive spread between the exercise price of any such existing stock options
and the June 30, 1996 price of the Common Stock. The actual amount, if any,
realized upon exercise of stock options will depend upon the market price of the
Common Stock relative to the exercise price per share of Common Stock at the
time the stock option is exercised. There is no assurance that the values of
unexercised, "in-the-money" stock options reflected in this table will be
realized.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT JUNE 30, 1996 JUNE 30, 1996(1)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
J. Darby Sere........................ -- -- 236,560 22,890 $ 154,255 $25,751
C. Barton Groves..................... -- -- 165,000 -- $ 60,000 --
Kenneth W. Welch..................... -- -- 82,500 -- $ 30,000 --
</TABLE>
- -----------------------------
(1) Based upon $6.00, the closing price of Common Stock on June 30, 1996.
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
At this time, the Company does not have a long-term incentive plan for its
employees, other than the 1988 Non-Qualified Stock Option Plan, the 1994 Stock
Incentive Plan and the 1996 Stock Incentive Plan.
1988 PLAN
In 1988, the Board of Directors adopted and the stockholders approved the
1988 Non-Qualified Stock Option Plan ("1988 Plan"). The Company has reserved
131,325 shares of common stock under the 1988 Plan and no further options will
be granted under the plan. Options under the 1988 Plan may be granted by the
Compensation Committee to any director, executive officer or key employee of the
Company. The exercise price of an option is 100% of the fair market value on the
date of the grant. Options granted under the 1988 Plan may be exercised at any
time for up to 10 years from the date of grant but prior to termination of the
1988 Plan on March 25, 1998, or such shorter time as the Compensation Committee
determines.
1994 PLAN
In 1994, the Board of Directors adopted and the stockholders approved the
1994 Plan. The Company has reserved 825,000 shares of Common Stock under the
1994 Plan. The Company has issued options to purchase an aggregate of 825,000
shares under the 1994 Plan.
The 1994 Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has full power to select, from among the
persons eligible for awards, the individuals to whom awards are granted, to make
any combination of awards to any participant and to determine the specific terms
of each grant, subject to the provisions of the 1994 Plan. The option price per
share of Common Stock deliverable upon the exercise of a Stock Option shall be
100% of the fair market value of a share of Common Stock on the date the Stock
Option is granted.
Directors, officers and key employees of the Company and officers and key
employees of Torch who render services for the Company under the Administrative
Services Agreement are eligible to receive stock options or performance shares
under the 1994 Plan.
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<PAGE>
1996 PLAN
In 1996, the Board of Directors adopted and the stockholders approved the
1996 Plan. Individual awards under the 1996 Plan may take the form of one or
more of (i) incentive stock options; (ii) non-qualified stock options; or (iii)
performance shares.
The 1996 Plan is administered by a plan administrator which may be any of
(i) the Board of Directors of the Company; (ii) any duly constituted committee
of the Board of Directors consisting of at least two non-employee directors; or
(iii) any other duly constituted committee of the Board of Directors. The plan
administrator will select the officers, key employees and consultants who will
receive awards and the terms and conditions of those awards. The maximum number
of shares of Common Stock that may be subject to outstanding awards may not
exceed 500,000 shares of Common Stock tendered as payment for shares issued upon
exercise of an option or which are attributable to awards which have expired,
terminated or been canceled or forfeited are available for issuance or use in
connection with future awards.
The option price of any incentive stock option shall be 100% of the fair
market value of a share of Common Stock on the date the incentive option is
granted. Any incentive option must be exercised within ten years of the date of
grant. Unless otherwise determined by the plan administrator, the option price
of any non-qualified stock option shall be 100% of the fair market value of a
share of Common Stock on the date the option is granted. Vesting of stock
options and performance shares, and the term of any non-qualified stock option
or performance share award is determined by the plan administrator.
The 1996 Plan provides that each director that is not an employee of the
Company shall, on the date on which he or she is initially elected or appointed
a director of the Company, be granted a stock option to purchase 4,000 shares of
Common Stock for the fair market price on the date of grant and for a term of
ten years. After each subsequent annual meeting of stockholders at which such
person continues to serve as a director, he or she will automatically be granted
a stock option to purchase 4,000 additional shares of Common Stock for the fair
market price on the date of such grant and for a term of ten years.
In the event of a termination of employment, outstanding options and
performance shares may be subject to forfeiture and/or time limitations. Stock
options and performance shares are evidenced by written agreements, the terms
and provisions of which may differ. No stock option is transferable other than
by will or by the laws of descent or distribution.
The 1996 Plan may be amended by the Board of Directors without the consent
of the stockholders except that any amendment, though effective when made, will
be subject to stockholder approval if required by any federal or state law or
regulation or by the rules of any stock exchange or automated quotation system
on which the Common Stock may then be listed or quoted. In addition, no
amendment can impair the rights of a holder of an outstanding award under the
Plan without such holder's consent.
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<PAGE>
TRANSACTIONS WITH RELATED PERSONS
RELATIONSHIP WITH TORCH AND AFFILIATES
ADMINISTRATIVE SERVICES AGREEMENT
The Company has been party to an Administrative Services Agreement with
Torch since 1987. Torch, headquartered in Houston, Texas, is primarily engaged
in the business of providing outsourcing services for clients in the energy
industry with respect to the acquisition and divestiture, exploration,
development, exploitation and operation of oil and gas properties, including
management advisory services, legal, financial and accounting services, and the
marketing of oil and gas. In addition, Torch provides energy industry investment
management and advisory services for public companies and private investors. The
Administrative Services Agreement is subject to termination by Bellwether upon
one year's prior notice. The agreement has an initial term expiring on December
31, 1999 and may not be terminated by Torch prior to such date.
The Administrative Services Agreement requires Torch to administer certain
activities of the Company for a monthly fee. These administrative services
include providing the Company with office space, equipment and supplies,
accounting, legal, financial, geological, engineering, technical and insurance
professionals retained by the Company, maintaining the books and records of the
Company, assisting the Company in determining its capital requirements,
preparing any reports or other documents required by governmental authorities,
analyzing economic and other data related to the Company's business and
otherwise providing general management services and advice to the Company's
business. The Company presently intends to continue to operate under the
Administrative Services Agreement.
The monthly fee payable to Torch is equal to (i) one-twelfth of 2% of the
book value of the Company's assets, excluding cash and cash equivalents, plus
(ii) 2% of operating cash flows during such month less 20% of overhead on Torch
operated properties. The fees paid for fiscal 1994, 1995 and 1996 were $600,000,
$1.2 million and $1.5 million, respectively. On a pro forma basis, the amount
payable under the Administrative Services Agreement for administrative services
would have been $6.1 million and $2.4 million in fiscal 1996 and the six months
ending December 31, 1996, respectively. The Company believes that the terms and
fees under the Administrative Services Agreement are comparable with those that
could be negotiated with a third party in an arm's length transaction and are
fair to the Company.
Under the Administrative Services Agreement, the monthly fee for
administrative services does not apply to extraordinary investing and financing
services that Torch may agree to provide to the Company upon the Company's
request. For such investing and financing services the Company pays Torch a fee
based on the Torch employees providing such services on an hourly basis, certain
overhead expenses with respect to such employees and any related expenses. The
Company has not paid any fees for these services in the last three fiscal years.
The Company has agreed to indemnify Torch and its affiliates for
liabilities incurred by Torch or its affiliates for actions taken under the
Administrative Services Agreement, other than acts of fraud, willful misconduct
or gross negligence of Torch or its affiliates or any of their employees.
In the course of its business, Torch generates potential investments in oil
and gas properties, processing plants, gathering systems and pipelines, and
other oil and gas assets (collectively "Investments"). Torch also provides
services to Nuevo. Under the Administrative Services Agreement and the agreement
with Nuevo, Torch is required to offer to the Company and Nuevo all Investments
that are within the scope of the Company's or Nuevo's business.
The business and acquisition strategy of the Company and Nuevo may overlap
regarding certain Investments. The Company, Nuevo and Torch have adopted a
policy regarding the rights as between Nuevo and the Company to Investments
generated by Torch that Torch is required to offer to the Company and Nuevo. If
an Investment is located in the Company's Area of Exclusive Interest (as
hereinafter defined), the Investment will be offered first to the Company. If an
Investment is located in Nuevo's Area of Exclusive Interest, the Investment will
be offered first to Nuevo. Investments located outside of or in both the Areas
of Exclusive Interest will be offered by Torch to both the Company and Nuevo.
Unless the Company and Nuevo agree otherwise, the Company will be entitled to
acquire a 20% interest in the assets representing the Investment, and Nuevo will
be entitled to acquire the remaining 80%. With respect to assets that form part
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of an Investment which is not capable of division, Torch will allocate such
assets between Nuevo and the Company in a manner deemed fair and reasonable by
Torch, whose decision shall be final and binding.
The Company's Area of Exclusive Interest is defined as (i) for Investments
in an oil and gas property, any geographic area which produces from the same
formation as the proposed Investment and in which the Company owns proved
reserves with a discounted present value of future net cash flows of $500,000 or
more, and (ii) for Investments that are not an oil and gas property, any area in
which the Company owns a non-oil and gas property investment with a book value
of over $100,000. Nuevo's Area of Exclusive Interest is defined as (i) for
Investments in an oil and gas property, any geographic area which produces from
the same formation as the proposed Investment and in which Nuevo owns proved
reserves with a discounted present value of future net cash flows of $5 million
or more, and (ii) for Investments that are not an oil and gas property, any area
in which Nuevo owns a non-oil and gas property investment with a book value of
over $1 million.
The Company will continue to generate its own Investments in the future,
and neither Torch nor Nuevo will have any right to participate in such
Investments. Decisions to accept an Investment generated by Torch are made by
the Company's management and Board of Directors, some of whom are members of
Torch's executive management. The Compensation Committee of the Board of
Directors, which is composed of persons who are not employees of Torch or the
Company, meets quarterly to review Torch's performance under the Administrative
Services Agreement.
Torch also invests in oil and gas assets for its own account and may do so
in the future. In accordance with the Administrative Services Agreement, Torch
may not acquire an Investment within the scope of the Company's business and
acquisition strategy without first offering such Investment to the Company
pursuant to the criteria set forth above.
The organizational agreements of the Sellers also contained provisions
which required Torch to offer to the Sellers Investments meeting the criteria
set forth in such agreements. Although these requirements will terminate as a
result of the Pending Acquisitions, it is possible that Torch will form similar
investment vehicles in the future. In such event, all Investments meeting the
criteria of such investment vehicles would be offered first to any such Sellers
formed in the future. Bellwether has reviewed the investment criteria for the
Sellers and does not believe that such criteria would be competitive with the
Company's business and acquisition strategy in the future. No assurances can be
made, however, that the investment criteria of future investment vehicles formed
by Torch will not compete with the Company's acquisition strategy or that such
investment vehicles will not acquire Investments that the Company would
otherwise propose to acquire.
OTHER RELATIONSHIPS WITH TORCH
Torch markets a portion of the oil and natural gas production for certain
properties in which the Company owns an interest. For fiscal 1994, 1995, and
1996, marketing fees paid by the Company to Torch amounted to $3,000, $12,000,
and $114,000, respectively.
Torch began operating the Gas Plant in December 1993 pursuant to an
operating agreement with the Company and other interest owners in the Gas Plant.
The amount paid to Torch in connection with such operations during the seven
months ended June 30, 1994 and fiscal 1995 and 1996, were $38,000, $71,000 and
$83,000, respectively.
Torch operates certain oil and gas interests owned by the Company. The
Company is charged, on the same basis as other third parties, for all customary
expenses and cost reimbursements associated with these activities. Operator's
overhead charged for these activities for the years ended June 30, 1994, 1995
and 1996 was $45,000, $164,000 and $367,000, respectively.
Costs of the evaluation of potential property acquisitions and due
diligence conducted in conjunction with acquisitions are incurred by Torch at
the Company's request. The Company was charged $193,000 and $74,000 for such
costs in 1995 and 1996, respectively.
Certain officers and directors of the Company are also officers or
employees of Torch. On September 30, 1996, Torch Acquisition Company ("TAC"),
a company formed by executive management of Torch, acquired all of the
outstanding shares of capital stock of Torch from United Investors Management
Company ("United"), a subsidiary of Torchmark Corporation. J.P. Bryan,
Chairman of the Board of the
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Company, is also Chairman of the Board of TAC and owns options to purchase
approximately 24% of the outstanding shares of common stock of TAC on a fully
diluted basis for a nominal price. Roland E. Sledge and Michael B. Smith, who
are officers of Torch and the Company, own 5.5% and 4.5% of the common stock of
Torch on a fully diluted basis, and Charles C. Green III, Executive Vice
President and Chief Financial Officer, holds options to purchase 2.1% of the
common stock of Torch on a fully diluted basis.
CERTAIN ACQUISITIONS
A joint venture 90% owned by the Company (the "Company Venture") acquired
7.6% and 23.3% interests in the Snyder Plant and the Diamond M-Sharon Ridge Gas
Plant, respectively, in July 1993. The interests were acquired for $8.5 million.
In a simultaneous transaction, a joint venture 90% owned by Torch (the "Torch
Venture") acquired 4.1% and 12.5% interests in the Snyder Plant and Diamond
M-Sharon Ridge Gas Plant, respectively, for $4.6 million. The other partner in
the Company Venture is not affiliated with the Company or Torch.
In December 1993, Torch sold its interests in the Torch Venture to AGRI for
a promissory note in the amount of $4.6 million, which bore interest at 7.0% per
annum. In December 1993, the Company acquired AGRI by merger. In March 1994, the
Company repaid the $4.6 million note to Torch with borrowings under an existing
credit facility.
Under the terms of the Administrative Services Agreement in effect at that
time, Torch became entitled to consideration equal to 2.5% of the consideration
paid by the Company to the shareholders of AGRI in such acquisition. In lieu of
this fee, the Company issued Torch a warrant to purchase 187,500 shares of
Common Stock for $6.40 per share. The warrant is exercisable at any time prior
to December 31, 1998. In connection with the sale of the capital stock of Torch
to TAC, Torch transferred the warrant to United. See "Principal and Selling
Stockholders."
Prior to its acquisition by the Company, AGRI was managed by Torch. During
the fiscal 1994, AGRI paid Torch management fees of $300,000.
In connection with the merger of AGRI into the Company, AGRI issued
650,000, 150,000, 150,000 and 50,000 shares of its common stock to Torch, J. P.
Bryan, Michael D. Watford and an employee of Torch, respectively. In connection
with the Company's acquisition of AGRI, the shares owned by Torch, Mr. Bryan,
Mr. Watford and the employee were converted into 54,151, 12,497 and 12,497
shares of Common Stock, and $25,000, respectively.
PURCHASES FROM NUEVO
During the year ended June 30, 1994, the Company acquired interests in
certain exploratory prospects from Nuevo for an aggregate cost of $143,000. In
February 1997, the Company acquired a 25.0% working interest in the Mud Lake
field from Nuevo for a net purchase price of $2.0 million.
MINING VENTURES
During fiscal year 1992, the Company acquired an average 24.4% interest in
three mining ventures (the "Mining Ventures") from an unaffiliated person for
$128,500. At the time of such acquisition, Mr. Bryan, his brother and Robert L.
Gerry, a director and executive officer of Nuevo (the "Affiliated Group"),
owned an average 21.5% interest in the Mining Ventures. The Company's interest
in the Mining Ventures increased as it paid costs of the venture. As of June 30,
1996, the Company had invested $324,000 in the Mining Ventures.
3DX
3DX Technologies, Inc. ("3DX") is a participant in the 3-D seismic
projects in the Fausse Pointe and Cove fields. Nuevo owns a 27% interest in a
partnership that owns a 4.9% interest in 3DX.
HAMPTON ACQUISITION
In connection with the purchase of 7,500 shares of Hampton Preferred Stock
from R. Chaney & Partners - 1993, L.P. (the "Chaney Partnership"), the Company
agreed to indemnify and hold harmless the Chaney Partnership and its affiliates
from any expenses to which they may become subject, to the extent arising out of
the Company's purchase of such shares of Hampton Preferred Stock. One of the
limited
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partners in the Chaney Partnership is Nuevo. In addition, the Company agreed to
reimburse the Chaney Partnership for legal fees (not to exceed $2,000) incurred
by it in connection with the sale of such shares of Hampton Preferred Stock.
ODYSSEY MERGER
In connection with the acquisition of Odyssey, the former owners of Odyssey
assigned approximately 5.0% of the consideration to the then current management
of Odyssey, all of whom became employees of the Company following the
acquisition. Pursuant to this agreement, a corporation owned by C. Barton Groves
received 20,625 shares of Common Stock and $123,750 and Kenneth W. Welch
received 10,312 shares of Common Stock and $61,875. The former owners of Odyssey
also formed a new partnership ("New Odyssey") and transferred to it interests
in certain prospects formerly owned by Odyssey. Messrs. Groves and Welch
received a 2.2% and 1.1% interest, respectively, in New Odyssey. Certain
subsidiaries of Torchmark which own Common Stock have agreed with Odyssey's
former owners that if the Torchmark subsidiaries sell Common Stock in certain
transactions, such subsidiaries will arrange for the sale of the Common Stock
held by the former owners of Odyssey on the same basis as the Torchmark
subsidiaries'shares are sold. Additionally, former owners of Odyssey have been
granted registration rights with respect to such shares.
PENDING ACQUISITION
The Sellers were formed by Torch between 1987 and 1994. The investors in
the Sellers are insurance companies, pension plans, charitable foundations and
other institutional investors. Although the Sellers were structured differently
to satisfy the regulatory constraints and investment objectives of each
investor, such programs generally provided that Torch would invest 1% of all
capital and would receive 2% of revenues until "payout" (generally defined as
the return of the investors' capital contributions). After payout, Torch would
receive a larger interest, generally approximately 11%. In addition, Torch's
interest in the distributions made by the Sellers would increase if the
investors received a return of their capital plus a specified rate of return.
Some of the agreements forming the Sellers also required Torch to invest 10% of
the amount invested by the investors. As a result of the Pending Acquisition,
substantially all of the Sellers will achieve payout. In exchange for its
interests in the Sellers, Torch will receive an estimated $18.4 million in
connection with the Pending Acquisition.
Prior to September 30, 1996, Torch was an indirect wholly owned subsidiary
of Torchmark. Torchmark continues to own a $25.5 million subordinated note
issued by Torch and warrants to purchase approximately 10% of the common stock
of Torch on a fully diluted basis. Torchmark also has a representative on
Torch's board of directors and certain other ongoing relationships with Torch.
Wholly owned subsidiaries of Torchmark invested on the same basis as other
investors in certain of the Sellers. In exchange for their interests in these
Sellers, these wholly owned subsidiaries of Torchmark will receive approximately
$12.6 million in connection with the Pending Acquisitions.
Torch will receive 150,000 shares of Common Stock and warrants to purchase
100,000 shares of Common Stock at a per share exercise price of 120% above the
price to the public in the Common Stock Offering as a fee for advising
Bellwether in connection with the Pending Acquisition. The warrants expire five
years following the closing of the Offerings.
Torchmark owns the working interests in certain of the Acquired Properties
which are net profits interests. Production from these properties is eligible
for tax credits under Section 29 of the Internal Revenue Code. Following the
Pending Acquisition, Torchmark will be obligated to pay to Bellwether $0.50 per
each $1.00 of tax credits received by Torchmark with respect to these
properties. During fiscal 1995 and 1996, total payments by Torchmark with
respect to these properties were $439,000 and $1.1 million, respectively.
In 1994, pursuant to the organizational agreements of the Sellers, certain
investors in the Sellers instituted an audit relating principally to fees and
other amounts previously paid to Torch for oil and gas marketing activities and
sales of non-strategic properties. Based on its own internal audit, Torch
determined that it had not fully complied with certain provisions of the
organizational agreements relating to oil and gas marketing activities. In July
1996, Torch and Torchmark offered to settle the matters addressed in the
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audits, including the marketing issues, but final settlement was deferred until
the proposed sale of the Sellers' properties could be pursued further. In
connection with the acquisition of Torch by certain of its executive officers in
September 1996, Torchmark agreed to pay all amounts incurred in settlement of
the audit issues. In connection with the Pending Acquisition, Torchmark and
Torch will settle all such matters with the investors in the Sellers on the
terms proposed in July 1996. Pursuant to its agreement with Torch, Torchmark
will make a cash payment on behalf of Torch to such investors in order to settle
such matters. Torchmark, Torch, such investors and their agents and affiliates
will release each other from any liability arising out of or related to, among
other things, such matters. In connection with such settlement, Bellwether will
pay Torchmark $1.5 million and (as successor to the Sellers as a result of the
Pending Acquisition) also will be released by the investors in the Sellers from
any liabilities relating to such matters.
NEGOTIATION OF THE PENDING ACQUISITION; CONFLICTS OF INTEREST
Bellwether is entering into the Pending Acquisition because it believes
that the Pending Acquisition provides the opportunity to significantly increase
reserves and cash flow at an attractive price while providing opportunities for
future reserve growth through exploitation and exploration activities. Torch and
Bellwether have a common director and certain common officers. Certain members
of the Board of Directors and management of Bellwether were therefore subject to
conflicts of interest in connection with negotiating and approving the terms of
the Pending Acquisition and the fees to be received by Torch in connection with
the Pending Acquisition. In addition, under the Administrative Services
Agreement, Bellwether relies on Torch to perform title, operational and other
due diligence reviews of acquisition prospects, and Bellwether does not have
personnel to independently perform all of these functions in connection with the
acquisition of the Acquired Properties. Bellwether therefore relied on Torch to
perform certain of these functions in connection with the Pending Acquisition.
In order to resolve the conflicts of interest, Bellwether formed the
Special Committee of its Board of Directors, which is composed of directors who
are not affiliated with Torch, to consider and approve the terms of the Pending
Acquisition and the fees paid to Torch. The Special Committee retained legal
counsel to advise it in connection with its duties, and retained Ryder Scott to
audit the reserve estimates prepared by Torch on behalf of the Company in
connection with the determination of the purchase price for the Acquired
Companies. In addition, the Special Committee retained Principal to advise it in
connection with the terms of the acquisition of the Acquired Properties.
Principal is also an underwriter in the Common Stock Offering. Principal issued
its opinion to the Special Committee as to the fairness of the Pending
Acquisition from a financial point of view. The Special Committee approved the
terms of the agreement for the Pending Acquisition and the terms and amount of
all consideration paid to Torch in connection with the Pending Acquisition. See
"Risk Factors -- Conflicts of Interest."
In addition, the Sellers retained independent legal counsel and an
independent investment advisor to review the terms of the Pending Acquisition.
The Sellers also formed a committee ("Steering Committee") composed of
employees of five of the institutional investors in the Sellers to coordinate
the negotiation and execution of the agreements for the Pending Acquisition.
The terms of the Pending Acquisition were negotiated among Bellwether
(including the Special Committee of its Board of Directors), the Sellers
(primarily through the Steering Committee), and Torch. Although Bellwether
believes that the terms of the Pending Acquisition represent the results of
arm's length bargaining, no assurances can be given that the terms of the
Pending Acquisition are the same as those that would have been negotiated among
unrelated parties.
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PRINCIPAL AND SELLING STOCKHOLDERS
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of February 28, 1997, the name, address,
and number of shares of Common Stock owned beneficially by (i) all persons known
to the Company to be the beneficial owners of more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the executive officers of the Company named in the Summary Compensation
Table, and (iv) all executive officers and directors of the Company as a group.
The information set forth in the following table is based on public filings made
with the SEC as of January 31, 1997 and certain information supplied to the
Company by the persons listed below. Unless otherwise indicated, all shares are
owned directly and the owner has sole voting and investment power with respect
thereto.
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
NAME AND BEFORE OFFERINGS AFTER OFFERINGS
ADDRESS OF ---------------------- SHARES SOLD IN COMMON ----------------------
BENEFICIAL OWNER NUMBER % STOCK OFFERING NUMBER %
<S> <C> <C> <C> <C> <C>
Allstate Insurance Company........... 1,340,584 14.6 -- 1,340,584 9.8
3075 Sanders Road, Suite G5B
Northbrook, Illinois 60062
Torchmark Corporation................ 750,196(a) 8.2 285,000(b) 402,696 2.9
United Investors Management Company
2001 Third Avenue South
Birmingham, Alabama 35233
Rho Management Partners L. P. c/o Rho
Management Company, Inc............ 729,832(c) 8.0 -- 729,832 5.3
767 Fifth Avenue
New York, New York 10153
Weiss, Peck & Greer.................. 515,200 5.6 -- 515,200 3.8
1 New York Plaza
New York, New York 10004
PPM America Inc...................... 506,568 5.5 190,000(b) 316,568 2.3
No. 1 Waterhouse Square
Holborn Bars
London EC1N2ST U.K.
J.P. Bryan........................... 139,372(d) 1.5 -- 147,372 1.1
J. Darby Sere........................ 317,950(e) 3.4 -- 317,950 2.3
Charles C. Green III................. 50,000(f) * -- 150,000 1.1
A.K. McLanahan....................... 13,750(g) * -- 17,750 *
Vincent H. Buckley................... 9,000(g) * -- 13,000 *
Dr. Jack Birks....................... 9,000(g) * -- 13,000 *
Michael D. Watford................... 62,497(h) * -- 66,497 *
C. Barton Groves..................... 191,625(i) 2.1 -- 191,625 1.4
Kenneth W. Welch..................... 100,312(j) 1.1 -- 100,312 *
Habib Kairouz........................ 6,000(k) * -- 10,000 *
All officers and directors
as a group (12 persons)............ 911,506(l) 9.1 -- 1,047,506 7.1
</TABLE>
- -----------------------------
* Under 1%
(a) All of the 750,196 shares indicated as beneficially owned by Torchmark are
owned by United, a wholly owned subsidiary of Torchmark. Of those shares,
187,500 shares are issuable pursuant to a warrant owned by United. In
connection with the Common Stock Offering, Bellwether and Torchmark have
agreed that Torchmark will use 62,500 shares issuable upon exercise of the
warrant to pay a portion of the exercise price of the warrant, such shares
to be valued at the price to the public in the Common Stock Offering.
Accordingly, the maximum number of shares issuable pursuant to the warrant
in connection with the Common Stock Offering is 125,000.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
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(b) Assumes the Underwriters' over-allotment options are not exercised. If the
over-allotment options are exercised in full, Torchmark and PPM America
Inc. will sell an additional 402,696 and 316,568, respectively, reducing
their ownership to zero.
(c) Rho Management Partners L. P. ("Rho") as beneficial owner of shares
registered in the name of Alpine Investment Partners, pursuant to an
investment advisory agreement between Rho and such entity, which agreement
confers sole voting and investment control over such shares in Rho. Joshua
Ruch, chief executive officer and controlling stockholder of the general
partner of Rho, shares voting and investment control with Rho over such
shares, and may therefore be considered a beneficial owner of such shares.
Amount shown includes 1,242 shares beneficially owned by Mr. Ruch held in
the name of XBF Inc.
(d) Includes 134,875 shares which Mr. Bryan has the right to acquire, within
60 days, pursuant to options. Excludes 6,250 shares owned by Mr. Bryan's
wife as to which he has no voting or dispositive power.
(e) Includes 291,560 shares that Mr. Sere has the right to acquire within 60
days pursuant to vested stock options. Does not include 6,000 shares owned
by Mr. Sere's wife as to which he has no voting or dispositive power.
(f) Includes 150,000 shares that Mr. Green has the right to acquire within 60
days pursuant to options.
(g) Includes 13,000 shares which the director has the right to acquire within
60 days pursuant to options.
(h) Includes 54,000 shares that Mr. Watford has the right to acquire within 60
days pursuant to options.
(i) Includes 180,000 shares that Mr. Groves has the right to acquire within 60
days pursuant to options.
(j) Includes 90,000 shares that Mr. Welch has the right to acquire within 60
days pursuant to options.
(k) Includes 10,000 shares which Mr. Kairouz has the right to acquire within
60 days pursuant to options. Mr. Kairouz is a Managing Director of Rho
Management Company, Inc., an affiliate of Rho. Mr. Kairouz does not have
voting or investment control over shares of the Company beneficially owned
by Rho.
(l) Includes the following: the shares beneficially owned by Messrs. Bryan as
described in note (d); shares which officers and directors of the Company
have the right to acquire pursuant to options, as described in note (e)
(f), (g), (h), (i), (j) and (k) and 10,000 shares and 5,000 shares that
Michael B. Smith and Roland E. Sledge, respectively, have the right to
acquire within 60 days pursuant to options.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized by its Certificate of Incorporation to issue up
to 15,000,000 shares of Common Stock, $0.01 par value. As of February 28, 1997,
9,157,979 shares of Common Stock were issued and outstanding, 131,325, 825,000
and 500,000 shares of Common Stock were reserved for issuance under the 1988
Plan, the 1994 Plan and the 1996 Plan, pursuant to which options for the
purchase of 131,325, 707,500 and 276,500 shares of Common Stock were
outstanding, respectively. Also reserved for issuance were 187,500 shares of
Common Stock issuable upon exercise of a warrant held by United, a subsidiary of
Torchmark Corporation, and 60,000 shares of Common Stock issuable upon exercise
of warrants issued to Howard, Weil, Labouisse, Friedrichs Incorporated and
Principal Financial Securities, Inc.
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of stockholders. Such
holders do not have the right to cumulate their votes in the election of
directors. Holders of Common Stock have no redemption or conversion rights and
no preemptive or other rights to subscribe for securities of the Company. In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share equally and ratably in all of the assets
remaining, if any, after satisfaction of all debts and liabilities of the
Company, and of the preferential rights of any series of preferred stock then
outstanding. The outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. Holders of Common Stock are entitled to receive
dividends
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when, as and if declared by the Board of Directors out of funds legally
available therefor. American Stock Transfer & Trust Company is transfer agent
and registrar for the Common Stock.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock,
$0.01 par value per share. The Board of directors has the authority to divide
the preferred stock into one or more series and to fix and determine the
relative rights and preferences of the shares of each such series, including
dividend rates, terms of redemption, sinking funds, the amount payable in the
event of voluntary liquidation, dissolution or winding up of the affairs of the
Company, conversions rights and voting powers. As of January 31, 1997 no shares
of preferred stock were outstanding.
DESCRIPTION OF INDEBTEDNESS
NEW CREDIT FACILITY
The Company has received a commitment from a bank group led by Morgan
Guaranty Trust Company of New York to extend to the Company a New Credit
Facility which matures on March 31, 2002 in order to fund part of the purchase
price of the Acquired Properties, to repay the existing indebtedness and for
general corporate purposes. The New Credit Facility will have a combined total
commitment of $90.0 million following the Offerings until June 30, 1997, when
the total commitment will be automatically reduced to the Borrowing Base (as
hereinafter defined) as then in effect (the "Reference Borrowing Base"), and
will thereafter be automatically reduced quarterly by an amount equal to 1/12th
of the Reference Borrowing Base, commencing March 31, 1999. Amounts outstanding
under the New Credit Facility will bear interest at a rate equal to LIBOR or a
base rate plus a number of basis points which increases as the total outstanding
senior indebtedness of the Company as a percent of the Borrowing Base increases.
The maximum borrowings that may be outstanding under the New Credit
Facility may not exceed a borrowing base ("Borrowing Base") which will be
equal to the present value of the Company's U.S. oil and gas reserves based on
assumptions regarding prices, production and costs approved by the bank group.
Sales of Borrowing Base assets in excess of $5.0 million will trigger a
requirement to re-calculate the Borrowing Base.
Borrowings under the New Credit Facility will be unsecured and will be
guaranteed by certain of the Company's subsidiaries. The New Credit Facility
will have customary covenants including, but not limited to, covenants with
respect to the following matters: (i) information, (ii) maintenance of property
and insurance, (iii) conduct of business and maintenance of existence, (iv)
compliance with laws, (v) limitation on liens, (vi) limitation on
consolidations, mergers and sales of assets, (vii) limitation on debt (including
subsidiary debt), (viii) use of proceeds, (ix) restrictions on investments, (x)
limitation on restricted payments and (xi) limitation on transactions with
affiliates. The Company will also be required to maintain certain financial
ratios, including, without limitation, a minimum ratio of EBITDA to the sum of
cash interest plus deferred dividends and a minimum tangible net worth.
NOTES
The Company is concurrently offering $100 million in aggregate principal
amount of the Notes by means of a separate prospectus. The sale of the Common
Stock pursuant to the Common Stock Offering is subject to, among other things,
the sale of the Notes. After giving effect to the consummation of the
Transactions, the Company will have total outstanding indebtedness of
approximately $128.3 million as of December 31, 1996. See "Use of Proceeds."
The following is a summary of the terms of the Notes, which were issued
pursuant to an Indenture (the "Indenture"), the form of which is filed as an
exhibit to the registration statement of which this Prospectus is a part. The
Notes will be general unsecured senior subordinated obligations of the Company
and will be guaranteed on a unsecured senior subordinated basis by Odyssey
Petroleum Company, a wholly owned subsidiary of the Company. The $100 million
aggregate principal amount of Notes will bear interest from the date of issuance
at the rate of % per annum, payable semi-annually in arrears. The Notes
will
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mature on , 2007. The Notes will not require any mandatory
redemption or sinking fund payment prior to maturity.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after, 2002 at redemption prices specified in the Indenture,
together with accrued and unpaid interest, if any, to the date of redemption.
Upon the occurrence of certain events constituting a "Change of Control" (as
defined in the Indenture), holders of the Notes will have the right to require
the Company to purchase each such holder's Notes, in whole or in part, at a
purchase price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest to the date of purchase. Furthermore, under certain
circumstances, the Company may become obligated to offer to purchase all or a
portion of the Notes at a price equal to 100% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of purchase with
the net proceeds of certain Asset Sales (as defined).
The Indenture will contain certain covenants, including, without
limitation, covenants with respect to the following matters: (i) limitation on
indebtedness; (ii) limitation on restricted payments; (iii) limitation on
transactions with affiliates; (iv) limitation on liens; (v) limitation on
guarantees of indebtedness by subsidiaries; (vi) limitation on dividends and
other payment restrictions affecting restricted subsidiaries; (vii) limitation
on issuances and sales of restricted subsidiary stock; (viii) limitation on the
disposition of proceeds of asset sales; and (ix) restrictions on mergers,
consolidations or sales of assets.
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
(the "Underwriting Agreement"), a syndicate of underwriters named below (the
"Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities Corporation,
J.P. Morgan Securities Inc. and Principal Financial Securities, Inc., are acting
as representatives (the "Representatives"), have severally agreed to purchase
4,400,000 shares of Common Stock from the Company and 475,000 shares of Common
Stock from a Selling Stockholder. The number of shares of Common Stock that each
Underwriter has severally agreed to purchase is set forth opposite its name
below:
NUMBER
UNDERWRITERS OF SHARES
- ---------------------------------------- ---------
Donaldson, Lufkin & Jenrette Securities
Corporation...........................
J.P. Morgan Securities Inc..............
Principal Financial Securities, Inc.....
---------
Total.............................. 4,875,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions. If any of the shares of Common Stock are
purchased by the Underwriters pursuant to the Underwriting Agreement, all such
shares of Common Stock (other than the shares of Common Stock covered by the
over-allotment option described below) must be so purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock directly to the public initially at
the price to the public set forth on the cover page of this Prospectus and to
certain dealers (who may include the Underwriters) at such price less a
concession not to exceed $ per share. The Underwriters may allow, and
such dealers may re-allow, a discount not to exceed $ per share to any
other Underwriter and certain other dealers.
The Company and the Selling Stockholders have granted to the Underwriters
options to purchase up to 11,986 and 719,264 additional shares of Common Stock,
respectively, at the public offering price set forth on the cover page hereof
less underwriting discounts and commissions, solely to cover over-allotments.
Such option may be exercised at any time until 30 days after the date of this
Prospectus. To the extent that the Underwriters exercise such options, each of
the Underwriters will be committed, subject to certain conditions, to purchase a
number of option shares proportionate to such Underwriter's initial commitment
as indicated in the preceding table.
The Company, each of its directors and executive officers and the Selling
Stockholders, subject to certain exceptions, have agreed not to offer, sell or
otherwise dispose of any shares of Common Stock, or any shares exercisable for
or convertible into shares of Common Stock, prior to the expiration of 90 days
from the date of this Prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, acting on behalf of the
Underwriters.
63
<PAGE>
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments that the Underwriters may be
required to make in respect thereof.
J.P. Morgan Securities Inc. ("JPMSI") and certain of its affiliates have
provided and may in the future provide investment banking and commercial banking
services to the Company. Morgan Guaranty Trust Company of New York ("Morgan"),
an affiliate of JPMSI, is the agent bank and lender under the New Credit
Facililty. Morgan, together with another banking firm, has committed to provide
the Company with financing in the event the Offerings are not completed to fund
the Pending Acquisition and will receive customary fees in connection with such
commitment.
See "Description of Indebtedness -- New Credit Facility." Principal
Financial Securities, Inc. acted as a financial advisor to the Special Committee
in connection with the Pending Acquisition and will receive customary fees in
connection therewith. See "Risk Factors -- Conflicts of Interest."
In connection with the Common Stock Offering, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Common Stock
Offering, creating a syndicate short position. Underwriters may bid for and
purchase shares of Common Stock in the open market to cover syndicate short
positions. In addition, the Underwriters may bid for and purchase shares of
Common Stock in the open market to stabilize the price of the Common Stock.
These activities may stabilize or maintain the market price of the Common Stock
above independent market levels. The Underwriters are not required to engage in
these activities and may end these activities at any time.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the SEC. In general, a passive market maker may not bid for or
purchase the Common Stock at a price that exceeds the highest independent bid.
In addition, the net daily purchases made by any passive market maker generally
may not exceed 30% of its average daily trading volume in the Common Stock
during a specified two month prior period, or 200 shares, whichever is greater.
A passive market maker must identify passive market making bids on the Nasdaq
electronic inter-dealer reporting system. Passive market making may stabilize or
maintain the market price of the Common Stock above independent market levels.
Underwriters and dealers are not required to engage in passive market making and
may end passive market making activities at any time.
LEGAL MATTERS
The validity of the Common Stock and the Notes will be passed upon by
Butler & Binion, L.L.P., Houston, Texas. Certain legal matters with respect to
such securities will be passed upon for the Underwriters by Baker & Botts,
L.L.P., Dallas, Texas.
EXPERTS
The financial statements of the Company included in this Prospectus have
been audited by Deloitte & Touche LLP, independent auditors as stated in their
reports appearing herein, and are included in reliance upon the reports of such
firm given their authority as experts in accounting and auditing. The statements
of assets acquired (other than oil and gas properties) and liabilities as of
December 31, 1995 and 1996 and the related statements of revenues and direct
operating expenses of the Acquired Properties for each of the years in the
three-year period ended December 31, 1996, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The information appearing in this Prospectus regarding historical
quantities of reserves of oil and gas and the future net cash flows and the
present values thereof of the Company as of June 30, 1996 is based on estimates
of such reserves and present values prepared by Williamson Petroleum Consultants
Inc., independent petroleum engineers, and are included herein in reliance upon
the authority of said firm as experts in estimating such reserves and cash
flows. The report of Williamson is included herein as Exhibit A. The information
appearing in this Prospectus regarding quantities of reserves of oil and gas and
the future net cash flows and present value thereof attributable to the Acquired
Properties as of June 30, 1996
64
<PAGE>
were prepared by Bellwether and audited by Ryder Scott. The audit reports of
Ryder Scott is attached as Exhibit B to this Prospectus and is included herein
in reliance upon the authority of such firm as experts in estimating reserves
and cash flows.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports and other information with the
SEC. Reports, proxy and information statements and other information filed by
the Company with the SEC pursuant to the informational requirements of the
Exchange Act may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004,
and at the following Regional Offices of the SEC: Chicago Regional Office, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and New York
Regional Office, 7 World Trade Center, New York, New York 10048. Copies of such
material may also be obtained from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549-1004 at prescribed rates. The
Registration Statement was filed with the SEC electronically. The SEC maintains
a site on the World Wide Web that contains documents filed with the SEC
electronically. The address of such site is http://www.sec.gov, and the
Registration Statement may be inspected at such site. The Common Stock is traded
on the Nasdaq National Market. The Company's registration statements, reports,
proxy and information statements, and other information may also be inspected at
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
This Prospectus constitutes a part of a Registration Statement on Form S-1
filed by the Company with the SEC under the Securities Act. This Prospectus
omits certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement for further information
with respect to the Company and the securities offered hereby. Any statements
contained herein concerning the provisions of any document filed as an exhibit
to the Registration Statement or otherwise filed with the SEC are not
necessarily complete and in each instance reference is made to the copy of such
document so filed. Each such statement is qualified in its entirety by such
reference.
65
<PAGE>
GLOSSARY
The following definitions shall apply to the technical terms used in this
Prospectus.
"Bbls" means barrels of oil or other liquids, approximately 42 U.S.
gallons.
"Bbls/d" means barrels per day.
"Bcf" means billion cubic feet.
"BOE" means barrel of oil equivalent, comparing an Mcf of gas to a Bbl of
oil at a rate of 6 to 1.
"BOE/d" means barrel of oil equivalent per day.
"Btu" means British thermal unit. A Btu is the heat required to raise the
temperature of a one-pound mass of water from 59.5 to 60.5 degrees Fahrenheit
under specified conditions.
"Gross" means the number of wells or acres in which the Company has an
interest.
"MBbls" means thousands of barrels.
"Mcf" means thousands of cubic feet. Gas volumes are stated at the legal
pressure base of the state or area in which the reserves are located at 60
degrees Fahrenheit.
"Mcf/d" means thousand cubic feet per day.
"MBOE/d" means thousand Bbls of oil equivalent per day.
"MBOE" means thousand barrels of oil equivalent, determined using the
ratio of six Mcf of gas to one barrel of oil, condensate or natural gas liquids.
"MMBbls" means millions of barrels.
"MMBtu" means million British thermal units.
"MMcf" means millions of cubic feet.
"MMcf/d" means million cubic feet of gas per day.
"MMBOE" means millions of barrels of oil equivalent, determined using the
ratio of six Mcf of gas to one barrel of oil, condensate or natural gas liquids.
"Net" is determined by multiplying gross wells or acres by the Company's
working interest in such wells or acres.
"PV-10 Value" means the pre-tax, present value, discounted at 10%, of
future net cash flows from estimated proved reserves, calculated holding prices
and costs constant at amounts in effect on the date of the report (unless such
prices or costs are subject to change pursuant to contractual provisions).
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Bellwether Exploration Company Historical Consolidated Financial Statements:
Independent Auditors' Report ....................................... F-2
Consolidated Balance Sheets as of June 30, 1995 and 1996 ........... F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1994, 1995 and 1996 ..................................... F-5
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1994, 1995, and 1996 ................. F-6
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1994, 1995 and 1996 ..................................... F-7
Notes to Consolidated Financial Statements ......................... F-8
Condensed Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1996 (unaudited) .................................... F-23
Condensed Consolidated Statements of Operations for
the Six Months Ended December 31, 1995 (unaudited)
and December 31, 1996 (unaudited) ................................. F-24
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the Six Months Ended December 31,
1996 (unaudited) .................................................. F-25
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended December 31, 1995 (unaudited)
and December 31, 1996 (unaudited) ................................. F-26
Notes to Condensed Consolidated Financial Statements ............... F-27
Acquired Properties -- Statements of Assets Acquired (Other than
Productive Oil and Gas Properties) and Liabilities and related
Statements of Revenues and Direct Operating Expenses:
Independent Auditors' Report ....................................... F-30
Statements of Assets Acquired (Other than Productive Oil and
Gas Properties) and Liabilities as of December 31, 1994, 1995
and 1996 .......................................................... F-31
Statements of Revenues and Direct Operating Expenses for
the Years Ended December 31, 1994, 1995 and 1996 .................. F-32
Notes to Statements of Assets Acquired (Other than Productive
Oil and Gas Properties) and Liabilities and related
Statements of Revenues and Direct Operating Expenses .............. F-33
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Bellwether Exploration Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Bellwether
Exploration Company and subsidiaries as of June 30, 1995 and 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended June 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Bellwether Exploration Company
and subsidiaries as of June 30, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
March 11, 1997
F-2
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, JUNE 30,
1995 1996
--------- ---------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents............ $ 1,088 $ 783
Accounts receivable and accrued
revenues........................... 5,322 5,990
Accounts receivable -- related
parties............................ -- 1,417
Prepaid expenses..................... 217 314
--------- ---------
Total current assets............ 6,627 8,504
--------- ---------
Property, Plant and Equipment, at
cost:
Oil and gas properties (full cost
method) including $13,453 and
$15,125 of unproved properties
which are excluded from
amortization in 1996 and 1995,
respectively....................... 71,426 76,043
Gas gathering system and gas plant
facilities......................... 19,060 12,840
--------- ---------
90,486 88,883
Less accumulated depreciation,
depletion and amortization......... (23,291) (30,748)
--------- ---------
67,195 58,135
--------- ---------
Other Assets......................... 828 586
--------- ---------
$ 74,650 $ 67,225
========= =========
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, JUNE 30,
1995 1996
--------- ---------
(IN THOUSANDS, EXCEPT
SHARES)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities........................ $ 1,774 $ 2,634
Accounts payable -- related
parties............................ 76 702
Current maturities of long-term
debt............................... 6,023 --
--------- ---------
Total current liabilities....... 7,873 3,336
--------- ---------
Long-term debt, excluding current
maturities......................... 18,525 13,048
Deferred income taxes................ 2,400 2,861
Other liabilities.................... 151 1,383
Minority interest in gas plant
ventures........................... 254 --
Contingencies........................ -- --
Stockholders' Equity:
Preferred stock, $0.01 par value,
1,000,000 shares authorized, none
issued or outstanding.............. -- --
Common stock, $0.01 par value,
15,000,000 shares authorized,
9,045,479 and 9,075,479 shares
issued and outstanding at June 30,
1995 and 1996, respectively........ 90 91
Additional paid-in capital........... 41,472 41,639
Retained earnings.................... 3,885 4,867
--------- ---------
Total stockholders' equity...... 45,447 46,597
--------- ---------
$74,650 $67,225
========= =========
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Revenues:
Gas revenues....................... $ 2,620 $ 4,864 $ 9,856
Oil revenues....................... 1,086 3,643 5,810
Gas plant and gas gathering
revenues......................... 6,930 10,705 8,719
Interest and other income.......... 63 97 116
--------- --------- ---------
10,699 19,309 24,501
--------- --------- ---------
Costs And Expenses:
Production expenses................ 1,294 2,856 5,317
Gas plant and gas gathering
expenses......................... 4,013 6,078 5,185
General and administrative
expenses......................... 1,234 2,739 3,013
Depreciation, depletion and
amortization..................... 2,489 5,269 8,148
Interest expense................... 721 1,245 1,657
Other expenses..................... -- -- 153
--------- --------- ---------
9,751 18,187 23,473
--------- --------- ---------
Income before income taxes and minority
interest.............................. 948 1,122 1,028
Provision for income taxes.............. -- 9 46
Minority interest in gas plant
ventures.............................. 134 172 --
Net income......................... $ 814 $ 941 $ 982
========= ========= =========
Net income per share.................... $ 0.27 $ 0.12 $ 0.11
========= ========= =========
Weighted average common and common
equivalent shares outstanding......... 3,006 7,713 9,052
========= ========= =========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL TREASURY STOCK
----------------- ----------------- PAID-IN RETAINED ----------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993.................. 2,318 $ 1,156 -- -- $ 7,598 $2,130 29 $(115)
Shares issued in merger with Associated
Gas Resources, Inc.................... 1,419 708 -- -- 6,066 -- -- --
To change par value per share........... -- (1,827) -- -- 1,827 -- -- --
Other................................... -- -- -- -- (1) -- (14) 16
Net earnings............................ -- -- -- -- -- 814 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, June 30, 1994.................. 3,737 37 -- -- 15,490 2,944 15 (99)
Shares issued in public stock
offering.............................. 3,400 34 -- -- 17,204 -- -- --
Cancellation of treasury stock.......... (15) -- -- -- -- -- (15) 99
Shares issued in merger with Odyssey
Partners, Ltd......................... 917 9 -- -- 3,944 -- -- --
Shares issued in merger with Hampton
Resources Corporation................. 1,006 10 -- -- 4,834 -- -- --
Net earnings............................ -- -- -- -- -- 941 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, June 30, 1995.................. 9,045 90 -- -- 41,472 3,885 -- --
Stock options exercised................. 30 1 -- -- 167 -- -- --
Net earnings............................ -- -- -- -- -- 982 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, June 30, 1996.................. 9,075 $ 91 -- -- $ 41,639 $4,867 -- $--
====== ======= ====== ======= ========== ======== ====== ======
</TABLE>
TOTAL
Balance, June 30, 1993.................. $10,769
Shares issued in merger with Associated
Gas Resources, Inc.................... 6,774
To change par value per share........... --
Other................................... 15
Net earnings............................ 814
-------
Balance, June 30, 1994.................. 18,372
Shares issued in public stock
offering.............................. 17,238
Cancellation of treasury stock.......... 99
Shares issued in merger with Odyssey
Partners, Ltd......................... 3,953
Shares issued in merger with Hampton
Resources Corporation................. 4,844
Net earnings............................ 941
-------
Balance, June 30, 1995.................. 45,447
Stock options exercised................. 168
Net earnings............................ 982
-------
Balance, June 30, 1996.................. $46,597
=======
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
---------------------------------
1994 1995 1996
(IN THOUSANDS)
Cash Flows From Operating Activities:
Net Income.............................. $ 814 $ 941 $ 982
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation, depletion and
amortization..................... 2,530 5,382 8,273
Minority interest in gas plant
ventures......................... 120 120 --
Deferred taxes..................... -- -- 183
Change in assets and liabilities, net of
acquisition effects:
Accounts receivable and accrued
revenues......................... (73) 1,548 (668)
Prepaid expenses................... -- 117 25
Accounts payable and accrued
expenses......................... (464) (2,047) 84
Due (to) from affiliates........... 750 (633) (791)
Other.............................. (555) (145) (603)
--------- ---------- ----------
Net Cash Flows Provided by Operating
Activities............................ 3,122 5,283 7,485
--------- ---------- ----------
Cash Flows From Investing Activities:
Additions to oil and gas properties..... (782) (27,039) (6,934)
Proceeds from sales of properties....... 36 265 644
Additions to gas plant facilities and
gas gathering system.................. (8,649) (225) (65)
Proceeds from gas contract assignment... -- -- 9,875
Other................................... (28) (290) 22
--------- ---------- ----------
Net Cash Flows (Used In) Provided by
Investing Activities.................. (9,423) (27,289) 3,542
--------- ---------- ----------
Cash Flows From Financing Activities:
Proceeds from borrowings................ 8,471 25,860 --
Net proceeds from issuance of common
stock................................. -- 17,238 168
Payments of long-term debt.............. (1,151) (21,456) (11,500)
Other................................... 14 -- --
--------- ---------- ----------
Net Cash Flows Provided By (Used In)
Financing Activities.................. 7,334 21,642 (11,332)
--------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents........................... 1,033 (364) (305)
Cash and cash equivalents at beginning
of year............................... 419 1,452 1,088
--------- ---------- ----------
Cash and cash equivalents at end of
year.................................. $ 1,452 $ 1,088 $ 783
========= ========== ==========
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Bellwether Exploration Company ("the Company") was formed as a Delaware
corporation in 1994 to succeed to the business and properties of its predecessor
company pursuant to a merger, the primary purpose of which was to change the
predecessor company's state of incorporation from Colorado to Delaware. The
predecessor company was formed in 1980 from the consolidation of the business
and properties of related oil and gas limited partnerships. References to
Bellwether or the Company include the predecessor company, unless the context
requires otherwise.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bellwether
Exploration Company and its wholly-owned subsidiaries. Snyder Gas Plant Venture
and NGL/Torch Gas Plant Venture and their 11.98% and 35.78% investments in the
Snyder and Diamond M-Sharon Ridge Gas Plants have been pro rata consolidated.
Minority interests have been deducted from results of operations and
stockholders' equity in the appropriate period. All significant intercompany
accounts and transactions have been eliminated in consolidation.
OIL AND GAS PROPERTIES
The Company utilizes the full cost method to account for its investment in
oil and gas properties. Under this method, all costs of acquisition, exploration
and development of oil and gas reserves (including such costs as leasehold
acquisition costs, geological expenditures, dry hole costs and tangible and
intangible development costs) are capitalized as incurred. Oil and gas
properties, the estimated future expenditures to develop proved reserves, and
estimated future abandonment, site remediation and dismantlement costs are
depleted and charged to operations using the unit-of-production method based on
the ratio of current production to proved oil and gas reserves as estimated by
independent engineering consultants. Costs directly associated with the
acquisition and evaluation of unproved properties are excluded from the
amortization computation until it is determined whether or not proved reserves
can be assigned to the properties or whether impairment has occurred. Depletion
expense per equivalent barrel of production was approximately $5.86 in 1996,
$5.52 in 1995 and $5.71 in 1994. Dispositions of oil and gas properties are
recorded as adjustments to capitalized costs, with no gain or loss recognized
unless such adjustments would significantly alter the relationship between
capitalized costs and proved reserves of oil and gas. To the extent that
capitalized costs of oil and gas properties, net of accumulated depreciation,
depletion and amortization, exceed the discounted future net revenues of proved
oil and gas reserves net of deferred taxes, such excess capitalized costs would
be charged to operations. No such write-down in book value was required in 1996,
1995 and 1994.
Any reference to oil and gas reserve information in the Notes to
Consolidated Financial Statements is unaudited.
GAS PLANTS AND GAS GATHERING SYSTEM
Gas plant facilities include the costs to acquire certain gas plants and to
secure rights-of-way. Capitalized costs associated with gas plants facilities
are amortized primarily over the estimated useful lives of the various
components of the facilities utilizing the straight-line method. The estimated
useful lives of such assets range from four to fifteen years.
The Company's gas gathering subsidiary and certain third parties were the
beneficiaries of an agreement whereby another party had an obligation to
purchase, until May 31, 1999, the gas produced by the Company and such third
parties from the West Monroe field in Union Parish, Louisiana at a price of
$4.50 per MMBTU. Bellwether owned a large majority of the gas produced and sold
pursuant to the
F-8
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Purchase Agreement. In March 1996, in exchange for Bellwether's agreement to
assume the purchase obligations under the gas purchase contract, Bellwether was
paid $9.9 million. As a result of this transaction, the Company has written off
the remaining book value of the gas gathering system and has recorded a
liability to cover the estimated future losses under the contract. Gas gathering
operations of the subsidiary and payments to third parties are charged to the
liability as incurred. From the proceeds, $9.5 million was paid on the Company's
credit facility.
GAS IMBALANCES
The Company uses the sales method of accounting for gas imbalances. Under
this method, gas sales are recorded when revenue checks are received or are
receivable on the accrual basis. The Company's imbalance was immaterial at June
30, 1996 and 1995.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 121
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121 is effective
beginning July 1, 1996 and establishes guidelines for determining and measuring
asset impairment and the required timing of asset impairment evaluations.
Management has addressed the requirements of this statement and believes that it
will not have a significant effect on the financial condition and results of
operations of the Company based upon current economic conditions.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 123
In October 1995, the FASB issued Statement No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," which is effective for the Company
beginning July 1, 1996. SFAS 123 permits, but does not require, a
fair-value-based method of accounting for employee stock option plans which
results in compensation expense being recognized in the results of operations
when stock options are granted. The Company plans to continue to use the current
intrinsic-value-based method of accounting for such plans where no compensation
expense is recognized. However, as required by SFAS 123, the Company will
provide pro forma disclosure of net income and earnings per share in the notes
to the consolidated financial statements as if the fair-value-based method of
accounting had been applied.
NATURAL GAS AND CRUDE OIL HEDGING
The Company participated in certain crude oil and natural gas price swaps
to reduce its exposure to price fluctuations on sales during fiscal 1996.
Settlement of gains and losses on price swap contracts are realized monthly,
generally based upon the difference between the contract price and the average
closing New York Mercantile Exchange ("NYMEX") price and are reported as a
component of oil and gas revenues.
EARNINGS PER SHARE
Earnings per share calculations are based on the weighted average number of
common shares and common share equivalents and earnings attributable to common
stockholders. Common share equivalents include dilutive common stock options.
Such options do not have a material effect in the calculations of earnings per
share.
INCOME TAXES
Deferred taxes are accounted for under the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the
F-9
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial statement carrying amounts and the tax basis of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is recognized
in income in the period the change occurs.
STATEMENTS OF CASH FLOWS
For cash flow presentation purposes, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. Interest paid in cash for 1996, 1995 and 1994 was
$1.6 million, $1.2 million and $0.7 million, respectively. Income taxes paid in
cash for 1996 and 1995 were $162,000 and $9,000, respectively. During 1995 and
1994, a portion of the mergers with Associated Gas Resources Inc. ("AGRI"),
Odyssey Partners, Ltd. ("Odyssey") and Hampton Resources Corporation
("Hampton"), collectively the ("Mergers") was financed by assumption of debt
of $6.1 million for AGRI, $1.4 million for Odyssey and $4.1 million for Hampton.
Common stock with a value of $4.0 million and $4.8 million was issued as part of
the costs of the Odyssey and Hampton mergers in 1995, respectively. In 1994,
common stock with a value of $6.8 million was issued in the AGRI merger.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities as well as reserve information which affects
the depletion calculation and the computation of the full cost ceiling
limitation to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from these
estimates.
RECLASSIFICATIONS
Certain reclassifications of prior period statements have been made to
conform with current reporting practices.
3. AGING OF UNEVALUATED PROPERTIES
Oil and natural gas properties not subject to amortization consist of the
cost of undeveloped leaseholds, exploratory and developmental wells in progress,
and secondary recovery projects before the assignment of proved reserves. These
costs are reviewed periodically by management for impairment, with the
impairment provision included in the cost of oil and natural gas properties
subject to amortization. Factors considered by management in its impairment
assessment include drilling results by the Company and other operators, the
terms of oil and gas leases not held by production, production responses to
secondary recovery activities and available funds for exploration and
development. The following table summarizes the cost of properties not subject
to amortization for the year the cost was incurred (000s):
JUNE 30,
--------------------
1995 1996
Year cost incurred:
Remainder
1994....................... $ 360 $ 360
1995....................... 14,765 12,139
1996....................... -- 954
--------- ---------
$ 15,125 $ 13,453
========= =========
The principal acquisitions of undeveloped acreage were received in the
Odyssey acquisition of the Fausse Pointe field and the Hampton acquisition which
included the Cove field and the Ft. Trinidad waterflood project. In 1996, $2.5
million was included in oil and gas properties subject to amortization from
drilling in the Cove and Fausse Pointe fields.
F-10
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS AND MERGERS
During the last three years, the Company has completed the following
mergers and acquisitions:
On February 28, 1995, the Company acquired Hampton in exchange for $17.0
million in cash and 1,006,458 shares of the Company's common stock. The Company
had paid previous to the merger $2.7 million to acquire common and preferred
stock of Hampton and incurred $1.4 million in expenses in arranging the merger.
The total cost of the Hampton acquisition was $25.9 million, consisting of $21.1
million in cash and $4.8 million in common stock. Hampton was an energy company
engaged in the exploration, acquisition and production of oil and natural gas,
primarily in the onshore Gulf Coast region and offshore in Texas state waters.
On August 26, 1994, the Company acquired Odyssey in exchange for $5.6
million in cash (funded from a common stock offering which closed on the same
date) and 916,665 shares of the Company's common stock, for a total cost of $9.6
million. Odyssey is an exploration company which assembles, exploits and
operates oil and gas properties using state-of-the-art 3-D seismic and
computer-aided exploration technology. Odyssey's primary areas of operation have
been the onshore Gulf Coast region and the Permian Basin area of West Texas and
Southeast New Mexico.
On December 31, 1993, AGRI merged into the Company in consideration of the
issuance of 1,419,726 shares of the Company's common stock and cash payments of
$232,000, for a total cost of $7.0 million. AGRI's principal assets are a gas
gathering system located in Union Parish, Louisiana (the "Gathering System");
a 4.12% interest in the Snyder Gas Plant; a 12.52% interest in the Diamond
M-Sharon Ridge Gas Plant (the "Gas Plants"); working interests in
approximately 828 wells in Union, Morehouse and Ouachita Parishes, Louisiana;
and small non-operated working interests in approximately 137 gas wells in
Oklahoma.
On July 30, 1993 the Company acquired certain interests in the Gas Plants,
both in Scurry County, Texas, for a purchase price of $8.5 million.
5. RELATED PARTY TRANSACTIONS
The Company is a party to a management agreement with Torch Energy Advisors
Incorporated ("Torch") which was renewed for one year on September 1, 1993 and
amended effective January 1, 1994. Torch is currently an affiliate of Torchmark
Corporation ("Torchmark"), an insurance and diversified financial services
holding company and the parent corporation of Torch. The management agreement
requires Torch to administer the business activities of the Company for a
monthly fee equal to the sum of one-twelfth of 2% of the average of the book
value of the Company's total assets, excluding cash, plus reimbursement of
certain costs incurred on behalf of the Company for the management of its oil
and gas properties, plus 2% of annual operating cash flows (as defined) during
the period in which the services are rendered. The initial term of this
agreement (as amended) is six years. Thereafter, the agreement renews
automatically for successive one-year periods until terminated by either party
in accordance with the applicable provisions of the agreement. For the years
ended June 30, 1996, 1995 and 1994, management fees paid to Torch amounted to
$1.5 million, $1.2 million and $0.6 million, respectively. Additionally, in the
ordinary course of business, the Company incurs intercompany balances resulting
from the payment of costs and expenses by affiliated entities on behalf of the
Company. Torch may charge interest on any unpaid balances not paid within 30
days, however, no such interest has been charged by Torch since the inception of
the agreement. In December 1993, Torch was issued a warrant to purchase 187,500
shares of the Company's common stock at a price of $6.40 per share for its
services in identifying and negotiating the AGRI merger.
A subsidiary of Torch markets oil and natural gas production from certain
oil and gas properties in which the Company owns an interest. The Company pays
fees of 2% of revenues for such marketing services. Such charges were $114,000,
$12,000 and $3,000 in 1996, 1995 and 1994, respectively.
F-11
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Costs of the evaluation of potential property acquisitions and due
diligence conducted in conjunction with acquisitions closed are incurred by
Torch at the Company's request. The Company was charged $74,000 and $193,000 for
these costs in 1996 and 1995, respectively.
Torch operates certain oil and gas interests owned by the Company. The
Company is charged, on the same basis as other third parties, for all customary
expenses and cost reimbursements associated with these activities. Operator's
overhead charged for these activities for the years ended June 30, 1996, 1995
and 1994 was $367,000, $164,000 and $45,000, respectively.
Torch became the operator of the Gas Plants on December 1, 1993. In fiscal
1996, 1995 and 1994, the fees paid by the Company to Torch were $83,000, $71,000
and $38,000, respectively.
6. STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
The Certificate of Incorporation of the Company authorizes the issuance of
up to 15,000,000 shares of common stock and 1,000,000 shares of preferred stock,
the terms, preferences, rights and restrictions of which are established by the
Board of Directors of the Company. Certain restrictions contained in the
Company's loan agreements limit the amount of dividends which may be declared.
There is no present plan to pay dividends on common stock as the Company intends
to reinvest its cash flows for continued growth of the Company.
On April 4, 1994, shareholders approved the merger of Bellwether
Exploration Company, a Delaware corporation, into the Company. The common stock
of the Company was converted into one-eighth share of the newly formed Company's
common stock.
During the first quarter of fiscal 1995, the Company consummated the sale
of 3,650,000 shares of common stock. The net proceeds to the Company were $17.3
million which were used for the Odyssey and Hampton mergers and general
corporate purposes. Of the shares sold, 3,400,000 were newly-issued by the
Company and 250,000 were sold by certain stockholders.
STOCK INCENTIVE PLANS
The Company has stock option plans that provide for granting of options for
the purchase of common stock to directors, officers and key employees of the
Company and Torch. These stock options may be granted subject to terms ranging
from 6 to 10 years at a price equal to the fair market value of the stock at the
date of grant. At June 30, 1996, options under the plans available for future
grants were 18,000.
F-12
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of activity in the stock option plans is set forth below:
NUMBER OPTION
OF SHARES PRICE RANGE
Balance at June 30, 1993............. 151,715 $3.00 - $5.25
Granted......................... 456,950 $4.88 - $7.00
Surrendered..................... (114,450) $4.50
Exercised....................... (22,890) $3.25
--------- -----------------
Balance at June 30, 1994............. 471,325 $3.00 - $7.00
Granted......................... 450,000 $5.56 - $5.94
--------- -----------------
Balance at June 30, 1995............. 921,325 $3.00 - $7.00
Granted......................... 27,000 $4.375 - $6.375
Surrendered..................... (10,000) $5.75
Exercised....................... (30,000) $5.625
--------- -----------------
Balance at June 30, 1996............. 908,325 $3.00 - $7.00
========= =================
Exercisable at June 30, 1996......... 830,917 $3.00 - $7.00
========= =================
7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company periodically uses derivative financial instruments to manage
oil and gas price risk. As of June 30, 1996, the Company was a party to an oil
swap price agreement for the month of July for 9,300 barrels of crude oil with a
price of $18.25 per barrel. This contract is accounted for as a hedge for
financial reporting purposes and, accordingly, is deferred until the related
sales are made.
8. LONG-TERM DEBT
Long-term debt is comprised of the following at June 30, 1996 and 1995 (in
thousands):
1995 1996
Bank credit facility................. $ 24,548 $ 13,048
Less current maturities.............. (6,023) --
--------- ---------
Long-term debt....................... $ 18,525 $ 13,048
========= =========
On February 28, 1995, the Company entered into a credit facility ("Credit
Facility") with a commercial bank providing for an initial borrowing base of
$29.8 million. The borrowing base is reviewed semiannually. Borrowings under the
Credit Facility are secured by the Company's interests in oil and gas properties
and in the Gathering System and the Gas Plant. The maturity date for the credit
facility as modified in the second quarter, fiscal 1996 is March 31, 2001. A
principal payment of $9.5 million made in the third quarter, fiscal 1996
extinguished all current maturities. The interest rate is either the agent
bank's prime rate or the adjusted Eurodollar Rate plus 1 1/4% at the Company's
option. A commitment fee of three-eighths of one percent (0.375%) per annum is
charged on the unused portion of the Credit Facility. The interest rate on the
Company's borrowings at June 30, 1996 was approximately 7.275%.
F-13
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Debt maturities by fiscal year are as follows (in thousands):
Year ending June 30, 1997............... $ --
Year ending June 30, 1998............... 1,929
Year ending June 30, 1999............... 4,766
Year ending June 30, 2000............... 4,170
Year ending June 30, 2001............... 2,183
---------
$ 13,048
=========
The Credit Facility has various covenants including certain required
financial measurements for a current ratio, consolidated tangible net worth and
a ratio of consolidated liabilities to consolidated tangible net worth. In
addition, the Company may not pay dividends of greater than 20% of its
consolidated after-tax net income in any fiscal year or make any other payment
on account of its capital stock or redeem or repurchase any of its capital
stock.
Currently, the Company is negotiating a syndicated credit facility in an
amount up to $50 million, with the original borrowing base of $27 million, to be
redetermined semi-annually. The interest rate, at the Company's option will
vary, based upon borrowing base usage, from LIBOR plus 7/8% to LIBOR plus
1 1/4%, or the greater of the prime rate or Fed Funds plus 1/2%. The debt
facility will have a termination date four years from closing.
9. GUARANTOR FINANCIAL STATEMENTS
The guarantor consolidating financial statements for the years ended June
30, 1995 and 1996 are as follows:
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BELLWETHER ODYSSEY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Total current assets................. $ 6,001 $ 626 $ -- $ 6,627
Net property, plant and equipment.... 56,273 10,922 -- 67,195
Total other assets................... 10,518 47 (9,737) 828
---------- ------- ------------ ------------
Total assets.................... $ 72,792 $11,595 $ (9,737) $ 74,650
========== ======= ============ ============
Total current liabilities............ $ 6,393 $ 1,480 $ -- $ 7,873
Long-term debt....................... 18,525 -- -- 18,525
Deferred taxes....................... 2,260 140 -- 2,400
Other long-term liabilities.......... 405 -- -- 405
Total stockholders' equity........... 45,209 9,975 (9,737) 45,447
---------- ------- ------------ ------------
Total liabilities and
stockholders' equity.......... $ 72,792 $11,595 $ (9,737) $ 74,650
========== ======= ============ ============
</TABLE>
F-14
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING INCOME STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1995
(IN THOUSANDS)
BELLWETHER ODYSSEY CONSOLIDATED
Revenues............................. $ 16,582 $ 2,727 $ 19,309
Expenses............................. 16,010 2,349 18,359
---------- ------- ------------
Net earnings before income taxes..... 572 378 950
---------- ------- ------------
Income taxes......................... (131) 140 9
---------- ------- ------------
Net earnings......................... $ 703 $ 238 $ 941
========== ======= ============
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1995
(IN THOUSANDS)
BELLWETHER ODYSSEY CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 703 $ 238 $ 941
Non-cash adjustments............ 4,393 1,109 5,502
Change in assets and
liabilities................... (3,725) 2,565 (1,160)
---------- ------- ------------
Net cash provided by operating
activities.................... 1,371 3,912 5,283
---------- ------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil & gas
properties.................... (24,786) (2,478) (27,264)
Proceeds from sale of
properties.................... 265 -- 265
Additions to other properties
and other..................... (292) 2 (290)
---------- ------- ------------
Net cash used in investing
activities.................... (24,813) (2,476) (27,289)
---------- ------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings........ 25,860 -- 25,860
Payments of long-term debt...... (20,031) (1,425) (21,456)
Net proceeds from issuance of
common stock.................. 17,238 -- 17,238
---------- ------- ------------
Net cash provided by (used in)
financing activities.......... 23,067 (1,425) 21,642
---------- ------- ------------
Net increase (decrease) in cash
and cash equivalents.......... (375) 11 (364)
Cash and cash equivalents at
beginning of period........... 1,452 -- 1,452
---------- ------- ------------
Cash and cash equivalents at end
of period..................... $ 1,077 $ 11 $ 1,088
========== ======= ============
F-15
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BELLWETHER ODYSSEY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Total current assets................. $ 7,617 $ 887 $ -- $ 8,504
Net property, plant and equipment.... 47,130 11,005 -- 58,135
Total other assets................... 10,298 25 (9,737) 586
---------- ------- ------------ ------------
Total assets.................... $ 65,045 $11,917 $ (9,737) $ 67,225
========== ======= ============ ============
Total current liabilities............ $ 2,291 $ 1,045 $ -- $ 3,336
Long-term debt....................... 13,048 -- -- 13,048
Deferred taxes....................... 2,449 412 -- 2,861
Other long-term liabilities.......... 1,383 -- -- 1,383
Total stockholders' equity........... 45,874 10,460 (9,737) 46,597
---------- ------- ------------ ------------
Total liabilities and
stockholders' equity.......... $ 65,045 $11,917 $ (9,737) $ 67,225
========== ======= ============ ============
</TABLE>
CONDENSED CONSOLIDATING INCOME STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996
(IN THOUSANDS)
BELLWETHER ODYSSEY CONSOLIDATED
Revenues............................. $ 20,902 $ 3,599 $ 24,501
Expenses............................. 20,644 2,829 23,473
---------- ------- ------------
Net earnings before income taxes..... 258 770 1,028
---------- ------- ------------
Income taxes......................... (239) 285 46
---------- ------- ------------
Net earnings......................... $ 497 $ 485 $ 982
========== ======= ============
F-16
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996
(IN THOUSANDS)
BELLWETHER ODYSSEY CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 497 $ 485 $ 982
Non-cash adjustments............ 6,950 1,506 8,456
Change in assets and
liabilities................... (1,709) (244) (1,953)
---------- ------- ------------
Net cash provided by operating
activities.................... 5,738 1,747 7,485
---------- ------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil & gas
properties.................... (5,432) (1,567) (6,999)
Proceeds from sale of
properties.................... 644 -- 644
Proceeds from gas contract
assumption.................... 9,875 -- 9,875
Additions to other properties
and other..................... 22 -- 22
---------- ------- ------------
Net cash provided by (used in)
investing activities.......... 5,109 (1,567) 3,542
---------- ------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt...... (11,500) -- (11,500)
Net proceeds from issuance of
common stock.................. 168 -- 168
---------- ------- ------------
Net cash used in financing
activities.................... (11,332) -- (11,332)
---------- ------- ------------
Net increase (decrease) in cash
and cash equivalents.......... (485) 180 (305)
Cash and cash equivalents at
beginning of period........... 1,077 11 1,088
---------- ------- ------------
Cash and cash equivalents at end
of period..................... $ 592 $ 191 $ 783
========== ======= ============
10. INCOME TAXES
Income tax expense is summarized as follows (in thousands):
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
Current
Federal............................ $ -- $ 9 $ 126
State.............................. -- -- 103
Deferred -- Federal and State........... -- -- (183)
--------- --------- ---------
Total income tax expense................ $ -- $ 9 $ 46
========= ========= =========
The balances for deferred tax assets and liabilities were modified as of
the effective date of the Hampton merger based on the allocation of the purchase
price.
F-17
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at June 30, 1996 and 1995
are as follows:
AT JUNE 30,
---------------------
1995 1996
Net operating loss carryforwards........ $ 8,858 $ 8,922
Percentage depletion carryforwards...... 271 271
Alternative minimum tax credit
carryforwards......................... -- 126
---------- ---------
Total deferred income tax assets........ 9,129 9,319
---------- ---------
Plant, property and equipment........... (11,529) (8,841)
State income taxes...................... -- (446)
---------- ---------
Total deferred income tax liabilities... (11,529) (9,287)
Valuation allowances.................... -- (2,893)
---------- ---------
Net deferred income tax liability....... $ (2,400) $ (2,861)
========== =========
The Company files a consolidated federal income tax return. Deferred income
taxes are provided for transactions which are recognized in different periods
for financial and tax reporting purposes. Such temporary differences arise
primarily from the deduction for tax purposes of certain oil and gas development
costs which are capitalized for financial statement purposes. In the years ended
June 30, 1995 and 1994, the Company did not provide a provision for deferred
income taxes due to the availability of sufficient net operating losses
("NOLs") to offset net income.
Total income tax differs from the amount computed by applying the Federal
income tax rate to income before income taxes and minority interest. The reasons
for the differences are as follows:
AT JUNE 30,
--------------------
1995 1996
Statutory Federal income tax rate....... 34.0% 34.0%
Increase (Decrease) in tax rate
resulting from:
State income taxes, net of federal
benefit........................... 0.0 7.0
Nondeductable travel and
entertainment......................... 1.2 .3
Reduction of valuation allowance due to
utilization of net operating loss
carryforwards......................... (34.2) (36.5)
--------- ---------
1.0% 4.8%
========= =========
The Company issued 3,400,000 shares of its common stock on July 20, 1994.
As a result of the common stock issuance, the Company has undergone an ownership
change. Therefore, the Company's ability to use its NOL for federal income tax
purposes is subject to significant restrictions.
Section 382 of the Internal Revenue Code significantly limits the amount of
NOL and investment tax credit carryforwards that are available to offset future
taxable income and related tax liability when a change in ownership occurs after
December 31, 1986.
At June 30, 1996, the Company had NOLs of approximately $26.2 million which
will expire in future years beginning in 1997. Due to provisions of Section 382,
the Company is limited to approximately $4.6 million utilization of NOL per
year.
F-18
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SEGMENT INFORMATION
The Company's operations are concentrated in two segments. The results of
operations of these business segments are as follows (in thousands):
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
Revenues:
Oil............................. $ 2,620 $ 4,864 $ 9,856
Gas............................. 1,086 3,643 5,810
Gas plants and gas gathering.... 6,930 10,705 8,719
Other revenues.................. 63 97 116
--------- --------- ---------
Total revenues............. $ 10,699 $ 19,309 $ 24,501
========= ========= =========
Operating profit before income tax:
Oil and gas..................... $ 859 $ 1,758 $ 3,416
Gas plants and gas gathering.... 1,847 3,251 2,319
--------- --------- ---------
2,706 5,009 5,735
Unallocated corporate expenses....... 1,172 2,823 2,943
Other expenses....................... -- -- 153
Interest expense..................... 721 1,245 1,657
--------- --------- ---------
Income before taxes.................. $ 813 $ 941 $ 982
========= ========= =========
Identifiable assets:
Oil and gas..................... $ 13,763 $ 53,218 $ 47,727
Gas plants and gas gathering.... 19,285 18,289 10,408
--------- --------- ---------
33,048 71,507 58,135
Corporate assets..................... 2,822 3,143 9,090
--------- --------- ---------
Total assets............... $ 35,870 $ 74,650 $ 67,225
========= ========= =========
Capital expenditures:
Oil and gas..................... $ 3,199 $ 41,676 $ 6,934
Gas plants and gas gathering.... 18,835 225 65
--------- --------- ---------
$ 22,034 $ 41,901 $ 6,999
========= ========= =========
Depreciation, depletion and
amortization:
Oil and gas..................... $ 1,553 $ 3,893 $ 6,933
Gas plants and gas gathering......... 936 1,376 1,215
--------- --------- ---------
$ 2,489 $ 5,269 $ 8,148
========= ========= =========
In 1996, 1995 and 1994, the Company had 3 customers which accounted for 33%
of its revenues, two customers which accounted for 42% of its revenues and three
customers which accounted for 58% of its revenues, respectively.
12. CONTINGENCIES
The Company has been named as a defendant in certain lawsuits incidental to
its business. Management does not believe that the outcome of such litigation
will have a material adverse impact on the Company.
F-19
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SELECTED QUARTERLY FINANCIAL DATA (AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA) (UNAUDITED):
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994(1) 1994 1995(2) 1995
<S> <C> <C> <C> <C>
Revenues............................. $ 3,997 $4,186 $ 4,783 $6,343
Operating Income..................... $ 424 $ 272 $ 238 $ 188
Net income........................... $ 378 $ 224 $ 199 $ 140
Earnings per common equivalent
share.............................. $ 0.07 $ 0.03 $ 0.02 $ 0.02
QUARTER ENDED
------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
Revenues............................. $ 5,678 $6,444 $ 6,338 $6,041
Operating Income..................... $ 38 $ 95 $ 542 $ 353
Net income (loss).................... $ 13 $ (12) $ 557 $ 424
Earnings per common equivalent
share.............................. $ 0.00 $ 0.00 $ 0.06 $ 0.05
</TABLE>
- --------------
(1) Includes the acquisition of Odyssey on August 26, 1994.
(2) Includes the acquisition of Hampton on February 28, 1995.
14. SUPPLEMENTAL INFORMATION -- (UNAUDITED)
OIL AND GAS PRODUCING ACTIVITIES
Included herein is information with respect to oil and gas acquisition,
exploration, development and production activities, which is based on estimates
of year-end oil and gas reserve quantities and estimates of future development
costs and production schedules. Reserve quantities and future production are
based primarily upon reserve reports prepared by the Company's independent
petroleum engineering firms. These estimates are inherently imprecise and
subject to substantial revision.
Estimates of future net cash flows from proved reserves of gas, oil,
condensate and natural gas liquids were made in accordance with Statement of
Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing
Activities." The estimates are based on prices at year-end. Estimated future
cash inflows are reduced by estimated future development and production costs
based on year-end cost levels, assuming continuation of existing economic
conditions, and by estimated future income tax expense. Tax expense is
calculated by applying the existing statutory tax rates, including any known
future changes, to the pre-tax net cash flows, less depreciation of the tax
basis of the properties and depletion allowances applicable to the gas, oil,
condensate and NGL production. The results of these disclosures should not be
construed to represent the fair market value of the Company's oil and gas
properties. A market value determination would include many additional factors
including: (i) anticipated future increases or decreases in oil and gas prices
and production and development costs; (ii) an allowance for return on
investment; (iii) the value of additional reserves, not considered proved at the
present, which may be recovered as a result of further exploration and
development activities; and (iv) other business risks.
F-20
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COSTS INCURRED
The following table sets forth the costs incurred in property acquisition
and development activities (in thousands):
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
Property acquisition:
Proved properties............... $ 1,896 $ 25,072 $ 128
Unproved properties............. 295 13,233 424
Exploration.......................... 364 530 824
Development.......................... 644 2,841 5,558
--------- --------- ---------
$ 3,199 $ 41,676 $ 6,934
========= ========= =========
CAPITALIZED COSTS
The following table sets forth the capitalized costs relating to oil and
gas activities and the associated accumulated depreciation, depletion and
amortization (in thousands):
YEARS ENDED JUNE 30,
----------------------------------
1994 1995 1996
Proved properties....................... $ 28,917 $ 56,300 $ 62,590
Unproved properties..................... 832 15,125 13,453
---------- ---------- ----------
Total capitalized costs................. 29,749 71,425 76,043
Accumulated depreciation, depletion and
amortization.......................... (17,043) (20,983) (28,316)
---------- ---------- ----------
Net capitalized costs................... $ 12,706 $ 50,442 $ 47,727
========== ========== ==========
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES (IN THOUSANDS):
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
Revenues from oil and gas producing
activities............................ $ 3,706 $ 8,507 $ 15,666
Production costs........................ 1,294 2,856 5,317
Depreciation, depletion and
amortization.......................... 1,553 3,893 6,933
--------- --------- ---------
Results of operations from producing
activities (excluding corporate
overhead and interest costs).......... $ 859 $ 1,758 $ 3,416
========= ========= =========
PER UNIT SALES PRICES AND COSTS:
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
Average sales price:(1)
Oil (per barrel)................... $ 15.27 $ 16.89 $ 17.81
Gas (per MCF)...................... 2.17 1.66 2.02
Average production cost per equivalent
barrel................................ 4.75 4.05 4.49
Average unit depletion rate per
equivalent barrel..................... 5.71 5.52 5.86
- --------------
(1) Average sales price is exclusive of the effect of natural gas and crude oil
price swaps.
F-21
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESERVES:
The Company's estimated total proved and proved developed reserves of oil
and gas are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------------
1994 1995 1996
---------------- ---------------- ----------------
OIL GAS OIL GAS OIL GAS
DESCRIPTION (MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
<S> <C> <C> <C> <C> <C> <C>
Proved reserves at beginning of year.... 438 7,202 393 10,671 2,597 30,159
Revisions of previous estimates......... (44) 58 (61) (988) (534) 2,855
Extensions and discoveries.............. -- -- 724 1,179 89 7,128
Production.............................. (71) (1,206) (216) (2,932) (334) (5,099)
Sales of reserves in-place.............. -- -- (1) (3) (14) (2,023)
Purchases of reserves in-place.......... 67 287 -- 163 4 176
Reserves added in Mergers............... 3 4,330 1,758 22,069 -- --
------ ------ ------ ------ ------ ------
Proved reserves at end of year.......... 393 10,671 2,597 30,159 1,808 33,196
====== ====== ====== ====== ====== ======
Proved developed reserves --
Beginning of year.................. 410 7,151 361 9,154 1,891 23,795
====== ====== ====== ====== ====== ======
End of year........................ 361 9,154 1,891 23,795 1,494 22,698
====== ====== ====== ====== ====== ======
</TABLE>
The standardized measure of discounted future net cash flows and changes therein
related to proved oil and gas reserves are shown below:
YEARS ENDED JUNE 30,
----------------------------------
1994 1995 1996
(IN THOUSANDS)
Future cash inflows.................. $ 31,180 $ 96,738 $ 113,554
Future production costs.............. (11,462) (34,093) (33,131)
Future income taxes.................. -- -- (11,095)
Future development costs............. (402) (7,738) (8,961)
---------- ---------- ----------
Future net cash flows................ 19,316 54,907 60,367
10% discount factor.................. (7,272) (17,616) (15,191)
---------- ---------- ----------
Standardized measure of discounted
future net cash flows.............. $ 12,044 $ 37,291 $ 45,176
========== ========== ==========
The following are the principal sources of change in the standardized
measure of discounted future net cash flows:
YEARS ENDED JUNE 30,
----------------------------------
1994 1995 1996
(IN THOUSANDS)
Standardized measure -- beginning of
year............................... $ 10,519 $ 12,044 $ 37,291
Sales, net of production costs....... (2,412) (5,651) (10,349)
Purchases of reserves in-place....... 566 162 246
Reserves received in Mergers......... 3,598 34,039 --
Net change in prices and production
costs.............................. (1,500) (8,326) 11,458
Net change in income taxes........... -- -- (2,958)
Extensions, discoveries and improved
recovery, net of future production
and development costs.............. -- 5,085 7,709
Changes in estimated future
development costs.................. (163) (3,148) 497
Development costs incurred during the
period............................. 644 629 883
Revisions of quantity estimates...... (194) (4) (438)
Accretion of discount................ 1,052 1,204 3,729
Sales of reserves in-place........... -- (5) (1,614)
Changes in production rates and
other.............................. (66) 1,262 (1,278)
---------- ---------- ----------
Standardized measure -- end of
year............................... $ 12,044 $ 37,291 $ 45,176
========== ========== ==========
F-22
<PAGE>
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1996
-------- ------------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents............... $ 783 $ 450
Accounts receivable and accrued
revenues.............................. 5,990 7,296
Accounts receivable -- related
parties............................... 1,417 303
Prepaid expenses and other.............. 314 586
-------- ------------
Total current assets............... 8,504 8,635
-------- ------------
Property, Plant and Equipment, at cost:
Oil and gas properties (full cost
method)............................... 76,043 83,473
Gas plant facilities and gas gathering
system................................ 12,840 12,843
-------- ------------
88,883 96,316
Accumulated depreciation, depletion and
amortization.......................... (30,748) (36,561)
-------- ------------
58,135 59,755
-------- ------------
Other Assets............................ 586 592
-------- ------------
$ 67,225 $ 68,982
======== ============
Current Liabilities:
Accounts payable and accrued
liabilities........................... $ 2,634 $ 3,867
Due to affiliates....................... 702 411
Current maturities of long-term debt.... -- --
-------- ------------
Total current liabilities.......... 3,336 4,278
-------- ------------
Long-term debt, excluding current
maturities............................ 13,048 11,000
Deferred income taxes................... 2,861 3,805
Other liabilities....................... 1,383 1,148
Stockholders' Equity:
Preferred stock, $0.01 par value,
1,000,000 shares authorized, none
issued or outstanding at June 30, 1996
and December 31, 1996................. -- --
Common stock, $0.01 par value,
15,000,000 shares authorized,
9,075,479
and 9,152,979 shares issued and
outstanding at June 30, 1996 and
December 31, 1996, respectively....... 91 92
Additional paid-in capital.............. 41,639 42,059
Retained earnings....................... 4,867 6,600
-------- ------------
Total stockholders' equity......... 46,597 48,751
-------- ------------
$ 67,225 $ 68,982
======== ============
See Notes to Condensed Consolidated Financial Statements.
F-23
<PAGE>
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1995 1996 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas revenues............... $ 3,853 $ 5,383 $ 7,142 $ 9,846
Gas plant and gas gathering
revenues......................... 2,555 2,158 4,923 3,879
Interest and other income.......... 36 26 57 53
--------- --------- --------- ---------
6,444 7,567 12,122 13,778
--------- --------- --------- ---------
Costs and Expenses:
Lease operating expenses........... 1,347 1,696 2,447 3,061
Gas plant and gas gathering
expenses......................... 1,549 934 3,006 1,827
Depreciation, depletion and
amortization..................... 1,979 2,173 3,866 4,167
General and administrative
expenses......................... 859 761 1,559 1,452
Interest expense................... 472 232 956 520
Other expense...................... 143 -- 155 --
--------- --------- --------- ---------
6,349 5,796 11,989 11,027
--------- --------- --------- ---------
Income before income taxes.............. 95 1,771 133 2,751
Provision for income taxes.............. 107 655 132 1,018
--------- --------- --------- ---------
Net income......................... $ (12) $ 1,116 $ 1 $ 1,733
========= ========= ========= =========
Net income per share.................... $ -- $ 0.12 $ 0.00 $ 0.19
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding......... 9,045 9,145 9,045 9,118
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-24
<PAGE>
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL TREASURY STOCK
----------------- ----------------- PAID-IN RETAINED ----------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993.................. 2,318 $ 1,156 -- -- $ 7,598 $2,130 29 $(115)
Shares issued in merger with Associated
Gas Resources, Inc.................... 1,419 708 -- -- 6,066 -- -- --
To change par value per share........... -- (1,827) -- -- 1,827 -- -- --
Other................................... -- -- -- -- (1) -- (14) 16
Net earnings............................ -- -- -- -- -- 814 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, June 30, 1994.................. 3,737 37 -- -- 15,490 2,944 15 (99)
Shares issued in public stock
offering.............................. 3,400 34 -- -- 17,204 -- -- --
Cancellation of treasury stock.......... (15) -- -- -- -- -- (15) 99
Shares issued in merger with Odyssey
Partners, Ltd......................... 917 9 -- -- 3,944 -- -- --
Shares issued in merger with Hampton
Resources Corporation................. 1,006 10 -- -- 4,834 -- -- --
Net earnings............................ -- -- -- -- -- 941 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, June 30, 1995.................. 9,045 90 -- -- 41,472 3,885 -- --
Stock options exercised................. 30 1 -- -- 167 -- -- --
Net earnings............................ -- -- -- -- -- 982 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, June 30, 1996.................. 9,075 91 -- -- 41,639 4,867 -- --
Stock options exercised................. 70 1 420
Net earnings............................ -- -- -- -- -- 1,733 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, December 31, 1996 (unaudited).. 9,145 $ 92 -- -- $ 42,059 $6,600 -- $--
====== ======= ====== ======= ========== ======== ====== ======
</TABLE>
TOTAL
Balance, June 30, 1993.................. $10,769
Shares issued in merger with Associated
Gas Resources, Inc.................... 6,774
To change par value per share........... --
Other................................... 15
Net earnings............................ 814
-------
Balance, June 30, 1994.................. 18,372
Shares issued in public stock
offering.............................. 17,238
Cancellation of treasury stock.......... 99
Shares issued in merger with Odyssey
Partners, Ltd......................... 3,953
Shares issued in merger with Hampton
Resources Corporation................. 4,844
Net earnings............................ 941
-------
Balance, June 30, 1995.................. 45,447
Stock options exercised................. 168
Net earnings............................ 982
-------
Balance, June 30, 1996.................. 46,597
Stock options exercised................. 421
Net earnings............................ 1,733
-------
Balance, December 31, 1996 (unaudited).. $48,751
=======
See Notes to Condensed Consolidated Financial Statements.
F-25
<PAGE>
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
SIX MONTHS
ENDED
DECEMBER 31,
---------------------
1995 1996
(IN THOUSANDS)
Net Income........................... $ 1 $ 1,733
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization................... 3,897 4,308
Deferred taxes and other........ -- 951
Change in assets and liabilities:
Accounts receivable and accrued
revenues...................... (439) (1,306)
Accounts payable and other
liabilities................... 405 999
Due (to) from affiliates........ (158) 823
Other........................... (210) (403)
--------- ----------
Net Cash Flows Provided by Operating
Activities......................... 3,496 7,105
--------- ----------
Cash Flows From Investing Activities:
Additions to oil and gas
properties.................... (1,133) (7,430)
Proceeds from sales of
properties.................... -- 1,665
Other........................... (41) (45)
--------- ----------
Net Cash Flows Used In Investing
Activities......................... (1,174) (5,810)
--------- ----------
Cash Flows From Financing Activities:
Proceeds from borrowings........ -- 13,000
Payments of long-term debt...... -- (15,048)
Net proceeds from issuance of
common stock.................. (1,000) 420
--------- ----------
Net Cash Flows (Used In) Provided by
Financing Activities............... (1,000) (1,628)
--------- ----------
Net increase (decrease) in cash
and cash equivalents............ 1,322 (333)
Cash and cash equivalents at
beginning of period............ 1,088 783
--------- ----------
Cash And Cash Equivalents At End of
Period............................. $ 2,410 $ 450
========= ==========
Supplemental Disclosures Of Cash Flow
Information:
Cash paid during the period for:
Interest........................ $ 480 $ 348
Income taxes (net of refund).... 127 63
See Notes to Condensed Consolidated Financial Statements.
F-26
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with instructions to Form 10-Q and, therefore, do
not include all disclosures required by generally accepted accounting
principles. However, in the opinion of management, these statements include all
adjustments, which are of a normal recurring nature, necessary to present fairly
the financial position at December 31, 1996, and June 30, 1996, and the results
of operations and changes in cash flows for the periods ended December 31, 1996,
and 1995. These financial statements should be read in conjunction with the
consolidated financial statements and notes to the consolidated financial
statements in the 1996 Form 10-K of Bellwether Exploration Company ("the
Company") that was filed with the Securities and Exchange Commission.
2. INDUSTRY SEGMENT INFORMATION
The Company's operations are concentrated primarily in two segments; the
exploration and production of oil and natural gas and gas plants and gas
gathering operations.
FOR THE SIX MONTHS
ENDED
DECEMBER 31,
--------------------
1995 1996
(IN THOUSANDS)
Sales to unaffiliated customers:
Oil and gas..................... $ 7,142 $ 9,846
Gas plants and gas gathering.... 4,923 3,879
Other revenues.................. 57 53
--------- ---------
Total revenues............. 12,122 13,778
========= =========
Operating profit before income tax:
Oil and gas..................... 1,520 3,059
Gas plants and gas gathering.... 1,226 1,611
--------- ---------
2,746 4,670
--------- ---------
Unallocated corporate expenses....... 1,657 1,399
Interest expense..................... 956 520
--------- ---------
Income before taxes........ 133 2,751
========= =========
Depreciation, depletion and
amortization:
Oil and gas..................... 3,175 3,726
Gas plants and gas gathering.... 691 441
--------- ---------
$ 3,866 $ 4,167
========= =========
3. LONG TERM DEBT
On February 28, 1995, the Company entered into a credit facility ("Credit
Facility") with a commercial bank providing an initial borrowing base of $29.8
million. The borrowing base is reviewed semi-annually. The borrowings under the
Credit Facility are secured by the Company's interest in oil and gas properties
and in the Gathering System and the Gas Plant. The maturity date, as modified in
the second quarter, fiscal 1996 is March 31, 2001, and the borrowing base is
$20.1 million. The Credit Facility was retired in October 1996.
In October 1996 the Company entered into a syndicated credit facility
("New Credit Facility") in an amount up to $50 million with an initial
borrowing base of $27 million, to be determined semi-annually. The interest
rate, at the Company's option, will vary, based upon borrowing base usage, from
LIBOR plus
F-27
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED)
7/8% to LIBOR plus 1 1/4%, or the greater of the prime rate or Fed Funds plus
1/2%. The New Credit Facility is unsecured with respect to oil and gas assets
and has a termination date of October 15, 2000.
The New Credit Facility contains various covenants including certain
required financial measurements for a current ratio, consolidated tangible net
worth, and interest coverage ratio. In addition, the New Credit Facility
includes certain limitations on restricted payments and dividends, incurrence of
additional funded indebtedness/guarantees and asset sales.
4. GAS CONTRACT LIABILITY
The Company and certain third parties were the beneficiaries of an
agreement ("Purchase Agreement") whereby another party had an obligation to
purchase, until May 1999, the gas produced by the Company and such third parties
from the West Monroe field in Union Parish, Louisiana, at a price of $4.50 per
MMBTU. Bellwether owned a large majority of the gas produced and sold pursuant
to the Purchase Agreement. In March 1996, in exchange for Bellwether's agreement
to assume this obligation to purchase gas under the Purchase Agreement,
Bellwether was paid $9.9 million. As a result of this transaction, the Company
has written off the book value of the gas gathering system and has recorded a
liability of $2.0 million to cover estimated liabilities under the contract. Gas
gathering operations of the subsidiary and payments to third parties are charged
to the liability as incurred. From the proceeds, $9.5 million was paid on the
Company's credit facility.
5. GUARANTOR FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEETS -- UNAUDITED
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BELLWETHER ODYSSEY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Total current assets................. $ 7,595 $ 1,040 $ -- $ 8,635
Net property, plant and equipment.... 47,385 12,370 -- 59,755
Total other assets................... 10,314 15 (9,737) 592
---------- ------- ------------ ------------
Total assets.................... $ 65,294 $13,425 $ (9,737) $ 68,982
========== ======= ============ ============
Total current liabilities............ $ 2,254 $ 2,024 $ -- $ 4,278
Long-term debt....................... 11,000 -- -- 11,000
Deferred taxes....................... 3,202 603 -- 3,805
Other long-term liabilities.......... 1,148 -- -- 1,148
Total stockholders' equity........... 47,690 10,798 (9,737) 48,751
---------- ------- ------------ ------------
Total liabilities and
stockholders' equity.......... $ 65,294 $13,425 $ (9,737) $ 68,982
========== ======= ============ ============
</TABLE>
CONDENSED CONSOLIDATING INCOME STATEMENTS-- UNAUDITED
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
BELLWETHER ODYSSEY CONSOLIDATED
Revenues............................. $ 11,969 $ 1,808 $ 13,777
Expenses............................. 9,735 1,291 11,026
---------- ------- ------------
Net earnings before income taxes..... 2,234 517 2,751
---------- ------- ------------
Income taxes......................... 839 179 1,018
---------- ------- ------------
Net earnings......................... $ 1,395 $ 338 $ 1,733
========== ======= ============
F-28
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
BELLWETHER ODYSSEY CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 1,395 $ 338 $ 1,733
Non-cash adjustments............ 4,670 589 5,259
Change in assets and
liabilities................... (804) 917 113
---------- ------- ------------
Net cash provided by operating
activities.................... 5,261 1,844 7,105
---------- ------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil & gas
properties.................... (5,487) (1,943) (7,430)
Proceeds from sale of
properties.................... 1,665 -- 1,665
Additions to other properties
and other..................... (45) -- (45)
---------- ------- ------------
Net cash used in investing
activities.................... (3,867) (1,943) (5,810)
---------- ------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings........ 13,000 -- 13,000
Payments of long-term debt...... (15,048) -- (15,048)
Net proceeds from issuance of
common stock.................. 420 -- 420
---------- ------- ------------
Net cash provided by in
financing activities.......... (1,628) -- (1,628)
---------- ------- ------------
Net increase (decrease) in cash
and cash equivalents.......... (234) (99) (333)
Cash and cash equivalents at
beginning of period........... 592 191 783
---------- ------- ------------
Cash and cash equivalents at end
of period..................... $ 358 $ 92 $ 450
========== ======= ============
6. OTHER MATTERS -- (UNAUDITED)
In February 1997, the Company filed a registration statement with the SEC
with regard to an offering by the Company of 4,400,000 shares of common stock
("Common Stock Offering") and $100.0 million in Senior Subordinated Notes
("Notes Offering"), the proceeds of which are to be used to purchase oil and
gas properties and an estimated $18.0 million of working capital for $188.3
million, plus a contingent payment of up to $9.0 million, the actual amount of
which will be based on 1997 gas prices (the "Contingent Payment"). The
effective date of the pending acquisition is July 1, 1996 and the estimated net
adjusted purchase price assuming an April 8, 1997 closing date is $141.9 million
plus the Contingent Payment. As of June 30, 1996, estimated net proved reserves
attributable to the properties were 39.2 MMBOE (89% developed and 59% gas) with
a PV-10 Value (pre-tax) of $212.0 million. The Company is also negotiating a new
$90 million credit facility ("New Credit Facility") with a group of banks. The
Company will finance the cash portion of the acquisition and related fees,
estimated to aggregate $173.8 million, including repayment of an estimated $12.0
million of existing indebtedness with advances under the New Credit Facility and
the proceeds of the Common Stock Offering and the Notes Offering.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Torch Energy Advisors Incorporated:
We have audited the accompanying statements of assets (other than
productive oil and gas properties) and liabilities as of December 31, 1995 and
1996 to be acquired by Bellwether Exploration Company (Acquired Properties) as
described in Note 1 and the related statements of revenues and direct operating
expenses for each of the years in the three-year period ended December 31, 1996.
These financial statements are the responsibility of Torch Energy Advisors
Incorporated'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.
The accompanying statements were prepared as described in Note 1 for the
purpose of complying with certain rules and regulations of the Securities and
Exchange Commission ("SEC") for inclusion in certain SEC regulatory reports
and filings and are not intended to be a complete financial presentation.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets (other than productive oil and gas
properties) and liabilities of the Acquired Properties as of December 31, 1995
and 1996 and the related revenues and direct operating expenses for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
March 11, 1997
F-30
<PAGE>
THE ACQUIRED PROPERTIES
STATEMENTS OF ASSETS ACQUIRED (OTHER THAN PRODUCTIVE OIL
AND GAS PROPERTIES) AND LIABILITIES (NOTE 1)
(IN THOUSANDS)
DECEMBER 31,
--------------------
1995 1996
Assets acquired (other than productive
oil and gas properties)
Cash and cash equivalents.......... $ 603 $ 79
Accounts receivable and other...... 19,291 23,428
Due from affiliates................ 5,798 3,954
Liabilities
Accounts payable and accrued
liabilities....................... (8,968) (9,050)
Due to affiliates.................. (30) (375)
--------- ---------
Excess of assets acquired (other
than productive oil and gas
properties) over liabilities
assumed........................... $ 16,694 $ 18,036
========= =========
See accompanying notes.
F-31
<PAGE>
THE ACQUIRED PROPERTIES
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
REVENUES:
Oil revenues....................... $ 42,215 $ 43,424 $ 42,842
Gas revenues....................... 60,129 49,354 58,132
Natural gas processing income...... 114 126 49
Other oil and gas income........... 655 19,363 1,338
---------- ---------- ----------
103,113 112,267 102,361
---------- ---------- ----------
DIRECT OPERATING EXPENSES:
Lease operating expenses........... $ 26,890 $ 28,894 $ 24,733
Production taxes................... 3,511 2,238 3,081
---------- ---------- ----------
Direct operating expenses.......... 30,401 31,132 27,814
---------- ---------- ----------
REVENUES IN EXCESS OF DIRECT OPERATING
EXPENSES.............................. $ 72,712 $ 81,135 $ 74,547
========== ========== ==========
See accompanying notes.
F-32
<PAGE>
THE ACQUIRED PROPERTIES
NOTES TO STATEMENTS OF ASSETS ACQUIRED (OTHER THAN PRODUCTIVE OIL AND GAS
PROPERTIES) AND LIABILITIES AND STATEMENTS OF REVENUES AND DIRECT OPERATING
EXPENSES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying statements present the assets (other than productive oil
and gas properties) and liabilities to be acquired and the related revenues and
direct operating expenses of oil and gas properties (the "Acquired
Properties") to be acquired by Bellwether Exploration Company from Torch Energy
Advisors Incorporated ("Torch") and certain partnerships and other entities
managed or sponsored by Torch (collectively, the "Partnerships"). The Acquired
Properties are primarily located in Texas, Louisiana, California and the Gulf of
Mexico.
The accompanying financial statements were derived from the historical
accounting records from the Partnerships. Direct operating expenses include
payroll, lease and well repairs, maintenance and other direct operating
expenses.
OMITTED HISTORICAL FINANCIAL INFORMATION
Full historical financial statements, including general and administrative
expense, income tax expense and interest expense have not been presented
historically because the above properties were not accounted for or operated as
a separate division by the Partnerships. Historical depletion expense, including
abandonment provision, also has not been included as the basis in the properties
will be adjusted in the purchase price allocation when they are sold; therefore,
historical depletion no longer will be relevant.
ACCRUAL BASIS STATEMENTS
Memorandum adjustments have been made to the financial information in order
to present the accompanying financial statements in accordance with generally
accepted accounting principles.
CASH AND CASH EQUIVALENTS
The Partnerships consider all highly liquid debt instruments purchased with
an original maturity date of three months or less to be cash equivalents.
GAS BALANCING
Certain Partnerships use the entitlement method for recording sales of
natural gas. Under the entitlement method of accounting, revenue is recorded
based on the Partnerships' net revenue interest in production. Deliveries of
natural gas in excess of the Partnerships' revenue interests are recorded as
liabilities and under-deliveries are recorded as assets. Production imbalances
are recorded at the lower of the sales price in effect at the time of production
or the current market value. At December 31, 1995 and 1996 the Partnerships'
aggregate net receivable was $781,705 and $1,174,950, respectively. Such amounts
have been included in accounts receivable and accounts payable and accrued
liabilities as it is expected that a substantial portion of the production
imbalances will be settled with production in the upcoming year.
Certain other Partnerships use the sales method for recording sales of
natural gas. Under the sales method of accounting, revenue is recorded based on
the Partnerships' sales of production. Substantially all such gas imbalances are
anticipated to be settled with production in future periods. If such
Partnerships had used the entitlement method of recording sales of natural gas,
there would have been no significant impact on the financial statements.
USE OF ESTIMATES
A number of estimates and assumptions relating to the reporting of assets
and liabilities and to the disclosure of contingent assets and liabilities have
been made by Torch to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
F-33
<PAGE>
THE ACQUIRED PROPERTIES
NOTES TO STATEMENTS OF ASSETS ACQUIRED (OTHER THAN PRODUCTIVE OIL AND GAS
PROPERTIES) AND LIABILITIES AND STATEMENTS OF REVENUES AND DIRECT OPERATING
EXPENSES -- (CONTINUED)
DETERMINATION OF FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value for cash, receivables, and payables approximates carrying value.
2. OTHER OIL AND GAS REVENUES
Included in revenues are $0.6 million, $18.2 million and $0.4 million
during 1994, 1995 and 1996, respectively, which were received from various
bankruptcy and contract pricing settlements. Also included in revenues are
payments in lieu of tax credits of $66,000, $0.8 million and $1.0 million,
during 1994, 1995 and 1996, respectively.
3. RELATED PARTY TRANSACTIONS
An affiliate of Torch operates certain oil and gas wells included in the
Acquired Properties. Fees under joint operating agreements related to such wells
in the amount of $1.8 million, $1.8 million and $1.7 million were incurred the
years ended December 31, 1994, 1995 and 1996, and are included in direct
operating expenses. In addition, an affiliate of Torch marketed a portion of the
production of the Acquired Properites, for which service it charged the
Partnerships marketing fees on the same basis as other third parties. The amount
of such fees charged to the Partnerships during 1994, 1995 and 1996 was $1.4
million, $1.5 million and $1.6 million, respectively. Such amounts are included
as a reduction to oil and gas revenues.
4. CAPITAL EXPENDITURES
Direct operating expenses do not include exploration and development
expenditures related to the properties which totaled approximately $14.9
million, $14.0 million and $7.5 million in 1994, 1995 and 1996, respectively.
5. COMMITMENTS AND CONTINGENCIES
Management is unaware of any legal, environmental or other contingencies
that would be materially important in relation to these financial statements.
6. SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
Total proved and proved developed oil and gas reserves of the Acquired
Properties at December 31, 1996 have been estimated based on reserve estimates
prepared by the Company and audited by Ryder Scott Company Petroleum Engineers
as of June 30, 1996, adjusted for production from June 30, 1996 to December 31,
1996. No comparable estimates were available for subsequent or prior periods.
Therefore, reserves for December 31, 1994, 1995 and 1996 have been calculated by
adjusting the June 30, 1996 amounts for the respective period's activities and,
consequently, no revisions of previous estimates have been reflected. All
reserve estimates are based on economic and operating conditions existing at
June 30, 1996. The future net cash flows from production of these proved reserve
quantities were computed by applying current prices of oil and gas, averaging
$16.17 per barrel of oil and $2.22 per thousand cubic foot of gas (with
consideration of price changes only to the extent provided by contractual
arrangements) as of June 30, 1996 to estimated future production of proved oil
and gas reserves less the estimated future expenditures (based on current costs)
as of June 30, 1996, to be incurred in developing and producing the
F-34
<PAGE>
THE ACQUIRED PROPERTIES
NOTES TO STATEMENTS OF ASSETS ACQUIRED (OTHER THAN PRODUCTIVE OIL AND GAS
PROPERTIES) AND LIABILITIES AND STATEMENTS OF REVENUES AND DIRECT OPERATING
EXPENSES -- (CONTINUED)
proved reserves. The Acquired Properties are located primarily in Texas,
Louisiana, Alabama, California and the Gulf of Mexico.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1994 1995 1996
-------------------- -------------------- --------------------
OIL GAS OIL GAS OIL GAS
(MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
Beginning of year............... 23,341 215,441 20,422 181,139 17,351 151,297
Production...................... (2,919) (34,302) (3,071) (29,842) (2,460) (22,387)
--------- --------- --------- --------- --------- ---------
End of Year..................... 20,422 181,139 17,351 151,297 14,891 128,910
========= ========= ========= ========= ========= =========
Proved developed reserves:
Beginning of year............... 20,827 204,626 17,908 170,324 14,837 140,482
--------- --------- --------- --------- --------- ---------
End of year..................... 17,908 170,324 14,837 140,482 12,377 118,095
========= ========= ========= ========= ========= =========
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil & Gas Reserves (in thousands):
AS OF
DECEMBER 31,
1996
------------
Future cash inflows..................... $ 513,741
Future production costs................. (195,576)
Future development costs................ (40,450)
------------
Future net inflows before income
taxes................................. 277,715
Income taxes............................ (54,913)
------------
Future net cash flows................... 222,802
10% discount factor..................... (70,403)
------------
Standardized measure of discounted
future net cash flows................. $ 152,399
============
Changes to Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves (in thousands):
Standardized measure, beginning of
year.................................. $ 182,057
Sales, net of production costs..... (73,160)
Net change in income taxes......... 17,418
Net change in future development
costs............................. 4,336
Accretion of discount.............. 18,206
Net change in timing and other..... 3,542
------------
Standardized measure, end of year....... $ 152,399
============
F-35
<PAGE>
EXHIBIT A
Williamson Petroleum Consultants, Inc.
March 12, 1997
Bellwether Exploration Company
1221 Lamar, Suite 1600
Houston, Texas 77010
Attention Mr. J. Darby Sere'
Gentlemen:
Subject: Revision to the Williamson Petroleum Consultants, Inc. Report Entitled
"Evaluation of Oil and Gas Reserves to the Interests of Bellwether
Exploration Company in Certain Properties, Effective June 30, 1996,
for Disclosure to the Securities and Exchange Commission, Williamson
Project 6.8369"
At your request, Williamson Petroleum Consultants, Inc. (Williamson) has
prepared a revision to the Williamson report entitled "Evaluation of Oil and Gas
Reserves to the Interests of Bellwether Exploration Company in Certain
Properties, Effective June 30, 1996, for Disclosure to the Securities and
Exchange Commission, Williamson Project 6.8369" dated August 20, 1996 (the
August 20, 1996 report). Revisions were made for three properties in the South
Bullocks Church field, Victoria County, Texas and four properties in the Fort
Trinidad field, Houston and Madison Counties, Texas. These revisions were small
increases in ownership interests which resulted in a minor increase in net
reserves and associated future net revenues. All other data, definitions, and
assumptions are as stated in the August 20, 1996 report. The following is a
revised summary of the evaluation effective June 30, 1996:
<TABLE>
<CAPTION>
PROVED PROVED
DEVELOPED DEVELOPED PROVED TOTAL
PRODUCING NONPRODUCING UNDEVELOPED PROVED
---------- --------- ---------- ----------
Net Reserves to the
Evaluated Interests:
<S> <C> <C> <C> <C>
Oil/Condensate, BBL ............................ 1,380,372 113,323 314,658 1,808,353
Gas, MCF ....................................... 17,436,973 5,260,717 10,497,974 33,195,664
Future Net Revenue, $:
Undiscounted ................................... 43,372,307 10,276,435 17,813,708 71,462,450
Discounted Per Annum
at 10.00 Percent ............................... 30,650,666 6,224,432 11,264,518 48,139,616
</TABLE>
A-1
<PAGE>
The total company, state, and field reserves category summaries and individual
lease reserves and economics that were revised are attached.
If you have any questions, please call me at 713-750-7215.
Yours very truly,
/s/ WILLIAMSON PETROLEUM CONSULTANTS, INC.
WILLIAMSON PETROLEUM CONSULTANTS, INC.
JDS/jek
Attachments
A-2
<PAGE>
EXHIBIT B
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS FAX (403) 262-2790
1610, 855-2ND STREET S.W. CALGARY, ALBERTA T2P 2P2 TELEPHONE (403) 262-2799
February 7, 1997
Mr. Darby Sere
Bellwether Exploration Company
1221 Lamar, Suite 1600
Houston, TX 77010
Gentlemen:
At your request, we have reviewed the estimates of the remaining proved reserves
and future net income attributable to certain properties being considered for
purchase by Bellwether Exploration Company (Bellwether), as of July 1, 1996, as
prepared by the engineering and geological consultants to Bellwether and based
on Securities and Exchange Commission (SEC) guidelines for future cost and price
parameters.
The properties that we reviewed represent 84 percent of the total proved
discounted future net income based on constant pricing and costs as taken from
reserve and income projections prepared by Bellwether as of July 1, 1996.
The estimated reserves presented in this report are related to hydrocarbon
prices. June 1996 hydrocarbon prices were used in the preparation of this report
as required by SEC guidelines. However, actual future prices may vary
significantly from those used. Therefore, volumes of reserves actually recovered
and the amounts of income actually received may differ significantly from the
estimated quantities presented in this report. The estimated net reserves and
future net income attributable to the properties being considered for purchase
are summarized as follows:
SEC PARAMETERS
Estimated Net Remaining Reserves and Income Data
Attributable to Certain Properties Considered for Purchase by
BELLWETHER EXPLORATION COMPANY
As of July 1, 1996
<TABLE>
<CAPTION>
Proved
---------------------------------------------------------------------------------
Developed
--------------------------------------------- Proved Total
Producing Non-Producing Undeveloped Costs Proved
----------- ------------- ----------- ------- ------------
NET RESERVES OF PROPERTIES
REVIEWED BY RYDER SCOTT
<S> <C> <C> <C> <C> <C>
Oil/Condensate - Barrels .................. 11,635,800 623,900 2,100,600 0 14,360,400
Gas - MMcf ................................ 103,109 25,134 10,815 0 139,057
Plant Products - Bbls ..................... 1,082,500 193,800 413,100 0 1,689,400
PV(10) Future Net Income ($M) ............. $ 181,897 $ 26,171 $ 19,609 ($15,686) $ 211,992
</TABLE>
<PAGE>
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas volumes
are expressed in millions of cubic feet (MMCF) at the official temperature and
pressure bases of the areas in which the gas reserves are located.
The proved developed non-producing reserves attributable to the reviewed
properties are comprised of shut-in and behind pipe reserves.
The proved reserves, which are attributable to the properties that we reviewed,
conform to the definition as set forth in the Securities and Exchange
Commission's Regulation S-X Part 210.4-10(a) as clarified by subsequent
Commission Staff Accounting Bulletins. The proved reserves are defined as
follows:
PROVED RESERVES of crude oil, condensate, natural gas and natural gas
liquids are estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future from
known reservoirs under existing conditions. Reservoirs are considered proved
if economic producibility is supported by actual production or formation
tests. In certain instances, proved reserves are assigned on the basis of a
combination of core analysis and electrical and other type logs which
indicate the reservoirs are analogous to reservoirs in the same field which
are producing or have demonstrated the ability to produce on a formation
test. The area of a reservoir considered proved includes (1) that portion
delineated by drilling and defined by fluid contacts, if any, and (2) the
adjoining portions not yet drilled that can be reasonably judged as
economically productive on the basis of available geological and engineering
data. In the absence of data on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of the reservoir.
Proved reserves are estimates of hydrocarbons to be recovered from a given
date forward. They may be revised as hydrocarbons are produced and
additional data become available. Proved natural gas reserves are comprised
of non-associated, associated, and dissolved gas. An appropriate reduction
in gas reserves has been made for the expected removal of liquids, for lease
and plant fuel, and the exclusion of non-hydrocarbon gases if they occur in
significant quantities and are removed prior to sale. Reserves that can be
produced economically through the application of established improved
recovery techniques are included in the proved classification when these
qualifications are met: (1) successful testing by a pilot project or the
operation of an installed program in that reservoir or one in the immediate
area with similar rock and fluid properties provides support for the
engineering analysis on which the project or program was based, and (2) it
is reasonably certain the project will proceed. Reserves to be recovered by
improved recovery techniques that have yet to be established through
repeated economically successful applications are included in the proved
category only after testing by a pilot project or after the operation of an
installed program in the reservoir provides support for the engineering
analysis on which the project or program was based. Improved recovery
includes all methods for supplementing natural reservoir forces and energy,
or otherwise increasing ultimate recovery from a reservoir, including (1)
pressure maintenance, (2) cycling, and (3) secondary recovery in its
original sense. Improved recovery also includes the enhanced recovery
methods of thermal, chemical flooding, and the use of miscible and
immiscible displacement fluids. Estimates of proved reserves do not include
crude oil, condensate, natural gas or natural gas liquids being held in
B-2
<PAGE>
underground storage. Depending on the status of development, these proved
reserves are further subdivided into:
1) "developed reserves" which are those proved reserves reasonably
expected to be recovered through existing wells with existing
equipment and operating methods, including (a) "developed producing
reserves" which are those proved developed reserves reasonably
expected to be produced from existing completion intervals now open
for production in existing wells, and (b) "developed non-producing
reserves" which are those proved developed reserves which exist
behind the casing of existing wells which are reasonably expected to
be produced through these wells in the predictable future where the
cost of making such hydrocarbons available for production should be
relatively small compared to the cost of a new well; and
2) "undeveloped reserves" which are those proved reserves reasonably
expected to be recovered from new wells on undrilled acreage, from
existing wells where a relatively large expenditure is required and
from acreage for which an application of fluid injection or other
improved recovery technique is contemplated where the technique has
been proved effective by actual tests in the area in the same
reservoir or one with similar rock and fluid properties. Reserves
from undrilled acreage are limited to those drilling units
offsetting productive units that are reasonably certain of
production when drilled. Proved reserves for other undrilled units
are included only where it can be demonstrated with reasonable
certainty that there is continuity of production from the existing
formation.
REVIEWED PROCEDURE AND OPINION
In performing our review, we have relied upon data furnished by Bellwether with
respect to property interests owned, production and well tests from examined
wells, geological structural and isopach maps, well logs, core analyses, and
pressure measurements. These data were accepted as authentic and sufficient for
determining the reserves unless, during the course of our examination, a matter
of question came to our attention in which case the data were not accepted until
all questions were satisfactorily resolved. Our review included such tests and
procedures as we considered necessary under the circumstances to render the
conclusions set forth herein.
In our opinion, estimates of future reserves for the reviewed properties were
prepared in accordance with generally accepted procedures for the estimation of
future reserves, and we found no bias in the utilization and analysis of data in
estimates for these properties. In general, we were in reasonable agreement with
Bellwether's estimates of remaining proved reserves for the properties which
were reviewed; however, in certain cases there was more than an acceptable
variance in Bellwether's estimates and our estimates due to a difference in
interpretation of data or due to our having access to data which were not
available to Bellwether when its reserve estimates were prepared. In these
cases, Bellwether revised its estimates to conform to our estimates. As a
consequence, it is our opinion that the data presented herein
B-3
<PAGE>
for the properties that we reviewed fairly reflect the estimated net reserves
owned by Bellwether.
Certain technical consultants to Bellwether are responsible for the preparation
of reserve estimates on new properties and for the preparation of revised
estimates, when necessary, on old properties. These personnel assembled the
necessary data and maintained the data and work papers in an orderly manner. We
consulted with these technical personnel and had access to their workpapers and
supporting data in the course of our review.
RESERVES ESTIMATES
The reserves for the properties that we reviewed were estimated by performance
methods or the volumetric method. The reserve estimates by performance method
utilized extrapolations of various historical data in those cases where such
data were definitive. Reserves were estimated by the volumetric method in those
cases where there were inadequate historical data to establish a definitive
trend or where the use of production performance data as a basis for the
reserves estimates was considered to be inappropriate and the volumetric data
were adequate for a reasonable estimate.
The reserves presented herein, as estimated by Bellwether and reviewed by us,
are estimates only and should not be construed as being exact quantities.
Moreover, estimates of reserves may increase or decrease as a result of future
operations.
ECONOMIC EVALUATIONS
Bellwether provided the economic evaluations associated with their reserve
estimates and projections. They also provided the operating and development
costs used in these evaluations. We reviewed these costs for reasonableness, but
did not compare them against actual detailed lease operating expense statements.
We found these provided costs to be within acceptable ranges generally
experienced in their respective areas.
Bellwether provided the initial hydrocarbon prices used in this evaluation. We
have not compared the initial prices provided by Bellwether with actual prices
being received at the effective date of their evaluation.
The cashflow evaluations provided by Belllwether were produced by economic
software not internally authored by Ryder Scott Company. We therefore, cannot
comment as to the accuracy of the internal calculations associated with this
software. It is, however, a widely used and accepted commercial software
package. These economic evaluations, as provided by Bellwether, have not been
reviewed in detail by Ryder Scott.
B-4
<PAGE>
GENERAL
In general, the reserve estimates for the properties that we reviewed are based
on data generally available through June 1996. Gas imbalances, if any, were not
taken into account in the gas reserves estimates reviewed.
Neither we nor any of our employees have any interest in the subject properties
and neither the employment to do this work nor the compensation is contingent on
our estimates of reserves for the properties which were reviewed.
This report was prepared for the exclusive use of Bellwether. The data and work
papers used in the preparation of this report are available for examination by
authorized parties in our offices. Please contact us if we can be of further
service.
Yours very truly,
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
/s/ DOUGLAS G. MANNER
Douglas G. Manner, P.E.
Senior Vice President,
DGM/jkl
[SEAL]
B-5
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK OFFERED HEREBY
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary .................................................. 3
Risk Factors ........................................................ 10
Notes Offering ...................................................... 16
Price Range of Common Stock and Dividend Policy ..................... 16
Use of Proceeds ..................................................... 17
Capitalization ...................................................... 18
Unaudited Pro Forma Condensed Consolidated Financial Data ........... 19
Selected Consolidated Financial Data ................................ 27
Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 29
Business and Properties ............................................. 34
Management .......................................................... 49
Transactions with Related Persons ................................... 54
Principal and Selling Stockholders .................................. 59
Description of Capital Stock ........................................ 60
Description of Indebtedness ......................................... 61
Underwriting ........................................................ 63
Legal Matters ....................................................... 64
Experts ............................................................. 64
Available Information ............................................... 65
Glossary ............................................................ 66
Index to Financial Statements ....................................... F-1
Report of Williamson Petroleum
Consultants Inc. .................................................. Exhibit A
Report of Ryder Scott Company
Petroleum Engineers ............................................... Exhibit B
================================================================================
4,875,000 SHARES
[LOGO]
BELLWETHER
EXPLORATION
COMPANY
COMMON STOCK
---------------------
PROSPECTUS
---------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN & CO.
PRINCIPAL FINANCIAL SECURITIES, INC.
================================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION
DATED APRIL 3, 1997
BELLWETHER EXPLORATION COMPANY
$100,000,000
% SENIOR SUBORDINATED NOTES DUE 2007
INTEREST PAYABLE AND
ISSUE PRICE: %
The % Senior Subordinated Notes due 2007 (the "Notes") are being offered
(the "Notes Offering") by Bellwether Exploration Company, a Delaware
corporation (the "Company"). Concurrently with the Notes Offering, the Company
and Selling Stockholders are offering an aggregate of 4,875,000 shares of the
Company's Common Stock (the "Common Stock Offering," and together with the
Notes Offering, the "Offerings") pursuant to an underwritten public offering.
The Notes Offering and the Common Stock Offering are each conditioned on the
consummation of the other and the consummation of the Pending Acquisition (as
defined herein). The Notes mature on , 2007, unless
previously redeemed. Interest on the Notes is payable semiannually on
and , commencing
, 1997. The Notes will be redeemable, in whole or in part,
at the option of the Company at any time on or after ,
2002, at the redemption prices set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption.
The Company expects to use the net proceeds of the Offerings, together with
borrowings under the New Credit Facility (as defined herein), to fund the cash
purchase price of the Pending Acquisition and to refinance existing
indebtedness.
Upon a Change of Control (as defined herein), the Company will have the
obligation to offer to purchase all outstanding Notes at a price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest to the date of
purchase.
The Notes will be general unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Indebtedness (as defined
herein) of the Company, which will include borrowings under the New Credit
Facility. The Notes will be fully and unconditionally guaranteed (the
"Subsidiary Guarantee") by Odyssey Petroleum Company (the "Subsidiary
Guarantor"). The Subsidiary Guarantee will be a general unsecured obligation of
the Subsidiary Guarantor and will rank subordinate in right of payment to all
existing and future Guarantor Senior Indebtedness (as defined herein). The Notes
and the Subsidiary Guarantee will rank PARI PASSU in right of payment with any
other senior subordinated indebtedness of the Company and the Subsidiary
Guarantor, respectively. As of December 31, 1996, on a pro forma basis after
giving effect to the Transactions (as defined herein), the Company had $28.3
million of outstanding Senior Indebtedness. No Indebtedness (as defined herein)
of the Company is expressly subordinated to the Notes. There is currently no
trading market for the Notes and the Company does not intend to list the Notes
on any securities exchange.
SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNTS(2) COMPANY(3)
- -------------------------------------------------------------------------------
Per Note % % %
- -------------------------------------------------------------------------------
Total $ $ $
- -------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
The Notes are offered by the Underwriters, subject to prior sale, when, as and
if issued to and accepted by them and subject to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the Notes
will be made through the book entry facilities of The Depository Trust Company,
against payment therefor on or about April __, 1997.
J.P. MORGAN & CO. CHASE SECURITIES INC.
April ___, 1997
<PAGE>
[MAP]
CERTAIN PERSONS PARTICIPATING IN THE NOTES OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE NOTES
OFFERING AND MAY BID FOR, AND PURCHASE, NOTES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer contained herein and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any Underwriter. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Notes offered hereby by
anyone in any jurisdiction in which such offer is not authorized, or in which
the person making such offer is not qualified to do so, or to any person to whom
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
Available Information ..................................................... 3
Prospectus Summary ........................................................ 4
Risk Factors .............................................................. 12
Common Stock Offering ..................................................... 18
Use of Proceeds ........................................................... 18
Capitalization ............................................................ 19
Unaudited Pro Forma
Condensed Consolidated Financial Data ................................... 20
Selected Consolidated Financial Data ...................................... 28
Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................... 30
Business and Properties ................................................... 35
Management ................................................................ 49
Transactions with Related Persons ......................................... 54
Principal and Selling Stockholders ........................................ 59
Description of Capital Stock .............................................. 60
Description of New Credit Facility ........................................ 61
Description of Notes ...................................................... 62
Underwriting .............................................................. 90
Legal Matters ............................................................. 91
Experts ................................................................... 91
Glossary .................................................................. 92
Index to Financial Statements ............................................. F-1
Report of Williamson Petroleum
Consultants, Inc.............Exhibit .................................... A
Report of Ryder Scott
Company Petroleum Engineers.......Exhibit ............................... B
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and, in accordance therewith, files
reports and other information with the Securities and Exchange Commission
("SEC"). Reports, proxy and information statements and other information filed
by the Company with the SEC pursuant to the informational requirements of the
Exchange Act may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004,
and at the following Regional Offices of the SEC: Chicago Regional Office, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and New York
Regional Office, 7 World Trade Center, New York, New York 10048. Copies of such
material may also be obtained from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549-1004 at prescribed rates. The
Registration Statement was filed with the SEC electronically. The SEC maintains
a site on the World Wide Web that contains documents filed with the SEC
electronically. The address of such site is http://www.sec.gov, and the
Registration Statement may be inspected at such site. The Common Stock is traded
on the Nasdaq National Market. The Company's registration statements, reports,
proxy and information statements, and other information may also be inspected at
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
This Prospectus constitutes a part of a Registration Statement on Form S-1 filed
by the Company with the SEC under the Securities Act of 1933 ("Securities
Act"). This Prospectus omits certain of the information contained in the
Registration Statement, and reference is hereby made to the Registration
Statement for further information with respect to the Company and the securities
offered hereby. Any statements contained herein concerning the provisions of any
document filed as an exhibit to the Registration Statement or otherwise filed
with the SEC are not necessarily complete and in each instance reference is made
to the copy of such document so filed. Each such statement is qualified in its
entirety by such reference.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE HEREIN. REFERENCES TO
"BELLWETHER" OR THE "COMPANY" HEREIN INCLUDE BELLWETHER EXPLORATION COMPANY
AND ITS PREDECESSORS AND SUBSIDIARIES UNLESS THE CONTEXT OTHERWISE REQUIRES.
BELLWETHER'S FISCAL YEAR ENDS ON JUNE 30. PRO FORMA INFORMATION REGARDING
BELLWETHER GIVES EFFECT TO THE PENDING ACQUISITION, THE OFFERINGS AND THE OTHER
TRANSACTIONS DESCRIBED UNDER "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA" (COLLECTIVELY, THE "TRANSACTIONS") AS IF THEY OCCURRED ON THE
DATES INDICATED. THE ESTIMATES AS OF JUNE 30, 1996 OF THE COMPANY'S NET PROVED
RESERVES ARE BASED ON THE REPORT OF WILLIAMSON PETROLEUM CONSULTANTS INC.
("WILLIAMSON"), AND THE ESTIMATES OF NET PROVED RESERVES OF THE ACQUIRED
PROPERTIES (AS HEREINAFTER DEFINED) ARE DERIVED FROM A RESERVE REPORT PREPARED
BY THE COMPANY AND AUDITED BY RYDER SCOTT COMPANY PETROLEUM ENGINEERS ("RYDER
SCOTT"). UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES
THE UNDERWRITERS' OVER-ALLOTMENT OPTIONS IN THE COMMON STOCK OFFERING WILL NOT
BE EXERCISED. CERTAIN TERMS RELATING TO THE OIL AND GAS INDUSTRY ARE DEFINED IN
"GLOSSARY."
THE COMPANY
Bellwether is an independent energy company primarily engaged in the
acquisition, exploitation, development and exploration of oil and gas
properties. The Company has grown and diversified its reserve base through the
acquisition of oil and gas properties and the subsequent development of these
properties. Bellwether's estimated net proved reserves have increased at a
compounded annual growth rate of 65.9%, from 1.6 MMBOE as of June 30, 1993 to
7.3 MMBOE as of June 30, 1996. During this period, average net daily production
increased at a compounded annual growth rate of 73.6%, from 618.0 BOE/d in
fiscal 1993 to 3,235.0 BOE/d in fiscal 1996, and EBITDA increased at a
compounded annual growth rate of 89.0%, from $1.6 million in fiscal 1993 to
$10.8 million in fiscal 1996. The Company's net cash flows from operations have
increased at a compounded annual growth rate of 67.4%, from $1.6 million in
fiscal 1993 to $7.5 million in fiscal 1996. The Company believes its primary
strengths are a demonstrated ability to identify and acquire properties which
have significant potential for further exploitation, development and
exploration, an inventory of development and exploration projects, expertise in
the use of advanced technologies such as 3-D seismic and horizontal drilling and
a conservative capital structure supportive of continued investment in its core
properties as well as additional acquisitions.
The Company has recently agreed to acquire (the "Pending Acquisition") the oil
and gas properties (the "Acquired Properties") and associated working capital
owned by partnerships and other entities (the "Sellers") managed or sponsored
by Torch Energy Advisors Incorporated ("Torch"). Bellwether believes that the
Pending Acquisition provides the opportunity to significantly increase reserves
and cash flow at an attractive price while providing opportunities for future
reserve growth through exploitation and exploration activities. On a pro forma
basis, Bellwether's estimated net proved reserves as of June 30, 1996 were 46.6
MMBOE (86% developed and 62% natural gas) with a PV-10 Value (pre-tax) of $260.1
million. Pro forma average daily net production was 22.7 MBOE/d for fiscal 1996
and pro forma EBITDA for fiscal 1996 was $74.9 million, excluding non-recurring
gas contract settlements payable to the Company aggregating $18.9 million.
Following the Pending Acquisition, the Company's properties will be concentrated
in Texas, Louisiana, Alabama, California and the Gulf of Mexico.
BUSINESS STRATEGY
Bellwether's strategy is to maximize long-term shareholder value through
aggressive growth in reserves and cash flow using advanced technologies,
implementation of a low cost structure and maintenance of a capital structure
supportive of growth. Bellwether expects the additional cash flows from the
Acquired Properties will finance a significant portion of its growth strategy.
Key elements of this strategy are:
OPPORTUNISTIC ACQUISITIONS. Bellwether seeks to acquire properties that have
produced significant quantities of oil and gas and have upside potential which
can be exploited using 3-D seismic, computer aided exploration ("CAEX"),
horizontal drilling, workovers and other enhanced recovery techniques. Such
acquisitions have included the Fausse Pointe field in south Louisiana, the Cove
field offshore Texas and the Fort Trinidad field in east Texas.
EXPLOITATION AND DEVELOPMENT OF PROPERTIES. The Company actively pursues the
exploitation of its properties through recompletions, waterfloods and
development wells, including horizontal drilling. Examples of recent
exploitation successes include a five well workover program and two development
wells in the Cove field, which increased Bellwether's average net production in
this field from 1.0 MMcf/d in January 1996 to 11.1 MMcf/d in February 1997. In
addition, the Company recently drilled a successful horizontal development well
into the Buda
4
<PAGE>
formation in the Fort Trinidad field which tested in January 1997 at 420 Bbls/d
of oil. Bellwether also initiated a waterflood project in the Fort Trinidad
field during fiscal 1996. Future planned exploitation projects include in excess
of 20 horizontal drilling locations in the Buda and Glen Rose B formations in
the Fort Trinidad field and up to three horizontal drilling locations to exploit
the Company's exploratory success in the Giddings field in the Austin Chalk
formation. In addition, because the Sellers were formed to distribute net cash
flows rather than reinvest in the exploitation of the Acquired Properties, the
Company believes that such properties will provide significant exploitation and
development opportunities. The Company's exploitation budget for fiscal 1997 is
$8.6 million, of which approximately $4.8 million had been spent as of December
31, 1996. During fiscal 1997, the capital expenditures on the Acquired
Properties are estimated to be $23.2 million of which $5.7 million had been
spent as of December 31, 1996. For fiscal 1998, the Company has identified
exploitation projects totaling $25.2 million (including amounts to be spent on
the Acquired Properties).
EXPLORATION ACTIVITIES. The Company's exploration activities focus on projects
with potential for substantial reserve increases. In January 1997, the Company
completed a successful exploration well in the Austin Chalk formation in the
Giddings field in central Texas. Exploration projects in the remainder of fiscal
1997 and in fiscal 1998 include multiple wells in the Fausse Pointe field and an
exploration well west of the Cove field, both of which are operated by the
Company. In addition, the Company also expects the Acquired Properties to
present exploration opportunities. For example, in the Ship Shoal complex in the
Gulf of Mexico, the Sellers declined to acquire available 3-D seismic surveys
and to participate in six offshore exploration or exploitation wells in 1996,
all of which were successful. The Company plans to acquire this and other 3-D
seismic surveys of the Acquired Properties and to participate in future wells
based on its interpretation of the data. During fiscal 1997, the Company has
budgeted $4.8 million for exploration, of which $2.1 million had been spent as
of December 31, 1996. For fiscal 1998, the Company has identified exploration
projects totaling $17.6 million (including amounts to be spent on the Acquired
Properties).
ADVANCED TECHNOLOGY. The Company seeks to improve the efficiency and reduce the
risks associated with its exploration and exploitation activities using advanced
technologies. These advanced technologies include 3-D seismic, CAEX techniques
and horizontal drilling. The Company acquired a 3-D survey on the Cove field,
conducted a 3-D survey on the Fausse Pointe field and plans to acquire three 3-D
surveys on certain of the Acquired Properties. The Company believes its existing
properties and the Acquired Properties will benefit from the application of
advanced technologies.
TORCH RELATIONSHIP. The Company operates under an Administrative Services
Agreement with Torch. Torch has a staff of 39 geologists, geophysicists,
reservoir engineers and landmen and 59 financial personnel and professionals.
The Company believes that its relationship with Torch provides it with access to
acquisition opportunities and financial and technical expertise that are
generally only available to significantly larger companies. In addition, the
fees payable to Torch reduce significantly on a BOE basis as the Company's asset
base and production grow.
LOW COST STRUCTURE. The Company's cost structure will benefit from the Pending
Acquisition and the Company believes that its larger asset and production base
will allow it to maintain a low cost structure prospectively. Because general
and administrative costs are spread over higher production, pro forma general
and administrative costs per BOE in fiscal 1996 and the six months ended
December 31, 1996 were $1.01 and $0.99, respectively, compared with $2.55 and
$2.37, respectively, on a historical basis.
5
<PAGE>
PENDING ACQUISITION
In March 1997, the Company agreed to purchase the Acquired Properties and an
estimated $18.0 million of working capital for $188.3 million, plus a contingent
payment of up to $9.0 million, the actual amount of which will be based on 1997
gas prices (the "Contingent Payment"). The effective date of the Pending
Acquisition is July 1, 1996 and the estimated net adjusted purchase price
assuming an April 8, 1997 closing date is $141.9 million plus the Contingent
Payment. As of June 30, 1996, estimated net proved reserves attributable to the
Acquired Properties were 39.2 MMBOE (89% developed and 59% gas) with a PV-10
Value (pre-tax) of $212.0 million.
The Company will finance the cash portion of the Pending Acquisition and related
fees, estimated to aggregate $173.8 million, including repayment of an estimated
$12.0 million of existing indebtedness with the proceeds of the Offerings
(estimated to be $144.6 million) and $29.3 million of borrowings under its new
credit facility ("New Credit Facility"). Torch and a subsidiary of Torchmark
Corporation ("Torchmark"), the parent corporation of a Selling Stockholder,
have interests in the Acquired Properties and will receive an estimated $18.0
million and $12.7 million, respectively, of the purchase price paid for the
Acquired Properties. Torch and Torchmark will also receive fees payable in cash
and Common Stock in connection with the Pending Acquisition aggregating an
estimated $3.3 million. See "Risk Factors -- Conflicts of Interest" and
"Transactions with Related Persons." The Pending Acquisition will close
simultaneously with the Offerings, except that Bellwether has agreed to acquire
the interest of one investor which owns less than $2.2 million of properties on
April 15, 1997. See "Business and Properties -- Structure of the Pending
Acquisition."
The Company has identified for divestiture non-core properties representing
approximately 10% of the estimated net proved reserves attributable to the
Acquired Properties as of June 30, 1996. These properties are primarily small
working interests in geographically diverse locations, with generally low
production rates and cash flows, and limited potential for development. The
Company expects to sell these properties during fiscal 1997 and fiscal 1998. The
net proceeds from these divestitures, which will be used to repay indebtedness,
are currently estimated to be $15 million, but will depend on prevailing market
conditions at the time of sale.
The Company's address is 1331 Lamar, Suite 1455, Houston, TX 77010, and its
phone number is (713) 650-1025.
6
<PAGE>
THE NOTES OFFERING
<TABLE>
<CAPTION>
<S> <C>
SECURITIES OFFERED................... $100,000,000 principal amount of % Senior Subordinated Notes due
2007.
MATURITY DATE........................ 2007.
INTEREST PAYMENT DATES............... Interest on the Notes will be payable semi-annually in arrears on
and of each year, commencing , 1997.
OPTIONAL REDEMPTION.................. The Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after , 2002 at the
redemption prices set forth herein, together with accrued and unpaid
interest, if any, to the date of redemption.
RANKING.............................. The Notes will be general unsecured senior subordinated obligations
of the Company which will be subordinated in right of payment to all
existing or future senior indebtedness of the Company, pari passu
with all existing and future senior subordinated indebtedness of the
Company, and senior in right of payment to all future subordinated
indebtedness of the Company. As of December 31, 1996, on a pro forma
basis after giving effect to the Transactions, the Company and its
restricted subsidiaries would have had approximately $28.3 million of
indebtedness that effectively would rank senior to the Notes. Subject
to certain limitations set forth in the Indenture, the Company and
its subsidiaries may incur additional Indebtedness. See
"Capitalization," "Description of the Notes" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
GUARANTEE............................ The Notes will be initially guaranteed (the "Subsidiary Guarantee")
by Odyssey Petroleum Company (the "Subsidiary Guarantor"), a
subsidiary of the Company. The Subsidiary Guarantee will be a general
unsecured senior subordinated obligation of the Subsidiary Guarantor
and will be subordinated in right of payment to all existing or
future senior indebtedness of the Subsidiary Guarantor, PARI PASSU
with all existing and future senior subordinated indebtedness of the
Subsidiary Guarantor, and senior in right of payment to all future
subordinated indebtedness of the Subsidiary Guarantor. The Subsidiary
Guarantee may be released under certain circumstances. See
"Description of the Notes--Senior Subordinated Guarantee of Notes."
CERTAIN COVENANTS.................... The Indenture pursuant to which the Notes will be issued (the
"Indenture") will contain certain covenants, including, without
limitation, covenants with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on restricted payments;
(iii) limitation on transactions with affiliates; (iv) limitation on
liens; (v) limitation on guarantees of indebtedness by subsidiaries;
(vi) limitation on dividends and other payment restrictions affecting
restricted subsidiaries; (vii) limitation on issuances and sales of
restricted subsidiary stock; (viii) limitation on the disposition of
proceeds of asset sales; and (ix) restrictions on mergers,
consolidations or sales of assets. See "Description of the
Notes--Certain Covenants."
7
<PAGE>
MANDATORY OFFERS TO PURCHASE......... Upon a Change of Control (as defined herein), each holder of the
Notes may require the Company to purchase all or a portion of such
holder's Notes at a purchase price equal to 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to
the date of purchase. See "Description of the Notes--Certain
Definitions." In the event of certain asset dispositions, the
Company will be required to make an offer to purchase the Notes at
100% of the principal amount thereof, together with accrued and
unpaid interest, if any, to the date of purchase. See "Description
of the Notes--Repurchase at the Option of the Holders--Change of
Control" and "--Asset Sales."
COMMON STOCK OFFERING................ Concurrent with the Notes Offering, the Company and Selling
Stockholders are offering 4,400,000 and 475,000 shares of Common
Stock, respectively, for sale to the public. The Company will not
receive any proceeds from the sale of Common Stock by the Selling
Stockholders in the Common Stock Offering. The consummation of the
Notes Offering and the Common Stock Offering are contingent upon each
other and upon the Pending Acquisition.
USE OF PROCEEDS...................... The Company will use the net proceeds from the Notes Offering and the
Common Stock Offering, together with bank borrowings under the New
Credit Facility, to finance the cash portion of the Pending
Acquisition, to repay bank borrowings under the Company's existing
credit facility and to pay transaction costs. See "Use of
Proceeds."
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of certain matters that should be
considered in evaluating an investment in the Notes.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables set forth summary historical financial data of the Company
for the three fiscal years ended June 30, 1996, and the six months ended
December 31, 1995 and 1996, as well as summary unaudited pro forma financial
data of the Company for the fiscal year ended June 30, 1996 and the six months
ended December 31, 1996. Pro forma statement of operations data give effect to
the Transactions as if they occurred on June 30, 1995 and pro forma balance
sheet data give effect to the Transactions as if they occurred on December 31,
1996. The unaudited financial information as of December 31, 1996, and for the
six months ended December 31, 1995 and 1996 has been prepared by the Company in
accordance with generally accepted accounting principles and reflects all
adjustments (consisting of normal recurring adjustments) necessary for a fair
statement, in all material respects, of the results for the interim periods
presented. Certain financial statement items in the interim 1995 period have
been reclassified to conform to the interim 1996 presentation. The unaudited pro
forma financial data are not necessarily indicative of the financial results
that would have occurred had the Transactions been effective on and as of the
dates indicated and should not be viewed as indicative of operations in future
periods. These data should be read in conjunction with "Capitalization,"
"Unaudited Pro Forma Condensed Consolidated Financial Data," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
ACTUAL PRO FORMA ACTUAL PRO FORMA
1994 1995 1996 1996 1995 1996 1996
--------- -------- -------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS
STATEMENT OF OPERATIONS DATA:
Revenues:
Gas revenues.................... $ 2,620 $ 4,864 $ 9,856 $ 63,765 $ 4,186 $ 6,759 $34,418
Oil revenues.................... 1,086 3,643 5,810 48,111 2,956 3,087 24,619
Gas plant and gas gathering
revenues(a)................... 6,930 10,705 8,719 8,802 4,923 3,879 3,881
Interest income and other....... 63 97 116 20,291 (b) 57 53 393(b)
--------- -------- -------- --------- --------- ------- ---------
Total revenues..................... 10,699 19,309 24,501 140,969 12,122 13,778 63,311
--------- -------- -------- --------- --------- ------- ---------
Expenses:
Operating expenses.............. 5,307 8,934 10,502 38,644 5,453 4,888 19,394
General and administrative
expenses...................... 1,234 2,739 3,013 8,362 1,559 1,452 3,439
Depreciation, depletion and
amortization.................. 2,489 5,269 8,148 42,969 3,866 4,167 18,299
Interest expense................ 721 1,245 1,657 12,664 956 520 6,557
Other expense................... -- -- 153 153 155 -- --
--------- -------- -------- --------- --------- ------- ---------
Total expenses..................... 9,751 18,187 23,473 102,792 11,989 11,027 47,689
--------- -------- -------- --------- --------- ------- ---------
Income before income taxes and
minority interest in gas plant
ventures........................ 948 1,122 1,028 38,177 133 2,751 15,622
Net income......................... $ 814 $ 941 $ 982 $ 24,387 $ 1 $ 1,733 $ 9,842
========= ======== ======== ========= ========= ======= =========
Net income per share(c).............. $ 0.27 $ 0.12 $ 0.11 $ 1.79 $ 0.00 $ 0.19 $ 0.72
========= ======== ======== ========= ========= ======= =========
Weighted average common and common
equivalent shares outstanding(c)... 3,006 7,713 9,052 13,602 9,045 9,118 13,668
========= ======== ======== ========= ========= ======= =========
OTHER FINANCIAL DATA:
Capital expenditures............... $ 22,034 $ 41,901 $ 6,999 -- $ 1,174 $ 7,475 --
EBITDA(d).......................... $ 4,158 $ 7,636 $ 10,833 $ 74,943 (e) $ 4,955 $ 7,438 $40,602(e)
EBITDA/interest expense............ 5.77 6.13 6.54 5.92 5.18 14.30 6.19
Net cash flows provided by
operating activities............ $ 3,122 $ 5,283 $ 7,485 -- $ 3,496 $ 7,105 --
Net cash flows (used in) provided
by investing activities......... $ (9,423) $(27,289) $ 3,542 -- $ (1,174) $(5,810) --
Net cash flows provided by (used
in) by financing activities..... $ 7,334 $ 21,642 $(11,332) -- $ (1,000) $(1,628) --
Ratio of earnings to fixed
charges(f)...................... 2.31 1.90 1.62 4.01 1.14 6.29 3.38
</TABLE>
9
<PAGE>
------------------------
DECEMBER 31, 1996
ACTUAL PRO FORMA
------------------------
BALANCE SHEET DATA:
Working capital................. $ 4,357 $ 22,393
Total assets.................... 68,982 240,122
Long term debt, net of current
maturities..................... 11,000 128,251
Stockholders' equity............ 48,751 92,215
- -----------------------------
(a) In March 1996 Bellwether assumed a contract to purchase gas at $4.50 per
MMBtu (the "Contract Assumption"), for which Bellwether received $9.9
million. As a result of this transaction, Bellwether ceased to recognize gas
gathering revenues and expenses. Historical gas gathering revenues were $2.4
million, $5.0 million and $3.4 million, respectively, for the years ended
June 30, 1994, 1995 and 1996, and $2.5 million for the six months ended
December 31, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- Six Months
Ended December 31, 1995 Compared With December 31, 1996 -- Revenues."
(b) Includes $18.9 million and $(124,000), respectively, of revenues and
expenses attributable to non-recurring gas contract settlements for the year
ended June 30, 1996 and the six months ended December 31, 1996.
(c) Restated to reflect a 1-for-8 reverse stock split consummated in fiscal
1994.
(d) EBITDA is defined as income before income taxes, interest, depreciation,
depletion and amortization. Management of the Company believes that EBITDA
may provide additional information about the Company's ability to meet its
future requirements for debt service, capital expenditures and working
capital. EBITDA is a financial measure commonly used in the Company's
industry and should not be considered in isolation or as a substitute for
net income, cash flow provided by operating activities or other income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of the Company's profitability or liquidity.
(e) Pro forma EBITDA for the year ended June 30, 1996 and for the six months
ended December 31, 1996 exclude $18.9 million and $(124,000), respectively,
of revenues and expenses attributable to non-recurring gas contract
settlements.
(f) For purposes of computing the ratio of earnings to fixed charges,
"Earnings" are consolidated earnings (loss) from continuing operations
before tax, exclusive of the period's undistributed equity earnings of
affiliated companies, plus fixed charges. "Fixed charges" are comprised of
interest on indebtedness, amortization of debt issuance costs and that
portion of capital lease expense which is deemed to be representative of an
interest factor.
10
<PAGE>
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, SIX MONTHS ENDED DECEMBER 31,
1994 1995 ACTUAL PRO FORMA 1995 ACTUAL PRO FORMA
1996 1996(A) 1996 1996(B)
--------- --------- -------------------- --------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PRODUCTION DATA:
Oil (MBbls)........................ 71 216 334 3,124 184 143 1,302
Gas (MMcf)......................... 1,206 2,932 5,099 31,080 2,428 2,814 12,962
Oil equivalent (MBOE).............. 272 705 1,184 8,304 589 612 3,462
AVERAGE SALES PRICE(C):
Oil (per Bbl)...................... $ 15.27 $ 16.89 $17.81 $15.40 $ 16.04 $21.59 $18.91
Gas (per Mcf)(d)................... 2.17 1.66 2.02 2.05 1.72 2.40 2.66
COSTS PER BOE:
Production costs, including ad
valorem and severance taxes..... $ 4.75 $ 4.05 $ 4.49 $ 4.03 $ 4.16 $ 5.00 $ 5.07
Depreciation, depletion and
amortization 5.71 5.52 5.86 4.90 5.39 6.09 5.00
General and administrative......... 4.54 3.89 2.55 1.01 2.65 2.37 0.99
GAS PLANT DATA:
Net gas processed (MMcf)........... 10,746 8,780 7,548 7,548 3,679 3,172 3,172
Net NGL sales (MBbls).............. 375 382 321 321 158 173 173
Average sales price per Bbl........ $ 10.50 $ 12.18 $13.02 $13.02 $ 11.72 $18.10 $18.10
</TABLE>
- -----------------------------
(a) Gives effect to the Transactions as if they had occurred on June 30, 1995.
(b) Gives effect to the Transactions as if they had occurred on June 30, 1996.
(c) Average sales price does not include the effect of hedge transactions.
(d) Average sales price for natural gas includes revenues received from the sale
of natural gas liquids removed from the Company's gas production.
The following table sets forth historical reserve information derived from
reserve reports prepared by the Company's independent reserve engineers and pro
forma reserve information derived from such reserve reports together with a
reserve report regarding the Acquired Properties prepared by the Company and
audited by Ryder Scott.
SUMMARY RESERVE DATA
--------------------------------------------
AS OF JUNE 30,
1994 1995 ACTUAL PRO FORMA
1996 1996(A)
-------- --------- -----------------------
ESTIMATED NET PROVED RESERVES:
Oil (MBbls)....................... 393 2,597 1,808 17,858
Gas (MMcf)........................ 10,671 30,159 33,196 172,253
Oil equivalent (MBOE)............. 2,172 7,623 7,341 46,567
PV-10 Value (pre-tax) ($000)...... 12,044 37,291 48,140 260,132
Standardized measure of discounted
future net cash flows
(after-tax) ($000)............. 12,044 37,291 45,176 223,262
- -----------------------------
(a) Gives effect to the Transactions as if they had occurred on June 30, 1995.
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RISK FACTORS
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 FACT INCLUDED IN THIS PROSPECTUS,
INCLUDING WITHOUT LIMITATION, STATEMENTS UNDER "PROSPECTUS SUMMARY,"
"UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS AND PROPERTIES" REGARDING THE COMPANY'S FINANCIAL POSITION,
ESTIMATED QUANTITIES AND NET PRESENT VALUES OF RESERVES, BUSINESS STRATEGY,
PLANS AND OBJECTIVES FOR FUTURE OPERATIONS AND COVENANT COMPLIANCE, ARE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS
UPON WHICH SUCH FORWARD-LOOKING STATEMENTS ARE BASED ARE REASONABLE, IT CAN GIVE
NO ASSURANCES THAT SUCH ASSUMPTIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED BELOW AND ELSEWHERE IN
THIS PROSPECTUS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED BY THE CAUTIONARY STATEMENTS. PROSPECTIVE PURCHASERS OF SECURITIES
OFFERED HEREBY SHOULD CAREFULLY CONSIDER, TOGETHER WITH OTHER INFORMATION IN
THIS PROSPECTUS, THE FOLLOWING FACTORS THAT AFFECT THE COMPANY.
VOLATILITY OF OIL AND GAS PRICES AND MARKETS
The Company's financial condition, operating results, future growth and the
carrying value of its oil and gas properties are substantially dependent on
prevailing prices of oil and gas. The Company's ability to maintain or increase
its borrowing capacity and to obtain additional capital on attractive terms is
also substantially dependent upon oil and gas prices. Prices for oil and gas are
subject to large 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 control of the Company. These factors include
weather conditions in the United States, the condition of the United States
economy, the actions of the Organization of Petroleum Exporting Countries,
governmental regulation, political stability in the Middle East and elsewhere,
the foreign supply of oil and gas, the price of foreign imports and the
availability of alternate fuel sources. Any substantial and extended decline in
the price of oil or gas would have an adverse effect on the Company's carrying
value of its proved reserves, its borrowing capacity, its ability to obtain
additional capital, and its revenues, profitability and cash flows.
Volatile oil and gas prices make it difficult to estimate the value of producing
properties in connection with acquisitions and often cause disruption in the
market for oil and gas producing properties, as buyers and sellers have
difficulty agreeing on such value. Price volatility also makes it difficult to
budget for and project the return on acquisitions and exploitation, development
and exploration projects.
The availability of a ready market for the Company's oil and natural gas
production also depends on a number of factors, including the demand for and
supply of oil and natural gas and the proximity of reserves to, and the capacity
of, oil and natural gas gathering systems, pipelines or trucking and terminal
facilities. Wells may temporarily be shut-in for lack of a market or due to
inadequacy or unavailability of pipeline or gathering system capacity.
ABILITY TO REPLACE RESERVES
The Company's future performance depends upon its ability to find, develop and
acquire additional oil and gas reserves that are economically recoverable. The
proved reserves of Bellwether will generally decline as reserves are depleted.
The Company therefore must locate and develop or acquire new oil and gas
reserves to replace those being depleted by production. Because the Company's
reserves on a pro forma basis are characterized by relatively rapid decline
rates, without successful exploration, development or acquisition activities,
the Company's revenues will decline rapidly. No assurances can be given that the
Company will be able to find and develop or acquire additional reserves at an
acceptable cost.
ACQUISITION RISKS
The Company's rapid growth in recent years has been attributable in significant
part to acquisitions of oil and gas properties. The Company expects to continue
to evaluate and, where appropriate, pursue acquisition opportunities on terms
management considers favorable to the Company. There can be no assurance that
suitable acquisition candidates will be identified in the future, or that the
Company will be able to finance such acquisitions on favorable terms. In
addition, the Company competes against other companies for acquisitions, and
there can be no assurances that the Company will be successful in the
acquisition of any material property interests. Further, there can be no
assurances that any future acquisitions made by the Company will be integrated
successfully into the Company's operations or will achieve desired profitability
objectives.
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The successful acquisition of producing properties requires an assessment of
recoverable reserves, exploration and exploitation potential, future oil and
natural gas prices, operating costs, potential environmental and other
liabilities and other factors beyond the Company's control. In connection with
such an assessment, the Company performs a review of the properties that it
believes to be generally consistent with industry practices. Nonetheless, the
resulting assessments are necessarily inexact and their accuracy inherently
uncertain, and such a review may not reveal all existing or potential problems,
nor will it necessarily permit the Company to become sufficiently familiar with
the properties to fully assess their merits and deficiencies. Inspections may
not always be performed on every well, and structural and environmental problems
are not necessarily observable even when an inspection is undertaken. In
addition, sellers of properties may be unwilling or financially unable to
indemnify the Company for known liabilities at the time of an acquisition.
Additionally, significant acquisitions can change the nature of the operations
and business of the Company depending upon the character of the acquired
properties, which may be substantially different in operating and geologic
characteristics or geographic location than existing properties. While the
Company's pro forma operations will be focused in Texas, Louisiana, Alabama,
California and the Gulf of Mexico, there is no assurance that the Company will
not pursue acquisitions or properties located in other geographic areas.
In connection with the Pending Acquisition, Bellwether will assume or otherwise
become liable for all obligations with respect to operations of the Acquired
Properties, including environmental and operational liabilities, unknown
liabilities, and liabilities arising prior to the closing date.
DRILLING RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive 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
natural gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain and cost overruns are common.
The Company's drilling operations may be curtailed, delayed or canceled as a
result of numerous factors, many of which are beyond the Company's control,
including title problems, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of equipment and services.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital expenditures
for the exploitation, exploration, acquisition and production of oil and gas
reserves. Historically, the Company has financed these expenditures primarily
with cash generated by operations, proceeds from bank borrowings and sales of
its Common Stock. The Company believes that it will have sufficient cash flows
provided by operating activities, the proceeds of the Offerings and borrowings
under the New Credit Facility to fund such planned capital expenditures. If
revenues or the Company's borrowing base decrease as a result of lower oil and
gas prices, operating difficulties or declines in reserves, the Company may have
limited ability to expend the capital necessary to undertake or complete future
drilling programs. There can be no assurance that additional debt or equity
financing or cash generated by operations will be available to meet these
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Capital Resources and Liquidity."
SIGNIFICANT LEVERAGE AND DEBT SERVICE
Following the Pending Acquisition and the Offerings, the Company will be highly
leveraged with pro forma outstanding indebtedness of $129.3 million. On a pro
forma basis, as of December 31, 1996, the Company's ratio of total debt to total
capitalization would have been 58.2% compared with 18.4% on a historical basis.
The Company intends to sell properties, for estimated proceeds of $15 million,
to reduce such indebtedness. The Company has not identified a purchaser for
these properties and no assurance can be given of the ability of the Company to
sell such properties, the price that will be received or as to whether the sales
price of such assets will exceed the book value of such assets.
The Company's level of indebtedness will have several important effects on its
future operations, including (i) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of interest on its
indebtedness and will not be available for other purposes, (ii) covenants
contained in the Company's debt obligations will require the Company to meet
certain financial tests, and other restrictions will limit its ability to borrow
additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in its business, including
possible acquisition activities and (iii) the Company's ability to obtain
financing in the future for working
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<PAGE>
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired. The Company's ability to meet its debt service
obligations and to reduce its total indebtedness will be dependent upon the
Company's future performance, which will be subject to general economic
conditions and to financial, business and other factors affecting the operations
of the Company, many of which are beyond its control. There can be no assurance
that the Company's future performance will not be adversely affected by such
economic conditions and financial, business and other factors. See
" -- Volatility of Oil and Gas Prices and Markets," "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity."
ADMINISTRATIVE SERVICES AGREEMENT; RELIANCE ON TORCH
The Company currently has eight employees. The Company is party to an
Administrative Services Agreement with Torch, pursuant to which Torch performs
certain administrative and technical functions for the Company, including
financial, accounting, legal, geological, engineering and technical support. The
Company believes that its relationship with Torch provides the Company with
access to professional, technical and administrative personnel not otherwise
available to a company of its size. Bellwether believes that if the
Administrative Services Agreement were terminated Bellwether could, over time,
hire experienced personnel and acquire the accounting and reporting systems and
other assets necessary to replace Torch. However, the unanticipated termination
of the Administrative Services Agreement could have a material adverse effect
upon the Company. The Administrative Services Agreement may be terminated by
Bellwether upon one year's prior notice and may not be terminated by Torch prior
to December 31, 1999. See "Transactions with Related Persons -- Relationship
with Torch and Affiliates."
CONFLICTS OF INTEREST
Torch and Bellwether have a common director and certain common officers. Certain
members of the Boards of Directors and management of Torch and Bellwether were
therefore subject to conflicts of interest in connection with negotiating or
approving the terms of the Pending Acquisition and the fees to be received by
Torch in connection with the Pending Acquisition. In addition, under the
Administrative Services Agreement, Bellwether relies on Torch to perform title,
environmental, operational and other due diligence reviews of acquisition
prospects, and Bellwether does not have personnel to independently perform all
of these functions in connection with the acquisition of the Acquired
Properties. Bellwether therefore relied on Torch to perform certain of these
functions in connection with the Pending Acquisition.
Torch owns interests in each of the Sellers, and will receive an estimated $18.0
million of the purchase price paid in connection with the Pending Acquisition.
Torch will also receive 150,000 shares of Common Stock and warrants to purchase
an aggregate of 100,000 shares of Common Stock at 120% of the price to the
public in the Common Stock Offering at any time for five years following the
closing of the Pending Acquisition as fees for advisory services in connection
with the Pending Acquisition.
Torchmark, which prior to the Offerings beneficially owned interests in certain
of the Sellers, will receive an estimated $12.7 million of the purchase price
paid in connection with the Pending Acquisition. In connection with the Pending
Acquisition, Torchmark, Torch and all investors in the Sellers will settle
certain disagreements relating to fees and other amounts paid by the Sellers to
Torch for oil and gas marketing and sales of non-strategic properties. Pursuant
to an existing agreement with Torch, Torchmark will make a cash payment on
behalf of Torch to such investors in order to settle such disagreements.
Torchmark, Torch, such investors and their agents and affiliates will release
each other from any liability arising out of, or related to, among other things,
such matters. In connection with such settlement, Bellwether will pay Torchmark
$1.5 million and (as successor to the Sellers as a result of the Pending
Acquisition) also will be released by the investors from all such liabilities.
See "Transactions with Related Persons -- Pending Acquisition."
Bellwether formed a special committee of its Board of Directors (the "Special
Committee") composed of directors who are not employees of the Company and who
are not affiliated with Torch to consider and approve the terms of the
acquisition of the Acquired Properties and the fees paid to Torch. The Special
Committee retained legal counsel to advise it in connection with its duties, and
retained Ryder Scott to audit the reserve estimates prepared by Torch on behalf
of the Company in connection with the determination of the purchase price for
the Acquired Properties. In addition, the Special Committee retained Principal
Financial Securities, Inc. ("Principal") to advise it in connection with the
terms of the acquisition of the Acquired Properties. Principal is also an
underwriter in the Common Stock Offering. Principal issued its opinion that the
Pending Acquisition is fair to the Company from a financial point of view and
the Special Committee approved the terms of the purchase of the Acquired
Properties and fees payable to Torch prior to the execution of the definitive
agreement for the Pending Acquisition. No assurances can be made, however, that
the terms of the purchase of
14
<PAGE>
the Acquired Properties or the fees paid to Torch are as favorable to the
Company as the terms that would have been negotiated in a transaction between
persons who were not affiliates.
Torch also renders administrative services to Nuevo Energy Company, a publicly
traded independent oil and gas company ("Nuevo"), and may manage or render
management or administrative services for other energy companies in the future.
These services may include the review and recommendation of potential
acquisitions. It is possible that conflicts may occur between Nuevo and
Bellwether in connection with possible acquisitions or otherwise in connection
with the services rendered by Torch. Although the Administrative Services
Agreement provides for procedures to reconcile conflicts of interest between
Nuevo and the Company, no assurances can be made that such procedures will fully
protect the Company from losses which may occur if a conflict between the
Company and Nuevo arises. In addition, Nuevo and the Company have two common
directors. See "Transactions with Related Persons -- Relationship with Torch
and Affiliates."
ESTIMATES OF OIL AND GAS RESERVES
This Prospectus contains estimates of oil and gas reserves owned by the Company
on June 30, 1994, 1995 and 1996, and the future net cash flows attributable to
those reserves, prepared by independent petroleum engineers. In addition, the
Prospectus contains estimates of oil and gas reserves attributable to the
Acquired Properties, and the future net cash flows attributable to those
reserves, prepared by the Company and audited by Ryder Scott. There are numerous
uncertainties inherent in estimating quantities of proved reserves and cash
flows attributable to such reserves, including factors beyond the control of the
Company and the reserve engineers. Reserve engineering is a subjective process
of estimating underground accumulations of oil and gas that cannot be measured
in an exact manner. The accuracy of an estimate of quantities of reserves, or of
cash flows attributable to such reserves, is a function of the available data,
assumptions regarding future oil and gas prices and expenditures for future
development and exploitation activities, and of engineering and geological
interpretation and judgment. Additionally, reserves and future cash flows may be
subject to material downward or upward revisions based upon production history,
development and exploitation activities and prices of oil and gas. Actual future
production, revenue, taxes, development expenditures, operating expenses,
quantities of recoverable reserves and the value of cash flows from such
reserves may vary significantly from the assumptions and estimates set forth
herein. In addition, reserve engineers may make different estimates of reserves
and cash flows based on the same available data. In calculating reserves on a
MBOE basis, gas was converted to oil equivalent at the ratio of six Mcf of gas
to one Bbl of oil. While this ratio approximates the energy equivalency of gas
to oil on a Btu basis, it may not represent the relative prices received by the
Company on the sale of its oil and gas production.
The estimated quantities of proved reserves and the discounted present value of
future net cash flows attributable to estimated proved reserves set forth in
this Prospectus were prepared or audited by the reserve engineers in accordance
with the rules of the SEC, and are not intended to represent the fair market
value of such reserves.
HEDGING OF PRODUCTION
Part of the Company's business strategy is to reduce its exposure to the
volatility of oil and gas prices by hedging a portion of its production. In a
typical hedge transaction, the Company will have the right to receive from the
counterparty to the hedge, the excess of the fixed price specified in the hedge
over a floating price based on a market index, multiplied by the quantity
hedged. If the floating price exceeds the fixed price, the Company is required
to pay the counterparty this difference multiplied by the quantity hedged. In
such case, the Company is required to pay the difference regardless of whether
the Company has sufficient production to cover the quantities specified in the
hedge. Significant reductions in production at times when the floating price
exceeds the fixed price could require the Company to make payments under the
hedge agreements even though such payments are not offset by sales of
production. Hedging will also prevent the Company from receiving the full
advantage of increases in oil or gas prices above the fixed amount specified in
the hedge. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General."
OPERATING HAZARDS, OFFSHORE OPERATIONS AND UNINSURED RISKS
Bellwether's operations are subject to risks inherent in the oil and gas
industry, such as blowouts, cratering, explosions, uncontrollable flows of oil,
gas or well fluids, fires, pollution, earthquakes and environmental risks. These
risks 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. Moreover, a portion
of the Company's operations are offshore and therefore are subject to a variety
of operating risks peculiar to the marine environment, such as hurricanes or
other adverse weather conditions, to more extensive governmental regulation,
including
15
<PAGE>
regulations that may, in certain circumstances, impose strict liability for
pollution damage, and to interruption or termination of operations by
governmental authorities based on environmental or other considerations.
The Company's operations could result in liability for personal injuries,
property damage, oil spills, discharge of hazardous materials, remediation and
clean-up costs and other environmental damages. The Company could be liable for
environmental damages caused by previous property owners. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could have a material adverse effect on the
Company's financial condition and results of operations. The Company maintains
insurance coverage for its operations, including limited coverage for sudden
environmental damages, but does not believe that insurance coverage for
environmental damages that occur over time is available at a reasonable cost.
Moreover, the Company does not believe that insurance coverage for the full
potential liability that could be caused by sudden environmental damages is
available at a reasonable cost. Accordingly, the Company may be subject to
liability or may lose substantial portions of its properties in the event of
certain environmental damages.
ENVIRONMENTAL AND OTHER REGULATION
The Company's operations are subject to numerous laws and regulations governing
the discharge of materials into the environment or otherwise relating to
environmental protection. These laws and regulations require the acquisition of
a permit before drilling commences, restrict the types, quantities and
concentration of various substances that can be released into the environment in
connection with drilling and production activities, limit or prohibit drilling
activities on certain lands lying within wilderness, wetlands and other
protected areas, and impose substantial liabilities for pollution resulting from
the Company's operations. Moreover, the recent trend toward stricter standards
in environmental legislation and regulation is likely to continue. For instance,
legislation has been proposed in Congress from time to time that would
reclassify certain oil and gas exploration and production wastes as "hazardous
wastes" which would make the reclassified wastes subject to much more stringent
handling, disposal and clean-up requirements. If such legislation were to be
enacted, it could have a significant impact on the operating costs of the
Company, as well as the oil and gas industry in general. Initiatives to further
regulate the disposal of oil and gas wastes are also pending in certain states,
and these various initiatives could have a similar impact on the Company.
Management believes that the Company is in substantial compliance with current
applicable environmental laws and regulations.
The Oil Pollution Act of 1990 imposes a variety of regulations on "responsible
parties" related to the prevention of oil spills. The implementation of new, or
the modification of existing, environmental laws or regulations, including
regulations promulgated pursuant to the Oil Pollution Act of 1990, could have a
material adverse impact on the Company. See "Business and
Properties -- Competition, Markets and Regulation."
COMPETITION
The Company operates in the highly competitive areas of oil and gas exploration,
development and production. The Company's competitors include major integrated
oil and gas companies and substantial independent energy companies, many of
which possess greater financial and other resources than the Company. See
"Business and Properties -- Competition, Markets and Regulation."
MANDATORY OFFER TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL
The Indenture governing the Notes provides that upon the occurrence of a Change
of Control the Company is required to offer to repurchase any or all of the
outstanding Notes at a price equal to 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase. Generally, a "Change of Control" includes (i) the acquisition
(including any acquisition by merger or consolidation) by any person or group of
more than 50% of the voting stock of the Company, (ii) the sale or transfer of
substantially all of the assets of the Company, (iii) certain replacements of a
majority of the Board of Directors of the Company over a two-year period or (iv)
the liquidation or dissolution of the Company. Should a Change of Control occur,
there is no assurance that the Company will have available funds sufficient to
pay for the Notes tendered for repurchase. In the event an offer to repurchase
is required to be made and the Company does not have available funds sufficient
to pay for Notes tendered for repurchase, an event of default would occur under
the Indenture.
FRAUDULENT CONVEYANCE CONSIDERATIONS RELATING TO SUBSIDIARY GUARANTEE
The Company's obligations under the Notes will be guaranteed on an unsecured
senior subordinated basis by the Subsidiary Guarantor. Various fraudulent
conveyance laws have been enacted for the protection of creditors and may be
utilized by a court of competent jurisdiction to subordinate or avoid the
Subsidiary Guarantee issued by the Subsidiary
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<PAGE>
Guarantor. It is also possible that under certain circumstances a court could
hold that the direct obligations of the Subsidiary Guarantor could be superior
to the obligations under the Subsidiary Guarantee.
To the extent that a court were to find that (x) the Subsidiary Guarantee was
incurred by the Subsidiary Guarantor with the intent to hinder, delay or defraud
any present or future creditor or that the Subsidiary Guarantor contemplated
insolvency with a design to favor one or more creditors to the exclusion in
whole or in part of others or (y) the Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value for issuing the Subsidiary
Guarantee and at the time it issued the Subsidiary Guarantee, the Subsidiary
Guarantor (i) was insolvent by reason of the issuance of the Subsidiary
Guarantee, (ii) was engaged or about to engage in a business or transaction for
which the remaining assets of the Subsidiary Guarantor constituted unreasonably
small capital or (iii) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they matured, the court could avoid or
subordinate the Subsidiary Guarantee in favor of the Subsidiary Guarantor's
other creditors. Among other things, a legal challenge of the Subsidiary
Guarantee issued by the Subsidiary Guarantor on fraudulent conveyance grounds
may focus on the benefits, if any, realized by the Subsidiary Guarantor as a
result of the issuance by the Company of the Notes. To the extent the Subsidiary
Guarantee is avoided as a fraudulent conveyance or held unenforceable for any
other reason, the holders of the Notes would cease to have any claim in respect
of the Subsidiary Guarantor and would be creditors solely of the Company.
On the basis of financial information and other information currently available
to it, the Company believes that the Notes and the Subsidiary Guarantee issued
concurrently with the issuance of the Notes are being incurred for proper
purposes and in good faith and that, after giving effect to indebtedness
incurred in connection with the issuance of the Notes and the issuance of the
Subsidiary Guarantee, the Company and the Subsidiary Guarantor are solvent and
will continue to be solvent, will have sufficient capital for carrying on their
respective business and will be able to pay their debts as such debts as such
debts become absolute and mature. There can be no assurance, however, that a
court passing on such questions would reach the same conclusions. Furthermore,
there can be no assurance that such standards would be satisfied in the case of
any person that becomes a Subsidiary Guarantor after the date the Notes are
first issued, because a determination as to whether such standards would be
satisfied will depend upon, among other circumstances, the financial condition
of any such Subsidiary Guarantor at the time of the incurrence of its
obligations in respect of its Subsidiary Guarantee.
SUBORDINATION OF NOTES
The Indenture governing the Notes will limit, but will not prohibit, the
incurrence by the Company of additional indebtedness that is senior in right of
payment to the Notes (including by reason of structural subordination of the
Notes to the indebtedness and other liabilities of the Company's subsidiaries).
In the event of bankruptcy, liquidation, reorganization or other winding up of
the Company, the assets of the Company will be available to pay the Company's
obligations on the Notes offered hereby only after all Senior Indebtedness (as
defined) has been paid in full, and there may not be sufficient assets remaining
to pay amounts due on the Notes. In addition, under certain circumstances, no
payments may be made with respect to principal of, premium, if any, or interest
on the Notes if a default exists with respect to any Senior Indebtedness. See
"Description of Notes--Subordination."
ABSENCE OF A PUBLIC MARKET OF THE NOTES
There is no existing market for the Notes and there can be no assurance as to
the liquidity of any markets that may develop for the Notes, the ability of
holders of the Notes to sell their Notes or the price at which holders would be
able to sell their Notes. Future trading prices of the Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. The Company has been
advised by the Underwriters that, subject to applicable laws and regulations,
such firms currently intend to make a market in the Notes after the consummation
of the Notes Offering, although they are not obligated to do so and may
discontinue any market-making activities with respect to the Notes at any time
without notice. The Company does not intend to apply for listing of the Notes on
any securities exchange. See "Underwriting."
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COMMON STOCK OFFERING
Concurrently with this Notes Offering, the Company and Selling Stockholders are
offering 4,400,000 and 475,000 shares, respectively, of the Company's Common
Stock. The Company will not receive any proceeds from the sale of Common Stock
by the Selling Stockholders. The Notes Offering and the Common Stock Offering
are contingent upon each other and upon the closing of the Pending Acquisitions.
USE OF PROCEEDS
The proceeds to the Company from the Offerings (assuming an offering price of
$10 1/8 per share of Common Stock) are estimated to be approximately $144.6
million. The Company intends to use such proceeds, together with borrowings
under its New Credit Facility, to fund the Pending Acquisition and related fees,
estimated to be $173.8 million, including repayment of outstanding indebtedness
under its existing credit facility, estimated to be $12.0 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity." The closing of the Offerings
are conditioned upon the simultaneous closing of the Pending Acquisition.
As of December 31, 1996, $11.0 million was outstanding under the Company's
existing credit facility. The existing credit facility matures in October 2000.
Borrowings under the existing credit facility bear interest, at the election of
the Company, at floating rates based upon the bank's prime rate, the London
Interbank Offered Rate ("LIBOR") or the federal funds rate. The interest rate
on outstanding borrowings at December 31, 1996 was 6.4%.
Following the Offerings and the repayment of amounts outstanding under the
existing credit facility, the Company is expected to have approximately $60.7
million of available borrowing capacity under the New Credit Facility. See
"Description of New Credit Facility" for a discussion of the terms of the New
Credit Facility.
The following table sets forth the sources and uses of the estimated net
proceeds of the Offerings and borrowings under the Company's New Credit
Facility:
IN THOUSANDS
SOURCES:
Common Stock Offering........... $ 44,550
Notes Offering.................. 100,000
New Credit Facility............. 29,251
----------
Total...................... $ 173,801
==========
USES:
Pending Acquisition............. $ 141,904
Repay existing credit
facility....................... 12,000
Contingent Payment(a)........... 9,011
Payments to Torchmark........... 1,500
Fees and expenses(b)............ 9,386
----------
Total...................... $ 173,801
==========
- ------------------------------
(a) Represents the maximum amount of the Contingent Payment which will be
deposited in escrow at closing. The actual amount of the Contingent Payment
will be determined 30 days following the closing based on actual and future
gas prices in 1997. If the amount of the Contingent Payment is less than $9
million, the difference will be returned to the Company and used to reduce
borrowings under the New Credit Facility.
(b) Includes underwriting expenses associated with the Offerings.
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1996, the historical cash
position and capitalization of the Company and such cash position and
capitalization giving pro forma effect to the Transactions. See "Use of
Proceeds." This table should be read in conjunction with the "Unaudited Pro
Forma Condensed Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements, including the Notes thereto.
------------------------
DECEMBER 31, 1996
IN THOUSANDS, EXCEPT SHARE DATA HISTORICAL PRO FORMA
---------- ---------
Cash and cash equivalents............... $ 450 $ 529
========== =========
Current maturities of long-term debt.... $ -- $ --
========== =========
Long-term debt (excluding current
maturities)
% Senior Subordinated Notes... $ -- $100,000
Existing credit facility........... 11,000 --
New Credit Facility................ -- 28,251
Stockholders' equity:
Preferred Stock, $0.01 par value,
1,000,000 shares authorized,
none issued or outstanding....... -- --
Common Stock, $0.01 par value,
15,000,000 shares authorized,
9,152,979 shares issued and
outstanding, 13,702,979 shares
pro forma(a)(b).................. 92 137
Capital in excess of par value.......... 42,059 85,478
Retained earnings....................... 6,600 6,600
---------- ---------
Total stockholders' equity.............. 48,751 92,215
---------- ---------
Total capitalization.................... $ 59,751 $220,466
========== =========
- ------------------------------
(a) Excludes 1,115,325 shares of Common Stock issuable upon exercise of
incentive stock options currently outstanding, 187,500 shares of Common
Stock issuable upon exercise of warrants held by a subsidiary of Torchmark
(the "Torchmark Warrants"), and 60,000 shares of Common Stock issuable
upon exercise of warrants held by Howard, Weil, Labouisse, Friedrichs
Incorporated and Principal. In connection with the Common Stock Offering,
Bellwether and Torchmark have agreed that Torchmark will use 62,500 shares
issuable upon exercise of the Torchmark Warrants to pay a portion of the
exercise price of the warrants, such stock to be valued at the price to the
public in the Common Stock Offering. Accordingly, the maximum number of
shares of Common Stock issuable in connection with the Common Stock Offering
is 125,000. The subsidiary of Torchmark, which is a Selling Stockholder, has
granted the Underwriters an option to purchase 212,696 shares of Common
Stock solely to cover over-allotments, if any, including shares issuable
upon exercise of the Torchmark Warrants.
(b) Includes 150,000 shares of Common Stock to be issued to Torch for advisory
services rendered in connection with the Pending Acquisition. Excludes
100,000 shares of Common Stock issuable upon exercise of warrants to be
issued to Torch for such advisory services.
19
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited pro forma condensed consolidated balance sheet as of December 31,
1996 gives effect to the Transactions as if they occurred on December 31, 1996.
The unaudited pro forma condensed consolidated statements of operations for the
year ended June 30, 1996 and the six months ended December 31, 1996 give effect
to the Transactions as if they had occurred at the beginning of the periods
presented.
The following unaudited pro forma financial data have been included as required
by the rules of the SEC and are provided for comparative purposes only. The
unaudited pro forma financial data presented are based upon the historical
consolidated financial statements of Bellwether and the historical statement of
assets (other than productive oil and gas assets) and liabilities and the
related statements of revenues and direct operating expenses of the Acquired
Properties and should be read in conjunction with such financial statements and
the related notes thereto which are included elsewhere herein.
The pro forma financial data are based upon assumptions and include adjustments
as explained in the notes to the unaudited pro forma condensed consolidated
financial statements, and the actual recording of the transactions could differ.
The unaudited pro forma financial data are not necessarily indicative of the
financial results that would have occurred had the Transactions been effective
on and as of the dates indicated and should not be viewed as indicative of
operations in future periods.
20
<PAGE>
BELLWETHER EXPLORATION COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- UNAUDITED
<TABLE>
<CAPTION>
------------------------------------------------------------
AS OF DECEMBER 31, 1996
ADJUSTMENTS
FOR THE ADJUSTMENTS PRO FORMA
PENDING FOR THE FOR THE
HISTORICAL ACQUISITION FINANCING TRANSACTIONS
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
IN THOUSANDS
ASSETS
Current Assets:
Cash and cash equivalents....... $ 450 $(153,713)(a) $ 153,792(b) $ 529
Accounts and other
receivables................... 7,599 27,382(a) -- 34,981
Other........................... 586 -- -- 586
----------- ----------- ----------- ------------
Total current assets....... 8,635 (126,331) 153,792 36,096
----------- ----------- ----------- ------------
Oil and gas properties (full cost
method)............................ 83,473 129,508(a) -- 212,981
Gas plant facilities................. 12,843 -- -- 12,843
----------- ----------- ----------- ------------
96,316 129,508 -- 225,824
Accumulated depreciation, depletion
and amortization................... (36,561) -- -- (36,561)
----------- ----------- ----------- ------------
59,755 129,508 -- 189,263
Other................................ 592 9,011(a) 5,160(b) 14,763
----------- ----------- ----------- ------------
Total assets............... $ 68,982 $ 12,188 $ 158,952 $240,122
=========== =========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities................... $ 4,278 $ 9,425(a) $ -- $ 13,703
Current maturities of long term
debt.......................... -- -- -- --
----------- ----------- ----------- ------------
Total current
liabilities.............. 4,278 9,425 -- 13,703
----------- ----------- ----------- ------------
Other liabilities.................... 1,148 -- -- 1,148
Existing credit facility............. 11,000 -- (11,000)(b) --
New credit facility.................. -- -- 28,251(b) 28,251
Senior Subordinated Notes............ -- -- 100,000(b) 100,000
Deferred income taxes................ 3,805 1,000(a) -- 4,805
Stockholders' Equity................. 48,751 1,763(a) 41,701(b) 92,215
----------- ----------- ----------- ------------
Total liabilities and
Stockholders' equity..... $ 68,982 $ 12,188 $ 158,952 $240,122
=========== =========== =========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
21
<PAGE>
BELLWETHER EXPLORATION COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS -- UNAUDITED
<TABLE>
<CAPTION>
------------------------------------------------------------
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
ADJUSTMENTS
FOR THE ADJUSTMENTS PRO FORMA
PENDING FOR THE FOR THE
HISTORICAL ACQUISITION FINANCING TRANSACTIONS
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA
Revenues:
Oil and gas revenues............ $ 15,666 $ 96,210(c) $ -- $111,876
Gas plant and gas gathering
revenues...................... 8,719 83(c) -- 8,802
Interest and other income....... 116 20,175(c) -- 20,291
---------- ----------- ----------- ------------
Total revenues............. 24,501 116,468 -- 140,969
---------- ----------- ----------- ------------
Costs and Expenses:
Production expenses............. 5,317 28,142(c) -- 33,459
Gas plant and gas gathering
expenses...................... 5,185 -- -- 5,185
Depreciation, depletion and
amortization.................. 8,148 34,821(e) -- 42,969
General and administrative
expenses...................... 3,013 5,349(d) -- 8,362
Interest expense................ 1,657 -- 11,007(h) 12,664
Other expenses.................. 153 -- -- 153
---------- ----------- ----------- ------------
Total costs and expenses... 23,473 68,312 11,007 102,792
---------- ----------- ----------- ------------
Income before income taxes........... 1,028 48,156 (11,007) 38,177
Provision for income taxes........... 46 17,817(f) (4,073)(i) 13,790
---------- ----------- ----------- ------------
$ 982 $ 30,339 $ (6,934) $ 24,387
========== =========== =========== ============
Net income per share................. $ 0.11 $ 1.79
========== ============
Weighted average common and common
equivalent shares outstanding...... 9,052 150(g) 4,400(j) 13,602
========== =========== =========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
22
<PAGE>
BELLWETHER EXPLORATION COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS -- UNAUDITED
<TABLE>
<CAPTION>
----------------------------------------------------------
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
ADJUSTMENTS
FOR THE ADJUSTMENTS PRO FORMA
PENDING FOR THE FOR THE
HISTORICAL ACQUISITION FINANCING TRANSACTIONS
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA
Revenues:
Oil and gas revenues............ $ 9,846 $49,191(k) $-- $ 59,037
Gas plant revenues.............. 3,879 2(k) -- 3,881
Interest and other income....... 53 340(k) -- 393
---------- ----------- ----------- ------------
Total revenues............. 13,778 49,533 -- 63,311
---------- ----------- ----------- ------------
Costs and Expenses:
Production expenses............. 3,061 14,506(k) -- 17,567
Gas plant expenses.............. 1,827 -- -- 1,827
Depreciation, depletion and
amortization.................. 4,167 14,132(l) -- 18,299
General and administrative
expenses...................... 1,452 1,987(d) -- 3,439
Interest expense................ 520 -- 6,037(h) 6,557
---------- ----------- ----------- ------------
Total costs and expenses... 11,027 30,625 6,037 47,689
---------- ----------- ----------- ------------
Income before income taxes........... 2,751 18,908 (6,037) 15,622
Provision for income taxes........... 1,018 6,996(f) (2,234)(i) 5,780
---------- ----------- ----------- ------------
$ 1,733 $11,912 $(3,803) $ 9,842
========== =========== =========== ============
Net income per share................. $ 0.19 $ 0.72
========== ============
Weighted average common and common
equivalent shares outstanding...... 9,118 150(g) 4,400(j) 13,668
========== =========== =========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
23
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) To record the purchase of the Acquired Properties and working capital
pursuant to the transaction. The allocation of the pro forma purchase
price under the purchase method of accounting is presented in the tables
below.
The pro forma purchase price entries are as follows:
Purchase price....................... $ 188,348
Estimated purchase price adjustments,
including distributions of cash
flows from the Acquired Properties
from the effective date to the
assumed closing date of April 8,
1997............................... (46,444)
----------
141,904
Estimated acquisition fees:
Common stock issued to Torch
(150,000 shares @ $9.75)....... 1,463
Warrants issued to Torch
(100,000 shares exercisable
within five years @ 120% of the
offering price)................ 300
Payment to Torchmark............ 1,500
----------
3,263
Escrow of funds reserved for pricing
adjustments........................ 9,011
Legal and other acquisition costs.... 1,377
----------
Total purchase price................. $ 155,555
==========
Purchase allocation:
Acquisition costs allocated to
oil and gas properties......... $ 129,508
Working capital................. 18,036
Escrow account.................. 9,011
Deferred income taxes........... (1,000)
----------
Total purchase allocation....... $ 155,555
==========
(b) To record the effect of the financing transactions required to purchase
the Acquired Properties.
Senior credit facility............... $ 28,251
Senior subordinated notes............ 100,000
Common stock......................... 44
Additional paid in capital (assuming
an offering price of $10.125 for
the Common Stock).................. 41,657
Deferred financing costs............. (5,160)
Existing credit facilities........... (11,000)
----------
Cash received from the financing
transactions....................... $ 153,792
==========
(c) To reflect the historical consolidated operations of the Acquired
Properties for the fiscal year ended June 30, 1996. Certain additions and
deductions to revenues and expenses have been made to convert such
operations from a calendar year to the fiscal year ended June 30, 1996.
See "Statements of Assets Acquired (Other than Productive Oil and Gas
Properties) and Liabilities" and related "Statements of Revenues and
Direct Operating Expenses" included elsewhere in this Prospectus.
(d) To adjust general and administrative expenses including management fees to
give effect to the increase in the Torch fee pursuant to the
Administrative Services Agreement due to the acquisition of the Acquired
Properties. Annual general and administrative, production overhead and
direct general and administrative expenses will increase $750,000 and
$375,000 for the year ended June 30, 1996 and for the six months ended
December 31, 1996, respectively. Annual management fees will increase $4.6
million and $1.6 million for the year ended June 30, 1996 and for the six
months ended December 31, 1996, respectively, pursuant to the
Administrative Services Agreement.
General and administrative services are provided to Bellwether by Torch
for an annual fee based on (i) 1/12 of 2% per month of total assets
excluding cash, and (ii) 2.0% of operating cash flows (net income plus
depletion, depreciation and amortization and deferred income taxes).
Additionally, 20% of operator's overhead on wells operated by Torch are
credited to management fees.
24
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
(e) To adjust depreciation, depletion and amortization to give effect to the
acquisition of the Acquired Properties under the full cost method of
accounting to the amount which would have been recorded had the
acquisition of the Acquired Properties occurred at July 1, 1995. The pro
forma adjustment assumes a depreciation, depletion and amortization rate
per BOE of $4.90 for the year ended June 30, 1996 based upon depletable
costs of $268.8 million, including $51.9 million of future development
costs and plugging and abandonment costs, and proved reserves of 54.9
MMBOE at June 30, 1995.
(f) To adjust federal and state income taxes for the acquisition of the
Acquired Properties at Bellwether's effective rate of 37%.
(g) To increase the weighted average common shares outstanding for 150,000
shares of Common Stock to be issued to Torch for the acquisition of the
Acquired Properties.
(h) To adjust interest expense to give effect to the portion of the Acquired
Properties financed under the New Credit Facility and through issuance of
the Notes.
The pro forma interest expense related to the New Credit Facility was $2.4
million for the year ended June 30, 1996, including the amortization of
$1.0 million of deferred and other financing costs. The pro forma interest
expense related to the New Credit Facility was $1.2 million for the six
months ended December 31, 1996, including the amortization of $726,000 of
deferred and other financing costs. The New Credit Facility has an annual
interest rate of London Interbank Offered Rate ("LIBOR") plus 1.00%.
The pro forma interest related to the Notes was $9.8 million for the year
ended June 30, 1996, at an assumed interest rate of 9.5% and including the
amortization of $325,000 of deferred financing costs. The pro forma
interest expense related to the Notes was $4.9 million for the six months
ended December 31, 1996, at an assumed interest rate of 9.5% and including
amortization of $163,000 of deferred financing costs. The Notes mature in
2007. No principal payments are required prior to 2007.
(i) To reflect the decrease in income taxes resulting from additional interest
incurred as a result of the Offerings.
(j) To increase the weighted average common shares outstanding for issuance of
4,400,000 shares of Common Stock in the Common Stock Offering.
(k) To reflect the historical consolidated operations of the Acquired
Properties for the six months ended December 31, 1996. See "Statement of
Assets Acquired (Other than Productive Oil and Gas Properties) and
Liabilities" and the related "Statements of Revenues and Direct
Operating Expenses" included elsewhere in this Prospectus.
(l) To adjust depreciation, depletion and amortization to give effect to the
acquisition of the Acquired Properties under the full cost method of
accounting to the amount which would have been recorded had the
acquisition of the Acquired Properties occurred at July 1, 1996. The pro
forma adjustment assumes a depreciation, depletion and amortization rate
per BOE of $5.00 for the six months ended December 31, 1996 based upon
depletable costs of $232.9 million, including $48.3 million of future
development costs and plugging and abandonment costs, and proved reserves
of 46.6 MMBOE at June 30, 1996.
25
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURE
The following tables set forth certain unaudited pro forma information
concerning Bellwether's proved oil and gas reserves at June 30, 1996, giving
effect to the acquisition of the Acquired Properties as if they had occurred on
June 30, 1995. There are numerous uncertainties inherent in estimating the
quantities of proved reserves and projecting future rates of production and
timing of development expenditures. The following reserve data represent
estimates only and should not be construed as being exact. The proved oil and
gas reserve information is as of June 30, 1996 and reflects prices and costs in
effect as of such date.
RESERVES:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
OIL AND CONDENSATE (MBBLS) NATURAL GAS (MMCF) MBOE
------------------------------------ ------------------------------------ ----------
ACQUIRED ACQUIRED
BELLWETHER PROPERTIES PRO FORMA BELLWETHER PROPERTIES PRO FORMA BELLWETHER
---------- ----------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995................... 2,597 18,840 21,437 30,159 165,038 195,197 7,624
Extensions and discoveries.............. 89 89 7,128 7,128 1,277
Purchase of minerals in-place........... 4 4 176 176 33
Revision of previous estimates.......... (534) (534) 2,855 2,855 (58)
Production(a)........................... (334) (2,790) (3,124) (5,099) (25,981) (31,080) (1,184)
Sales of minerals in-place.............. (14) (14) (2,023) (2,023) (351)
---------- ----------- --------- ---------- ----------- --------- ----------
Balance, June 30, 1996.................. 1,808 16,050 17,858 33,196 139,057 172,253 7,341
========== =========== ========= ========== =========== ========= ==========
Proved developed reserves............... 1,494 13,536 15,030 22,698 128,242 150,940 5,277
========== =========== ========= ========== =========== ========= ==========
</TABLE>
ACQUIRED
PROPERTIES PRO FORMA
----------- ---------
Balance, July 1, 1995................... 46,346 53,970
Extensions and discoveries.............. -- 1,277
Purchase of minerals in-place........... -- 33
Revision of previous estimates.......... -- (58)
Production(a)........................... (7,120) (8,304)
Sales of minerals in-place.............. -- (351)
----------- ---------
Balance, June 30, 1996.................. 39,226 46,567
=========== =========
Proved developed reserves............... 34,910 40,187
=========== =========
- -----------------------------
(a) Excludes 253 MBbls of natural gas liquids which were produced in fiscal
1996.
STANDARD MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL &
GAS RESERVES:
-------------------------------------------
ACQUIRED
BELLWETHER PROPERTIES PRO FORMA
---------- ---------- ---------
IN THOUSANDS
Future cash inflows............... $113,554 $ 562,930 $676,484
Future production costs........... (33,131) (210,084) (243,215)
Future development costs.......... (8,961) (42,921) (51,882)
---------- ---------- --------
Future net inflows before income
taxes........................... 71,462 309,925 381,387
Income taxes...................... (11,095) (49,570) (60,665)
---------- ---------- --------
Future net cash flows............. 60,367 260,355 320,722
10% discount factor............... (15,191) (82,269) (97,460)
---------- ---------- --------
Standardized measure of discounted
future net cash flows........... $ 45,176 $ 178,086 $223,262
========== ========== ========
26
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
CHANGES TO STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO
PROVED
OIL AND GAS RESERVES:
----------------------------------------
ACQUIRED
BELLWETHER PROPERTIES PRO FORMA
----------- ----------- ----------
IN THOUSANDS
Standardized measure, June 30,
1995............................... $37,291 $ 207,418 $244,709
Sales, net of production
costs.......................... (10,349) (68,068) (78,417)
Purchases of reserves in
place.......................... 246 -- 246
Net changes in prices and
production costs............... 11,458 -- 11,458
Net changes in income taxes..... (2,958) -- (2,958)
Extensions, discoveries and
improved recovery, net of
future production and
development costs.............. 7,709 -- 7,709
Changes in estimated future
development costs.............. 497 -- 497
Development costs incurred
during the period.............. 883 -- 883
Revisions of quantity
estimates...................... (438) -- (438)
Accretion of discount........... 3,729 20,742 24,471
Sales of reserves in place...... (1,614) -- (1,614)
Changes in production rates and
other.......................... (1,278) 17,994 16,716
----------- ----------- ----------
Standardized measure, June 30,
1996............................... $45,176 $ 178,086 $223,262
=========== =========== ==========
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial data
with respect to the Company for the periods and as of the dates indicated. The
consolidated financial data and notes thereto for the two years ended June 30,
1993 were derived from the historical consolidated financial statements and
notes thereto of the Company which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants and such information for the three
years ended June 30, 1996 were derived from such statements and notes thereto
which have been audited by Deloitte & Touche LLP, independent auditors. The
consolidated financial data for the six months ended December 31, 1995 and 1996
have been derived from unaudited condensed consolidated financial statements,
which management believes includes all adjustments necessary to make a fair
presentation of the results for such unaudited interim periods. The Consolidated
Financial Statements of the Company and notes thereto for June 30, 1994, 1995
and 1996, and the six months ended December 31, 1995 and 1996 are included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA
STATEMENT OF OPERATIONS DATA:
Revenues:
Gas revenues..................... $ 1,528 $ 1,807 $ 2,620 $ 4,864 $ 9,856 $ 4,186 $ 6,759
Oil revenues..................... 1,246 1,708 1,086 3,643 5,810 2,956 3,087
Gas plant and gas gathering
revenues(a).................... 51 23 6,930 10,705 8,719 4,923 3,879
Interest income and other........ 82 116 63 97 116 57 53
--------- --------- --------- --------- --------- --------- ---------
Total revenues.............. 2,907 3,654 10,699 19,309 24,501 12,122 13,778
--------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Production expenses.............. 904 1,273 1,294 2,856 5,317 2,447 3,061
Gas plant and gas gathering
expenses(a).................... -- -- 4,013 6,078 5,185 3,006 1,827
General and administrative
expenses....................... 676 787 1,234 2,739 3,013 1,559 1,452
Depreciation, depletion and
amortization................... 1,113 1,455 2,489 5,269 8,148 3,866 4,167
Interest expense................. 21 77 721 1,245 1,657 956 520
Other expenses................... -- -- -- -- 153 155 --
--------- --------- --------- --------- --------- --------- ---------
Total cost and expenses..... 2,714 3,592 9,751 18,187 23,473 11,989 11,027
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and
minority interest.................. 193 62 948 1,122 1,028 133 2,751
Provision for income taxes........... 65 21 -- 9 46 132 1,018
Minority interest in gas plant
ventures............................. -- -- 134 172 -- -- --
Extraordinary income(b).............. 65 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income........................... $ 193 $ 41 $ 814 $ 941 $ 982 $ 1 $ 1,733
========= ========= ========= ========= ========= ========= =========
Net income per share(c).............. $ 0.08 $ 0.02 $ 0.27 $ 0.12 $ 0.11 $ 0.00 $ 0.19
========= ========= ========= ========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding(c)... 2,289 2,289 3,006 7,713 9,052 9,045 9,118
========= ========= ========= ========= ========= ========= =========
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
28
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT RATIOS
OTHER FINANCIAL DATA:
Capital expenditures............. $ 4,315 $ 2,289 $ 22,034 $ 41,901 $ 6,999 $ 1,174 $ 7,475
EBITDA(d)........................ $ 1,327 $ 1,594 $ 4,158 $ 7,636 $ 10,833 $ 4,955 $ 7,438
EBITDA/Interest expense.......... 63.19 20.70 5.77 6.13 6.54 5.18 14.30
Net cash flows provided by
operating activities........... $ 2,401 $ 1,555 $ 3,122 $ 5,283 $ 7,485 $ 3,496 $ 7,105
Net cash flows (used in) provided
by investing activities........ $ (1,204) $ (1,390) $ (9,423) $ (27,289) $ 3,542 $ (1,174) $ (5,810)
Net cash flows provided by (used
in) financing activities....... $ 1,000 $ (2,146) $ 7,334 $ 21,642 $ (11,332) $ (1,000) $ (1,628)
Ratio of earnings to fixed
charges(e)..................... 10.19 1.81 2.31 1.90 1.62 1.14 6.29
BALANCE SHEET DATA (END OF PERIOD):
Working capital.................. $ 406 $ 414 $ (249) $ (1,246) $ 5,168 $ 4,357
Total assets..................... 14,140 12,480 35,870 74,650 67,225 68,982
Total debt (net of current
maturities).................... 1,000 1,000 12,796 18,525 13,048 11,000
Stockholders' equity............. 10,729 10,770 18,372 45,447 46,597 48,751
</TABLE>
- -----------------------------
(a) In March 1996 Bellwether assumed a contract to purchase gas at $4.50 per
MMBtu, for which Bellwether received $9.9 million. As a result of this
transaction, Bellwether ceased to recognize gas gathering revenues and
expenses. Historical gas gathering revenues were $2.4 million, $5.0 million
and $3.4 million, respectively, for the years ended June 30, 1994, 1995 and
1996, and $2.5 million for the six months ended December 31, 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Six Months Ended December 31, 1995
Compared With December 31, 1996 -- Revenues."
(b) Extraordinary income in 1992 represents reductions of income taxes resulting
from utilization of loss carryforwards.
(c) Restated to reflect a 1-for-8 reverse stock split consummated in fiscal
1994.
(d) EBITDA is defined as income before income taxes, interest, depreciation,
depletion and amortization. Management of the Company believes that EBITDA
may provide additional information about the Company's ability to meet its
future requirements for debt service, capital expenditures and working
capital. EBITDA is a financial measure commonly used in the Company's
industry and should not be considered in isolation or as a substitute for
net income, cash flow provided by operating activities or other income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of the Company's profitability or liquidity.
(e) For purposes of computing the ratio of earnings to fixed charges,
"Earnings" are consolidated earnings (loss) from continuing operations
before tax, exclusive of the period's undistributed equity earnings of
affiliated companies, plus fixed charges. "Fixed charges" are comprised of
interest on indebtedness, amortization of debt issuance costs and that
portion of capital lease expense which is deemed to be representative of an
interest factor.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Bellwether is an independent energy company primarily engaged in the
acquisition, exploitation, development and exploration of oil and gas
properties. The Company has grown and diversified its operations through the
acquisition of oil and gas properties and the subsequent development of these
properties. The Company's results of operations have been significantly affected
by its success in acquiring oil and gas properties and its ability to maintain
or increase production through its exploitation activities. Fluctuations in oil
and gas prices have also significantly affected the Company's results.
The Company uses the full cost method of accounting for its investment in oil
and gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
in a "full cost pool" as incurred. Oil and gas properties in the pool, plus
estimated future expenditures to develop proved reserves and future abandonment,
site reclamation and dismantlement costs, are depleted and charged to operations
using the unit of production method based on the ratio of current production to
total proved recoverable oil and gas reserves. To the extent that such
capitalized costs (net of depreciation, depletion and amortization) exceed the
discounted future net revenues on an after-tax basis of estimated proved oil and
gas reserves, such excess costs are charged to operations. Once incurred, the
writedown of oil and gas properties is not reversible at a later date even if
oil and gas prices increase. Sharp declines in oil and gas prices may cause
companies who report on the full cost method, such as Bellwether, to write down
their oil and gas properties, thereby decreasing earnings during such period.
The Company periodically uses derivative financial instruments to manage oil and
gas price risk. Settlements of gains and losses on price swap contracts are
generally based upon the difference between the contract price and the average
closing NYMEX or other floating index price and are reported as a component of
oil and gas revenue. Gains or losses attributable to the termination of swap
contracts are deferred and recognized in revenue when the hedged oil and gas is
sold. The Company has hedged 300 Bbls of oil per day at a NYMEX price of $22.17
per Bbl for the calendar months of April through October 1997. For March 1997,
the Company has hedged 6 million MMBtu of gas per day at $2.94 per MMBtu and for
April through October 1997 has hedged 6 million MMBtu of gas per day at $2.21
per MMBtu, based upon the Houston Ship Channel Index.
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED WITH DECEMBER 31, 1996
The following table sets forth certain operating information of the Company for
the periods presented:
-------------------------------------
SIX MONTHS ENDED DECEMBER 31,
INCREASE/
1995 1996 (DECREASE)
--------- --------- -------------
PRODUCTION DATA:
Oil (MBbls)..................... 184 143 (22.3)%
Gas (MMcf)...................... 2,428 2,814 15.9%
AVERAGE SALES PRICE:
Oil (per Bbl)................... $ 16.04 $ 21.59(a) 34.6%
Gas (per Mcf)(b)................ 1.72 2.40 39.5%
Average unit production cost per
BOE(c)............................. 4.16 5.00 20.2%
Average unit depreciation, depletion
and amortization rate per BOE...... 5.39 6.09 13.0%
- ------------
(a) Average sales price does not include the effects of hedge transactions.
(b) Average sales price for natural gas includes revenues received from the sale
of natural gas liquids removed from the Company's gas production.
(c) Includes ad valorem and severance taxes.
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REVENUES. Oil and gas revenues for the six months ended December 31, 1996 were
$9.8 million or 38.0% higher than oil and gas revenues of $7.1 million for the
same period in 1995. The increase in oil and gas revenues was attributable
primarily to additional production from natural gas well workovers in the
Company's Cove field and increases in oil and gas prices. The effect of hedge
transactions was immaterial.
Gas plant and gas gathering revenues in the six months ended December 31, 1996
were $3.9 million compared with $4.9 million in the same period of 1995. This
decrease is primarily a result of decreased gas gathering revenues of $2.5
million. In March 1996, Bellwether assumed a contract to purchase gas at $4.50
per MMBtu (the "Contract Assumption"), for which Bellwether received $9.9
million. As a result of this transaction, Bellwether ceased to recognize gas
gathering revenues and expenses. In addition, Bellwether wrote off the remaining
book value of the gas gathering system and has recorded a liability to cover the
estimated future losses under the contract, which are charged to the liability
as incurred. See Note 5 of the Notes to the Condensed Consolidated Financial
Statements. Gas plant revenues in the six months ended December 31, 1996
increased by $1.5 million compared to the same period in 1995 due to increased
prices and sales volumes.
EXPENSES. Lease operating expenses for the six months ended December 31, 1996
totaled $3.1 million or 29.2% in excess of the $2.4 million for the six months
ended December 31, 1995. Lease operating expenses per BOE were 20.2% higher in
the six months ended December 31, 1996 when compared to the same period in 1995,
due primarily to higher severance taxes from increases in oil and gas prices of
34.6% and 39.5%, respectively.
Gas plant and gas gathering expenses were $1.8 million in the six months ended
December 31, 1996 compared with $3.0 million for the prior period, reflecting
the reduction in gas gathering activity relating to the Contract Assumption
somewhat offset by higher payments from gas plant operations to producers under
the Company's percent of proceeds contracts. The higher payments to producers
resulted primarily from higher liquids prices received by the Company.
Depreciation, depletion and amortization of $4.2 million for the six months
ended December 31, 1996 reflects a 7.7% increase from $3.9 million in the same
period in 1995, primarily because of an increase in oil and gas production and
an increase in the depreciation, depletion and amortization rate per BOE, both
of which were caused by increases in reserves due to the mergers, new drilling
and workovers.
General and administrative expenses were $1.5 million in the six months ended
December 31, 1996 compared with $1.6 million in the 1995 period.
Interest expense decreased to $520,000 for the six months ended December 31,
1996 from $956,000 in the same period of 1995. The Company used the proceeds
from the Contract Assumption (described below) to reduce its outstanding
indebtedness by $9.5 million.
INCOME TAXES. Provision for federal and state income taxes for the six months
ended December 31, 1996 is 37% of income.
NET INCOME. Net income for the six months ended December 31, 1996 was
approximately $1.7 million as compared to net income of $1,000 in the same
period of 1995.
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COMPARISONS OF FISCAL YEARS ENDED JUNE 30, 1994, 1995 AND 1996
The following table sets forth certain oil and gas production information of the
Company for the periods presented:
-------------------------------
YEARS ENDED JUNE 30,
1994 1995 1996
--------- --------- ---------
PRODUCTION DATA:
Oil (MBbls)..................... 71 216 334
Gas (MMcf)...................... 1,206 2,932 5,099
AVERAGE SALES PRICE:
Oil (per Bbl)................... $ 15.27 $ 16.89 $ 17.81(a)
Gas (per Mcf)(b)................ 2.17 1.66 2.02(a)
Average unit production cost per
BOE(c)............................. 4.75 4.05 4.49
Average unit depreciation, depletion
and amortization rate per BOE...... 5.71 5.52 5.86
- -----------------------------
(a) Average sales price does not include the effects of hedge transactions.
(b) Average sales price for natural gas includes revenues received from the sale
of natural gas liquids removed from the Company's gas production.
(c) Includes ad valorem and severance taxes.
REVENUES. Oil and gas revenues for fiscal 1996 were $15.7 million, or 84.7%
higher than fiscal 1995 oil and gas revenues of $8.5 million. In 1995, oil and
gas revenues were 129.7% higher than the fiscal 1994 oil and gas revenues of
$3.7 million. The Company's acquisition of properties in two transactions are
responsible for the increased revenues during fiscal 1995 and 1996. During the
three year period, the volatility of oil and gas prices directly impacted
revenues. Most significantly, average natural gas sales prices increased in
fiscal 1996 to $2.02 per Mcf from $1.66 per Mcf in fiscal 1995. During fiscal
1996, the Company utilized various hedging transactions to manage a portion of
the risks associated with oil and gas price volatility. As a result of these
hedges, oil and gas revenues were $560,000 lower than what they otherwise would
have been in fiscal 1996.
Gas plant and gas gathering revenues were $8.7 million in fiscal 1996 compared
to $10.7 million in fiscal 1995. Gas gathering revenues decreased to $3.4
million in fiscal 1996 from $5.0 million in fiscal 1995 due to the Contract
Assumption in March 1996. Gas plant revenues were $5.3 million in fiscal 1996,
or 7.0% lower than fiscal 1995 revenues of $5.7 million due primarily to
decreased throughput, partially offset by a 6.9% increase in natural gas liquids
prices. Fiscal 1995 gas plant revenues of $5.7 million were 26.7% higher than
the $4.5 million in fiscal 1994. Such increase was due to the purchase of
interests in the gas plant in July and December 1993 and a 16.0% increase in
prices.
EXPENSES. Production expenses for fiscal 1996 totaled $5.3 million, compared
with $2.9 million in fiscal 1995 and $1.3 million in fiscal 1994. The 82.8%
increase in fiscal 1996 over fiscal 1995 and the 123.1% increase between fiscal
1995 and 1994 were attributable primarily to acquisitions of producing
properties.
Gas plant and gas gathering expenses were $5.2 million in fiscal 1996 compared
to $6.1 million in fiscal 1995. Gas gathering expenses decreased to $2.4 million
in fiscal 1996 from $3.1 million in fiscal 1995 due to the Contract Assumption
in March 1996. Gas plant expenses were $2.8 million or 6.7% lower in fiscal 1996
than in fiscal 1995 as a result of decreased throughput, offset partially by
higher prices. In fiscal 1995, expenses were 24.6% higher than fiscal 1994 due
to a full year of operations being reflected in fiscal 1995.
Depreciation, depletion and amortization of $8.1 million reflects an increase of
52.8% for fiscal 1996 over $5.3 million in fiscal 1995. Such increase reflects a
full year of production volumes from acquisitions and a 6.2% increase in the
depreciation, depletion and amortization rate per net equivalent barrel due to
additional costs associated with dry holes drilled in Fausse Pointe and Cove
fields. In fiscal 1995, depreciation, depletion and amortization was 111.7%
higher than the fiscal 1994 amount. This reflects additional production volumes
from acquisitions and a full year of depreciation included for the Gas Plant and
gas gathering facilities.
General and administrative expenses totaled $3.0 million, $2.7 million and $1.2
million for the fiscal years ended June 30, 1996, 1995 and 1994, respectively.
The fee under the Administrative Service Agreement with Torch accounted for
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$337,000 and $578,000 of the increase in general and administrative expenses in
fiscal 1996 and fiscal 1995, respectively, and is due to the significant growth
of assets and cash flows experienced by the Company. Additionally, acquisitions
added to increases in salaries and other administrative overhead in fiscal 1995
compared with fiscal 1994.
Interest expense increased to $1.6 million in fiscal 1996 from $1.2 million in
fiscal 1995 and $721,000 in fiscal 1994. Such increase is due to the increase in
bank debt which financed a portion of the acquisitions of properties. Interest
rates were 7.3%, 7.9% and 6.2% at June 30, 1996, 1995 and 1994, respectively.
The Company recorded a provision for income taxes of $46,000 in fiscal 1996.
Actual payments of $126,000 in fiscal 1996 and $9,000 in fiscal 1995 relate to
alternative minimum tax and state taxes. Prior to the merger with Hampton
Resources Corporation ("Hampton") in 1995, the Company's net operating loss
was sufficient to eliminate any deferred tax liability. Upon merging with
Hampton, the Company was required to record a deferred tax liability of $2.4
million.
NET INCOME. Net income of $982,000 was generated in fiscal 1996, as compared to
$941,000 and $814,000 in fiscal 1995 and fiscal 1994, respectively.
CAPITAL RESOURCES AND LIQUIDITY
The Company's principal sources of capital for the last three years have been
borrowings under credit facilities with banks, cash flows from operations and
public and private sales of equity securities. Borrowings from banks were $8.5
million, $25.9 million and $0.0 during the years ended June 30, 1994, 1995 and
1996 and cash flow from operations was $3.1 million, $5.3 million and $7.5
million during each of such periods. Increases in cash flows from operations are
primarily attributable to the acquisitions made since 1993. The Company also
issued 3.4 million shares of stock in a public offering in 1994 for total net
proceeds of $17.2 million and issued an aggregate of 3.3 million shares of
common stock in private transactions since July 1, 1993 in exchange for assets.
In addition, during March 1996, the Company agreed to assume the purchase
obligation under a gas purchase contract in the West Monroe field in Louisiana
in exchange for a cash payment of $9.9 million. Under the terms of the contract,
Bellwether and other producers were entitled to sell a specified quantity of gas
for $4.50 per MMBtu. Bellwether supplied a substantial portion of the gas
subject to purchase under the contract. Proceeds from the gas contract
assumption were used to repay indebtedness.
The Company's primary uses of capital have been to fund acquisitions and to fund
its exploration and development operations. Since 1993, the Company has made two
significant acquisitions: (i) the purchase of Odyssey Partners, Ltd.
("Odyssey") in 1994 for $5.6 million and 917,000 shares of Common Stock and
(ii) the purchase of Hampton in 1995 for $21.1 million and 1.0 million shares of
Common Stock. The Company's expenditures for exploration and development were
$1.0 million, $3.4 million and $6.9 million in 1994, 1995 and 1996,
respectively.
The Company's capital budget for the third and fourth quarters of fiscal 1997 is
$8.1 million for its existing properties and $17.5 million for the Acquired
Properties. The Company has identified $42.8 million of projects for all of such
properties for fiscal 1998.
Concurrently with the completion of the Offerings, the Company will enter into
the $90 million New Credit Facility and will use borrowings under the New Credit
Facility, together with the net proceeds from the Offerings, to repay in full
outstanding indebtedness under the existing bank indebtedness. Outstanding
indebtedness under the New Credit Facility upon consummation of the Transactions
is anticipated to be $29.3 million.
The Company believes that the net proceeds of the Offerings, together with
borrowings under the New Credit Facility and internally generated cash flows,
will be sufficient to fund the Transactions and the Company's capital budget
through fiscal 1998.
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GAS BALANCING POSITIONS
It is customary in the industry for various working interest partners to sell
more or less than their entitled share of natural gas. The settlement or
disposition of gas balancing positions as of June 30, 1996 is not anticipated to
adversely impact the financial condition of the Company.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 121
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets to Be Disposed Of." SFAS 121 establishes guidance for determining and
measuring asset impairment and the required timing of asset impairment
evaluations. The Company adopted SFAS 121 on July 1, 1996, and it did not have a
material effect on the financial condition and results of operations of the
Company based upon current economic conditions.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 123
In October 1995, the FASB issued Statement No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation" which is effective for the Company beginning July
1, 1996. SFAS No. 123 permits, but does not require, a fair-value-based method
of accounting for employee stock option plans which results in compensation
expense being recognized in the results of operations when stock options are
granted. The Company plans to continue to use the current intrinsic-value-based
method of accounting for such plans where no compensation expense is recognized.
However, as required by SFAS 123, the Company will provide pro forma disclosure
of net income and earnings per share in the notes to the consolidated financial
statements as if the fair-value-based method of accounting had been applied.
INFLATION
Inflation has not had a material impact on the Company and is not expected to
have a material effect on the Company in the future.
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BUSINESS AND PROPERTIES
GENERAL
Bellwether is an independent energy company primarily engaged in the
acquisition, exploitation, development and exploration of oil and gas
properties. The Company has grown and diversified its reserve base through the
acquisition of oil and gas properties and the subsequent development of these
properties. Bellwether's estimated net proved reserves have increased at a
compounded annual growth rate of 65.9% from 1.6 MMBOE as of June 30, 1993 to 7.3
MMBOE as of June 30, 1996. During this period, average net daily production
increased at a compounded annual growth rate of 63.1% from 745.0 BOE/d in fiscal
1993 to 3,235.0 BOE/d in fiscal 1996, and EBITDA increased at a compounded
annual growth rate of 89.0% from $1.6 million in fiscal 1993 to $10.8 million in
fiscal 1996. The Company's net cash flows from operations have increased at a
compounded annual growth rate of 67.4%, from $1.6 million in fiscal 1993 to $7.5
million in fiscal 1996. The Company believes its primary strengths are a
demonstrated ability to identify and acquire properties which have significant
potential for further exploitation, development and exploration, an inventory of
development and exploration projects, expertise in the use of advanced
technologies such as 3-D seismic and horizontal drilling and a conservative
capital structure supportive of continued investment in its core properties as
well as additional acquisitions.
The Company has recently entered into letters of intent to acquire the oil and
gas properties and associated working capital owned by partnerships and other
entities managed or sponsored by Torch. Bellwether believes that the Pending
Acquisition provides the opportunity to significantly increase reserves and cash
flow at an attractive price while providing opportunities for future reserve
growth through exploitation and exploration activities. On a pro forma basis,
Bellwether's estimated net proved reserves as of June 30, 1996 were 46.6 MMBOE
(86% developed and 62% natural gas), with a PV-10 Value (pre-tax) of $260.1
million. Pro forma average daily net production was 22.7 MBOE/d for fiscal 1996
and pro forma EBITDA for fiscal 1996 was $74.9 million, excluding non-recurring
gas contract settlements payable to the Company aggregating $18.9 million.
Following the Pending Acquisition, the Company's properties will be concentrated
in Texas, Louisiana, Alabama, California and the Gulf of Mexico.
In fiscal 1994, the Company reincorporated from Colorado to Delaware. The
Company's address is 1331 Lamar, Suite 1455, Houston, Texas 77010, and its phone
number is (713) 650-1025.
BUSINESS STRATEGY
Bellwether's strategy is to maximize long-term shareholder value through
aggressive growth in reserves and cash flow, using advanced technologies,
implementation of a low cost structure and maintenance of a capital structure
supportive of growth. Bellwether expects the additional cash flows from the
Acquired Properties will finance a significant portion of its growth strategy.
Key elements of this strategy are:
OPPORTUNISTIC ACQUISITIONS. Bellwether seeks to acquire properties that have
produced significant quantities of oil and gas and have upside potential which
can be exploited using 3-D seismic, CAEX, horizontal drilling, workovers and
other enhanced recovery techniques. Such acquisitions have included the Fausse
Pointe field in south Louisiana, the Cove field offshore Texas and the Fort
Trinidad field in east Texas.
EXPLOITATION AND DEVELOPMENT OF PROPERTIES. The Company actively pursues the
exploitation of its properties through recompletions, waterfloods and
development wells, including horizontal drilling. Examples of recent
exploitation successes include a five well workover program and two development
wells in the Cove field, which increased Bellwether's average net production in
this field from 1.0 MMcf/d in January 1996 to 11.1 MMcf/d in February 1997. In
addition, the Company recently drilled a successful horizontal development well
into the Buda formation in the Fort Trinidad field which tested in January 1997
at 420 Bbls/d of oil. Bellwether also initiated a waterflood project in the Fort
Trinidad field during fiscal 1996. Future planned exploitation projects include
in excess of 20 horizontal drilling locations in the Buda and Glen Rose B
formations in the Fort Trinidad field and up to three horizontal drilling
locations to exploit the Company's exploratory success in the Giddings field in
the Austin Chalk formation. In addition, because the Sellers were formed to
distribute net cash flows rather than reinvest in the exploitation of the
Acquired Properties, the Company believes that such properties will provide
significant exploitation and development opportunities. The Company's
exploitation budget for fiscal 1997 is $8.6 million, of which approximately $4.8
million had been spent as of December 31, 1996. During fiscal 1997, the capital
expenditures on the Acquired Properties are estimated to be $23.2 million of
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which $5.7 million had been spent as of December 31, 1996. For fiscal 1998, the
Company has identified exploitation projects totaling $25.2 million (including
amounts to be spent on the Acquired Properties).
EXPLORATION ACTIVITIES. The Company's exploration activities focus on projects
with potential for substantial reserve increases. In January 1997, the Company
completed a successful exploration well in the Austin Chalk formation in the
Giddings field in central Texas. Exploration projects in the remainder of fiscal
1997 and in fiscal 1998 include multiple wells in the Fausse Pointe field and an
exploration well west of the Cove field, both of which are operated by the
Company. In addition, the Company also expects the Acquired Properties to
present exploration opportunities. For example, in the Ship Shoal complex in the
Gulf of Mexico, the Sellers declined to acquire available 3-D seismic surveys
and to participate in six offshore exploration or exploitation wells in 1996,
all of which were successful. The Company plans to acquire this and other 3-D
seismic surveys of the Acquired Properties and to participate in future wells
based on its interpretation of the data. During fiscal 1997, the Company has
budgeted $4.8 million for exploration, of which $2.1 million had been spent as
of December 31, 1996. For fiscal 1998, the Company has identified exploration
projects totaling $17.6 million (including amounts to be spent on the Acquired
Properties).
ADVANCED TECHNOLOGY. The Company seeks to improve the efficiency and reduce the
risks associated with its exploration and exploitation activities using advanced
technologies. These advanced technologies include 3-D seismic, CAEX techniques
and horizontal drilling. The Company acquired a 3-D survey on the Cove field,
conducted a 3-D survey on the Fausse Pointe field and plans to acquire three 3-D
surveys on certain of the Acquired Properties. The Company believes its existing
properties and the Acquired Properties will benefit from the application of
advanced technologies.
TORCH RELATIONSHIP. The Company operates under an Administrative Services
Agreement with Torch. Torch has a staff of 39 geologists, geophysicists, reserve
engineers and landmen and 59 financial personnel and professionals. The Company
believes that its relationship with Torch provides it with access to acquisition
opportunities and financial and technical expertise that are generally only
available to significantly larger companies. In addition, the fees payable to
Torch reduce significantly on a BOE basis as the Company's asset base and
production grow.
LOW COST STRUCTURE. The Company's cost structure will benefit from the Pending
Acquisition and the Company believes that its larger asset and production base
will allow it to maintain a low cost structure prospectively. Because general
and administrative costs are spread over higher production, pro forma general
and administrative costs per BOE in fiscal 1996 and the six months ended
December 31, 1996 were $1.01 and $0.99, respectively, compared with $2.55 and
$2.37, respectively, on a historical basis.
PENDING ACQUISITION
In March 1997, the Company agreed to purchase the Acquired Properties and an
estimated $18.0 million of working capital for $188.3 million, plus the
Contingent Payment. The effective date of the Pending Acquisition is July 1,
1996 and the estimated net adjusted purchase price assuming an April 8, 1997
closing date is $141.9 million plus the Contingent Payment. As of June 30, 1996,
estimated net proved reserves attributable to the Acquired Properties were 39.2
MMBOE (89% developed and 59% gas) with a PV-10 Value (pre-tax) of $212.0
million.
The Company will finance the cash portion of the Pending Acquisition and related
fees, estimated to aggregate $173.8 million, including the repayment of an
estimated $12.0 million of existing indebtedness, with the proceeds of the
Offerings (estimated to be $144.6 million) and $29.3 million of borrowings under
its New Credit Facility. Torch and a subsidiary of Torchmark, the parent
corporation of a Selling Stockholder, have interests in the Acquired Properties
and will receive an estimated $18.0 million and $12.7 million, respectively, of
the purchase price paid for the Acquired Properties. Torch and Torchmark will
also receive fees payable in cash and Common Stock in connection with the
Pending Acquisition aggregating an estimated $3.3 million. See "Risk Factors --
Conflicts of Interest" and "Transactions with Related Persons." In addition,
certain of the Sellers own properties the production from which qualifies for
tax credits under Section 29 of the Internal Revenue Code of 1986. Torch will
pay such Sellers $250,000 and will enter into agreements with Bellwether which
will transfer the Section 29 tax credits to Torch.
The Company has identified for divestiture non-core properties representing
approximately 10% of the estimated net proved reserves attributable to the
Acquired Properties as of June 30, 1996. These properties are primarily small
working
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interests in geographically diverse locations, with generally low production
rates and cash flows, and limited potential for development. The Company expects
to sell these properties during fiscal 1997 and fiscal 1998. The net proceeds
from these divestitures, which will be used to repay indebtedness, is currently
estimated to be $15 million, but will depend on prevailing market conditions at
the time of sale.
Because Torch has an equity interest in the Sellers and Torch will receive fees
and other consideration in connection with the Pending Acquisition, Bellwether's
Board of Directors formed the Special Committee composed of four directors not
affiliated with Torch or the Sellers to review and approve the terms of the
purchase of the Acquired Properties. Bellwether retained Principal to render its
opinion to the Special Committee and the Board of Directors that the Pending
Acquisition was fair to Bellwether from a financial point of view. The Special
Committee also retained legal counsel to represent it, and retained Ryder Scott
to audit the report of estimated reserves attributable to the Acquired
Properties prepared by Torch and upon which Bellwether based its offer for the
Acquired Properties. On March , 1996, Principal gave its opinion to the
Special Committee that the Pending Acquisition was fair to Bellwether from a
financial point of view, and on that date the Special Committee approved the
Pending Acquisition and all fees and other consideration to be paid to Torch in
connection therewith.
THE CONTINGENT PAYMENT
In addition to the cash portion of the purchase price, Bellwether has agreed to
pay the Sellers the Contingent Payment up to a maximum of $9.0 million, based on
the prices of gas in 1997. The Contingent Payment will equal the average monthly
NYMEX price for gas during 1997 minus $2.10 per MMBtu, multiplied by 13.6
million (representing 75% of the Company's estimated 1997 gas production from
the Acquired Properties). For months prior to the closing date, the actual NYMEX
prices will be used, and for months after closing, the NYMEX futures price will
be used.
STRUCTURE OF THE PENDING ACQUISITION
The interests of the Sellers in the Acquired Properties were structured
differently to satisfy the investment goals of the investors. Certain Sellers
are limited partnerships which own either working interests or net profits
interests that burden working interests. Several investors made loans secured by
mortgages of working interests or net profits interests owned by the Sellers. In
addition, certain Sellers directly acquired net profits interests burdening
working interests. In general, a subsidiary of Torch owns the working interests
burdened by net profits interests owned by the Sellers.
The acquisition of the Acquired Properties is structured as a merger of certain
of the Sellers which are limited partnerships into a subsidiary of Bellwether
and the acquisition of general and limited partnership interests in other
partnerships. Each Seller (other than such partnerships) which owns net profits
interests will convey such net profits interests to Bellwether's subsidiary, and
the stock of each subsidiary of Torch which owns working interests burdened by
the net profits interests will be sold by Torch to Bellwether. Bellwether will
merge the subsidiary into Bellwether simultaneously with the closing of the
Offerings and the Pending Acquisition so that a substantial portion of the
Acquired Properties will be held directly by Bellwether. One of the Sellers has
notified Bellwether that, because of public notice requirements applicable to
such Seller, it is unable to execute the Acquisition Agreement before April 15,
1997. Bellwether will not acquire the interest of such Seller in the Acquired
Properties, or the related interests in such properties owned by Torch and its
affiliates at the closing. Bellwether has agreed to acquire the interests of
such Seller and the related interests of Torch and its affiliates on April 15,
1997, if such Seller executes the Acquisition Agreement on or before such date.
No assurances can be made that such Seller will execute the Acquisition
Agreement. The net purchase price of the properties owned by such Seller and the
related interests of Torch and its affiliates is less than $2.2 million, and the
failure to acquire such interests is not expected to have a material effect on
Bellwether.
In the purchase agreement covering the Pending Acquisition, the Sellers will
make a special warranty of their title to the properties, and customary
warranties as to power and authority to effect the transactions. Neither the
Sellers nor Torch will make any representation or warranty with respect to
environmental or operational matters with respect to the properties. Bellwether
will assume all such liabilities, including those which are unknown or
contingent, and including those which arise prior to the closing of the Pending
Acquisitions. See "Risk Factors -- Acquisition Risks."
ACQUISITION HISTORY
Bellwether has increased its reserves, production and cash flows through a
series of acquisitions since July 1, 1993. In July 1993, the Company acquired
through a joint venture, for $8.5 million, an interest in the Snyder Gas Plant
and the
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Diamond M-Sharon Ridge Gas Plant (collectively, the "Gas Plant"), the
operations of which were subsequently consolidated.
In December 1993, the Company acquired by merger Associated Gas Resources, Inc.
("AGRI"), a corporation owned by an institutional investor and managed by
Torch for a total cost of $7.0 million principally consisting of Common Stock.
AGRI's assets included additional interests in the Gas Plant and a 300 mile gas
gathering system in Union Parish, Louisiana ("Monroe Gathering System"), that
serves the Monroe Gas field.
In August 1994, the Company acquired Odyssey for $9.6 million consisting of cash
and Common Stock. Included among the assets of Odyssey was the Fausse Pointe
field in south Louisiana. The Company has conducted a 54 square mile 3-D seismic
survey and is conducting exploitation and development activities in the Fausse
Pointe field. See "Principal Properties."
In February 1995, the Company completed the acquisition of Hampton for $25.9
million consisting of cash and Common Stock. Included among the assets of
Hampton were the Cove field and the Fort Trinidad field.
In February 1997, the Company acquired a 25% interest in the Mud Lake field from
Nuevo for a net purchase price of $2.0 million in cash. The Company plans to
commence a 45 square mile 3-D seismic survey in the Mud Lake field in March
1997.
PRINCIPAL PROPERTIES
The following table sets forth certain information, as of June 30, 1996, which
relates to the oil and gas properties owned by Bellwether and to the Acquired
Properties:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
PV-10
ESTIMATED NET PROVED RESERVES VALUE
1996 NET PRODUCTION (PRE TAX)
------------------------------ ------------------------------ -----------
OIL GAS OIL GAS (IN
(MBBLS) (MMCF) MBOE (MBBLS) (MMCF) MBOE THOUSANDS)
------- --------- --------- ------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENTLY OWNED PROPERTIES:
Cove field, TX..................... 7 10,401 1,741 2 1,002 169 $ 12,876
Fort Trinidad field, TX............ 454 3,007 955 24 152 49 5,684
Fausse Pointe field, LA............ 127 3,736 750 -- -- -- 4,068
Other.............................. 1,220 16,052 3,895 308 3,945 966 25,512
------- --------- --------- ------- --------- --------- -----------
Total currently owned......... 1,808 33,196 7,341 334 5,099 1,184 $ 48,140
------- --------- --------- ------- --------- --------- -----------
ACQUIRED PROPERTIES:
Waddell Ranch complex, TX.......... 4,086 6,004 5,086 245 849 386 $ 23,338
Blue Creek field, AL............... -- 8,938 1,490 -- 1,075 179 12,946
High Island A-334 field,
Gulf of Mexico................... 290 7,521 1,544 80 3,330 635 11,634
Ship Shoal complex, Gulf of
Mexico........................... 1,042 4,617 1,811 175 527 263 11,095
Pt. Pedernales field, CA........... 4,846 3,236 5,385 802 -- 802 9,453
West Chalkley field, LA............ 31 5,232 903 10 753 135 7,758
Other.............................. 5,755 103,509 23,007 1,478 19,477 4,725 135,768
------- --------- --------- ------- --------- --------- -----------
Total Acquired Properties..... 16,050 139,057 39,226 2,790 26,011 7,125 $ 211,992
======= ========= ========= ======= ========= ========= ===========
Total pro forma.......... 17,858 172,253 46,567 3,124 31,110 8,309 $ 260,132
======= ========= ========= ======= ========= ========= ===========
</TABLE>
The following is a description of the principal properties currently owned by
Bellwether and the Acquired Properties:
CURRENTLY OWNED PROPERTIES
COVE FIELD. The Cove field is located in state waters nine miles offshore
Texas. Bellwether operates the field and controls 2,880 acres with a 90.0%
working (73.0% net revenue) interest in 5 wells (4.5 net) and a 42.1% working
(34.2% net revenue) interest in a sixth well (0.4 net). The Company acquired the
field in February 1995 and subsequently gained access to a 25 square mile 3-D
seismic survey covering the field. Bellwether's exploitation activities have
included a five
38
<PAGE>
well workover program and two development wells. These activities increased net
production from 1.0 MMcf/d in January 1996 to 11.1 MMcf/d in February 1997. The
Company has budgeted $3.3 million for development of the Cove field in fiscal
1997 and has identified projects totaling $3.8 million for 1998.
The Company expects to drill an exploration well in July 1997 on acreage which
it owns to the west of the currently producing wells. The targets include gas
production from formations at approximately 14,000 feet and 15,000 feet.
FORT TRINIDAD FIELD. The Fort Trinidad field is located in east Texas.
Bellwether owns a 47.9% working (41.0% net revenue) interest in the Dexter Unit
waterflood and a 38.7% working (32.3% net revenue) interest in the Upper Glen
Rose Unit. The waterflood was initiated in December 1995 in the Dexter reservoir
which had cumulative production of 6.4 MMBbls. In December 1996, net production
from 13 wells (5.5 net) averaged 125 BOE/d. The operator of both units is Parten
Operating Company.
The Company is currently evaluating horizontal drilling development
opportunities for the Buda, Georgetown, Edwards and Glen Rose reservoirs on
19,000 acres that are held by production. Additionally, Bellwether has entered
into a joint venture with Moran Resources Company to develop 2,700 acres with
the drilling of three horizontal wells in the Buda reservoir. The first well was
completed in January 1997 and is currently being tested at 420 Bbls/d.
Bellwether owns a 30.0% working (22.5% net revenue) interest in the drilling
program. The Company has budgeted $1.5 million in development capital for the
Fort Trinidad field in fiscal 1997 and has identified projects totaling $5.6
million in fiscal 1998.
FAUSSE POINTE FIELD. The Fausse Pointe field is located in south Louisiana.
Since its discovery in the mid 1930's, over 50 MMBbls of oil and 200 Bcf of gas
have been produced from 19 producing formations ranging in depth from 1,000 feet
to 14,000 feet. Bellwether acquired its undeveloped interest in the field in
fiscal 1995 and operates the seismic and drilling program in the field with a
19.5% working (14.2% net revenue) interest in the 8,250-acre State Lease No. 293
and a 26.0% working interest (19.9% net revenue interest) in 5,198 acres of
private leases and lease options. In 1995, the Company initiated and completed a
54 square mile 3-D seismic survey. In 1996, Bellwether drilled a south flank
exploration well which was plugged due to mechanical difficulties and drilled an
unsuccessful east flank exploration well and a south flank development well
which was spudded in December 1996. Bellwether expects to drill a third south
flank well in April 1997. The Company has budgeted $4.4 million for additional
development and exploration of the field in fiscal 1997 and has identified
projects totaling $2.5 million for fiscal 1998. Additional drilling prospects on
the north and south flanks are also being evaluated.
ACQUIRED PROPERTIES
WADDELL RANCH COMPLEX. The Waddell Ranch complex, comprising fields located in
west Texas, was discovered in the 1930s. The Acquired Properties include fee
interests, net profits interests and working interests that approximate a
composite 10.2% working (10.0% net revenue) interest in 76,921 gross (7,876 net)
acres and 1,350 gross (138 net) wells. Production is from a number of formations
from depths between 2,000 and 6,000 feet, including the upper Permian Grayburg
(3,200 feet), San Andres (3,400 feet) and lower Clearfork Tubb (4,200 feet)
formations. Over 400 MMBbls of oil and 1,000 Bcf of gas have been produced from
over 3,000 wells since the initial discovery. Peak production rates occurred in
the early 1960's but the field has experienced a resurgence of activity in the
1990's with renewed drilling, waterflood expansion and completion of a 79 square
mile 3-D seismic survey. The resulting net production has increased from 1.4
MBOE/d in 1990 to 1.7 MBOE/d in December 1996. The Waddell Ranch complex is
operated by Burlington Resources Oil & Gas Company, with Coastal Management
Corporation acting as contract operator. The Company's estimated capital
expenditures for identified exploitation and exploration projects in this
complex for fiscal 1997 is $2.9 million, with identified projects totaling $2.4
million for fiscal 1998.
BLUE CREEK FIELD. The Blue Creek field is located in the Black Warrior Basin in
Alabama. The Acquired Properties include a 16.1% royalty interest in 9,918 acres
with 168 wells. The field was developed from 1988 through 1991 and produces
coalbed methane gas from Pennsylvanian coal seams at depths of 700 feet to 2,500
feet. Average coal seam thickness is between 10 feet and 35 feet. Average net
production during December 1996 was 3.1 MMcf/d. The field is operated by River
Gas Corporation.
HIGH ISLAND BLOCK A-334 FIELD. The High Island Block A-334 field is located in
federal waters 110 miles southeast of Galveston, Texas in 230 feet of water. The
Acquired Properties include an average 25.0% working (20.8% net revenue)
interest in 10,000 gross (2,500 net) acres with 16 gross (4.0 net) wells. This
field is operated by Union Oil Company of
39
<PAGE>
California ("Unocal"). Production is from two gas reservoirs and one oil
reservoir at depths ranging from 3,500 feet to 6,000 feet. Average net
production during December 1996 was 1,194 BOE/d. A 3-D seismic survey has been
conducted on a portion of this acreage, and the Company plans to review the
survey as part of its due diligence investigation of the Pending Acquisition.
SHIP SHOAL COMPLEX. The Ship Shoal properties are located in federal waters 120
miles southwest of New Orleans in 125 feet of water. The complex comprises
working interests in eight blocks which include the Ship Shoal Block 208, Block
230 and Block 239 fields. The Acquired Properties consist of working interests
in the three fields ranging from 9.7% to 29.3% with a 1/6 royalty burden. The 31
wells (5.8 net) in the complex are operated by Kerr-McGee Corporation.
Production is from a variety of formations ranging from 2,000 feet to 12,000
feet. The fields have produced over 128 MMBbls of oil and 649 Bcf of gas since
their discovery in 1963. Average net production during December 1996 was 1.4
MBOE/d. Since 1990, Kerr-McGee has been actively redeveloping the field and has
drilled 11 successful wells including four exploratory wells. A 3-D seismic
survey has been conducted on this acreage, and the Company plans to purchase the
survey as part of its due diligence investigation of the Pending Acquisition.
The Company's estimated capital expenditures for identified exploitation and
exploration projects in this complex for fiscal 1997 is $4.6 million, with
identified projects totaling $6.9 million for fiscal 1998.
POINT PEDERNALES FIELD. The Acquired Properties include a 19.7% working (16.4%
net revenue) interest in 9,500 gross (1,871 net) acres in federal waters
offshore California. The field is located approximately 4.5 miles offshore in
242 feet of water. Production is from the Monterey Shale formation at depths of
between 3,800 feet and 5,300 feet. Average net production from 14 gross (2.8
net) wells during December 1996 was 1.5 MBOE/d. The Point Pedernales field is
operated by Nuevo, which owns the other 80.3% working interest. Torch acts as
contract operator of this field for Nuevo. This property was purchased from
Unocal and six other major oil companies in 1993 and has seen significant
activity with production optimization, de-bottlenecking of facilities and the
drilling of three new wells. The Company has identified capital expenditures of
$3.9 million for two additional wells and a gas processing plant for this field
in fiscal 1997. Pursuant to the 1993 purchase agreement, Bellwether's maximum
realized oil price is capped at $9.00/Bbl for the projected life of this field.
WEST CHALKLEY FIELD. The West Chalkley field is located in south Louisiana. The
Acquired Properties include a 2.4% working (1.8% net revenue) interest in 5
gross (0.1 net) wells producing from the Miogyp "B" reservoir at an average
depth of 14,400 feet and operated by Exxon Company USA. A sixth well (0.1 net)
is completed in the lower Miogyp at 15,400 feet and operated by Torch. The
Sellers own a 9.3% working (7.0% net revenue) interest in the Torch-operated
well. Average net production for the field during December 1996 was 0.3 MBOE/d.
Future plans include the recompletion of the Torch-operated well to the main
field pay interval.
40
<PAGE>
RESERVES
The following table sets forth certain information regarding the estimated net
proved oil and gas reserves of the Company, the estimated net proved reserves
attributable to the Acquired Properties and the pro forma estimated net proved
reserves of the Company as of June 30, 1996:
----------------------------------
ACQUIRED COMPANY
COMPANY PROPERTIES PRO FORMA
------- ---------- ---------
Proved developed:
Oil (MBbls)........................ 1,494 13,536 15,030
Gas (MMcf)......................... 22,698 128,242 150,940
MBOE............................... 5,277 34,910 40,187
Proved undeveloped:
Oil (MBbls)........................ 314 2,514 2,828
Gas (MMcf)......................... 10,498 10,815 21,313
MBOE............................... 2,064 4,316 6,380
Total Proved:
Oil (MBbls)........................ 1,808 16,050 17,858
Gas (MMcf)......................... 33,196 139,057 172,253
MBOE............................... 7,341 39,226 46,567
PV-10 Value (pre-tax) ($000)............ $48,140 $ 211,992 $260,132
The Company's historical proved reserves were estimated by Williamson,
independent petroleum reserve engineers, whose report is attached as Exhibit A,
and the proved reserves attributable to the Acquired Properties were estimated
by the Company and audited by Ryder Scott, whose report is attached hereto as
Exhibit B. Ryder Scott reviewed properties representing 84% of the PV-10 Value
(pre-tax) of the Acquired Properties.
All of the Company's oil and gas reserves are located onshore in the United
States or in state or federal waters.
In general, estimates of economically recoverable oil and natural gas reserves
and of the future net cash flows therefrom are based upon a number of variable
factors and assumptions, such as historical production from the properties,
assumptions concerning future oil and natural gas prices and future operating
costs and the assumed effects of regulation by governmental agencies, all of
which may vary considerably from actual results. All such estimates are to some
degree speculative, and classifications of reserves are only attempts to define
the degree of speculation involved. Estimates of the economically recoverable
oil and natural gas reserves attributable to any particular group of properties,
classifications of such reserves based on risk of recovery and estimates of
future net cash flows expected therefrom, prepared by different engineers or by
the same engineers at different times, may vary substantially. The Company's
actual production, revenues, severance and excise taxes and development and
operating expenditures with respect to its reserves will vary from such
estimates, and such variances could be material. See "Risk Factors -- Estimates
of Oil and Gas Reserves."
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.
In accordance with applicable requirements of the SEC, the estimated discounted
future net cash flows from estimated proved reserves are based on prices and
costs as of the date of the estimate unless such prices or costs are
contractually determined at such date. Actual future prices and costs may be
materially higher or lower. Actual future net cash flows also will be affected
by factors such as actual production, supply and demand for oil and natural gas,
curtailments or increases in consumption by natural gas purchasers, changes in
governmental regulations or taxation and the impact of inflation on costs. See
"Risk Factors -- Volatility of Oil and Gas Prices and Markets."
41
<PAGE>
ACREAGE
The following table sets forth the acres of developed and undeveloped oil and
gas properties in which the Company held an interest as of June 30, 1996.
Undeveloped acreage is considered to be those 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.
-------------------
GROSS NET
------- ---------
Developed Acreage....................... 481,446 110,513
Undeveloped Acreage..................... 63,549 56,713
------- ---------
Total.............................. 544,995 167,226
======= =========
PRODUCTIVE WELLS
The following table sets forth Bellwether's gross and net interests in
productive oil and gas wells as of June 30, 1996. Productive wells are producing
wells and wells capable of production.
-----------------
GROSS NET
----- ---------
Oil Wells............................... 359 60.82
Gas Wells............................... 483 72.98
----- ---------
Total.............................. 842 133.80
===== =========
DRILLING ACTIVITY
The following table sets forth the results of drilling activity by the Company
for the last three fiscal years.
<TABLE>
<CAPTION>
-------------------------------------------------------
EXPLORATORY WELLS
GROSS NET
-------------------------- --------------------------
DRY DRY
PRODUCTIVE HOLES TOTAL PRODUCTIVE HOLES TOTAL
---------- ----- ----- ---------- ----- -----
<C> <C> <C> <C> <C> <C> <C>
1994.................................... 1 1 2 0.10 0.20 0.30
1995.................................... 3 4 7 0.27 0.65 0.92
1996.................................... 2 3 5 0.34 0.39 0.73
-------------------------------------------------------
DEVELOPMENT WELLS
GROSS NET
-------------------------- --------------------------
DRY DRY
PRODUCTIVE HOLES TOTAL PRODUCTIVE HOLES TOTAL
---------- ----- ----- ---------- ----- -----
1994.................................... 1 2 3 0.08 0.27 0.35
1995.................................... 1 2 3 0.30 0.18 0.48
1996.................................... 17 1 18 0.93 0.04 0.97
</TABLE>
During the three years ended June 30, 1996, the Company's principal drilling
activities occurred in the continental United States and offshore in Texas state
waters. The Company had three gross (0.66 net) wells drilling at June 30, 1996.
GAS PLANT
The Company acquired interests in the Snyder Gas Plant and the Diamond M-Sharon
Ridge Gas Plant in 1993. These plants are located in the Horseshoe Atoll reef
area in the Permian Basin of West Texas. The Diamond M-Sharon Ridge Plant was
subsequently dismantled and gas previously processed at the plant is currently
processed at the Snyder Gas Plant. The Gas Plant is a cryogenic gas plant with
60.0 MMcf/d capacity and a carbon dioxide removal facility. The Company owns a
11.9% interest in the Gas Plant and a 35.8% interest in gas processed under
contracts with the Diamond M-Sharon Ridge Gas Plant, which results in an
approximate 15% interest in all gas processed by the Gas Plant. The Company also
owns an interest in the 650 mile gathering system connected to the Gas Plant.
The Gas Plant is operated by a subsidiary of Torch.
42
<PAGE>
The Gas Plant operated at 34% of capacity in fiscal 1996. The operator of the
Sacroc Unit, which currently supplies over 70% of the plant's inlet volume, has
identified several areas within the Unit that have not been effectively flooded
and is evaluating a large capital project to initiate carbon dioxide flooding in
these areas. Two other operators in the area have disclosed plans to commence
two additional carbon dioxide flood development programs. No assurance can be
made, however, that any additional deposits of gas will be dedicated to the Gas
Plant.
The Gas Plant generally processes gas under percent of proceeds contracts, in
which the plant is entitled to a percent of the liquids extracted from the
processed gas stream. In these cases the Gas Plant typically retains 60.0% to
66.7% of the extracted liquids. In some cases, the Gas Plant processes gas for a
fixed fee per Mcf. In these instances the Gas Plant does not retain any of the
extracted liquids.
TITLE TO PROPERTIES
Bellwether believes that the title to its oil and gas properties is good and
defensible in accordance with standards generally accepted in the oil and gas
industry, subject to such exceptions which, in the opinion of the Company, are
not so material as to detract substantially from the use or value of such
properties. The Company's properties are typically subject, in one degree or
another, to one or more of the following: royalties and other burdens and
obligations, express or implied, under oil and gas leases; overriding royalties
and other burdens created by the Company or its predecessors in title; a variety
of contractual obligations (including, in some cases, development obligations)
arising under operating agreements, farmout agreements, production sales
contracts and other agreements that may affect the properties or their titles;
back-ins and reversionary interests arising under purchase agreements and
leasehold assignments; liens that arise in the normal course of operations, such
as those for unpaid taxes, statutory liens securing obligations to unpaid
suppliers and contractors and contractual liens under operating agreements;
pooling, unitization and communitization agreements, declarations and orders;
and easements, restrictions, rights-of-way and other matters that commonly
affect oil and gas producing property. To the extent that such burdens and
obligations affect the Company's rights to production revenues, they have been
taken into account in calculating the Company's net revenue interests and in
estimating the size and value of the Company's reserves. Bellwether believes
that the burdens and obligations affecting the Company's properties are
conventional in the industry for properties of the kind owned by the Company.
OTHER PROPERTIES
The Company's headquarters are located in Houston, Texas, in approximately 1,200
square feet of leased space.
EMPLOYEES
The Company had eight employees on January 1, 1997.
LITIGATION
The Company is a defendant in various legal proceedings and claims which arise
in the ordinary course of Bellwether's business. Bellwether does not believe the
ultimate resolution of such actions will have a material effect on the Company's
financial position or results of operations.
COMPETITION, MARKETS AND REGULATION
COMPETITION
The oil and gas industry is highly competitive in all of its phases. Bellwether
encounters competition from other oil and gas companies in all areas of the
Company's operations, including the acquisition of reserves and producing
properties and the marketing of oil and gas. Many of these companies possess
greater financial and other resources than the Company. Competition for
producing properties is affected by the amount of funds available to the
Company, information about a producing property available to the Company and any
standards established by the Company for the minimum projected return on
investment. Because gathering systems and related facilities are the only
practical method for the intermediate transportation of gas, competition for gas
delivery is presented by other pipelines and gas gathering systems. Competition
may also be presented by alternate fuel sources.
43
<PAGE>
MARKETS
Bellwether's ability to market oil and gas from the Company's wells depends upon
numerous factors beyond the Company's control, including the extent of domestic
production and imports of oil and gas, the proximity of the gas production to
gas pipelines, the availability of capacity in such pipelines, the demand for
oil and gas by utilities and other end users, the availability of alternate fuel
sources, the effects of inclement weather, state and federal regulation of oil
and gas production and federal regulation of gas sold or transported in
interstate commerce. No assurances can be given that Bellwether will be able to
market all of the oil or gas produced by the Company or that favorable prices
can be obtained for the oil and gas Bellwether produces.
In view of the many uncertainties affecting the supply of and demand for oil,
gas and refined petroleum products, the Company is unable to predict future oil
and gas prices and demand or the overall effect such prices and demand will have
on the Company. The marketing of oil and gas by Bellwether can be affected by a
number of factors which are beyond the Company's control, the exact effects of
which cannot be accurately predicted. See "Risk Factors -- Volatility of Oil
and Gas Prices and Markets."
During fiscal 1996, no single customer accounted for more than 10% of the
Company's revenues. Bellwether does not believe that the loss of any of the
Company's oil purchasers would have a material adverse effect on the Company's
operations. Additionally, since substantially all of the Company's gas sales are
on the spot market, the loss of one or more gas purchasers should not materially
and adversely affect the Company's financial condition.
FEDERAL REGULATION
SALES OF GAS
Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act deregulated
prices for all "first sales" of gas. Thus, all sales of gas by the Company may
be made at market prices, subject to applicable contract provisions.
TRANSPORTATION OF GAS
The rates, terms and conditions applicable to the interstate transportation of
natural gas by pipelines are regulated by the Federal Energy Regulatory
Commission ("FERC") under the Natural Gas Act ("NGA"), as well as under
section 311 of the Natural Gas Policy Act ("NGPA"). Since 1985, the FERC has
implemented regulations intended to make gas transportation more accessible to
gas buyers and sellers on an open-access, nondiscriminatory basis.
Most recently, in Order No. 636, ET SEQ., the FERC promulgated an extensive set
of new regulations requiring all interstate pipelines to "restructure" their
services. The most significant provisions of Order No. 636 (i) require that
interstate pipelines provide firm and interruptible transportation solely on an
"unbundled" basis, separate from their sales service, and convert each
pipeline's bundled firm city-gate sales service into unbundled firm
transportation service; (ii) issue blanket certificates to pipelines to provide
unbundled sales service; (iii) require that pipelines provide firm and
interruptible transportation service on a basis that is equal in quality for all
gas supplies, whether purchased from the pipeline or elsewhere; (iv) require
that pipelines provide a new, non-discriminatory "no-notice" transportation
service; (v) establish two new, generic programs for the reallocation of firm
pipeline capacity; (vi) require that all pipelines offer access to their storage
facilities on a firm and interruptible, open access, contract basis; (vii)
provide pregranted abandonment of unbundled sales and interruptible and
short-term firm transportation service and conditional pregranted abandonment of
long-term transportation service; (viii) modify transportation rate design by
requiring all fixed costs related to transportation to be recovered through the
reservation charge under the straight fixed variable ("SFV") method. The order
also recognized that the elimination of city-gate sales service and the
implementation of unbundled transportation service would result in considerable
costs being incurred by the pipelines. Therefore, Order No. 636 provided
mechanisms for the recovery by pipelines from present, former and future
customers of certain types of "transition" costs likely to occur due to these
new regulations.
In subsequent orders, the FERC substantially upheld the requirements imposed by
Order No. 636. Pursuant to Order No. 636, pipelines and their customers engaged
in extensive negotiations in order to develop and implement new service
relationships under Order No. 636. Tariffs instituting these new restructured
services were placed into effect on all pipelines on or before November 1, 1993.
The final form of the FERC's open-access rules, the tariff and related
provisions by which Order No. 636 ET SEQ. have been implemented by the
interstate pipelines and the flow-through of
44
<PAGE>
transition costs are subject to final administrative and judicial action. In
this regard, numerous parties filed for judicial review of Order No. 636, ET
SEQ., and the United States Court of Appeals for the District of Columbia
Circuit recently issued its decision largely upholding the basic elements of the
order. Further review of and revisions to the FERC's orders is still possible,
and related appeals remain pending. The Company cannot predict the final outcome
of the FERC's open-access series of orders, but the outcome of these proceedings
and future action by the FERC respecting open access transportation could have
an effect on the Company's operations and the costs of transporting and selling
natural gas.
The FERC is currently considering several other rules intended to streamline its
regulation of the industry and promote competition. One deals with pipeline
rates. For decades, the principal methodology used to set interstate pipeline
rates has been based on the actual cost to provide that service. In recent years
regulators have concluded that sufficient competition may exist in certain
markets to allow a relaxation of this historic approach. In January 1996, the
FERC issued a statement of policy and request for comments concerning
alternatives to its traditional cost-of-service ratemaking methodology and set
forth the criteria that the FERC will use to evaluate proposals to charge
market-based rates for the transportation of natural gas. The FERC also
requested comments on whether it should allow gas pipelines the flexibility to
negotiate the terms and conditions of transportation service with prospective
shippers. In another rulemaking, the FERC is considering how to alter its
regulations to promote the fair and effective release and recontracting of
pipeline capacity from one shipper to another, and whether and to what extent
such transactions should be regulated where the market is demonstrably
competitive. In this regard, an experimental pilot program implementing certain
new procedures will be implemented in the 1996-97 winter heating season. Lastly,
the FERC has issued a policy statement on how interstate pipelines can recover
in rates the costs of new facilities. While the policy may affect the Company
and other producer-shippers only indirectly, the policy should enhance
competition in new markets and encourage the construction of gas supply
laterals. As to all of these matters, the Company cannot predict what further
action the FERC will take; however, the Company does not believe that it will be
affected by any action taken materially differently than other natural gas
producers, gatherers and marketers with which it competes.
SALES AND TRANSPORTATION OF OIL
Sales of oil and condensate can be made by the Company at market prices not
subject at this time to price controls. The price that the Company receives from
the sale of these products will be affected by the cost of transporting the
products to market. As required by the Energy Policy Act of 1992, the FERC
revised its regulations governing the transportation rates that may be charged
by oil pipelines. The new rules, which were effective January 1, 1995, provide a
simplified, generally applicable method of regulating such rates by use of an
index for setting rate ceilings. In certain circumstances, the new rules permit
oil pipelines to establish rates using traditional cost of service and other
methods of ratemaking. The FERC's orders were recently affirmed on appeal. The
effect that these new rules may have on moving the Company's products to market
cannot yet be determined. In addition, at the same time as it issued the new
rules, the FERC also issued notices of inquiry regarding market-based pricing
for oil pipeline rates and the information required to be filed for ratemaking
and reporting purposes. It is not possible to predict what rules, if any, the
FERC will ultimately adopt as a result of these inquiry proceedings whether the
pipelines used by the Company will apply for market based or other rates or the
effect that any rules that are adopted or authorizations sought might have on
the cost of moving the Company's products to market.
LEGISLATIVE PROPOSALS
In the past, Congress has been very active in the area of gas regulation. There
are legislative proposals pending in the state legislatures of various states,
which, if enacted, could significantly affect the petroleum industry. At the
present time it is impossible to predict what proposals, if any, might actually
be enacted by Congress or the various state legislatures and what effect, if
any, such proposals might have on the Company's operations.
FEDERAL, STATE OR INDIAN LEASES
In the event the Company conducts operations on federal, state or Indian oil and
gas leases, such operations must comply with numerous regulatory restrictions,
including various nondiscrimination statutes, and certain of such operations
must be conducted pursuant to certain on-site security regulations and other
appropriate permits issued by the Bureau of Land Management ("BLM") or
Minerals Management Service or other appropriate federal or state agencies.
45
<PAGE>
The Mineral Leasing Act of 1920 (the "Mineral Act") prohibits direct or
indirect ownership of any interest in federal onshore oil and gas leases by a
foreign citizen of a country that denies "similar or like privileges" to
citizens of the United States. Such restrictions on citizens of a
"non-reciprocal" country include ownership or holding or controlling stock in
a corporation that holds a federal onshore oil and gas lease. If this
restriction is violated, the corporation's lease can be canceled in a proceeding
instituted by the United States Attorney General. Although the regulations of
the BLM (which administers the Mineral Act) provide for agency designations of
nonreciprocal countries, there are presently no such designations in effect. The
Company owns interests in numerous federal onshore oil and gas leases. It is
possible that the Common Stock will be acquired by citizens of foreign
countries, which at some time in the future might be determined to be
non-reciprocal under the Mineral Act.
STATE REGULATION
Most states regulate the production and sale of oil and gas, including
requirements for obtaining drilling permits, the method of developing new
fields, the spacing and operation of wells and the prevention of waste of oil
and gas resources. The rate of production may be regulated and the maximum daily
production allowable from both oil and gas wells may be established on a market
demand or conservation basis or both.
The Company may enter into agreements relating to the construction or operation
of a pipeline system for the transportation of gas. To the extent that such gas
is produced, transported and consumed wholly within one state, such operations
may, in certain instances, be subject to the jurisdiction of such state's
administrative authority charged with the responsibility of regulating
intrastate pipelines. In such event, the rates which the Company could charge
for gas, the transportation of gas, and the construction and operation of such
pipeline would be subject to the rules and regulations governing such matters,
if any, of such administrative authority. In addition, the administrative
authority in certain states have regulatory authority over the gathering of
natural gas, either as public utilities, common carriers and/or common
purchasers of production. As a result of FERC Order No. 636, federal agency
oversight of gathering performed by interstate pipelines has diminished in favor
of increased state oversight of such facilities. Given these recent events, it
is possible that state regulation over the Company's gathering activities, and
respecting gatherers which provide services to the Company, may increase.
ENVIRONMENTAL REGULATION
GENERAL
The Company's activities are subject to existing federal, state and local laws
and regulations governing environmental quality and pollution control. Although
no assurances can be made, the Company anticipates that, absent the occurrence
of an extraordinary event such as those noted under "Risk Factors," compliance
with existing federal, state and local laws, rules and regulations regulating
the release of materials into the environment or otherwise relating to the
protection of the environment will not have a material effect upon the capital
expenditures, earnings or the competitive position of Bellwether with respect to
the Company's operations. The Company cannot predict what effect additional
regulation or legislation, enforcement policies issued thereunder, and claims
for damages to property, employees, other persons and the environment resulting
from the Company's operations could have on its activities.
Activities of the Company with respect to gas facilities, including the
operation and construction of pipelines, plants and other facilities for
transporting, processing, treating or storing gas and other products, are
subject to stringent environmental regulation by state and federal authorities
including the Environmental Protection Agency ("EPA"). Such regulation can
increase the cost of planning, designing, installing and operating such
facilities. In most instances, the regulatory requirements impose water and air
pollution control measures. Although Bellwether believes that compliance with
environmental regulations will not have a material adverse effect on the
Company, risks of substantial costs and liabilities related to environmental
compliance issues are inherent in oil and gas production operations, and no
assurance can be given that significant costs and liabilities will not be
incurred. Moreover, it is possible that other developments, such as stricter
environmental laws and regulations, and claims for damages to property or
persons resulting from oil and gas production, would result in substantial costs
and liabilities to the Company.
46
<PAGE>
SOLID AND HAZARDOUS WASTE
The Company currently owns or leases, and has in the past owned or leased,
numerous properties that have been used for production of oil and gas for many
years. Although the Company has utilized operating and disposal practices that
were standard in the industry at the time, hydrocarbons or other solid wastes
may have been disposed or released on or under the properties owned or leased by
the Company. In addition, many of these properties have been operated by third
parties. The Company had no control over such parties' treatment of hydrocarbons
or other solid wastes and the manner in which such substances may have been
disposed or released. State and federal laws applicable to oil and gas wastes
and properties have gradually become stricter over time. Under these new laws,
the Company could be required to remove or remediate previously disposed wastes
(including wastes disposed or released by prior owners or operators) or property
contamination (including groundwater contamination by prior owners or operators)
or to perform remedial plugging operations to prevent future contamination.
The Company generates wastes, including hazardous wastes, that are subject to
the Federal Resource Conservation and Recovery Act ("RCRA") and comparable
state statutes. The EPA has limited the disposal options for certain hazardous
wastes and is considering the adoption of stricter disposal standards for
nonhazardous wastes. Furthermore, it is possible that certain wastes currently
exempt from treatment as "hazardous wastes" generated by the Company's oil and
gas operations may in the future be designated as "hazardous wastes" under
RCRA or other applicable statutes, and therefore be subject to more rigorous and
costly disposal requirements.
SUPERFUND
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons with respect to the release of a "hazardous substance" into the
environment. These persons include the owner and operator of a site and any
party that disposed or arranged for the disposal of the hazardous substance
found at a site. CERCLA also authorizes the EPA and, in some cases, third
parties, to take actions in response to threats to the public health or the
environment and to seek to recover from the responsible classes of persons the
costs of such action. In the course of the Company's operations, Bellwether has
generated and will generate wastes that may fall within CERCLA's definition of
"hazardous substances." The Company may also be an owner of sites on which
"hazardous substances" have been released. The Company may be responsible
under CERCLA for all or part of the costs to clean up sites at which such wastes
have been disposed. At this time, neither the Company nor its predecessors has
been designated as a potentially responsible party under CERCLA with respect to
any such site.
OIL POLLUTION ACT
The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder impose a
variety of regulations on "responsible parties" related to the prevention of
oil spills and liability for damages resulting from such spills in "waters of
the United States." The term "waters of the United States" has been broadly
defined to include inland waterbodies, including wetlands, playa lakes and
intermittent streams. A "responsible party" includes the owner or operator of
a facility or vessel, or the lessee or permittee of the area in which an
offshore facility is located. The OPA assigns liability to each responsible
party for oil removal costs and a variety of public and private damages. While
liability limits apply in some circumstances, a party cannot take advantage of
liability limits if the spill was caused by gross negligence or willful
misconduct or resulted from violation of a federal safety, construction or
operating regulation. If the party fails to report a spill or to cooperate fully
in the cleanup, liability limits also do not apply. Few defenses exist to the
liability imposed by the OPA.
The OPA also imposes ongoing requirements on a responsible party, including
proof of financial responsibility to cover at least some costs in a potential
spill. OPA originally required owners and operators of offshore oil and gas
facilities to establish $150.0 million in financial responsibility. Congress
passed legislation in September 1996 that was subsequently signed by the
President and that would make two significant changes to the original OPA.
First, the amount of financial responsibility that must be demonstrated for an
offshore facility was reduced to $35.0 million if the facility is located
seaward of the seaward boundary of a state, or $10.0 million if the facility is
located landward of such boundary. A higher amount, up to a maximum of $150.0
million, may still be required if justified by the risks of a particular
facility. Second, certain offshore facilities with a worst-case oil spill risk
of 1,000 barrels or less are exempted altogether from the financial
responsibility requirement, unless the President demonstrates a need for it with
respect to a particular facilty.
47
<PAGE>
The requirements under OPA may have the potential to result in the imposition of
substantial additional annual costs on the Company or otherwise materially
adversely affect the Company. However, the impact of the statute is not expected
to be any more burdensome to the Company than it will be to other similarly or
less capitalized owners or operators in the Gulf of Mexico.
AIR EMISSIONS
The operations of the Company are subject to local, state and federal laws and
regulations for the control of emissions from sources of air pollution.
Administrative enforcement actions for failure to comply strictly with air
regulations or permits are generally resolved by payment of monetary fines and
correction of any identified deficiencies. Alternatively, regulatory agencies
could require the Company to cease construction or operation of certain air
emission sources, although the Company believes that in the such case it would
have enough permitted or permittable capacity to continue its operations without
a material adverse effect on any particular producing field.
OSHA
The Company is subject to the requirements of the Federal Occupational Safety
and Health Act ("OSHA") and comparable state statutes. The OSHA hazard
communication standard, the EPA Community Right-to-Know regulations under Title
III of CERCLA and similar state statutes require Bellwether to organize and/or
disclose information about hazardous materials used or produced in the Company's
operations. Certain of this information must be provided to employees, state and
local governmental authorities and local citizens.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table provides information with respect to the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- --------------------------------------------------------------
<S> <C>
J.P. Bryan.............................. 57 Chairman of the Board
J. Darby Sere........................... 49 Director, President and Chief Executive Officer
Charles C. Green III.................... 50 Director, Executive Vice President and Chief Financial Officer
Roland E. Sledge........................ 51 Vice President and Secretary
Michael B. Smith........................ 34 Vice President and Treasurer
C. Barton Groves........................ 59 Director of the Company; President of Odyssey
Kenneth W. Welch........................ 39 Vice President -- Land of Odyssey
Dr. Jack Birks.......................... 77 Director
Vincent H. Buckley...................... 74 Director
Habib Kairouz........................... 30 Director
A.K. McLanahan.......................... 70 Director
Michael D. Watford...................... 43 Director
</TABLE>
MR. BRYAN has been Chairman of the Board of the Company since August 31, 1987,
and was Chief Executive Officer of the Company from June 30, 1994 to January 25,
1995 and from August 1987 to March 6, 1988. Since January 25, 1995, Mr. Bryan
has been Chief Executive Officer of Gulf Canada Resources Limited. He has been
Chairman of the Board of Nuevo since March 1990 and was Chief Executive Officer
of Nuevo from March 1990 to January 1995. Mr. Bryan has also been Chairman of
the Board and Chief Executive Officer of Bellwether and its predecessor since
January 1, 1985. Mr. Bryan is a member of the Board of Directors of Gulf Canada
Resources Limited, Nuevo and Republic Waste Industries.
MR. SERE has been Chief Executive Officer of the Company since January 25, 1995,
President since March 7, 1988, and a director since March 25, 1988. Mr. Sere was
Chief Executive Officer of the Company from March 7, 1988 to June 29, 1994. He
was a consultant with Patrick Petroleum Company, an independent oil and gas
company, from September 1987 to February 1988 and was a co-founder, President,
Chief Executive Officer and a director of Bayou Resources, Inc., an independent
oil and gas exploration and development company, from January 1982 until its
acquisition by Patrick Petroleum Company in August 1987. Mr. Sere served in
various positions with Howell Corporation and Howell Petroleum Corporation, an
independent oil and gas company, from 1977 to 1981, the last of which was
Executive Vice President.
MR. GREEN has been Executive Vice President and Chief Financial Officer of the
Company since January 1, 1997, a director since February 24, 1997 and an officer
of the Company since December 31, 1992. He was an officer of Bellwether from
December 1992 through December 1996, serving as Vice Chairman and Chief
Investment Officer of Bellwether from May 1995 to December 1996, and as
President and Chief Operating Officer for 18 months prior thereto. For over ten
years prior to joining Bellwether, Mr. Green was President and Chief Operating
Officer of Treptow Development Company, a real estate development company.
Previously, at J. P. Morgan Investment Management, he was Vice President and
Senior Portfolio Manager and Head of International Fixed Income in London
(1974-1982) and, in New York, was Assistant Vice President in the Investment
Department (1973-1974) and Investment Research Officer and Energy Analyst
(1969-1973). He has been a director of Teletouch Communications, Inc. since May
1995. Mr. Green is a Chartered Financial Analyst.
MR. SLEDGE, Vice President and Secretary of the Company since September 1, 1987,
is Managing Director, Secretary and General Counsel of Torch and has been an
officer with Torch and its predecessor since July 1983. He was an attorney with
the law firm of Watt, White & Craig, Houston, Texas from 1980 to 1983.
MR. SMITH has been Vice President and Treasurer of the Company since January 1,
1997 and was Vice President and Chief Financial Officer of the Company from
September 1995 through December 1996. Mr. Smith joined Torch in April 1995 as
Vice President of Acquisitions and Financial Analysis and in September 1995
became Torch's Chief Financial Officer. Prior to joining Torch, Mr. Smith held
various positions in finance with ARCO beginning August 1989, the last of which
was Financial Advisor in the Corporate Treasury department.
49
<PAGE>
MR. GROVES has been President of Odyssey and a director of the Company since
August 26, 1994. He was President of the managing general partner of Odyssey
Partners, the predecessor in interest of Odyssey, from 1986 to August 1994.
Between 1973 and 1986, Mr. Groves held various positions with Diamond Shamrock
Corporation, including President of its Diamond Shamrock Exploration Company
subsidiary.
MR. WELCH has been Vice President -- Land of Odyssey since August 26, 1994. From
1987 to August 1994, Mr. Welch was Land Manager of the Odyssey Partnership.
Between 1979 and 1987, Mr. Welch held Area Landman and Senior Landman positions
with Enserch Exploration, Inc., Penn Resources, Inc., and Moore McCormack
Energy, Inc.
DR. BIRKS has been a Director of the Company since 1988. He is Chairman of the
Board of Midland & Scottish Resources Plc. He is life president of British
Maritime Technology Limited. Dr. Birks served as Chairman of the Board of North
American Gas Investment Trust Plc. from 1989 until his retirement in 1995; as
Chairman of the Board of British Maritime Technology Limited from 1985 to 1995;
as Chairman of the Board of Charterhouse Petroleum Plc from 1982 to 1986; as
Chairman of the Board of London American Energy Inc. from 1982 to 1988; as Vice
Chairman of the Board of Petrofina (UK) Limited from 1986 to 1989; and as a
director of George Wimpey Plc, a construction company, from 1982 to May 1990.
MR. BUCKLEY has been a Director of the Company since 1987. He has been Of
Counsel to the law firm of Liddell, Sapp, Zivley, Hill & LaBoon since January
1989. He serves as a Director of Enron Cactus III Corporation, Houston, Texas,
an oil and gas company, and as a Director on the Houston Medical Area Advisory
Board of Texas Commerce Bank National Association. Mr. Buckley was President and
Chief Executive Officer of Cockburn Oil Corporation from August 1984 until
September 1, 1988, and was Vice President of Apache Corporation, an oil and gas
company, Denver, Colorado, from October 1982 to August 1984.
MR. KAIROUZ has been a director of the Company since August 26, 1994. Since
December 1993 he has been employed by Rho Management Company, Inc., an
investment advisory firm which serves as advisor to the principal investor of
Alpine Investment Partners. Prior to that, Mr. Kairouz was employed for five
years in investment banking at the firms of Jesup & Lamont Securities, Inc. and
more recently, Reich & Co., Inc. Under the agreement pursuant to which the
Company acquired Odyssey, certain former owners ("Owners") of the Odyssey
Partnership acquired the right to designate one representative to the Company's
board of directors. Pursuant to such agreement, until the earlier to occur of
the five-year anniversary of the closing of such acquisition or the date such
Owners no longer own at least 5% of the outstanding Common Stock, the Company is
obligated to nominate and recommend to the Company's Stockholders one
representative of the Owners. Mr. Kairouz is the person so designated by the
Owners.
MR. MCLANAHAN has been a director of the Company since November 6, 1987. He has
been a First Vice President of PaineWebber Incorporated since January, 1995. He
was a Vice President of Kidder Peabody & Co., Inc., an investment banking firm
from April 1985 until its sale to PaineWebber Incorporated in 1995. From April
1982 to April 1985 he served as a Senior Vice President and Branch Office
Manager of Donaldson, Lufkin & Jenrette, Inc., an investment banking firm.
MR. WATFORD has been a Director of the Company since March 1994. He has been
Chief Executive Officer of Nuevo since January 1995 and President, Chief
Operating Officer, and a member of the Board of Directors of Nuevo since
February 1994. He was President of Torch Energy Marketing, Inc., a subsidiary of
Torch, from 1990 until April 1995 and was Director of Natural Gas Marketing for
Meridian Oil, Inc. from 1985 until 1990. Mr. Watford was employed by Superior
Oil Company from 1981 until 1985 and Shell Oil Company from 1975 until 1981.
COMPENSATION OF DIRECTORS
Directors of the Company who are neither officers nor employees of the Company
or Torch received $2,000 for the first quarter meeting of the Board of Directors
and $3,000 per meeting thereafter during the fiscal year ended June 30, 1996,
and were reimbursed for reasonable expenses incurred in attending such meetings.
Directors who are officers or employees of the Company or Torch did not receive
any additional compensation for services as members of the Board of Directors.
The Company paid a total of $39,000 in director fees for the fiscal year ended
June 30, 1996. Each non-employee board member also received an annual grant of
2,000 options under the 1994 Stock Incentive Plan and receives an annual grant
of 4,000 options under the 1996 Stock Incentive Plan ("1996 Plan") following
each annual meeting commencing in 1997.
50
<PAGE>
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the past three years cash
compensation and certain other components of the compensation of J. Darby Sere,
the Company's President and Chief Executive Officer, C. Barton Groves, President
of Odyssey and Kenneth W. Welch, Vice President -- Land of Odyssey, who were the
only officers of the Company in fiscal 1996 whose total salary and bonus
exceeded $100,000. All other executive officers of the Company were also
officers or employees of Torch during fiscal 1996 and provided services to the
Company (including holding executive officer positions with Company) pursuant to
the Administrative Services Agreement between the Company and Torch. Executive
officers who perform services for the Company under the Administrative Services
Agreement received no compensation from the Company other than the grant of
stock options under the 1994 Stock Incentive Plan ("1994 Plan") and were all
compensated primarily by Torch.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------- ----------------------------------------------
OTHER AWARDS ALL
ANNUAL RESTRICTED NUMBER PAYOUTS OTHER
COMPENSA- STOCK OF LTIP COMPENSA-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS TION(1) AWARD(S) OPTIONS PAYOUTS TION(2)
- ------------------------------------- ---- --------- --------- --------- ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Darby Sere ....................... 1996 $ 171,000 $ 50,000(3) $ -- -- --(4) $ -- $ 8,752
President and Chief 1995 158,000 -- -- -- 25,000 -- 8,450
Executive Officer 1994 147,000 16,500 -- -- 234,450 -- 7,561
C. Barton Groves .................... 1996 154,000 30,000(3) -- -- --(4) -- 30,500
President of Odyssey 1995 125,000 -- -- -- 165,000 -- 21,013
1994 -- -- -- -- -- -- --
Kenneth W. Welch .................... 1996 98,000 15,000(3) -- -- --(4) -- 10,750
Vice President -- 1995 80,486 -- -- -- 82,500 -- 7,899
Land of Odyssey 1994 -- -- -- -- -- -- --
</TABLE>
- -----------------------------
(1) These amounts do not include the value of the benefit to Mr. Sere of the use
of a Company-owned automobile used primarily for commuting to the Company;
the expense of a $7,110 per month disability insurance policy under which
Mr. Sere is the insured, the premiums of which are paid by the Company; and
the expenses of Mr. Sere's membership in certain professional and athletic
clubs. While some personal benefit may be derived from the foregoing, the
expenses are considered by the Company to be ordinary, necessary and
reasonable to its business and such expenses did not exceed 10% of Mr.
Sere's salary in fiscal 1996.
(2) Represents premiums paid on a $500,000 term life insurance policy for Mr.
Sere and an annual payment pursuant to a Simplified Employee Pension Plan
for Mr. Sere, Mr. Groves and Mr. Welch. Also includes $17,000 per year for
personal benefit plans paid to Mr. Groves in lieu of certain Company
benefits and amounts paid for a car allowance for Mr. Groves and Mr. Welch.
(3) Represents the bonuses paid during fiscal 1996 based upon performance in
fiscal 1995. On October 1, 1996, Messrs. Sere, Groves and Welch were granted
bonuses of $70,000, $32,500 and $17,500, respectively, in recognition of
their performance during fiscal 1996.
(4) Represents the number of options granted during fiscal 1996 based upon
performance in fiscal 1995. On September 16, 1996, Messrs. Sere, Groves and
Welch were granted, subject to stockholder approval of the 1996 Plan,
options to purchase 55,000, 15,000 and 7,500 shares of Common Stock,
respectively, in recognition of their performance during fiscal 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No option or stock appreciation rights grants were made in fiscal year 1996.
51
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth certain information concerning the exercise in
fiscal 1996 of options to purchase Common Stock by the executive officers named
in the Summary Compensation Table and the number and value of unexercised
options to purchase Common Stock held by such individuals at June 30, 1996. Also
reported are the values for "in-the-money" options which represent the
positive spread between the exercise price of any such existing stock options
and the June 30, 1996 price of the Common Stock. The actual amount, if any,
realized upon exercise of stock options will depend upon the market price of the
Common Stock relative to the exercise price per share of Common Stock at the
time the stock option is exercised. There is no assurance that the values of
unexercised, "in-the-money" stock options reflected in this table will be
realized.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
NUMBER OF VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE OPTIONS AT JUNE 30, 1996 JUNE 30, 1996(1)
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- -------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
J. Darby Sere........................ -- -- 236,560 22,890 $ 154,255 $25,751
C. Barton Groves..................... -- -- 165,000 -- $ 60,000 --
Kenneth W. Welch..................... -- -- 82,500 -- $ 30,000 --
</TABLE>
- -----------------------------
(1) Based upon $6.00, the closing price of Common Stock on June 30, 1996.
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
At this time, the Company does not have a long-term incentive plan for its
employees, other than the 1988 Non-Qualified Stock Option Plan, the 1994 Stock
Incentive Plan and the 1996 Stock Incentive Plan.
1988 PLAN
In 1988, the Board of Directors adopted and the stockholders approved the 1988
Non-Qualified Stock Option Plan ("1988 Plan"). The Company has reserved
131,325 shares of common stock under the 1988 Plan and no further options will
be granted under the plan. Options under the 1988 Plan may be granted by the
Compensation Committee to any director, executive officer or key employee of the
Company. The exercise price of an option is 100% of the fair market value on the
date of the grant. Options granted under the 1988 Plan may be exercised at any
time for up to 10 years from the date of grant but prior to termination of the
1988 Plan on March 25, 1998, or such shorter time as the Compensation Committee
determines.
1994 PLAN
In 1994, the Board of Directors adopted and the stockholders approved the 1994
Plan. The Company has reserved 825,000 shares of Common Stock under the 1994
Plan. The Company has issued options to purchase an aggregate of 825,000 shares
under the 1994 Plan.
The 1994 Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has full power to select, from among the
persons eligible for awards, the individuals to whom awards are granted, to make
any combination of awards to any participant and to determine the specific terms
of each grant, subject to the provisions of the 1994 Plan. The option price per
share of Common Stock deliverable upon the exercise of a Stock Option shall be
100% of the fair market value of a share of Common Stock on the date the Stock
Option is granted.
Directors, officers and key employees of the Company and officers and key
employees of Torch who render services for the Company under the Administrative
Services Agreement are eligible to receive stock options or performance shares
under the 1994 Plan.
1996 PLAN
In 1996, the Board of Directors adopted and the stockholders approved the 1996
Plan. Individual awards under the 1996 Plan may take the form of one or more of
(i) incentive stock options; (ii) non-qualified stock options; or (iii)
performance shares.
The 1996 Plan is administered by a plan administrator which may be any of (i)
the Board of Directors of the Company; (ii) any duly constituted committee of
the Board of Directors consisting of at least two non-employee directors; or
(iii) any
52
<PAGE>
other duly constituted committee of the Board of Directors. The plan
administrator will select the officers, key employees and consultants who will
receive awards and the terms and conditions of those awards. The maximum number
of shares of Common Stock that may be subject to outstanding awards may not
exceed 500,000 shares of Common Stock tendered as payment for shares issued upon
exercise of an option or which are attributable to awards which have expired,
terminated or been canceled or forfeited are available for issuance or use in
connection with future awards.
The option price of any incentive stock option shall be 100% of the fair market
value of a share of Common Stock on the date the incentive option is granted.
Any incentive option must be exercised within ten years of the date of grant.
Unless otherwise determined by the plan administrator, the option price of any
non-qualified stock option shall be 100% of the fair market value of a share of
Common Stock on the date the option is granted. Vesting of stock options and
performance shares, and the term of any non-qualified stock option or
performance share award is determined by the plan administrator.
The 1996 Plan provides that each director that is not an employee of the Company
shall, on the date on which he or she is initially elected or appointed a
director of the Company, be granted a stock option to purchase 4,000 shares of
Common Stock for the fair market price on the date of grant and for a term of
ten years. After each subsequent annual meeting of stockholders at which such
person continues to serve as a director, he or she will automatically be granted
a stock option to purchase 4,000 additional shares of Common Stock for the fair
market price on the date of such grant and for a term of ten years.
In the event of a termination of employment, outstanding options and performance
shares may be subject to forfeiture and/or time limitations. Stock options and
performance shares are evidenced by written agreements, the terms and provisions
of which may differ. No stock option is transferable other than by will or by
the laws of descent or distribution.
The 1996 Plan may be amended by the Board of Directors without the consent of
the stockholders except that any amendment, though effective when made, will be
subject to stockholder approval if required by any federal or state law or
regulation or by the rules of any stock exchange or automated quotation system
on which the Common Stock may then be listed or quoted. In addition, no
amendment can impair the rights of a holder of an outstanding award under the
Plan without such holder's consent.
53
<PAGE>
TRANSACTIONS WITH RELATED PERSONS
RELATIONSHIP WITH TORCH AND AFFILIATES
ADMINISTRATIVE SERVICES AGREEMENT
The Company has been party to an Administrative Services Agreement with Torch
since 1987. Torch, headquartered in Houston, Texas, is primarily engaged in the
business of providing outsourcing services for clients in the energy industry
with respect to the acquisition and divestiture, exploration, development,
exploitation and operation of oil and gas properties, including management
advisory services, legal, financial and accounting services, and the marketing
of oil and gas. In addition, Torch provides energy industry investment
management and advisory services for public companies and private investors. The
Administrative Services Agreement is subject to termination by Bellwether upon
one-year prior notice. This agreement has an initial term expiring on December
31, 1999, and may not be terminated by Torch prior to such date.
The Administrative Services Agreement requires Torch to administer certain
activities of the Company for a monthly fee. These administrative services
include providing the Company with office space, equipment and supplies,
accounting, legal, financial, geological, engineering, technical and insurance
professionals retained by the Company, maintaining the books and records of the
Company, assisting the Company in determining its capital requirements,
preparing any reports or other documents required by governmental authorities,
analyzing economic and other data related to the Company's business and
otherwise providing general management services and advice to the Company's
business. The Company presently intends to continue to operate under the
Administrative Services Agreement.
The monthly fee payable to Torch is equal to (i) one-twelfth of 2% of the book
value of the Company's assets, excluding cash and cash equivalents, plus (ii) 2%
of operating cash flows during such month less 20% of overhead on Torch operated
properties. The fees paid for fiscal 1994, 1995 and 1996 were $600,000, $1.2
million and $1.5 million, respectively. On a pro forma basis, the amount payable
under the Administrative Services Agreement for administrative services would
have been $6.1 million and $2.4 million in fiscal 1996 and the six months ending
December 31, 1996, respectively. The Company believes that the terms and fees
under the Administrative Services Agreement are comparable with those that could
be negotiated with a third party in an arm's length transaction and are fair to
the Company.
Under the Administrative Services Agreement, the monthly fee for administrative
services does not apply to extraordinary investing and financing services that
Torch may agree to provide to the Company upon the Company's request. For such
investing and financing services the Company pays Torch a fee based on the Torch
employees providing such services on an hourly basis, certain overhead expenses
with respect to such employees and any related expenses. The Company has not
paid any fees for these services in the last three fiscal years.
The Company has agreed to indemnify Torch and its affiliates for liabilities
incurred by Torch or its affiliates for actions taken under the Administrative
Services Agreement, other than acts of fraud, willful misconduct or gross
negligence of Torch or its affiliates or any of their employees.
In the course of its business, Torch generates potential investments in oil and
gas properties, processing plants, gathering systems and pipelines, and other
oil and gas assets (collectively "Investments"). Torch also provides services
to Nuevo. Under the Administrative Services Agreement and the agreement with
Nuevo, Torch is required to offer to the Company and Nuevo all Investments that
are within the scope of the Company's or Nuevo's business.
The business and acquisition strategy of the Company and Nuevo may overlap
regarding certain Investments. The Company, Nuevo and Torch have adopted a
policy regarding the rights as between Nuevo and the Company to Investments
generated by Torch that Torch is required to offer to the Company and Nuevo. If
an Investment is located in the Company's Area of Exclusive Interest (as
hereinafter defined), the Investment will be offered first to the Company. If an
Investment is located in Nuevo's Area of Exclusive Interest, the Investment will
be offered first to Nuevo. Investments located outside of or in both the Areas
of Exclusive Interest will be offered by Torch to both the Company and Nuevo.
Unless the Company and Nuevo agree otherwise, the Company will be entitled to
acquire a 20% interest in the assets representing the Investment, and Nuevo will
be entitled to acquire the remaining 80%. With respect to assets that form part
of an Investment which is not capable of division, Torch will allocate such
assets between Nuevo and the Company in a manner deemed fair and reasonable by
Torch, whose decision shall be final and binding.
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<PAGE>
The Company's Area of Exclusive Interest is defined as (i) for Investments in an
oil and gas property, any geographic area which produces from the same formation
as the proposed Investment and in which the Company owns proved reserves with a
discounted present value of future net cash flows of $500,000 or more, and (ii)
for Investments that are not an oil and gas property, any area in which the
Company owns a non-oil and gas property investment with a book value of over
$100,000. Nuevo's Area of Exclusive Interest is defined as (i) for Investments
in an oil and gas property, any geographic area which produces from the same
formation as the proposed Investment and in which Nuevo owns proved reserves
with a discounted present value of future net cash flows of $5 million or more,
and (ii) for Investments that are not an oil and gas property, any area in which
Nuevo owns a non-oil and gas property investment with a book value of over $1
million.
The Company will continue to generate its own Investments in the future, and
neither Torch nor Nuevo will have any right to participate in such Investments.
Decisions to accept an Investment generated by Torch are made by the Company's
management and Board of Directors, some of whom are members of Torch's executive
management. The Compensation Committee of the Board of Directors, which is
composed of persons who are not employees of Torch or the Company, meets
quarterly to review Torch's performance under the Administrative Services
Agreement.
Torch also invests in oil and gas assets for its own account and may do so in
the future. In accordance with the Administrative Services Agreement, Torch may
not acquire an Investment within the scope of the Company's business and
acquisition strategy without first offering such Investment to the Company
pursuant to the criteria set forth above.
The organizational agreements of the Sellers also contained provisions which
required Torch to offer to the Sellers Investments meeting the criteria set
forth in such agreements. Although these requirements will terminate as a result
of the Pending Acquisitions, it is possible that Torch will form similar
investment vehicles in the future. In such event, all Investments meeting the
criteria of such investment vehicles would be offered first to any such Sellers
formed in the future. Bellwether has reviewed the investment criteria for the
Sellers and does not believe that such criteria would be competitive with the
Company's business and acquisition strategy in the future. No assurances can be
made, however, that the investment criteria of future investment vehicles formed
by Torch will not compete with the Company's acquisition strategy or that such
investment vehicles will not acquire Investments that the Company would
otherwise propose to acquire.
OTHER RELATIONSHIPS WITH TORCH
Torch markets a portion of the oil and natural gas production for certain
properties in which the Company owns an interest. For fiscal 1994, 1995, and
1996, marketing fees paid by the Company to Torch amounted to $3,000, $12,000,
and $114,000, respectively.
Torch began operating the Gas Plant in December 1993 pursuant to an operating
agreement with the Company and other interest owners in the Gas Plant. The
amount paid to Torch in connection with such operations during the seven months
ended June 30, 1994 and fiscal 1995 and 1996, were $38,000, $71,000 and $83,000,
respectively.
Torch operates certain oil and gas interests owned by the Company. The Company
is charged, on the same basis as other third parties, for all customary expenses
and cost reimbursements associated with these activities. Operator's overhead
charged for these activities for the years ended June 30, 1994, 1995 and 1996
was $45,000, $164,000 and $367,000, respectively.
Costs of the evaluation of potential property acquisitions and due diligence
conducted in conjunction with acquisitions are incurred by Torch at the
Company's request. The Company was charged $193,000 and $74,000 for such costs
in 1995 and 1996, respectively.
Certain officers and directors of the Company are also officers or employees of
Torch. On September 30, 1996, Torch Acquisition Company ("TAC"), a company
formed by executive management of Torch, acquired all of the outstanding shares
of capital stock of Torch from United Investors Management Company ("United"),
a subsidiary of Torchmark Corporation. J.P. Bryan, Chairman of the Board of the
Company, is also Chairman of the Board of TAC and owns options to purchase
approximately 24% of the outstanding shares of common stock of TAC on a fully
diluted basis for a nominal price. Roland E. Sledge and Michael B. Smith, who
are officers of Torch and the Company, own 5.5% and 4.5% of the common stock of
Torch on a fully diluted basis, and Charles C. Green III, Executive Vice
President and Chief Financial Officer, holds options to purchase 2.1% of the
common stock of Torch on a fully diluted basis.
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CERTAIN ACQUISITIONS
A joint venture 90% owned by the Company (the "Company Venture") acquired 7.6%
and 23.3% interests in the Snyder Plant and the Diamond M-Sharon Ridge Gas
Plant, respectively, in July 1993. The interests were acquired for $8.5 million.
In a simultaneous transaction, a joint venture 90% owned by Torch (the "Torch
Venture") acquired 4.1% and 12.5% interests in the Snyder Plant and Diamond
M-Sharon Ridge Gas Plant, respectively, for $4.6 million. The other partner in
the Company Venture is not affiliated with the Company or Torch.
In December 1993, Torch sold its interests in the Torch Venture to AGRI for a
promissory note in the amount of $4.6 million, which bore interest at 7.0% per
annum. In December 1993, the Company acquired AGRI by merger. In March 1994, the
Company repaid the $4.6 million note to Torch with borrowings under an existing
credit facility.
Under the terms of the Administrative Services Agreement in effect at that time,
Torch became entitled to consideration equal to 2.5% of the consideration paid
by the Company to the shareholders of AGRI in such acquisition. In lieu of this
fee, the Company issued Torch a warrant to purchase 187,500 shares of Common
Stock for $6.40 per share. The warrant is exercisable at any time prior to
December 31, 1998. In connection with the sale of the capital stock of Torch to
TAC, Torch transferred the warrant to United. See "Principal and Selling
Stockholders."
Prior to its acquisition by the Company, AGRI was managed by Torch. During the
fiscal 1994, AGRI paid Torch management fees of $300,000.
In connection with the merger of AGRI into the Company, AGRI issued 650,000,
150,000, 150,000 and 50,000 shares of its common stock to Torch, J. P. Bryan,
Michael D. Watford and an employee of Torch, respectively. In connection with
the Company's acquisition of AGRI, the shares owned by Torch, Mr. Bryan, Mr.
Watford and the employee were converted into 54,151, 12,497 and 12,497 shares of
Common Stock, and $25,000, respectively.
PURCHASES FROM NUEVO
During the year ended June 30, 1994, the Company acquired interests in certain
exploratory prospects from Nuevo for an aggregate cost of $143,000. In February
1997, the Company acquired a 25.0% working interest in the Mud Lake field from
Nuevo for a net purchase price of $2.0 million.
MINING VENTURES
During fiscal year 1992, the Company acquired an average 24.4% interest in three
mining ventures (the "Mining Ventures") from an unaffiliated person for
$128,500. At the time of such acquisition, Mr. Bryan, his brother and Robert L.
Gerry, a director and executive officer of Nuevo (the "Affiliated Group"),
owned an average 21.5% interest in the Mining Ventures. The Company's interest
in the Mining Ventures increased as it paid costs of the venture. As of June 30,
1996, the Company had invested $324,000 in the Mining Ventures.
3DX
3DX Technologies, Inc. ("3DX") is a participant in the 3-D seismic projects in
the Fausse Pointe and Cove fields. Nuevo owns a 27% interest in a partnership
that owns a 4.9% interest in 3DX.
HAMPTON ACQUISITION
In connection with the purchase of 7,500 shares of Hampton Preferred Stock from
R. Chaney & Partners - 1993, L.P. (the "Chaney Partnership"), the Company
agreed to indemnify and hold harmless the Chaney Partnership and its affiliates
from any expenses to which they may become subject, to the extent arising out of
the Company's purchase of such shares of Hampton Preferred Stock. One of the
limited partners in the Chaney Partnership is Nuevo. In addition, the Company
agreed to reimburse the Chaney Partnership for legal fees (not to exceed $2,000)
incurred by it in connection with the sale of such shares of Hampton Preferred
Stock.
ODYSSEY MERGER
In connection with the acquisition of Odyssey, the former owners of Odyssey
assigned approximately 5.0% of the consideration to the then current management
of Odyssey, all of whom became employees of the Company following the
acquisition. Pursuant to this agreement, a corporation owned by C. Barton Groves
received 20,625 shares of Common Stock and $123,750 and Kenneth W. Welch
received 10,312 shares of Common Stock and $61,875. The former owners of
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Odyssey also formed a new partnership ("New Odyssey") and transferred to it
interests in certain prospects formerly owned by Odyssey. Messrs. Groves and
Welch received a 2.2% and 1.1% interest, respectively, in New Odyssey. Certain
subsidiaries of Torchmark which own Common Stock have agreed with Odyssey's
former owners that if the Torchmark subsidiaries sell Common Stock in certain
transactions, such subsidiaries will arrange for the sale of the Common Stock
held by the former owners of Odyssey on the same basis as the Torchmark
subsidiaries'shares are sold. Additionally, former owners of Odyssey have been
granted registration rights with respect to such shares.
PENDING ACQUISITION
The Sellers were formed by Torch between 1987 and 1994. The investors in the
Sellers are insurance companies, pension plans, charitable foundations and other
institutional investors. Although the Sellers were structured differently to
satisfy the regulatory constraints and investment objectives of each investor,
such programs generally provided that Torch would invest 1% of all capital and
would receive 2% of revenues until "payout" (generally defined as the return
of the investors' capital contributions). After payout, Torch would receive a
larger interest, generally approximately 11%. In addition, Torch's interest in
the distributions made by the Sellers would increase if the investors received a
return of their capital plus a specified rate of return. Some of the agreements
forming the Sellers also required Torch to invest 10% of the amount invested by
the investors. As a result of the Pending Acquisition, substantially all of the
Sellers will achieve payout. In exchange for its interests in the Sellers, Torch
will receive an estimated $18.4 million in connection with the Pending
Acquisition.
Prior to September 30, 1996, Torch was an indirect wholly owned subsidiary of
Torchmark. Torchmark continues to own a $25.5 million subordinated note issued
by Torch and warrants to purchase approximately 10% of the common stock of Torch
on a fully diluted basis. Torchmark also has a representative on Torch's board
of directors and certain other ongoing relationships with Torch. Wholly owned
subsidiaries of Torchmark invested on the same basis as other investors in
certain of the Sellers. In exchange for their interests in these Sellers, these
wholly owned subsidiaries of Torchmark will receive approximately $12.6 million
in connection with the Pending Acquisitions.
Torch will receive 150,000 shares of Common Stock and warrants to purchase
100,000 shares of Common Stock at a per share exercise price of 120% above the
price to the public in the Common Stock Offering as a fee for advising
Bellwether in connection with the Pending Acquisition. The warrants expire five
years following the closing of the Offerings.
Torchmark owns the working interests in certain of the Acquired Properties which
are net profits interests. Production from these properties is eligible for tax
credits under Section 29 of the Internal Revenue Code. Following the Pending
Acquisition, Torchmark will be obligated to pay to Bellwether $0.50 per each
$1.00 of tax credits received by Torchmark with respect to these properties.
During fiscal 1995 and 1996, total payments by Torchmark with respect to these
properties were $439,000 and $1.1 million, respectively.
In 1994, pursuant to the organizational agreements of the Sellers, certain
investors in the Sellers instituted an audit relating principally to fees and
other amounts previously paid to Torch for oil and gas marketing activities and
sales of non-strategic properties. Based on its own internal audit, Torch
determined that it had not fully complied with certain provisions of the
organizational agreements relating to oil and gas marketing activities. In July
1996, Torch and Torchmark offered to settle the matters addressed in the audits,
including the marketing issues, but final settlement was deferred until the
proposed sale of the Sellers' properties could be pursued further. In connection
with the acquisition of Torch by certain of its executive officers in September
1996, Torchmark agreed to pay all amounts incurred in settlement of the audit
issues. In connection with the Pending Acquisition, Torchmark and Torch will
settle all such matters with the investors in the Sellers on the terms proposed
in July 1996. Pursuant to its agreement with Torch, Torchmark will make a cash
payment on behalf of Torch to such investors in order to settle such matters.
Torchmark, Torch, such investors and their agents and affiliates will release
each other from any liability arising out of or related to, among other things,
such matters. In connection with such settlement, Bellwether will pay Torchmark
$1.5 million and (as successor to the Sellers as a result of the Pending
Acquisition) also will be released by the investors in the Sellers from any
liabilities relating to such matters.
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NEGOTIATION OF THE PENDING ACQUISITION; CONFLICTS OF INTEREST
Bellwether is entering into the Pending Acquisition because it believes that the
Pending Acquisition provides the opportunity to significantly increase reserves
and cash flow at an attractive price while providing opportunities for future
reserve growth through exploitation and exploration activities. Torch and
Bellwether have a common director and certain common officers. Certain members
of the Board of Directors and management of Bellwether were therefore subject to
conflicts of interest in connection with negotiating and approving the terms of
the Pending Acquisition and the fees to be received by Torch in connection with
the Pending Acquisition. In addition, under the Administrative Services
Agreement, Bellwether relies on Torch to perform title, operational and other
due diligence reviews of acquisition prospects, and Bellwether does not have
personnel to independently perform all of these functions in connection with the
acquisition of the Acquired Properties. Bellwether therefore relied on Torch to
perform certain of these functions in connection with the Pending Acquisition.
In order to resolve the conflicts of interest, Bellwether formed the Special
Committee of its Board of Directors, which is composed of directors who are not
affiliated with Torch, to consider and approve the terms of the Pending
Acquisition and the fees paid to Torch. The Special Committee retained legal
counsel to advise it in connection with its duties, and retained Ryder Scott to
audit the reserve estimates prepared by Torch on behalf of the Company in
connection with the determination of the purchase price for the Acquired
Properties. In addition, the Special Committee retained Principal to advise it
in connection with the terms of the acquisition of the Acquired Properties.
Principal is also an underwriter in the Common Stock Offering. Principal issued
its opinion to the Special Committee as to the fairness of the Pending
Acquisition from a financial point of view. The Special Committee approved the
terms of the agreement for the Pending Acquisition and the terms and amount of
all consideration paid to Torch in connection with the Pending Acquisition. See
"Risk Factors -- Conflicts of Interest."
In addition, the Sellers retained independent legal counsel and an independent
investment advisor to review the terms of the Pending Acquisition. The Sellers
also formed a committee ("Steering Committee") composed of employees of five
of the institutional investors in the Sellers to coordinate the negotiation and
execution of the agreements for the Pending Acquisition.
The terms of the Pending Acquisition were negotiated among Bellwether (including
the Special Committee of its Board of Directors), the Sellers (primarily through
the Steering Committee), and Torch. Although Bellwether believes that the terms
of the Pending Acquisition represent the results of arm's length bargaining, no
assurances can be given that the terms of the Pending Acquisition are the same
as those that would have been negotiated among unrelated parties.
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PRINCIPAL AND SELLING STOCKHOLDERS
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of February 28, 1997, the name, address, and
number of shares of Common Stock owned beneficially by (i) all persons known to
the Company to be the beneficial owners of more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the executive officers of the Company named in the Summary Compensation
Table, and (iv) all executive officers and directors of the Company as a group.
The information set forth in the following table is based on public filings made
with the SEC as of January 31, 1997 and certain information supplied to the
Company by the persons listed below. Unless otherwise indicated, all shares are
owned directly and the owner has sole voting and investment power with respect
thereto.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
SHARES OWNED SHARES OWNED
BEFORE OFFERINGS SHARES SOLD IN COMMON AFTER OFFERINGS
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER % STOCK OFFERING NUMBER %
---------- --------- ---------------------- ---------- ---
<S> <C> <C> <C> <C>
Allstate Insurance Company........... 1,340,584 14.6 -- 1,340,584 9.8
3075 Sanders Road, Suite G5B
Northbrook, Illinois 60062
Torchmark Corporation................ 750,196(a) 8.2 285,000(b) 402,696 2.9
United Investors Management Company
2001 Third Avenue South
Birmingham, Alabama 35233
Rho Management Partners L. P. c/o Rho
Management Company, Inc............ 729,832(c) 8.0 -- 729,832 5.3
767 Fifth Avenue
New York, New York 10153
Weiss, Peck & Greer.................. 515,200 5.6 -- 515,200 3.8
1 New York Plaza
New York, New York 10004
PPM America Inc...................... 506,568 5.5 190,000(b) 316,568 2.3
No. 1 Waterhouse Square
Holborn Bars
London EC1N2ST U.K.
J.P. Bryan........................... 139,372(d) 1.5 -- 147,372 1.1
J. Darby Sere........................ 317,950(e) 3.4 -- 317,950 2.3
Charles C. Green III................. 50,000(f) * -- 150,000 1.1
A.K. McLanahan....................... 13,750(g) * -- 17,750 *
Vincent H. Buckley................... 9,000(g) * -- 13,000 *
Dr. Jack Birks....................... 9,000(g) * -- 13,000 *
Michael D. Watford................... 62,497(h) * -- 66,497 *
C. Barton Groves..................... 191,625(i) 2.1 -- 191,625 1.4
Kenneth W. Welch..................... 100,312(j) 1.1 -- 100,312 *
Habib Kairouz........................ 6,000(k) * -- 10,000 *
All officers and directors
as a group (12 persons)............ 911,506(l) 9.1 -- 1,047,506 7.1
- -----------------------------
</TABLE>
* Under 1%
(a) All of the 750,196 shares indicated as beneficially owned by Torchmark are
owned by United, a wholly owned subsidiary of Torchmark. Of those shares,
187,500 shares are issuable pursuant to a warrant owned by United. In
connection with the Common Stock Offering, Bellwether and Torchmark have
agreed that Torchmark will use 62,500 shares issuable upon exercise of the
warrant to pay a portion of the exercise price of the warrant, such shares
to be valued at the price to the public in the Common Stock Offering.
Accordingly, the maximum number of shares issuable pursuant to the warrant
in connection with the Common Stock Offering is 125,000.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
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(b) Assumes the Underwriters' over-allotment options are not exercised. If the
over-allotment options are exercised in full, Torchmark and PPM America
Inc. will sell an additional 402,696 and 316,568, respectively, reducing
their ownership to zero.
(c) Rho Management Partners L. P. ("Rho") as beneficial owner of shares
registered in the name of Alpine Investment Partners, pursuant to an
investment advisory agreement between Rho and such entity, which agreement
confers sole voting and investment control over such shares in Rho. Joshua
Ruch, chief executive officer and controlling stockholder of the general
partner of Rho, shares voting and investment control with Rho over such
shares, and may therefore be considered a beneficial owner of such shares.
Amount shown includes 1,242 shares beneficially owned by Mr. Ruch held in
the name of XBF Inc.
(d) Includes 134,875 shares which Mr. Bryan has the right to acquire, within
60 days, pursuant to options. Excludes 6,250 shares owned by Mr. Bryan's
wife as to which he has no voting or dispositive power.
(e) Includes 291,560 shares that Mr. Sere has the right to acquire within 60
days pursuant to vested stock options. Does not include 6,000 shares owned
by Mr. Sere's wife as to which he has no voting or dispositive power.
(f) Includes 150,000 shares that Mr. Green has the right to acquire within 60
days pursuant to options.
(g) Includes 13,000 shares which the director has the right to acquire within
60 days pursuant to options.
(h) Includes 54,000 shares that Mr. Watford has the right to acquire within 60
days pursuant to options.
(i) Includes 180,000 shares that Mr. Groves has the right to acquire within 60
days pursuant to options.
(j) Includes 90,000 shares that Mr. Welch has the right to acquire within 60
days pursuant to options.
(k) Includes 10,000 shares which Mr. Kairouz has the right to acquire within
60 days pursuant to options. Mr. Kairouz is a Managing Director of Rho
Management Company, Inc., an affiliate of Rho. Mr. Kairouz does not have
voting or investment control over shares of the Company beneficially owned
by Rho.
(l) Includes the following: the shares beneficially owned by Messrs. Bryan as
described in note (d); shares which officers and directors of the Company
have the right to acquire pursuant to options, as described in note (e)
(f), (g), (h), (i), (j) and (k) and 10,000 shares and 5,000 shares that
Michael B. Smith and Roland E. Sledge, respectively, have the right to
acquire within 60 days pursuant to options.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized by its Certificate of Incorporation to issue up to
15,000,000 shares of Common Stock, $0.01 par value. As of February 28, 1997,
9,157,979 shares of Common Stock were issued and outstanding, 131,325, 825,000
and 500,000 shares of Common Stock were reserved for issuance under the 1988
Plan, the 1994 Plan and the 1996 Plan, pursuant to which options for the
purchase of 131,325, 707,500 and 276,500 shares of Common Stock were
outstanding, respectively. Also reserved for issuance were 187,500 shares of
Common Stock issuable upon exercise of a warrant held by United, a subsidiary of
Torchmark Corporation, and 60,000 shares of Common Stock issuable upon exercise
of warrants issued to Howard, Weil, Labouisse, Friedrichs Incorporated and
Principal Financial Securities, Inc.
Holders of Common Stock are entitled to one vote per share in the election of
directors and on all other matters submitted to a vote of stockholders. Such
holders do not have the right to cumulate their votes in the election of
directors. Holders of Common Stock have no redemption or conversion rights and
no preemptive or other rights to subscribe for securities of the Company. In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share equally and ratably in all of the assets
remaining, if any, after satisfaction of all debts and liabilities of the
Company, and of the preferential rights of any series of preferred stock then
outstanding. The outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. Holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. American Stock Transfer & Trust Company is transfer
agent and registrar for the Common Stock.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock, $0.01
par value per share. The Board of directors has the authority to divide the
preferred stock into one or more series and to fix and determine the relative
rights and preferences of the shares of each such series, including dividend
rates, terms of redemption, sinking funds, the
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amount payable in the event of voluntary liquidation, dissolution or winding up
of the affairs of the Company, conversions rights and voting powers. As of
January 31, 1997 no shares of preferred stock were outstanding.
DESCRIPTION OF NEW CREDIT FACILITY
The Company has received a commitment from a bank group led by Morgan Guaranty
Trust Company of New York to extend to the Company a New Credit Facility which
matures on March 31, 2002 in order to fund part of the purchase price of the
Acquired Properties, to repay the existing indebtedness and for general
corporate purposes. The New Credit Facility will have a combined total
commitment of $90.0 million following the Offerings until June 30, 1997, when
the total commitment will be automatically reduced to the Borrowing Base (as
hereinafter defined) as then in effect (the "Reference Borrowing Base"), and
will thereafter be automatically reduced quarterly by an amount equal to 1/12th
of the Reference Borrowing Base, commencing March 31, 1999. Amounts outstanding
under the New Credit Facility will bear interest at a rate equal to LIBOR or a
base rate plus a number of basis points which increases as the total outstanding
senior indebtedness of the Company as a percent of the Borrowing Base increases.
The maximum borrowings that may be outstanding under the New Credit Facility may
not exceed a borrowing base ("Borrowing Base") which will be equal to the
present value of the Company's U.S. oil and gas reserves based on assumptions
regarding prices, production and costs approved by the bank group. Sales of
Borrowing Base assets in excess of $5.0 million will trigger a requirement to
re-calculate the Borrowing Base.
Borrowings under the New Credit Facility will be unsecured and will be
guaranteed by certain of the Company's subsidiaries. The New Credit Facility
will have customary covenants including, but not limited to, covenants with
respect to the following matters: (i) information, (ii) maintenance of property
and insurance, (iii) conduct of business and maintenance of existence, (iv)
compliance with laws, (v) limitation on liens, (vi) limitation on
consolidations, mergers and sales of assets, (vii) limitation on debt (including
subsidiary debt), (viii) use of proceeds, (ix) restrictions on investments, (x)
limitation on restricted payments and (xi) limitation on transactions with
affiliates. The Company will also be required to maintain certain financial
ratios, including, without limitation, a minimum ratio of EBITDA to the sum of
cash interest plus deferred dividends and a minimum tangible net worth.
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DESCRIPTION OF NOTES
GENERAL
The Notes will be issued pursuant to an Indenture (the "Indenture") between
the Company, as issuer, a subsidiary of the Company named in the Indenture, as
the initial Subsidiary Guarantor, and , as trustee
(the "Trustee"). The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. A copy of the Indenture in substantially the form in
which it is to be executed will be filed as an exhibit to the Registration
Statement of which this Prospectus is a part. For purposes of this section of
this Prospectus, references to the "Company" mean Bellwether Exploration
Company excluding its subsidiaries. The definitions of certain terms used in the
following summary are set forth below under " -- Certain Definitions."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be general unsecured senior subordinated obligations of the
Company, limited in aggregate principal amount to $100,000,000 and will mature
on , 2007. Interest on the Notes will accrue at the
rate of % per annum and will be payable semiannually in arrears on
and , commencing on
, 1997 to the Persons in whose names the Notes are
registered in the Note Register at the close of business on the
or next preceding such interest payment
date. Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest on
the Notes will be payable, and the Notes will be transferable, at the office or
agency of the Company maintained for such purpose within the City and State of
New York. In addition, in the event the Notes do not remain in book-entry form,
interest may be paid, at the option of the Company, by check mailed to the
registered holders of the Notes at their respective addresses as set forth on
the Note Register. No service charge will be made for any transfer or exchange
of Notes, but the Company or the Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge that may be payable in connection
therewith. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.
SUBORDINATION
The payment of the principal of, and premium, if any, and interest on the Notes
will be subordinated in right of payment, as set forth in the Indenture, to the
prior payment in full of Senior Indebtedness, which will include borrowings
under the New Credit Facility, whether outstanding on the date of the Indenture
or thereafter incurred. In the event of any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relating to the Company or to its
creditors, as such, or to its assets, or any liquidation, dissolution or other
winding-up of the Company, whether voluntary or involuntary and whether or not
including insolvency or bankruptcy, or any assignment for the benefit of
creditors or other marshaling of assets or liabilities of the Company (provided
that the consolidation or merger of the Company or its liquidation or
dissolution following the conveyance, transfer, lease or other disposition of
all or substantially all the properties and assets of the Company and its
Restricted Subsidiaries on a consolidated basis upon the terms and conditions
described under " -- Merger, Consolidation or Sale of Assets" below shall not
be deemed an insolvency or liquidation proceeding (requiring the repayment of
all of the Senior Indebtedness in full in cash or cash equivalents as a
prerequisite to any payments being made to Holders of Notes) for the purposes of
the Subordination provisions), the holders of Senior Indebtedness will first be
entitled to receive payment in full in cash or cash equivalents of all amounts
due on or in respect of all Senior Indebtedness, before the Holders of Notes
will be entitled to receive any direct or indirect payment or distribution of
any kind or character (other than any payment or distribution in the form of
Permitted Junior Securities or from the trust described below under " -- Legal
Defeasance and Covenant Defeasance") on account of principal of (or premium, if
any, on) or interest on the Notes or on account of the purchase or redemption or
other acquisition of the Notes (including pursuant to an optional redemption, a
Change of Control Offer or a Net Proceeds Offer). In the event
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that, notwithstanding the foregoing, the Trustee or the Holder of any Note
receives any payment or distribution of properties or assets of the Company of
any kind or character, whether in cash, property or securities, by set-off or
otherwise, in respect of principal of (or premium, if any, on) or interest on
the Notes before all Senior Indebtedness is paid or provided for in full, then
the Trustee or the Holders of Notes receiving any such payment or distribution
(other than a payment or distribution in the form of Permitted Junior
Securities) will be required to pay or deliver such payment or distribution
forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payment or distribution of
assets of the Company for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in
full.
The Company also may not make any payment or distribution of any properties or
assets of the Company of any kind or character (other than Permitted Junior
Securities or from the trust described below under " -- Legal Defeasance and
Covenant Defeasance") on account of principal of (or premium, if any, on) or
interest on the Notes or on account of the purchase or redemption or other
acquisition of Notes upon the occurrence of a Payment Event of Default and
receipt by the Trustee of written notice thereof until such Payment Event of
Default shall have been cured or waived or shall have ceased to exist or such
Senior Indebtedness shall have been paid in full or otherwise discharged, after
which the Company shall resume making any and all required payments in respect
of the Notes, including any missed payments.
The Company also may not make any payment or distribution of any properties or
assets of the Company of any kind or character (other than Permitted Junior
Securities or from the trust described below under " -- Legal Defeasance and
Covenant Defeasance") on account of any principal of (or premium, if any, on)
or interest on the Notes or on account of the purchase or redemption or other
acquisition of Notes for the period specified below ("Payment Blockage
Period") upon the occurrence of a Non-payment Event of Default and receipt by
the Trustee and the Company of written notice thereof from one or more of the
holders of Specified Senior Indebtedness (or their representative). The Payment
Blockage Period will commence upon the earlier of the dates of receipt by the
Trustee or the Company of such notice from one of more of the holders of
Specified Senior Indebtedness (or their representative) and shall end on the
earliest of (i) 179 days thereafter, (ii) the date, as set forth in a written
notice from the holders of the Specified Senior Indebtedness, (or their
representative) to the Company or the Trustee, on which such Non-payment Event
of Default is cured, waived in writing or ceases to exist or such Specified
Senior Indebtedness is discharged or (iii) the date on which such Payment
Blockage Period shall have been terminated by written notice to the Company or
the Trustee from one or more of such holders (or their representative)
initiating such Payment Blockage Period, after which the Company will resume
(unless otherwise prohibited pursuant to the immediately preceding paragraph)
making any and all required payments in respect of the Notes, including any
missed payments. In any event, not more than one Payment Blockage Period may be
commenced during any period of 360 consecutive days. No Non-payment Event of
Default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee can be made the basis for a subsequent Payment
Blockage Notice. In the event that, notwithstanding the foregoing, the Company
makes any payment to the Trustee or the Holder of any Note prohibited by the
subordination provision of the Indenture, then such payment will be required to
be paid over and delivered forthwith to the Company.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period whether or not on account of the payment blockage
provision described above, such failure would constitute an Event of Default
under the Indenture and would enable the Holders of the Notes to accelerate the
maturity thereof. See "-- Events of Default and Remedies."
As a result of such subordination provisions described above, in the event of a
distribution of assets upon the liquidation, receivership, reorganization or
insolvency of the Company, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Holders of the Notes, and
assets which would otherwise be available to pay obligations in respect of the
Notes will be available only after all Senior Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on any
or all of the Notes.
The Notes will be structurally subordinated to all existing and future
liabilities of Subsidiaries of the Company other than the Subsidiary Guarantor.
See " -- Senior Subordinated Guarantees of Notes."
At December 31, l996, after giving PRO FORMA effect to the Transactions and the
application of the estimated net proceeds therefrom as described in "Use of
Proceeds", the amount of Senior Indebtedness outstanding would have been
approximately $28.3 million. See "Use of Proceeds" and "Capitalization."
Although the Indenture will contain limitations on the amount of additional
Indebtedness that the Company and its Subsidiaries may incur, the amounts of
such
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Indebtedness could be substantial and, in any case, such Indebtedness may be
Senior Indebtedness or Guarantor Senior Indebtedness. See " -- Certain
Covenants -- Incurrence of Indebtedness."
SENIOR SUBORDINATED GUARANTEES OF NOTES
Initially, Odyssey Petroleum Company will be the only Subsidiary Guarantor;
however, other Restricted Subsidiaries may in the future incur Subsidiary
Guarantees of the Notes as described herein. Each Subsidiary Guarantor will
unconditionally guarantee, jointly and severally, to each Holder and the Trustee
the full and prompt performance of the Company's obligations under the Indenture
and the Notes, including the payment of principal of (and premium, if any, on)
and interest on the Notes pursuant to its Subsidiary Guarantee. The obligations
of each Subsidiary Guarantor will be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities (including,
but not limited to, Guarantor Senior Indebtedness) of such Subsidiary Guarantor
and after giving effect to any collections from or payments made by or on behalf
of any other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its
contribution obligations under the Indenture, result in the obligations of such
Subsidiary Guarantor under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Subsidiary Guarantor that makes a payment or distribution under a Subsidiary
Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell or
otherwise dispose of all or substantially all of its properties and assets to
the Company or another Subsidiary Guarantor without limitation, except to the
extent any such transaction is subject to the "Merger, Consolidation or Sale of
Assets" covenant of the Indenture. Each Subsidiary Guarantor may consolidate
with or merge into or sell all or substantially all of its properties and assets
to a Person other than the Company or another Subsidiary Guarantor (whether or
not Affiliated with the Subsidiary Guarantor), PROVIDED that (i) if the
surviving Person is not the Subsidiary Guarantor, the surviving Person agrees to
assume the Subsidiary Guarantor's Subsidiary Guarantee and all its obligations
pursuant to the Indenture (except to the extent the following paragraph would
result in the release of such Subsidiary Guarantee) and (ii) such transaction
does not (a) violate any of the covenants described under the heading
" -- Certain Covenants" or (b) result in a Default or Event of Default
immediately thereafter that is continuing.
Upon the sale or other disposition (by merger or otherwise) of a Subsidiary
Guarantor (or all or substantially all of its properties and assets) to a Person
other than the Company or another Subsidiary Guarantor and pursuant to a
transaction that is otherwise in compliance with the Indenture (including as
described in the foregoing paragraph), such Subsidiary Guarantor shall be deemed
released from its Subsidiary Guarantee and the related obligations set forth in
the Indenture; PROVIDED, HOWEVER, that any such termination shall occur only to
the extent that all obligations of such Subsidiary Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure, other Indebtedness of the Company or any other
Restricted Subsidiary shall also terminate upon such sale or other disposition.
Each Subsidiary Guarantor that is designated as an Unrestricted Subsidiary in
accordance with the Indenture shall be released from its Subsidiary Guarantee
and related obligations set forth in the Indenture for so long as it remains an
Unrestricted Subsidiary.
The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee are
subordinated to the prior payment in full of all Guarantor Senior Indebtedness
of such Subsidiary Guarantor (including its guarantee of Indebtedness of the
Company under the New Credit Facility) to substantially the same extent as the
Notes are subordinated to Senior Indebtedness. The Subsidiary Guarantees will be
structurally subordinated to all existing and future liabilities of Subsidiaries
of Subsidiary Guarantors that are not also Subsidiary Guarantors. At December
31, 1996, after giving PRO FORMA effect to the Transactions and the application
of the net proceeds therefrom as described in "Use of Proceeds", the aggregate
principal amount of Guarantor Senior Indebtedness outstanding would have been
approximately $28.3 million.
Although the Indenture does not contain any requirement that any Subsidiary
(other than Odyssey Petroleum Company) execute and deliver a Subsidiary
Guarantee, certain covenants described below require a future Restricted
Subsidiary to execute and deliver a Subsidiary Guarantee prior to the guarantee
of other Indebtedness. See "Certain Covenants -- Limitation on Guarantees of
Indebtedness by Restricted Subsidiaries."
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OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to ,
2002. Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 or more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest to the applicable redemption
date, if redeemed during the twelve-month period beginning on of the
years indicated below:
-----------
YEAR PERCENTAGE
- ------------------------------------- -----------
2002................................. %
2003................................. %
2004................................. %
2005 and thereafter.................. 100.00%
If less than all the Notes are to be redeemed at any time, selection of Notes
for redemption will be made by the Trustee on a pro rata basis, provided that no
Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon surrender
of the original Note. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral part thereof) of such Holder's Notes pursuant to the offer described
below (the "Change of Control Offer") at an offer price in cash equal to 101%
of the aggregate principal amount thereof plus accrued and unpaid interest (the
"Change of Control Purchase Price") to the date of purchase (the "Change of
Control Payment Date"). Within 30 days following any Change of Control, the
Company will mail a notice to the Trustee and each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes pursuant to the procedures required by the Indenture and
described in such notice. The Change of Control Payment Date shall be a Business
Day not less than 30 days nor more than 60 days after such notice is mailed. The
Company will comply with the requirements of Rule 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 repurchase of the Notes as
a result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions 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 herein by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent lawful,
(i) accept for payment all Notes or portions thereof properly tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent an amount
equal to the Change of Control Purchase Price in respect of all Notes or
portions thereof so accepted and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so accepted
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; PROVIDED that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any event
within 30 days following a Change of Control, the Company will either repay all
outstanding Senior Indebtedness or obtain the requisite consents, if any, under
all agreements governing outstanding
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Senior Indebtedness to permit the repurchase of Notes required by this covenant.
The Company will publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
will not contain 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.
If a Change of Control offer is made, there can be no assurance that the Company
will have available funds sufficient to pay the Change of Control Purchase Price
for all of the Notes that might be delivered by the Holders of Notes seeking to
accept the Change of Control Offer. The New Credit Facility provides that
certain change of control events with respect to the Company would constitute a
default thereunder. Any future credit agreements or other agreements relating to
Senior Indebtedness to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Company is prohibited from purchasing Notes, the Company could seek the
consent of its lenders to the purchase of Notes or could attempt to refinance
the borrowings that contain such prohibition. If the Company does not obtain
such a consent or repay such borrowings, the Company will remain prohibited from
purchasing Notes. In such case, the Company's failure to purchase tendered Notes
would constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the New Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
Holders of Notes. The definition of Change of Control includes an event by which
the Company sells, assigns, conveys, transfers or leases all or substantially
all of its properties to any Person; the phrase "all or substantially all" is
subject to applicable legal precedent and as a result in the future there may be
uncertainty as to whether a Change of Control has occurred.
The Company will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer at the same or a
higher purchase price, at the same times and otherwise in substantial compliance
with the requirements applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
ASSET SALES
The Indenture will provide that the Company will not and will not permit any
Restricted Subsidiary to, engage in any Asset Sale unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value of the assets
and properties sold or otherwise disposed of pursuant to the Asset Sale (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a Board Resolution), (ii) at least 80% of the
consideration received by the Company or the Restricted Subsidiary, as the case
may be, in respect of such Asset Sale consists of cash, Cash Equivalents or
properties used in the Oil and Gas Business of the Company or its Restricted
Subsidiaries and (iii) the Company delivers to the Trustee an Officers'
Certificate which Officers' Certificate shall be conclusive certifying that such
Asset Sale complies with clauses (i) and (ii). The amount (without duplication)
of any Indebtedness (other than Subordinated Indebtedness or Pari Passu
Indebtedness) of the Company or such Restricted Subsidiary that is expressly
assumed by the transferee in such Asset Sale and with respect to which the
Company or such Restricted Subsidiary, as the case may be, is unconditionally
released by the holder of such Indebtedness shall be deemed to be cash or Cash
Equivalents for purposes of clause (ii) and shall also be deemed to constitute a
repayment of, and a permanent reduction in, the amount of such Indebtedness for
purposes of the following paragraph.
If the Company or any Restricted Subsidiary engages in an Asset Sale, the
Company or such Restricted Subsidiary may either, no later than 365 days after
such Asset Sale, (i) apply all or any of the Net Cash Proceeds therefrom to
repay Indebtedness (other than Subordinated Indebtedness or Pari Passu
Indebtedness) of the Company or any Restricted Subsidiary, provided in each
case, that the related loan commitment (if any) is thereby permanently reduced
by the amount of such Indebtedness so repaid, or (ii) invest all or any part of
the Net Cash Proceeds thereof in properties and assets that will be used in the
Oil and Gas Business of the Company or its Restricted Subsidiaries, as the case
may be. The amount of such Net Cash Proceeds not applied or invested as provided
in this paragraph (after the period specified in the paragraph) will constitute
"Excess Proceeds."
When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000, the
Company shall make an offer to purchase, from all Holders of the Notes and
holders of any then outstanding Pari Passu Indebtedness required to be
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repurchased or repaid on a permanent basis in connection with an Asset Sale, an
aggregate principal amount of Notes and any such Pari Passu Indebtedness equal
to such Excess Proceeds as follows:
(i) The Company will make an offer to purchase (a "Net Proceeds Offer")
from all Holders of the Notes in accordance with the procedures set forth in the
Indenture the maximum principal amount (expressed as a multiple of $1,000) of
Notes that may be purchased out of an amount (the "Payment Amount") equal to
the product of such Excess Proceeds multiplied by a fraction, the numerator of
which is the outstanding principal amount of the Notes and the denominator of
which is the sum of the outstanding principal amount of the Notes and any such
Pari Passu Indebtedness (subject to proration in the event such amount is less
than the aggregate Offered Price (as defined in clause (ii) below) of all Notes
tendered), and to the extent required by any such Pari Passu Indebtedness and
provided there is a permanent reduction in the principal amount of such Pari
Passu Indebtedness, the Company shall make an offer to purchase such Pari Passu
Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu
Indebtedness Amount") equal to the excess of the Excess Proceeds over the
Payment Amount.
(ii) The offer price for the Notes shall be payable in cash in an amount
equal to 100% of the aggregate principal amount of the Notes tendered pursuant
to a Net Proceeds Offer, plus accrued and unpaid interest, if any, to the date
such Net Proceeds Offer is consummated (the "Offered Price"), in accordance
with the procedures set forth in the Indenture. If the aggregate Offered Price
of Notes validly tendered and not withdrawn by Holders thereof exceeds the
Payment Amount, Notes to be purchased will be selected on a pro rata basis. To
the extent that the aggregate Offered Price of the Notes tendered pursuant to a
Net Proceeds Offer is less than the Payment Amount relating thereto or the
aggregate amount of the Pari Passu Indebtedness that is purchased or repaid
pursuant to the Pari Passu Offer is less than the Pari Passu Indebtedness Amount
(such shortfall constituting a "Net Proceeds Deficiency"), the Company may use
such Net Proceeds Deficiency, or a portion thereof, for general corporate
purposes, subject to the limitations of the "Restricted Payments" covenant.
(iii) Upon completion of such Net Proceeds Offer and Pari Passu Offer, the
amount of Excess Proceeds shall be reset to zero.
The Company will not and will not permit any Restricted Subsidiary to enter into
or suffer to exist any agreement that would place any restriction of any kind
(other than pursuant to law or regulation) on the right of the Company to make a
Net Proceeds Offer following any Asset Sale. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder, if applicable, in the event that an Asset Sale
occurs and the Company is required to purchase Notes as described above. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions relating to the Net Proceeds 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.
CERTAIN COVENANTS
INCURRENCE OF INDEBTEDNESS
The Indenture will provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, create, incur, assume, guarantee or otherwise
become directly or indirectly liable for the payment of (collectively,
"incur") any Indebtedness (including any Acquired Indebtedness), other than
Permitted Indebtedness, unless (i) at the time of such event and after giving
effect thereto on a PRO FORMA basis the Company's Consolidated Fixed Charge
Coverage Ratio for the four full fiscal quarters immediately preceding such
event, taken as one period, would have been at least equal to 2.5 to 1.0 and
(ii) no Default or Event of Default shall have occurred and be continuing at the
time such additional Indebtedness is incurred or would occur as a consequence of
the incurrence of the additional Indebtedness.
RESTRICTED PAYMENTS
(i) The Indenture will provide that the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, take the following
actions:
(a) declare or pay any dividend or make any distribution on account of the
Company's Capital Stock (other than dividends or distributions payable solely in
shares of Qualified Capital Stock of the Company or in options, warrants or
other rights to purchase Qualified Capital Stock of the Company);
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(b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any Affiliate thereof (other than any Wholly Owned
Restricted Subsidiary) or any options, warrants or other rights to acquire such
Capital Stock;
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal payment,
scheduled sinking fund payment or maturity, any Pari Passu Indebtedness or
Subordinated Indebtedness, except (1) pursuant to a Pari Passu Offer or out of a
Net Proceeds Deficiency in compliance with the "Asset Sales" covenant
described above, or (2) upon a Change of Control to the extent (and only to the
extent) required by the indenture or other agreement or instrument pursuant to
which such Pari Passu Indebtedness or Subordinated Indebtedness was issued,
PROVIDED the Company is then in compliance with the "Change of Control"
covenant described above;
(d) declare or pay any dividend on, or make any distribution to the
holders of, any shares of Capital Stock of any Restricted Subsidiary (other than
payments made pro rata to all holders of such Capital Stock) or purchase, redeem
or otherwise acquire or retire for value any Capital Stock of any Restricted
Subsidiary or any options, warrants or other rights to acquire any such Capital
Stock (other than with respect to any such Capital Stock held by the Company or
any Wholly Owned Restricted Subsidiary of the Company); or
(e) make any Investment (other than any Permitted Investment);
(such payments or other actions described in (but not excluded from)
clauses (a) through (e) are collectively referred to as "Restricted
Payments"), unless at the time of and after giving effect to the proposed
Restricted Payment (the amount of any such Restricted Payment, if other than
cash, shall be the amount determined by the Board of Directors of the Company,
whose determination shall be conclusive and evidenced by a Board Resolution),
(1) no Default or Event of Default shall have occurred and be continuing, (2)
the Company could incur $1.00 of additional Indebtedness (excluding Permitted
Indebtedness) in accordance with the covenant described under "Incurrence of
Indebtedness," and (3) the aggregate amount of all Restricted Payments declared
or made after the date of the Indenture shall not exceed the sum (without
duplication) of the following:
(A) 50% of the aggregate Consolidated Net Income of the Company accrued on
a cumulative basis during the period beginning on the first day of the month in
which the Indenture is signed and ending on the last day of the Company's last
fiscal quarter ending prior to the date of such proposed Restricted Payment (or,
if such aggregate Consolidated Net Income shall be a loss, minus 100% of such
loss), plus
(B) the aggregate net cash proceeds received after the date of the
Indenture by the Company as capital contributions to the Company (other than
from any Restricted Subsidiary), plus
(C) the aggregate net cash proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of its
Restricted Subsidiaries) of shares of Qualified Capital Stock of the Company or
any option, warrants or rights to purchase such shares of Qualified Capital
Stock of the Company, plus
(D) the aggregate net cash proceeds received after the date of the
Indenture by the Company (other than from any of its Restricted Subsidiaries)
upon the exercise of any options, warrants or rights to purchase shares of
Qualified Capital Stock of the Company, plus
(E) the aggregate net cash proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of its
Restricted Subsidiaries) of debt securities or shares of Redeemable Capital
Stock that have been converted into or exchanged for Qualified Capital Stock of
the Company, 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 any investment made by the
Company and its Restricted Subsidiaries subsequent to the date of the Indenture
in any Person resulting from (i) 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, and in an amount not to exceed the book value of such investment
previously made in such Person that was treated as Restricted Payments, or (ii)
the designation of any Unrestricted Subsidiary as a Restricted Subsidiary, in
each case in an amount not to exceed the lesser of (x) the book value of such
investment previously made in such Unrestricted Subsidiary that was treated as
Restricted Payments, and (y) the fair market value of such Unrestricted
Subsidiary, plus
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(G) $10,000,000.
(ii) Notwithstanding paragraph (i) above, the Company and its Restricted
Subsidiaries may take the following actions (so long as in the case of clauses
(b), (c), and (d) below no Default or Event of Default shall have occurred and
be continuing):
(a) the payment of any dividend on any Capital Stock of the Company or any
Restricted Subsidiary within 60 days after the date of declaration thereof, if
at such declaration date such declaration complied with the provisions of
paragraph (i) above (and such payment shall be deemed to have been paid on such
date of declaration for purposes of any calculation required by the provisions
of paragraph (i) above);
(b) the repurchase, redemption or other acquisition or retirement of any
shares of any class of Capital Stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate net cash proceeds of, a
substantially concurrent issue and sale (other than to a Restricted Subsidiary)
of shares of Qualified Capital Stock of the Company;
(c) the repurchase, redemption, repayment, defeasance or other acquisition
or retirement for value of any Pari Passu Indebtedness or Subordinated
Indebtedness (other than Redeemable Capital Stock) in exchange for, or out of
the aggregate net cash proceeds of, a substantially concurrent issue and sale
(other than to a Restricted Subsidiary) of shares of Qualified Capital Stock of
the Company; and
(d) the purchase, redemption, repayment, 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 to a Restricted Subsidiary) of, Pari Passu
Indebtedness or Subordinated Indebtedness so long as (A) the principal amount of
such new Indebtedness does not exceed the principal amount (or, if such Pari
Passu Indebtedness or Subordinated Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) of the Indebtedness being so purchased, redeemed, repaid,
defeased, acquired or retired, plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined by
the Company as necessary to accomplish such refinancing plus the amount of
expenses of the Company incurred in connection with such refinancing, (B) such
new Indebtedness is PARI PASSU with or subordinated to the Notes at least to the
same extent as such Indebtedness so purchased, redeemed, repaid, defeased,
acquired or retired, and (C) such new Indebtedness has an Average Life to Stated
Maturity that is longer than the Average Life to Stated Maturity of the Notes
and such new Indebtedness has a Stated Maturity for its final scheduled
principal payment that is at least 91 days later than the Stated Maturity for
the final scheduled principal payment of the Notes.
The actions described in clauses (a) and (c) of this paragraph (ii) shall be
Restricted Payments that shall be permitted to be taken in accordance with this
paragraph (ii) but shall reduce the amount that would otherwise be available for
Restricted Payments under clause (3) of paragraph (i) (provided that any
dividend paid pursuant to clause (a) of this paragraph (ii) shall reduce the
amount that would otherwise be available under clause (3) of paragraph (i) when
declared, but not also when subsequently paid pursuant to such clause (a)), and
the actions described in clauses (b) and (d) of this paragraph (ii) shall be
Restricted Payments that shall be permitted to be taken in accordance with this
paragraph and shall not reduce the amount that would otherwise be available for
Restricted Payments under clause (3) of paragraph (i). Further, the Company or
any Restricted Subsidiary may make a Restricted Payment, if at the time the
Company or any Restricted Subsidiary first incurred a commitment for such
Restricted Payment such Restricted Payment could have been made in accordance
with the Indenture; PROVIDED THAT all commitments incurred and outstanding shall
be treated as if such commitments were Restricted Payments expended by the
Company or a Restricted Subsidiary at the time the commitments were incurred,
except that commitments incurred and outstanding which are treated as a
Restricted Payment expended by the Company or a Restricted Subsidiary and which
are terminated shall no longer be treated as a Restricted Payment expended by
the Company or a Restricted Subsidiary upon the termination of such commitment
for such purposes; and PROVIDED FURTHER, that at the time such Restricted
Payment is made no Default or Event of Default shall have occurred and be
continuing and the Company could incur $1.00 of additional Indebtedness
(excluding Permitted Indebtedness) in accordance with the "Incurrence of
Indebtedness" covenant.
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TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, enter into or suffer to
exist any transaction or series of related transactions (including, without
limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate of the Company (other than the Company or a
Restricted Subsidiary) unless (i) such transaction or series of related
transactions is on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than would be available in a
comparable transaction in arm's length dealings with an unrelated third party,
(ii) with respect to a transaction or series of related transactions involving
payments in excess of $1,000,000 in the aggregate, the Company delivers an
Officers' Certificate to the Trustee certifying that such transaction complies
with clause (i) above, (iii) with respect to a transaction or series of
transactions involving payments in excess of $5,000,000 but less than
$15,000,000 in the aggregate, the Company delivers an Officers' Certificate to
the Trustee certifying that (a) such transaction or series of related
transactions complies with clause (i) above and (b) such transaction or series
of related transactions shall have been approved by a majority of the
independent directors of the Board of Directors of the Company and (iv) with
respect to a transaction or series of transactions involving payments of
$15,000,000 or more in the aggregate, the Company delivers an Officers'
Certificate to the Trustee certifying that (a) such transaction or series of
related transactions complies with clause (i) above, (b) such transaction or
series of related transactions shall have been approved by a majority of the
independent directors of the Board of Directors of the Company and (c) the
Company shall have received the written opinion of a firm of investment bankers
nationally recognized in the United States that such transaction or series of
transactions is fair, from a financial point of view, to the Company or such
Restricted Subsidiary; PROVIDED, HOWEVER, that the foregoing restriction shall
not apply to (1) the provision of services and payments under the Administrative
Services Agreement so long as such agreement (including any modifications
thereof or amendments thereto entered into on or after the date of the
Indenture) has been approved by a majority of the independent directors of the
Board of Directors of the Company, (2) loans or advances to officers, directors
and employees of the Company or any Restricted Subsidiary made in the ordinary
course of business and consistent with past practices of the Company and its
Restricted Subsidiaries in an aggregate amount not to exceed $3,000,000
outstanding at any one time, (3) 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 Affiliate, (4) the Company's employee
compensation and other benefit arrangements, or (5) indemnities of officers and
directors of the Company or any Subsidiary consistent with such Person's bylaws
and applicable statutory provisions.
LIENS
The Indenture will provide that the Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind, except for Permitted Liens, upon any of
their respective assets or properties, whether now owned or acquired after the
date of the Indenture, or any income or profits therefrom to secure any Pari
Passu Indebtedness or Subordinated Indebtedness, unless prior to or
contemporaneously therewith the Notes are directly secured equally and ratably,
provided that (i) if such secured Indebtedness is Pari Passu Indebtedness, the
Lien securing such Pari Passu Indebtedness shall be subordinate and junior to,
or PARI PASSUwith, the Lien securing the Notes and (ii) if such secured
Indebtedness is Subordinated Indebtedness, the Lien securing such Subordinated
Indebtedness shall be subordinate and junior to the Lien securing the Notes at
least to the same extent as such Subordinated Indebtedness is subordinated to
the Notes.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES
The Indenture will provide that the Company will not permit any Restricted
Subsidiary that is not a Subsidiary Guarantor to guarantee the payment of any
Indebtedness of the Company unless (a)(1) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Subsidiary Guarantee of the Notes by such Restricted Subsidiary,
which Subsidiary Guarantee will be subordinated to Guarantor Senior Indebtedness
(but no other Indebtedness) to the same extent that the Notes are subordinated
to Senior Indebtedness and (2) with respect to any guarantee of Subordinated
Indebtedness by a Restricted Subsidiary, any such guarantee shall be
subordinated to such Restricted Subsidiary's Subsidiary Guarantee at least to
the same extent as such Subordinated Indebtedness is subordinated to the Notes;
(b) such Restricted Subsidiary waives and agrees not in any manner whatsoever to
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its
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Subsidiary Guarantee until such time as the obligations guaranteed thereby are
paid in full; and (c) such Restricted Subsidiary shall deliver to the Trustee an
opinion of counsel to the effect that such Subsidiary Guarantee has been duly
executed and authorized and constitutes a valid, binding and enforceable
obligation of such Restricted Subsidiary, except insofar as enforcement thereof
may be limited by bankruptcy, involvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; PROVIDED that
this paragraph (i) shall not be applicable to any guarantee by any Restricted
Subsidiary that (x) existed at the time such Person became a Restricted
Subsidiary of the Company and (y) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company.
Any Subsidiary Guarantee incurred by a Restricted Subsidiary shall be deemed
released upon the release or discharge of the guarantee which resulted in the
creation of such Subsidiary Guarantee of the Notes, except a discharge or
release by or as a result of payment under such guarantee.
DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Indenture will provide that the Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to (i) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock to the Company or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make
an Investment in the Company or any other Restricted Subsidiary or (iv) transfer
any of its properties or assets to the Company or any other Restricted
Subsidiary, except in each instance for such encumbrances or restrictions
pursuant to (a) the Indenture or the New Credit Facility, (b) any other
agreement in effect as of the date of the Indenture, (c) any agreement or other
instrument of a Person acquired by the Company or any Restricted Subsidiary in
existence at the time of such acquisition (but not created in contemplation
thereof), which encumbrance or restriction is not applicable to any other
Person, or the properties or assets or any other Person, other than the Person,
or the property or assets of the Person, so acquired, (d) customary restrictions
in leases and licenses relating to the property covered thereby and entered into
in the ordinary course of business or (e) any agreement that extends, renews,
refinances or replaces the agreements containing the restrictions in the
foregoing clauses (a) through (d), PROVIDED THAT in the case of such agreements
in clauses (b) through (d), the terms and conditions of any such restrictions
are not materially less favorable to the Holders of the Notes than those under
or pursuant to the agreement evidencing such Indebtedness so extended, renewed,
refinanced or replaced, and except with respect to clause (iv) only, (1)
restrictions in the form of Liens which are not prohibited as described in the
"Liens" covenant and which contain customary limitations on the transfer of
collateral and (2) customary restrictions contained in asset sale agreements
limiting the transfer of such assets pending the closing of such sale.
OWNERSHIP OF CAPITAL STOCK
The Indenture will provide that the Company (i) will not permit any Restricted
Subsidiary to issue any Capital Stock (other than to the Company or a Restricted
Subsidiary) and (ii) will not permit any Person (other than the Company or a
Restricted Subsidiary) to own any Capital Stock of any Restricted Subsidiary,
except, in each case, for (a) directors' qualifying shares, (b) Capital Stock of
a Restricted Subsidiary organized in a foreign jurisdiction required to be
issued to, or owned by, the government of 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, (c) a
sale of Capital Stock of a Restricted Subsidiary effected in accordance with the
"Asset Sales" and "Restricted Payments" covenants, (d) the issuance of
Capital Stock by a Restricted Subsidiary to a Person other than the Company or a
Restricted Subsidiary which issuance was made in accordance with the "Asset
Sales" and "Restricted Payments" covenants and (e) 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; PROVIDED, HOWEVER, that any Capital
Stock retained by the Company or a Restricted Subsidiary in the case of clauses
(c), (d) or (e) shall be treated as an Investment for purposes of the
"Restricted Payments" covenant, if the amount of such Capital Stock represents
less than a majority of the Voting Stock of such Restricted Subsidiary.
LIMITATION ON LAYERING DEBT
The Indenture will provide that (i) the Company will not incur, or permit to
remain outstanding, any Indebtedness (including Acquired Indebtedness and
Permitted Indebtedness) other than the Notes, that is subordinated in right of
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payment to any Senior Indebtedness, unless such Indebtedness is also PARI PASSU
with, or subordinated in right of payment to, the Notes pursuant to
subordination provisions substantially similar to those contained in the
Indenture and (ii) the Company will not permit any Subsidiary Guarantor to
incur, or to permit to remain outstanding, any Indebtedness (including Acquired
Indebtedness and Permitted Indebtedness) other than such Subsidiary Guarantor's
Subsidiary Guaranty, that is subordinated in right of payment to any Guarantor
Senior Indebtedness unless such Indebtedness is also PARI PASSU with, or
subordinated in right of payment to, such Subsidiary Guarantee pursuant to
subordination provisions substantially similar to those contained in the
Indenture.
REPORTS
The Indenture will require that the Company file on a timely basis with the
Securities and Exchange Commission ("Commission"), to the extent such filings
are accepted by the Commission and whether or not the Company has a class of
securities registered under the Exchange Act, the annual reports, quarterly
reports and other documents that the Company would be required to file if it
were subject to Section 13 or 15 of the Exchange Act. The Company will also be
required (a) to file with the Trustee (with exhibits), and provide to each
Holder of Notes (without exhibits), without cost to such Holder, copies of such
reports and documents within 30 days after the date on which the Company files
such reports and documents with the Commission or the date on which the Company
would be required to file such reports and documents if the Company were so
required and (b) if filing such reports and documents with the Commission is not
accepted by the Commission or is prohibited under the Exchange Act, to supply at
its cost copies of such reports and documents (including any exhibits thereto)
to any Holder of Notes, securities analyst or prospective investor promptly upon
written request.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture will provide that the Company will not, in any single transaction
or series of related transactions, consolidate or merge with or into any other
Person, or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of the properties and assets of the Company and its Restricted
Subsidiaries on a consolidated basis to any Person or group of Affiliated
Persons, and the Company will not permit any of its Restricted Subsidiaries to
enter into any such transaction or series of transactions if such transaction or
series of transaction, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any other Person or group of Affiliated Persons, unless at
the time and after giving effect thereto (i) either (a) if the transaction is a
merger or consolidation, the Company shall be the surviving Person of such
merger or consolidation, or (b) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or to which the
properties and assets of the Company or its Restricted Subsidiaries, as the case
may be, are sold, assigned, conveyed, transferred, leased or otherwise disposed
of (any such surviving Person or transferee Person being the "Surviving
Entity") shall be a corporation organized and existing under the laws of the
United States of America, any state thereof or the District of Columbia and
shall, in either case, expressly assume by a supplemental indenture to the
Indenture executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture,
and, in each case, the Indenture shall remain in full force and effect; (ii)
immediately before and immediately after giving effect to such transaction or
series of transactions on a pro forma basis (and treating any Indebtedness not
previously an obligation of Company or any of its Restricted Subsidiaries in
connection with or as a result of such transaction or transactions as having
been incurred at the time of such transaction), no Default or Event of Default
shall have occurred and be continuing; (iii) except in the case of the
consolidation or merger of any Restricted Subsidiary with or into the Company,
immediately after giving effect to such transaction or transactions on a pro
forma basis, the Consolidated Net Worth of the Company (or the Surviving Entity
if the Company is not the continuing obligor under the Indenture) is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction or transactions; (iv) except in the case of the consolidation or
merger of the Company with or into a Wholly Owned Restricted Subsidiary or any
Restricted Subsidiary with or into the Company or any Wholly Owned Restricted
Subsidiary, immediately before and immediately after giving effect to such
transaction or transactions on a pro forma basis (on the assumption that the
transaction or transactions occurred on the first day of the period of four
fiscal quarters ending immediately prior to the consummation of such transaction
or transactions, with the appropriate adjustments with respect to the
transaction or transactions being included in such pro forma calculation) the
Company (or the Surviving Entity if the Company is not the continuing obligor
under the Indenture) could incur $1.00 of additional Indebtedness (excluding
Permitted
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Indebtedness) pursuant to the covenant described under "-- Incurrence of
Indebtedness"; (v) if any of the properties or assets of the Company or any of
its Restricted Subsidiaries would upon such transaction or series of related
transactions become subject to any Lien (other than a Permitted Lien), the
creation and imposition of such Lien shall have been in compliance with the
"Liens" covenant; (vi) if the Company is not the continuing obligor under the
Indenture, then any Subsidiary Guarantor, unless it is the Surviving Entity,
shall have by supplemental indenture to the Indenture confirmed that its
Subsidiary Guarantee of the Notes shall apply to the Surviving Entity's
obligations under the Indenture and the Notes; and (vii) the Company (or the
Surviving Entity if the Company is not the continuing obligor under the
Indenture) shall have delivered to the Trustee, in form and substance reasonably
satisfactory to the trustee, (a) an Officers' Certificate stating that such
consolidation, merger, transfer, lease or other disposition and the supplemental
indenture, if any, in respect thereto comply with the requirements under the
Indenture and (b) an Opinion of Counsel stating that the requirements of clause
(i) of this paragraph have been satisfied.
Upon any consolidation or merger or any sale, assignment, conveyance, transfer,
lease or other disposition of all or substantially all of the properties and
assets of the Company and its Restricted Subsidiaries on a consolidated basis in
accordance with the foregoing, in which the Company is not the continuing
corporation, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture with the
same effect as if the Surviving Entity had been named as the Company therein,
and thereafter the Company, except in the case of a lease, will be discharged
from all obligations and covenants under the Indenture and the Notes and may be
dissolved and liquidated.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an "Event of
Default":
(i) default for 30 days in the payment when due of interest on the Notes;
or
(ii) default in the Payment when due of the principal of or premium, if
any, on the Notes, whether such payment is due at maturity, upon redemption,
upon repurchase pursuant to a Change of Control Offer or a Net Proceeds Offer,
upon acceleration or otherwise; or
(iii) default in the performance or breach of the provisions described
under the "Merger, Consolidation or Sale of Assets" covenant, the failure to
make or consummate a Change of Control Offer in accordance with the provisions
of the "Change of Control" covenant or the failure to make or consummate a Net
Proceeds Offer in accordance with the provisions of the "Asset Sales"
covenant; or
(iv) failure by the Company or any Subsidiary Guarantor to comply with any
other term, covenant or agreement contained in the Notes, any Subsidiary
Guarantee or the Indenture (other than a default specified in (i), (ii) or (iii)
above) for a period of 60 days after written notice of such failure stating that
it is a "notice of default" under the Indenture and requiring the Company or
such Subsidiary Guarantor, as the case may be, to remedy the same shall have
been given (a) to the Company by the Trustee or (b) to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding; or
(v) the occurrence and continuation beyond any applicable grace period of
any default in the payment when due on final maturity 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 (other than
Non-Recourse Indebtedness) or any other default resulting in acceleration of any
Indebtedness of the Company or any Restricted Subsidiary for money borrowed
(other than Non-Recourse Indebtedness) PROVIDED that the aggregate principal
amount of such Indebtedness shall exceed $10,000,000, and PROVIDED FURTHER, that
if any such default is cured or waived or any such acceleration rescinded, or
such Indebtedness is repaid, within a period of 10 days from the continuation of
such default beyond the applicable grace period or the occurrence of such
acceleration, as the case may be, such Event of Default under the Indenture and
any consequential acceleration of the Notes shall be automatically rescinded, so
long as such rescission does not conflict with any judgment or decree; or
(vi) any Subsidiary Guarantee shall for any reason cease to be, or be
asserted by the Company or any Subsidiary Guarantor, as applicable, not to be,
in full force and effect, enforceable in accordance with its terms (except
pursuant to the release or termination of any such Subsidiary Guarantee in
accordance with the Indenture); or
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(vii) final judgments or orders rendered against the Company or any
Restricted Subsidiary that are unsatisfied and that require the payment in
money, either individually or in an aggregate amount, that is more than
$10,000,000 over the coverage under applicable insurance policies and either (a)
commencement by any creditor of an enforcement proceeding upon such judgment
(other than a judgment that is stayed by reason of pending appeal or otherwise)
or (b) the occurrence of a 60-day period during which a stay of such judgment or
order, by reason of pending appeal or otherwise, was not in effect; or
(viii) the entry of a decree or order by a court having jurisdiction in
the premises (a) for relief in respect of the Company or any Material Subsidiary
in an involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or (b) adjudging the
Company or any Material Subsidiary bankrupt or insolvent, or approving a
petition seeking reorganization, arrangement, adjustment or composition of the
Company or any Material Subsidiary under any applicable federal or state law, or
appointing under any such law a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or any Material
Subsidiary or of a substantial part of its consolidated assets, or ordering the
winding up or liquidation of its affairs, and the continuance of any such decree
or order for relief or any such other decree or order unstayed and in effect for
a period of 60 consecutive days; or
(ix) the commencement by the Company or any Material Subsidiary of a
voluntary case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or any other case or proceeding
to be adjudicated bankrupt or insolvent, or the consent by the Company or any
Material Subsidiary to the entry of a decree or order for relief in respect
thereof in an involuntary case or proceeding under any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing by the Company or any Material Subsidiary of a petition or consent
seeking reorganization or relief under any applicable federal or state law, or
the consent by it under any such law to the filing of any such petition or to
the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or other similar official) of any of the
Company or any Material Subsidiary or of any substantial part of its
consolidated assets, or the making by it of an assignment for the benefit of
creditors under any such law, or the admission by it in writing of its inability
to pay its debts generally as they become due or the taking of corporate action
by the Company or any Material Subsidiary in furtherance of any such action.
If any Event of Default (other than as specified in clause (viii) or (ix) above)
occurs and is continuing, the Trustee, by written notice to the Company, or the
Holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee and the Company, may, and the Trustee upon
the request of the Holders of not less than 25% in aggregate principal amount of
the Notes then outstanding shall, declare the principal of, premium, if any, and
accrued interest on all of the Notes due and payable immediately, upon which
declaration all amounts payable in respect of the Notes shall be immediately due
and payable; PROVIDED, HOWEVER, that if any Senior Indebtedness is outstanding
pursuant to the New Credit Facility on the date of any such declaration, such
acceleration shall not be effective and such amounts shall not be payable until
the earlier of (i) the day which is five business days after notice of
acceleration is given to the Company and the Credit Facility Agent (unless such
Event of Default is cured or waived prior to such date) and (ii) the date of
acceleration of the Senior Indebtedness under the New Credit Facility. If an
Event of Default specified in clause (viii) or (ix) above occurs and is
continuing, then the principal of, premium, if any, and accrued interest on all
of the Notes shall automatically become and be immediately due and payable
without any declaration, notice or other act on the part of the Trustee or any
Holder.
After a declaration of acceleration under the Indenture, but before a judgment
or decree for payment of the money due has been obtained by the Trustee, the
Holders of a majority in aggregate principal amount of the outstanding Notes, by
written notice to the Company, the Subsidiary Guarantors and the Trustee, may
rescind such declaration if (i) the Company or any Subsidiary Guarantor has paid
or deposited with the Trustee a sum sufficient to pay (a) all sums paid or
advanced by the Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, (b)
all overdue interest on all Notes, (c) the principal of (and premium, if any,
on) any Notes which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes, and (d) to the
extent that payment of such interest is lawful, interest upon overdue interest
and overdue principal at the rate borne by the Notes (without duplication of any
amount paid or deposited pursuant to clause (b) or (c) ); (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction as
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certified to the Trustee by the Company; and (iii) all Events of Default, other
than the nonpayment of principal of (and premium, if any, on) or interest on the
Notes that has become due solely by such declaration of acceleration, have been
cured or waived.
No Holder of any of the Notes will have any right to institute any proceeding
with respect to the Indenture or any remedy thereunder, unless such Holder has
notified the Trustee of a continuing Event of Default and the Holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 60 days after receipt of such notice
and the Trustee, within such 60-day period, has not received directions
inconsistent with such written request by Holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations will not apply,
however, to a suit instituted by a Holder of a Note for the enforcement of the
payment of the principal of (or premium, if any, on) or interest on such Note on
or after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee will be required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the Trustee
in case an Event of Default shall occur and be continuing, the Trustee will not
be under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of Notes unless such
Holders shall have offered to the Trustee reasonable security or indemnity.
Subject to certain provisions concerning the rights of the Trustee, the Holders
of a majority in aggregate principal amount of the outstanding Notes 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 under the Indenture.
If a Default or an Event of Default occurs and is continuing and is known to the
Trustee, the Trustee shall mail to each Holder of Notes notice of the Default or
Event of Default within 60 days after the occurrence thereof. Except in the case
of a Default or an Event of Default in payment of principal of (or premium, if
any, on) or interest on any Notes, the Trustee may withhold the notice to the
Holders of Notes if the Trustee determines in good faith that withholding the
notice is in the interest of such Holders.
The Company is required to deliver to the Trustee annual and quarterly
statements regarding compliance with the Indenture, and the Company will also be
required, upon becoming aware of any Default or Event of Default, to deliver to
the Trustee a statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of the
obligations of the Company and the Subsidiary Guarantors discharged with respect
to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means
that the Company and the Subsidiary Guarantors shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes and to
have been discharged from all their other obligations with respect to such Notes
and the Subsidiary Guarantees, except for (i) the rights of Holders of
outstanding Notes to receive payment in respect of the principal of and premium,
if any, and interest on such Notes when such payments are due, (ii) the
Company's obligations to replace any temporary Notes, register the transfer or
exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and
maintain an office or agency for payments in respect of the Notes, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and each
Subsidiary Guarantor released with respect to certain covenants that are
described in the Indenture, some of which are described under "-- Certain
Covenants" above, and thereafter any omission to comply with such obligations
shall not constitute a Default or an Event of Default with respect to the Notes
("Covenant Defeasance"). In the event Covenant Defeasance occurs, certain
events (not including nonpayment, bankruptcy, insolvency and reorganization
events) described under "Events of Default and Remedies" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company or any Subsidiary Guarantor must irrevocably deposit with the Trustee,
in trust, for the benefit of the Holders of the Notes, cash in United States
dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of (and
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premium, if any, on) and interest on the outstanding Notes to redemption or
maturity; (ii) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance or Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance or Covenant Defeasance had not
occurred (in the case of Legal Defeasance, such opinion must refer to and be
based upon a published ruling of the Internal Revenue Service or a change in
applicable federal income tax laws); (iii) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit or insofar as
clauses (viii) and (ix) under the first paragraph under "Events of Default and
Remedies" are concerned, at any time during the period ending an the 91st day
after the date of deposit; (iv) such Legal Defeasance or Covenant Defeasance
shall not cause the Trustee to have a conflicting interest under the Indenture
or the Trust Indenture Act with respect to any securities of the Company or any
Subsidiary Guarantor; (v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any material
agreement or instrument to which the Company or any Subsidiary Guarantor is a
party or by which it is bound, and (vi) the Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, which, taken
together, state that all conditions precedent under the Indenture to either
Legal Defeasance or Covenant Defeasance, as the case may be, have been complied
with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect (except
as to surviving rights of registration of transfer or exchange of the Notes, as
expressly provided for in the Indenture) as to all outstanding Notes when (i)
either (a) all the Notes theretofore authenticated and delivered (except lost,
stolen or destroyed Notes which have been replaced or paid and Notes for whose
payment money or certain United States governmental obligations have theretofore
been deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust) have been
delivered to the Trustee for cancellation or (b) all Notes not theretofore
delivered to the Trustee for cancellation have become due and payable or will
become due and payable at their Stated Maturity within one year, or are to be
called for redemption within one year under arrangements satisfactory to the
Trustee for the serving of notice of redemption by the Trustee in the name, and
at the expense, of the Company, and the Company has irrevocably deposited or
caused to be deposited with the Trustee funds in an amount sufficient to pay and
discharge the entire indebtedness on the Notes not theretofore delivered to the
Trustee for cancellation, for principal of (and premium, if any, on) and
interest on the Notes to the date of deposit (in the case of Notes which have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be, together with instructions from the Company irrevocably directing
the Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be; (ii) the Company has paid all other sums then
due and payable under the Indenture by the Company; and (iii) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
which, taken together, state that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or the
Notes may be amended or supplemented with the consent of the Holders of at least
a majority in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for Notes), and any
existing default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the Holders of a majority in principal amount
of the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a nonconsenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the Stated Maturity of any
Note or alter the provisions with respect to the redemption of the Notes (other
than provisions relating to the covenants described above under the caption
"Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of (or the premium, if any, on) or interest
on the Notes (except a rescission of acceleration of the Notes by the Holders of
at least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any Note
payable in
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money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "Repurchase at the Option of Holders"), (viii) reduce the relative
ranking of any Notes or Subsidiary Guarantees or (ix) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes, the
Company, the Subsidiary Guarantors and the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency, to add or
release any Subsidiary Guarantor pursuant to the terms of the Indenture, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of Notes or that does
not adversely affect the interests of any such Holder in any material respect,
or to comply with requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
will serve as 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 or its Subsidiaries from time to time in the ordinary course of
business.
The Indenture (including the provisions of the Trust Indenture Act incorporated
by reference therein) will contain limitations on the rights of the Trustee
thereunder, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Indenture will permit
the Trustee to engage in other transactions; PROVIDED, HOWEVER, if it acquires
any conflicting interest (as defined in the Trust Indenture Act) it must
eliminate such conflict or resign.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees will be governed by the
laws of the State of New York, without regard to the principles of conflicts of
law.
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be issued in the form of a fully registered Global Certificate.
The Global Certificate will be deposited with, or on behalf of, The Depository
Trust Company, New York, New York (the "Depositary") and registered in the
name of the Depositary's nominee.
Except as set forth below, the Global Certificate may be transferred, in whole
and not in part, only to another nominee of the Depositary or to a successor of
the Depositary or its nominee.
The Depositary has advised the Company and the Underwriters as follows: It is a
limited-purpose trust company which was created to hold securities for its
participating organizations (the "Participants") and to facilitate the
clearance and settlement of transactions such securities between Participants
through electronic book-entry changes in accounts of its Participants.
Participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations. Access to the Depositary's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). Persons who are not Participants may
beneficially own securities held by the Depositary only through Participants or
indirect Participants.
The Depositary has also advised that pursuant to procedures established by it
(i) upon the issuance by the Company of the Notes, the Depositary will credit
the accounts of Participants designated by the Underwriters with the principal
amount of the Notes purchased by the Underwriters, and (ii) ownership of
beneficial interests in the Global Certificate will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary (with respect to Participants' interests), the Participants and
the Indirect Participants. The laws of some states require that certain persons
take physical delivery in definitive form of securities which they own.
Consequently, the ability to transfer beneficial interests in the Global
Certificate is limited to such extent.
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So long as a nominee of the Depositary is the registered owner of the Global
Certificate, such nominee will be considered the sole owner or holder of the
Notes for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in the Global Certificate will not be entitled to have
Notes registered in their names, will not receive or be entitled to receive
physical delivery of Notes in definitive form and will not be considered the
owners or holders thereof under the Indenture.
Neither the Company, the Trustee, the paying agent, nor the Notes registrar will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Global
Certificate, or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
Principal and interest payments on the Global Certificate registered in the name
of the Depositary's nominee will be made by the Company, either directly or
through a paying agent, to the Depositary's nominee as the registered owner of
the Global Certificate. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes are registered as the
owners of such Notes for the purpose of receiving payments of principal and
interest on such Notes and for all other purposes whatsoever. Therefore, neither
the Company, the Trustee nor any paying agent has any direct responsibility or
liability for the payment of principal or interest on the Notes to owners of
beneficial interests in the Global Certificate. The Depositary has advised the
Company and the Trustee that its present practice is, upon receipt of any
payment of principal or interest, to credit immediately the accounts of the
Participants with payment in amounts proportionate to their respective holdings
in principal amount of beneficial interests in the Global Certificate as shown
on the records of the Depositary. Payments by Participants and Indirect
Participants to owners of beneficial interests in the Global Certificate will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name" and will be the responsibility of such Participants or
Indirect Participants.
As long as the Notes are represented by a Global Certificate, the Depositary's
nominee will be the holder of the Notes and therefore will be the only entity
that can exercise a right to repayment or repurchase of the Notes. See " --
Repurchase at the Option of Holders -- Change of Control" and " -- Asset
Sales." Notice by Participants or Indirect Participants or by owners of
beneficial interests in a Global Certificate held through such Participants or
Indirect Participants of the exercise of the option to elect repayment of
beneficial interests in Notes represented by a Global Certificate must be
transmitted to the Depositary in accordance with its procedures on a form
required by the Depositary and provided to Participants. In order to ensure that
the Depositary's nominee will timely exercise a right to repayment with respect
to a particular Note, the beneficial owner of such Note must instruct the broker
or other Participant or Indirect Participant through which it holds an interest
in such Note to notify the Depositary of its desire to exercise a night to
repayment. Different firms have cut-off times for accepting instructions from
their customers and, accordingly, each beneficial owner should consult the
broker or other Participant or Indirect Participant through which it holds an
interest in a Note in order to ascertain the cut-off time by which such an
instruction must be given in order for timely notice to be delivered to the
Depositary. The Company will not be liable for any delay in delivery of notices
of the exercise of the option to elect repayment.
The Company will issue Notes in definitive form in exchange for the Global
Certificate if, and only if, either (1) the Depositary is at any time unwilling
or unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, or (2) an Event of Default has occurred and is
continuing and the Notes registrar has received a request from the Depositary to
issue Notes in definitive form in lieu of all or a portion of the Global
Certificate. In either instance, an owner of a beneficial interest in the Global
Certificate will be entitled to have Notes equal in principal amount to such
beneficial interest registered in its name and will be entitled to physical
delivery of such Notes in definitive form. Notes so issued in definitive form
will be issued in denominations of $1,000 and integral multiples thereof and
will be issued in registered form only, without coupons.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (a) assumed in
connection with an acquisition of properties or assets from such Person or (b)
outstanding at the time such Person becomes a Subsidiary of any other Person
(other than any Indebtedness incurred in connection with, or in contemplation
of, such acquisition or such Person becoming such a Subsidiary). Acquired
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of properties or assets from any Person or the date the acquired
Person becomes a Subsidiary.
"ADJUSTED NET ASSETS" of a Subsidiary Guarantor at any date means the amount
by which the fair value of the properties and assets of such Subsidiary
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under its Subsidiary Guarantee, of such Subsidiary Guarantor at such
date.
"ADMINISTRATIVE SERVICES AGREEMENT" means the Administrative Services
Agreement, effective as of January 1, 1994, between the Company and Torch and
any other agreements with Torch or its subsidiaries relating to oil and gas
marketing services or contract operations.
"AFFILIATE" of any specified Person means (i) any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any other Person who is a director or
executive officer of (a) such specified Person or (b) any Person described in
the preceding clause (i) For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with") as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise; PROVIDED
that beneficial ownership of 10% or more of the Voting Stock of a Person shall
be deemed to be control.
"ASSET SALE" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by way of merger or consolidation)
(collectively, for purposes of this definition, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Restricted Subsidiary held by the Company or any Restricted Subsidiary,
(ii) all or substantially all of the properties and assets of the Company or any
of its Restricted Subsidiaries or (iii) any other properties or assets of the
Company or any of its Restricted Subsidiaries (including Production Payments)
other than (a) a disposition of hydrocarbons or other mineral products (other
than Production Payments), inventory, accounts receivable, cash, Cash
Equivalents or other property in the ordinary course of business, (b) any lease,
abandonment, disposition, relinquishment or farm-out of any oil and gas property
in the ordinary course of business, (c) the liquidation of property or assets
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, (d)
any transfer of properties or assets that are governed by, and made in
accordance with, the provisions described under "-- Merger, Consolidation or
Sale of Assets," (e) any transfer of properties or assets to an Unrestricted
Subsidiary or other Person, if permitted under the "Restricted Payments"
covenant, (f) any Production Payment 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, 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 interest to be operated and maintained, in a reasonably
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, or (g) any transfer, in one or a series
of related Transactions, of properties or assets having a fair market value of
less than $2,000,000.
"AVERAGE LIFE" means, with respect to any Indebtedness, as 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.
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"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents in the equity
interests (however designated) in such Person, and any rights (other than debt
securities convertible into an equity interest), warrants or options exercisable
for, exchangeable for or convertible into such an equity interest in such
Person.
"CAPITALIZED LEASE OBLIGATION" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP, and, for the purpose of
the Indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"CASH EQUIVALENTS" means (i) any evidence of Indebtedness with a maturity of
180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500,000,000; (iii) commercial
paper with a maturity of 180 days or less issued by a corporation that is not an
Affiliate of the Company and is organized under the laws of any state of the
United States or the District of Columbia and rated at least A-1 by S&P or at
least P-1 by Moody's; (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) above
entered into with any commercial bank meeting the specifications of clause (ii)
above; (v) overnight bank deposits and bankers' acceptances at any commercial
bank meeting the qualifications specified in clause (ii) above; (vi) deposits
available for withdrawal on demand with any commercial bank not meeting the
qualifications specified in clause (ii) above but which 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 are required to be made in such accounts in the ordinary course of
business, (b) such deposits do not at any one time exceed $5,000,000 in the
aggregate and (c) no funds so deposited remain on deposit in such bank for more
than 30 days; (vii) deposits available for withdrawal on demand with any
commercial bank not meeting the qualifications specified in clause (ii) above
but which is a lending bank under any of the Company's or any Restricted
Subsidiary's credit facilities, provided all such deposits do not exceed
$5,000,000 in the aggregate at any one time; and (viii) investments in money
market funds substantially all of whose assets comprise securities of the types
described in clauses (i) through (v).
"CHANGE OF CONTROL" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the
total voting power of the outstanding Voting Stock of the Company; (ii) the
Company is merged with or into or consolidated with another Person and,
immediately after giving effect to the merger or consolidation, (a) less than
50% of the total voting power of the outstanding Voting Stock of the surviving
or resulting Person is then "beneficially owned" (within the meaning of Rule
13d-3 under the Exchange Act) in the aggregate by the stockholders of the
Company immediately prior to such merger or consolidation, and (b) any
"person" or "group" (as defined in Section 13(d) (3) or 14(d) (2) of the
Exchange Act) has become the direct or indirect "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power
of the Voting Stock of the surviving or resulting Person; (iii) the Company,
either individually or in conjunction with one or more Restricted Subsidiaries,
sells, assigns, conveys, transfers, leases or otherwise disposes of, or one or
more Restricted Subsidiaries sells, assigns, conveys, transfers, leases or
otherwise disposes of, all or substantially all of the properties and assets of
the Company and the Restricted Subsidiaries, taken as a whole (either in one
transaction or a series of related transactions), including Capital Stock of the
Restricted Subsidiaries, to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary); (iv) during any consecutive two-year period, individuals
who at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors 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 Board of Directors of the Company then in office;
or (v) the liquidation or dissolution of the Company.
"COMMON STOCK" of any Person means Capital Stock of such Person that does not
rank prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding-up of such
Person, to shares of Capital Stock of any other class of such Person.
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"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of
(i) the sum of Consolidated Net Income, Consolidated Interest Expense,
Consolidated Income Tax Expense and Consolidated Non-cash Charges deducted in
computing Consolidated Net Income, in each case, for such period, of the Company
and its Restricted Subsidiaries on a consolidated basis, all determined in
accordance with GAAP, decreased (to the extent included in determining
Consolidated Net Income) by the sum of (a) the amount of deferred revenues that
are amortized during such period and are attributable to reserves that are
subject to Volumetric Production Payments and (b) amounts recorded in accordance
with GAAP as repayments of principal and interest pursuant to Dollar-Denominated
Production Payments, to (ii) the sum of such Consolidated Interest Expense for
such period; PROVIDED, HOWEVER, that (a) the Consolidated Fixed Charge Coverage
Ratio shall be calculated on the assumption that (1) the Indebtedness to be
incurred (and all other Indebtedness incurred after the first day of such period
of four full fiscal quarters referred to in the covenant described under
" -- Certain Covenants -- Incurrence of Indebtedness" through and including
the date of determination) and (if applicable) the application of the net
proceeds therefrom (and from any other such Indebtedness), including to
refinance other Indebtedness, had been incurred on the first day of such
four-quarter period and, in the case of Acquired Indebtedness, on the assumption
that the related transaction (whether by means of purchase, merger or otherwise)
also had occurred on such date with the appropriate adjustments with respect to
such acquisition being included in such pro forma calculation and (2) any
acquisition or disposition by the Company or any Restricted Subsidiary of any
properties or assets outside the ordinary course of business, or any repayment
of any principal amount of any Indebtedness of the Company or any Restricted
Subsidiary prior to the Stated Maturity thereof, in either case since the first
day of such period of four full fiscal quarters through and including the date
of determination, had been consummated on such first day of such four-quarter
period, (b) in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness required to be computed on a pro
forma basis in accordance with the covenant described under " -- Certain
Covenants -- Incurrence of Indebtedness" and (1) bearing a floating interest
rate shall be computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period and (2) which was not outstanding
during the period for which the computation is being made but which bears, at
the option of the Company, a fixed or floating rate of interest, shall be
computed by applying, at the option of the Company, either the fixed or floating
rate, (c) in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness under a revolving credit facility
required to be computed on a pro forma basis in accordance with the covenant
described under " -- Certain Covenants -- Incurrence of Indebtedness" shall be
computed based upon the average daily balance of such Indebtedness during the
applicable period, PROVIDED THAT such average daily balance shall be reduced by
the amount of any repayment of Indebtedness under a revolving credit facility
during the applicable period, which repayment permanently reduced the
commitments or amounts available to be reborrowed under such facility, (d)
notwithstanding clauses (b) and (c) of this proviso, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Rate Protection Obligations, shall be deemed to
have accrued at the rate per annum resulting after giving effect to the
operation of such agreements, (e) in making such calculation, Consolidated
Interest Expense shall exclude interest attributable to Dollar-Denominated
Production Payments, and (f) if after the first day of the period referred to in
clause (i) of this definition the Company has retired any Indebtedness out of
the net cash proceeds of the issue and sale of shares of Qualified Capital Stock
of the Company within 30 days of such issuance and sale, Consolidated Interest
Expense shall be calculated on a pro forma basis as if such Indebtedness had
been retired on the first day of such period.
"CONSOLIDATED INCOME TAX EXPENSE" means, for any period, the provision for
federal, state, local and foreign income taxes (including any state franchise
taxes accounted for as income taxes in accordance with GAAP) of the Company and
its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, without duplication,
(i) the sum of (a) the interest expense of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, (1) any amortization of debt discount,
(2) the net cost under Interest Rate Protection Obligations (including any
amortization of discounts), (3) the interest portion of any deferred payment
obligation constituting Indebtedness, (4) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and (5) all accrued interest, in each case to the extent attributable
to such period, (b) to the extent any Indebtedness of any Person (other than the
Company or a Restricted Subsidiary) is guaranteed by the Company or any
Restricted Subsidiary, the aggregate amount of interest paid (to the extent not
accrued in a prior period) or accrued by such other Person during such period
attributable to any such Indebtedness, in each case to the extent
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attributable to that period, (c) the aggregate amount of the interest component
of Capitalized Lease Obligations paid (to the extent not accrued in a prior
period), accrued and/or scheduled to be paid or accrued by the Company and its
Restricted Subsidiaries during such period as determined on a consolidated basis
in accordance with GAAP and (d) the aggregate amount of dividends paid (to the
extent not accrued in a prior period) or accrued on Redeemable Capital Stock of
the Company and its Restricted Subsidiaries, to the extent such Redeemable
Capital Stock is owned by Persons other than the Company or its Restricted
Subsidiaries, and to the extent such dividends are not paid in Common Stock,
less (ii) to the extent included in (i) above, amortization of capitalized debt
issuance costs of the Company and its Restricted Subsidiaries during such
period.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated net income
(or loss) of the Company and its Restricted Subsidiaries for such period as
determined in accordance with GAAP, adjusted by excluding (i) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto),
(ii) net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (iii) the net income (or net loss) of any Person
(other than the Company or any of its Restricted Subsidiaries), in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of the amount of dividends or other distributions or interest on
indebtedness actually paid to the Company or any of its Restricted Subsidiaries
in cash by such other Person during such period (regardless of whether such cash
dividends, distributions or interest on indebtedness is attributable to net
income (or net loss) of such Person during such period or during any prior
period), (iv) net income (or net loss) of any Person combined with the Company
or any of its Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination and (v) the net
income of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary is
not at the date of determination permitted, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders.
"CONSOLIDATED NET WORTH" means, at any date, the consolidated stockholders'
equity of the Company and its Restricted Subsidiaries less the amount of such
stockholders' equity attributable to Redeemable Capital Stock or treasury stock
of the Company and its Restricted Subsidiaries, as determined in accordance with
GAAP.
"CONSOLIDATED NON-CASH CHARGES" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the Company
and its Restricted Subsidiaries reducing Consolidated Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge which requires an accrual of or reserve for cash
charges for any future period).
"CREDIT FACILITY AGENT" means the "Agent" under the New Credit Facility,
initially Morgan Guaranty Trust Company of New York, and thereafter any Person
succeeding to substantially such function and notified to the Company as the new
Credit Facility Agent by the Person then acting in such capacity.
"DEFAULT" means any event that is or with the passage of time or the giving of
notice or both would be an Event of Default.
"DOLLAR-DENOMINATED PRODUCTION PAYMENTS" means production payment obligations
recorded as liabilities in accordance with GAAP, together with all undertakings
and obligations in connection therewith.
"EVENT OF DEFAULT" has the meaning set forth above under the caption "Events
of Default and Remedies."
"GAAP" means generally accepted accounting principles, consistently applied,
that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
effective on the date of the Indenture.
The term "GUARANTEE" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments or documents for collection
in the ordinary course of business), direct or indirect, in any manner, of any
part or all of such obligation and (ii) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
nonperformance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of credit;
PROVIDED, HOWEVER, that a guarantee by any Person shall not include a
contractual commitment by one Person to invest in
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another Person PROVIDED that such Investment is otherwise permitted by the
Indenture. When used as a verb, "guarantee" shall have a corresponding
meaning.
"GUARANTOR SENIOR INDEBTEDNESS" means the principal of (and premium, if any,
on) and interest on (including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law) and other amounts due
on or in connection with (including any fees, premiums, expenses, including
costs of collection, and indemnities) any Indebtedness of a Subsidiary
Guarantor, whether outstanding on the date of the Indenture or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness will be
PARI PASSU with or subordinated in right of payment to its Subsidiary Guarantee.
Notwithstanding the foregoing, Guarantor Senior Indebtedness of a Subsidiary
Guarantor will not include (i) Indebtedness of such Subsidiary Guarantor
evidenced by its Subsidiary Guarantee, (ii) Indebtedness of such Subsidiary
Guarantor that is expressly PARI PASSU with its Subsidiary Guarantee or is
expressly subordinated in right of payment to any other Indebtedness of such
Subsidiary Guarantor or its Subsidiary Guarantee, (iii) Indebtedness of such
Subsidiary Guarantor to the extent incurred in violation of the "Incurrence of
Indebtedness" covenant of the Indenture, (iv) Indebtedness of such Subsidiary
Guarantor to the Company or any of the Company's other Subsidiaries or to any
Affiliate of the Company or any Subsidiary of such Affiliate and (v) any
Indebtedness which when incurred and without regard to any election under
Section 1111 (b) of the Federal Bankruptcy Code is without recourse to such
Subsidiary Guarantor.
"HOLDER" means a Person in whose name a Note is registered in the Note
Register.
"INDEBTEDNESS" means, with respect to any Person, without duplication, (i) all
liabilities of such Person for borrowed money or for the deferred purchase price
of property or services (excluding any trade accounts payable and other accrued
current liabilities incurred in the ordinary course of business), and all
liabilities of such Person incurred in connection with any letters of credit,
bankers' acceptances or other similar credit transactions or any agreement to
purchase, redeem, exchange, convert or otherwise acquire for value any Capital
Stock of such Person or any warrants, rights or options to acquire such Capital
Stock outstanding on the date of the Indenture or thereafter, if, and to the
extent, any of the foregoing would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, (ii) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments, if,
and to the extent, any of the foregoing would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, (iii) all
Indebtedness of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even if the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business,
(iv) all Capitalized Lease Obligations of such Person, (v) all Indebtedness
referred to in the preceding clauses of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right to be secured by) any Lien upon property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness (the amount of such obligation being deemed to be the
lesser of the value of such property or asset or the amount of the obligation so
secured), (vi) all guarantees by such Person of Indebtedness referred to in this
definition (including, with respect to any Production Payment, any warranties or
guaranties of production or payment by such Person with respect to such
Production Payment but excluding other contractual obligations of such Person
with respect to such Production Payment), (vii) all Redeemable Capital Stock of
such Person valued at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued dividends and (viii) all obligations of such
Person under or in respect of currency exchange contracts, oil or natural gas
price hedging arrangements and Interest Rate Protection Obligations. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock; PROVIDED, HOWEVER,
that if such Redeemable Capital Stock is not at the date of determination
permitted or required to be repurchased, the "maximum fixed repurchase price"
shall be the book value of such Redeemable Capital Stock. Subject to clause (vi)
of the first sentence of this definition, neither Dollar-Denominated Production
Payments nor Volumetric Production Payments shall be deemed to be Indebtedness.
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"INTEREST RATE PROTECTION OBLIGATIONS" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to protect
against or manage such Person's and any of its Subsidiaries' exposure to
fluctuations in interest rates.
"INVESTMENT" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or capital
contribution to (by means of any transfer of cash or other property or assets to
others or any payment for property, assets or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities (including derivatives) or
evidences of Indebtedness issued by, any other Person. In addition, (i) the fair
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by the Company in such Unrestricted
Subsidiary at such time and (ii) the fair market value of Capital Stock retained
by the Company or a Restricted Subsidiary in connection with the sale or
issuance of Capital Stock of a Restricted Subsidiary in accordance with the
"Ownership of Capital Stock" covenant that, as a result of such transaction,
is no longer a Restricted Subsidiary shall be deemed to be an "Investment"
made at the time of such transaction. "Investments" shall exclude (a)
extensions of trade credit under a joint operating agreement or otherwise in the
ordinary course of business, workers' compensation, utility, lease and similar
deposits and prepaid expenses made in the ordinary course of business, (b)
Interest Rate Protection Obligations entered into in the ordinary course of
business or as required by any Permitted Indebtedness or any other Indebtedness
incurred in compliance with the "Incurrence of Indebtedness" covenant, but
only to the extent that the stated aggregate notional amounts of such Interest
Rate Protection Obligations do not exceed 105% of the aggregate principal amount
of such Indebtedness to which such Interest Rate Protection Obligations relate,
(c) bonds, notes, debentures or other securities received in compliance with the
"Asset Sales" covenant, and (d) endorsements of negotiable instruments and
documents for collection in the ordinary course of business.
"LIEN" means any mortgage, charge, pledge, lien (statutory or other), security
interest, hypothecation, assignment for security, claim, or preference or
priority or other encumbrance or similar agreement or preferential arrangement
of any kind or nature whatsoever (including, without limitation, any agreement
to give or grant a Lien or any lease, conditional sale or other title retention
agreement having substantially the same economic effect as any of the foregoing)
upon or with respect to any property of any kind. A Person shall be deemed to
own subject to a Lien any property which such Person has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"MATERIAL SUBSIDIARY" means, at any particular time, 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 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 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.
"MATURITY" means, with respect to any Note, the date on which any principal of
such Note becomes due and payable as provided therein or in the Indenture,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary), net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel and investment banks) related to such Asset Sale, (ii) provisions for
all taxes payable as a result of such Asset Sale, (iii) amounts required to be
paid to any Person (other than the Company or any Restricted Subsidiary) owning
a beneficial interest in the assets subject to the Asset Sale and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP consistently
applied against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities,
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liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected in
an Officers' Certificate delivered to the Trustee; PROVIDED, HOWEVER, that any
amounts remaining after adjustments, revaluations or liquidations of such
reserves shall constitute Net Cash Proceeds.
"NEW CREDIT FACILITY" means that certain Credit Agreement, dated as of
________, 1997, among the Company, certain Subsidiaries of the Company, the
Credit Facility Agent, and certain lenders named therein, as the same may be
amended, modified, supplemented, extended, restated, replaced, renewed or
refinanced from time to time.
"NON-PAYMENT EVENT OF DEFAULT" means any event (other than a Payment Event of
Default), the occurrence of which (with or without notice or the passage of
time) entitles one or more Persons to accelerate the maturity of any Specified
Senior Indebtedness.
"NON-RECOURSE INDEBTEDNESS" means indebtedness of the Company or any
Restricted Subsidiary incurred in connection with the acquisition by the Company
or such Restricted Subsidiary of any property with respect to which (i) the
holders of such indebtedness agree that they will look solely to the property so
acquired and securing such indebtedness, and neither the Company nor any
Restricted Subsidiary (a) provides direct or indirect credit support, including
any undertaking, agreement or instrument that would constitute indebtedness
(other than the grant of a Lien on such acquired property) or (b) is directly or
indirectly liable for such indebtedness, and (ii) no default with respect to
such indebtedness would cause, or permit (after notice or passage of time or
otherwise), according to the terms thereof, any holder (or any representative of
any such holder) of any other indebtedness of the Company or a Restricted
Subsidiary to declare a default on such other indebtedness or cause the payment,
repurchase, redemption, defeasance or other acquisition or retirement for value
thereof to be accelerated or payable prior to any scheduled principal payment,
scheduled sinking fund payment or maturity.
"NOTE REGISTER" means the register maintained by or for the Company in which
the Company shall provide for the registration of the Notes and of transfer of
the Notes.
"OIL AND GAS BUSINESS" means (i) the acquisition, exploration development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (ii) the gathering, marketing, treating, processing, storage,
selling and transporting of any production from such interests or properties,
(iii) any business relating to or arising from exploration for or development,
production, treatment, processing, storage, transportation or marketing of oil,
gas, hydrocarbons and other minerals and products produced in association
therewith and (iv) any activity necessary, appropriate or incidental to the
activities described in the foregoing clauses (i) through (iii) of this
definition.
"PARI PASSU INDEBTEDNESS" means any Indebtedness of the Company that is PARI
PASSU in right of payment to the Notes.
"PAYMENT EVENT OF DEFAULT" means any default in the payment or required
prepayment of principal of (or premium, if any, on) or interest on any Specified
Senior Indebtedness when due (whether at final maturity, upon scheduled
installment, upon acceleration or otherwise).
"PERMITTED INDEBTEDNESS" means any of the following:
(i) Indebtedness under the New Credit Facility in an aggregate principal
amount at any one time outstanding not to exceed $90,000,000 (less any amounts
applied to repay or prepay permanently any such Indebtedness in accordance with
the "Asset Sales" covenant), and any guarantee of any such Indebtedness
(including by any Subsidiary) and any fees, premiums, expenses (including costs
of collection), indemnities and other amounts payable in connection with such
Indebtedness;
(ii) Indebtedness under the Notes and the Subsidiary Guarantees;
(iii) Indebtedness outstanding on the date of the Indenture (and not
repaid or defeased with the proceeds of the offering of the Notes);
(iv) obligations of the Company or a Restricted Subsidiary pursuant to
Interest Rate Protection Obligations, but only to the extent that the stated
aggregate notional amounts of such obligations do not exceed 105% of the
aggregate principal amount of the Indebtedness covered by such Interest Rate
Protection Obligations; obligations under currency exchange contracts entered
into in the ordinary course of business; and hedging arrangements that the
Company or a Restricted Subsidiary enters into in the ordinary course of
business for the purpose of protecting its production against fluctuations in
oil or natural gas prices;
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(v) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary
and Indebtedness of a Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary; PROVIDED, HOWEVER, that upon any subsequent issuance or
transfer of any Capital Stock or any other event which results in any such
Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted
Subsidiary or any other subsequent transfer of any such Indebtedness (except to
the Company or a Wholly Owned Restricted Subsidiary), such Indebtedness shall be
deemed, in each case, to be incurred and shall be treated as an incurrence for
purposes of the "Incurrence of Indebtedness" covenant at the time the Wholly
Owned Restricted Subsidiary in question ceased to be a Wholly Owned Restricted
Subsidiary;
(vi) in-kind obligations relating to net gas balancing positions arising
in the ordinary course of business and consistent with past practice;
(vii) Indebtedness in respect of bid, performance or surety bonds issued
for the account of the Company or any Restricted Subsidiary in the ordinary
course of business, including guaranties and letters of credit supporting such
bid, performance or surety obligations (in each case other than for an
obligation for money borrowed);
(viii) any guarantee of Senior Indebtedness or Guarantor Senior
Indebtedness, incurred in compliance with the "Limitation on Indebtedness"
covenant, by a Restricted Subsidiary or the Company;
(ix) any renewals, substitutions, refinancings or replacements (each, for
purposes of this clause, a "refinancing") by the Company or a Restricted
Subsidiary of any Indebtedness incurred pursuant to clause (ii) or (iii) of this
definition, including any successive refinancings by the Company or such
Restricted Subsidiary, so long as (a) any such new Indebtedness shall be in a
principal amount that does not exceed the principal amount (or, if such
Indebtedness being refinanced provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration thereof,
such lesser amount as of the date of determination) so refinanced plus the
amount of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness refinanced or the amount of any
premium reasonably determined by the Company or such Restricted Subsidiary as
necessary to accomplish such refinancing, plus the amount of expenses of the
Company or such Restricted Subsidiary incurred in connection with such
refinancing, and (b) in the case of any refinancing of Indebtedness of the
Company that is not Senior Indebtedness, such new Indebtedness is either PARI
PASSU with the Notes or subordinated to the Notes at least to the same extent as
the Indebtedness being refinanced and (c) such new Indebtedness has an Average
Life equal to or longer than the Average Life of the Indebtedness being
refinanced and a final Stated Maturity equal to or later than the final Stated
Maturity of the Indebtedness being refinanced; and
(x) any additional Indebtedness in an aggregate principal amount not in
excess of $15,000,000 at any one time outstanding.
"PERMITTED INVESTMENTS" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in the Company or any of its Restricted
Subsidiaries; (iii) Investments by the Company or any of its Restricted
Subsidiaries in another Person, if as a result of such Investment (a) such other
Person becomes a Restricted Subsidiary or (b) such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all of
its properties and Assets to, the Company or a Restricted Subsidiary; (iv)
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 means
of actively exploiting, exploring for, acquiring, developing, processing,
gathering, marketing or transporting oil and gas through agreements,
transactions, interests or arrangements which permit a Person 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, (a)
ownership interests in oil and gas properties or gathering systems and (b)
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), limited
liability company agreements, subscription agreements, stock purchase agreements
and other similar agreements with third parties (including Unrestricted
Subsidiaries); (v) entry into any hedging arrangements in the ordinary course of
business for the purpose of protecting the Company's or any Restricted
Subsidiary's production against fluctuations in oil or natural gas prices; (vi)
entry into any currency exchange contract in the ordinary course of business;
and (vii) Investments in stock, obligations or securities received in settlement
of debts owing to the Company or a Restricted Subsidiary as a result of
bankruptcy or insolvency proceedings or upon the
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foreclosure, perfection or enforcement of any Lien in favor of the Company or a
Restricted Subsidiary, in each case as to debt owing to the Company or a
Restricted Subsidiary that arose in the ordinary course of business of the
Company or any such Restricted Subsidiary.
"PERMITTED JUNIOR SECURITIES" means any equity securities or subordinated debt
securities of the Company or any successor obligor with respect to the Senior
Indebtedness provided for by a plan of reorganization or readjustment that, in
the case of any such subordinated debt securities, are subordinated in right of
payment to all Senior Indebtedness that may at the time be outstanding to
substantially the same degree as, or to a greater extent than, the Notes are so
subordinated as provided in the Indenture.
"PERMITTED LIENS" means any and all of the following: (i) Liens existing as of
the date the Notes are first issued; (ii) Liens securing the Notes, the
Subsidiary Guaranties and other obligations arising under the Indenture; (iii)
any lien existing on any property 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 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 or assets at the time of the acquisition thereof (and
not incurred in anticipation of such transaction), PROVIDED that such Liens are
not extended to other property or assets of the Company or the Subsidiary
Guarantors; (v) Liens to secure any permitted extension, renewal, refinancing,
refunding or exchange (or successive extensions, renewals, refinancings,
refundings or exchanges), in whole or in part, of or for any indebtedness
secured by Liens referred to in clauses (i), (ii), (iii) and (iv) above;
PROVIDED, HOWEVER, that (a) such new Lien shall be limited to all or part of the
same property that secured the original Lien, plus improvements on such property
and (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 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; and (vi) Liens in favor of the
Company.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the date of the Indenture, including, without limitation, all classes and series
of preferred or preference stock of such Person.
"PRODUCTION PAYMENTS" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"QUALIFIED CAPITAL STOCK" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"REDEEMABLE CAPITAL STOCK" means any Capital Stock that, either by its terms,
by the terms of any security into which it is convertible or exchangeable or by
contract or otherwise, is, or upon the happening of an event or passage of time
would be, required to be redeemed prior to the final Stated Maturity of the
Notes or is redeemable at the option of the holder thereof at any time prior to
such final Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to such final Stated Maturity.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company, whether existing
on or after the date of the Indenture, unless such Subsidiary of the Company is
an Unrestricted Subsidiary or is designated as an Unrestricted Subsidiary
pursuant to the terms of the Indenture.
"S&P" means Standard and Poor's Ratings Service, a division of McGraw-Hill,
Inc., and its successors.
"SENIOR INDEBTEDNESS" means the principal of (and premium, if any, on) and
interest on (including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law, whether or not payable
or allowable in such proceeding) and other amounts due on or in connection with
(including any fees, premiums, expenses, including costs of collection, and
indemnities) any Indebtedness of the Company, whether outstanding on the date of
the Indenture or thereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness will be PARI PASSU with or subordinated in right of payment to the
Notes. Notwithstanding the foregoing, "Senior Indebtedness" will not
87
<PAGE>
include (i) Indebtedness evidenced by the Notes, (ii) Indebtedness of the
Company that is Pari Passu Indebtedness or is expressly subordinated in right of
payment to any other Indebtedness of the Company, (iii) Indebtedness that is
represented by Redeemable Capital Stock, (iv) Indebtedness of the Company to the
extent incurred in violation of the covenant described under
"-- Covenants -- Incurrence of Indebtedness, (v) Indebtedness of the Company to
any Subsidiary of the Company or any other Affiliate of the Company or any
subsidiary of such Affiliate and (vi) Indebtedness which when incurred and
without regard to any election under Section 1111(b) of the Federal Bankruptcy
Code is without recourse to the Company.
"SPECIFIED SENIOR INDEBTEDNESS" means (i) for so long as any Senior
Indebtedness is outstanding under the New Credit Facility, all Senior
Indebtedness of the Company in respect of the New Credit Facility and any
renewals, amendments, extensions, supplements, modifications, deferrals,
refinancings, or replacements (each, for purposes of this definition, a
"refinancing") thereof by the Company, including any successive refinancings
thereof by the Company and (ii) any other Senior Indebtedness and any
refinancings thereof by the Company having a principal amount of at least
$10,000,000 as of the date of determination and PROVIDED that the agreements,
indentures or other instruments evidencing such Senior Indebtedness or pursuant
to which such Senior Indebtedness was issued specifically designates such Senior
Indebtedness as "Specified Senior Indebtedness" for purposes of the Indenture.
For purposes of this definition, a refinancing of any Specified Senior
Indebtedness shall be treated as Specified Senior Indebtedness only if the
Indebtedness issued in such refinancing ranks or would rank PARI PASSU with the
Specified Senior Indebtedness refinanced and only if Indebtedness issued in such
refinancing is permitted by the covenant described under
"-- Covenants -- Incurrence of Indebtedness."
"STATED MATURITY" means, when used with respect to any Note or any installment
of interest thereon, the date specified in such Note as the fixed date on which
the principal of such Note or such installment of interest is due and payable,
and, when used with respect to any other Indebtedness or any installment of
interest thereon, means the date specified in the instrument evidencing or
governing such Indebtedness as the fixed date on which the principal of such
Indebtedness or such installment of interest is due and payable.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.
"SUBSIDIARY" means, with respect to any Person, (i) a corporation a majority
of whose Voting Stock is at the time, directly or indirectly, owned by such
Person, by one or more Subsidiaries of such Person or by such Person and one or
more Subsidiaries thereof or (ii) any other Person (other than a corporation,
including, without limitation, a joint venture, in which such Person, one or
more Subsidiaries thereof or such Person and one or more Subsidiaries thereof,
directly or indirectly, at the date of determination thereof, have at least
majority ownership interest entitled to vote in the election of directors,
managers or trustees thereof (or other Persons performing similar functions).
"SUBSIDIARY GUARANTEE" means any guarantee of the Notes by any Subsidiary
Guarantor in accordance with the provisions set forth in "-- Senior
Subordinated Guarantee of Notes."
"SUBSIDIARY GUARANTOR" means (i) initially the several Restricted Subsidiaries
named in the Indenture as a party thereto, (ii) each of the other Restricted
Subsidiaries, if any, executing a supplemental indenture in compliance with the
provisions described under "-- Limitation on Guarantees of Indebtedness by
Restricted Subsidiaries" and (iii) any Person that becomes a successor
guarantor of the Notes in compliance with the provisions described under
"Senior Subordinated Guarantee of Notes."
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company that at the
time of determination is designated an Unrestricted Subsidiary by the Board of
Directors of the Company as provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of the Company may designate any
Subsidiary of the Company as an Unrestricted Subsidiary so long as (a) neither
the Company nor any Restricted Subsidiary is directly or indirectly liable
pursuant to the terms of any Indebtedness of such Subsidiary; (b) no default
with respect to any Indebtedness of such Subsidiary would permit (upon notice,
lapse of time or otherwise) any holder of any other Indebtedness of the Company
or any Restricted Subsidiary to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity; (c) neither the Company nor any Restricted Subsidiary has made an
Investment in such Subsidiary unless such Investment was made pursuant to, and
in accordance with, the "Restricted Payments" covenant (other than Investments
of the type described in clause (iv) of the definition of Permitted
Investments); and (d) such designation shall not result in the creation or
imposition of any Lien on any of the properties or assets of the
88
<PAGE>
Company or any Restricted Subsidiary (other than any Permitted Lien or any Lien
the creation or imposition of which shall have been in compliance with the
"Liens" covenant); PROVIDED, HOWEVER, that with respect to clause (a), the
Company or a Restricted Subsidiary may be liable for Indebtedness of an
Unrestricted Subsidiary if (x) such liability constituted a Permitted Investment
or a Restricted Payment permitted by the "Restricted Payments" covenant, in
each case at the time of incurrence, or (y) the liability would be a Permitted
Investment at the time of designation of such Subsidiary as an Unrestricted
Subsidiary. Any such designation by the Board of Directors of the Company shall
be evidenced to the Trustee by filing a Board Resolution with the Trustee giving
effect to such designation. The Board of Directors of the Company may designate
any Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after
giving effect to such designation, (i) no Default or Event of Default shall have
occurred and be continuing, (ii) the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the "Incurrence of
Indebtedness" covenant and (iii) if any of the properties or assets of the
Company or any of its Restricted Subsidiaries would upon such designation become
subject to any Lien (other than a Permitted Lien), the creation or imposition of
such Lien shall have been in compliance with the "Liens" covenant.
"VOLUMETRIC PRODUCTION PAYMENTS" means production payment obligations recorded
as deferred revenue in accordance with GAAP, together with all undertakings and
obligations in connection therewith.
"VOTING STOCK" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary to the
extent (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 is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of 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 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.
89
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated , 1997 (the "Underwriting Agreement"), J.P. Morgan
Securities Inc. and Chase Securities Inc. (collectively, the "Underwriters")
have severally agreed to purchase from the Company, and the Company has agreed
to sell to them, severally, the principal amount of Notes set forth opposite
their names below. Under the terms and conditions of the Underwriting Agreement,
the Underwriters are obligated to take and pay for the entire principal amount
of the Notes, if any Notes are purchased.
----------------
PRINCIPAL AMOUNT
----------------
J.P. Morgan Securities Inc...........
Chase Securities Inc.................
----------------
Total................. $100,000,000
================
The Underwriters propose initially to offer the Notes directly to the public at
the price set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession not in excess of % of the principal amount of
the Notes. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of % of the principal amount of the Notes to certain
other dealers. After the initial public offering of the Notes, the initial
public offering price and such concession may be changed.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
J.P. Morgan Securities Inc. ("JPMSI") and certain of its affiliates have
provided and may in the future provide investment banking and commercial banking
services to the Company. Morgan Guaranty Trust Company of New York ("Morgan"),
an affiliate of JPMSI, is the agent bank and lender under the New Credit
Facility. See "Description of New Credit Facility." Chase Securities Inc. and
certain of its affiliates, including The Chase Manhattan Bank ("Chase"), have
provided and may in the future provide investment banking and commercial banking
services to the Company. Both Morgan and Chase have committed to provide the
Company with financing in the event the Offerings are not completed to fund the
Pending Acquisition and will receive customary fees in connection with such
commitment.
In connection with the Notes Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may overallot the Notes Offering, creating
a syndicate short position. In addition, the Underwriters may bid for, and
purchase, Notes in the open market to cover syndicate shorts or to stabilize the
price of the Notes. Finally, the underwriting syndicate may reclaim selling
concessions allowed for distributing in the Notes Offering, if the syndicate
repurchases previously distributed Notes in syndicate covering transactions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of Notes above independent market levels. The
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
There is currently no trading market for the Notes, and the Company does not
intend to apply for listing of the Notes on a national securities exchange. The
Company has been advised by the Underwriters that the Underwriters currently
intend to make a market in the Notes; however, the Underwriters are not
obligated to do so and may discontinue any such market-making at any time
without notice. No assurance can be given as to the development or liquidity of
any trading market for the Notes.
90
<PAGE>
LEGAL MATTERS
The validity of the Common Stock and the Notes will be passed upon by Butler &
Binion, L.L.P., Houston, Texas. Certain legal matters with respect to such
securities will be passed upon for the Underwriters by Baker & Botts, L.L.P.,
Dallas, Texas.
EXPERTS
The financial statements of the Company included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors as stated in their
reports appearing herein, and are included in reliance upon the reports of such
firm given their authority as experts in accounting and auditing. The statements
of assets acquired (other than oil and gas properties) and liabilities as of
December 31, 1995 and 1996 and the related statements of revenues and direct
operating expenses of the Acquired Properties for each of the years in the
three-year period ended December 31, 1996, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The information appearing in this Prospectus regarding historical quantities of
reserves of oil and gas and the future net cash flows and the present values
thereof of the Company as of June 30, 1996 is based on estimates of such
reserves and present values prepared by Williamson Petroleum Consultants Inc.,
independent petroleum engineers, and are included herein in reliance upon the
authority of said firm as experts in estimating such reserves and cash flows.
The report of Williamson is included herein as Exhibit A. The information
appearing in this Prospectus regarding quantities of reserves of oil and gas and
the future net cash flows and present value thereof attributable to the Acquired
Properties as of June 30, 1996 were prepared by Bellwether and audited by Ryder
Scott. The audit reports of Ryder Scott is attached as Exhibit B to this
Prospectus and is included herein in reliance upon the authority of such firm as
experts in estimating reserves and cash flows.
91
<PAGE>
GLOSSARY
The following definitions shall apply to the technical terms used in this
Prospectus.
"Bbls" means barrels of oil or other liquids, approximately 42 U.S. gallons.
"Bbls/d" means barrels per day.
"Bcf" means billion cubic feet.
"BOE" means barrel of oil equivalent, comparing an Mcf of gas to a Bbl of oil
at a rate of 6 to 1.
"BOE/d" means barrel of oil equivalent per day.
"Btu" means British thermal unit. A Btu is the heat required to raise the
temperature of a one-pound mass of water from 59.5 to 60.5 degrees Fahrenheit
under specified conditions.
"Gross" means the number of wells or acres in which the Company has an
interest.
"MBbls" means thousands of barrels.
"Mcf" means thousands of cubic feet. Gas volumes are stated at the legal
pressure base of the state or area in which the reserves are located at 60
degrees Fahrenheit.
"Mcf/d" means thousand cubic feet per day.
"MBOE/d" means thousand Bbls of oil equivalent per day.
"MBOE" means thousand barrels of oil equivalent, determined using the ratio of
six Mcf of gas to one barrel of oil, condensate or natural gas liquids.
"MMBbls" means millions of barrels.
"MMBtu" means million British thermal units.
"MMcf" means millions of cubic feet.
"MMcf/d" means million cubic feet of gas per day.
"MMBOE" means millions of barrels of oil equivalent, determined using the
ratio of six Mcf of gas to one barrel of oil, condensate or natural gas liquids.
"Net" is determined by multiplying gross wells or acres by the Company's
working interest in such wells or acres.
"PV-10 Value" means the pre-tax, present value, discounted at 10%, of future
net cash flows from estimated proved reserves, calculated holding prices and
costs constant at amounts in effect on the date of the report (unless such
prices or costs are subject to change pursuant to contractual provisions).
92
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Bellwether Exploration Company Historical Consolidated Financial Statements:
Independent Auditors' Report ....................................... F-2
Consolidated Balance Sheets as of June 30, 1995 and 1996 ........... F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1994, 1995 and 1996 ..................................... F-5
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1994, 1995, and 1996 ................. F-6
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1994, 1995 and 1996 ..................................... F-7
Notes to Consolidated Financial Statements ......................... F-8
Condensed Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1996 (unaudited) .................................... F-23
Condensed Consolidated Statements of Operations for
the Six Months Ended December 31, 1995 (unaudited)
and December 31, 1996 (unaudited) ................................. F-24
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the Six Months Ended December 31,
1996 (unaudited) .................................................. F-25
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended December 31, 1995 (unaudited)
and December 31, 1996 (unaudited) ................................. F-26
Notes to Condensed Consolidated Financial Statements ............... F-27
Acquired Properties -- Statements of Assets Acquired (Other than
Productive Oil and Gas Properties) and Liabilities and related
Statements of Revenues and Direct Operating Expenses:
Independent Auditors' Report ....................................... F-30
Statements of Assets Acquired (Other than Productive Oil and
Gas Properties) and Liabilities as of December 31, 1994, 1995
and 1996 .......................................................... F-31
Statements of Revenues and Direct Operating Expenses for
the Years Ended December 31, 1994, 1995 and 1996 .................. F-32
Notes to Statements of Assets Acquired (Other than Productive
Oil and Gas Properties) and Liabilities and related
Statements of Revenues and Direct Operating Expenses .............. F-33
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Bellwether Exploration Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Bellwether
Exploration Company and subsidiaries as of June 30, 1995 and 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended June 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Bellwether Exploration Company
and subsidiaries as of June 30, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
March 11, 1997
F-2
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, JUNE 30,
1995 1996
--------- ---------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents............ $ 1,088 $ 783
Accounts receivable and accrued
revenues........................... 5,322 5,990
Accounts receivable -- related
parties............................ -- 1,417
Prepaid expenses..................... 217 314
--------- ---------
Total current assets............ 6,627 8,504
--------- ---------
Property, Plant and Equipment, at
cost:
Oil and gas properties (full cost
method) including $13,453 and
$15,125 of unproved properties
which are excluded from
amortization in 1996 and 1995,
respectively....................... 71,426 76,043
Gas gathering system and gas plant
facilities......................... 19,060 12,840
--------- ---------
90,486 88,883
Less accumulated depreciation,
depletion and amortization......... (23,291) (30,748)
--------- ---------
67,195 58,135
--------- ---------
Other Assets......................... 828 586
--------- ---------
$ 74,650 $ 67,225
========= =========
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, JUNE 30,
1995 1996
--------- ---------
(IN THOUSANDS, EXCEPT
SHARES)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities........................ $ 1,774 $ 2,634
Accounts payable -- related
parties............................ 76 702
Current maturities of long-term
debt............................... 6,023 --
--------- ---------
Total current liabilities....... 7,873 3,336
--------- ---------
Long-term debt, excluding current
maturities......................... 18,525 13,048
Deferred income taxes................ 2,400 2,861
Other liabilities.................... 151 1,383
Minority interest in gas plant
ventures........................... 254 --
Contingencies........................ -- --
Stockholders' Equity:
Preferred stock, $0.01 par value,
1,000,000 shares authorized, none
issued or outstanding.............. -- --
Common stock, $0.01 par value,
15,000,000 shares authorized,
9,045,479 and 9,075,479 shares
issued and outstanding at June 30,
1995 and 1996, respectively........ 90 91
Additional paid-in capital........... 41,472 41,639
Retained earnings.................... 3,885 4,867
--------- ---------
Total stockholders' equity...... 45,447 46,597
--------- ---------
$74,650 $67,225
========= =========
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Revenues:
Gas revenues....................... $ 2,620 $ 4,864 $ 9,856
Oil revenues....................... 1,086 3,643 5,810
Gas plant and gas gathering
revenues......................... 6,930 10,705 8,719
Interest and other income.......... 63 97 116
--------- --------- ---------
10,699 19,309 24,501
--------- --------- ---------
Costs And Expenses:
Production expenses................ 1,294 2,856 5,317
Gas plant and gas gathering
expenses......................... 4,013 6,078 5,185
General and administrative
expenses......................... 1,234 2,739 3,013
Depreciation, depletion and
amortization..................... 2,489 5,269 8,148
Interest expense................... 721 1,245 1,657
Other expenses..................... -- -- 153
--------- --------- ---------
9,751 18,187 23,473
--------- --------- ---------
Income before income taxes and minority
interest.............................. 948 1,122 1,028
Provision for income taxes.............. -- 9 46
Minority interest in gas plant
ventures.............................. 134 172 --
Net income......................... $ 814 $ 941 $ 982
========= ========= =========
Net income per share.................... $ 0.27 $ 0.12 $ 0.11
========= ========= =========
Weighted average common and common
equivalent shares outstanding......... 3,006 7,713 9,052
========= ========= =========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL TREASURY STOCK
----------------- ----------------- PAID-IN RETAINED ----------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993.................. 2,318 $ 1,156 -- -- $ 7,598 $2,130 29 $(115)
Shares issued in merger with Associated
Gas Resources, Inc.................... 1,419 708 -- -- 6,066 -- -- --
To change par value per share........... -- (1,827) -- -- 1,827 -- -- --
Other................................... -- -- -- -- (1) -- (14) 16
Net earnings............................ -- -- -- -- -- 814 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, June 30, 1994.................. 3,737 37 -- -- 15,490 2,944 15 (99)
Shares issued in public stock
offering.............................. 3,400 34 -- -- 17,204 -- -- --
Cancellation of treasury stock.......... (15) -- -- -- -- -- (15) 99
Shares issued in merger with Odyssey
Partners, Ltd......................... 917 9 -- -- 3,944 -- -- --
Shares issued in merger with Hampton
Resources Corporation................. 1,006 10 -- -- 4,834 -- -- --
Net earnings............................ -- -- -- -- -- 941 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, June 30, 1995.................. 9,045 90 -- -- 41,472 3,885 -- --
Stock options exercised................. 30 1 -- -- 167 -- -- --
Net earnings............................ -- -- -- -- -- 982 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, June 30, 1996.................. 9,075 $ 91 -- -- $ 41,639 $4,867 -- $--
====== ======= ====== ======= ========== ======== ====== ======
</TABLE>
TOTAL
Balance, June 30, 1993.................. $10,769
Shares issued in merger with Associated
Gas Resources, Inc.................... 6,774
To change par value per share........... --
Other................................... 15
Net earnings............................ 814
-------
Balance, June 30, 1994.................. 18,372
Shares issued in public stock
offering.............................. 17,238
Cancellation of treasury stock.......... 99
Shares issued in merger with Odyssey
Partners, Ltd......................... 3,953
Shares issued in merger with Hampton
Resources Corporation................. 4,844
Net earnings............................ 941
-------
Balance, June 30, 1995.................. 45,447
Stock options exercised................. 168
Net earnings............................ 982
-------
Balance, June 30, 1996.................. $46,597
=======
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
---------------------------------
1994 1995 1996
(IN THOUSANDS)
Cash Flows From Operating Activities:
Net Income.............................. $ 814 $ 941 $ 982
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation, depletion and
amortization..................... 2,530 5,382 8,273
Minority interest in gas plant
ventures......................... 120 120 --
Deferred taxes..................... -- -- 183
Change in assets and liabilities, net of
acquisition effects:
Accounts receivable and accrued
revenues......................... (73) 1,548 (668)
Prepaid expenses................... -- 117 25
Accounts payable and accrued
expenses......................... (464) (2,047) 84
Due (to) from affiliates........... 750 (633) (791)
Other.............................. (555) (145) (603)
--------- ---------- ----------
Net Cash Flows Provided by Operating
Activities............................ 3,122 5,283 7,485
--------- ---------- ----------
Cash Flows From Investing Activities:
Additions to oil and gas properties..... (782) (27,039) (6,934)
Proceeds from sales of properties....... 36 265 644
Additions to gas plant facilities and
gas gathering system.................. (8,649) (225) (65)
Proceeds from gas contract assignment... -- -- 9,875
Other................................... (28) (290) 22
--------- ---------- ----------
Net Cash Flows (Used In) Provided by
Investing Activities.................. (9,423) (27,289) 3,542
--------- ---------- ----------
Cash Flows From Financing Activities:
Proceeds from borrowings................ 8,471 25,860 --
Net proceeds from issuance of common
stock................................. -- 17,238 168
Payments of long-term debt.............. (1,151) (21,456) (11,500)
Other................................... 14 -- --
--------- ---------- ----------
Net Cash Flows Provided By (Used In)
Financing Activities.................. 7,334 21,642 (11,332)
--------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents........................... 1,033 (364) (305)
Cash and cash equivalents at beginning
of year............................... 419 1,452 1,088
--------- ---------- ----------
Cash and cash equivalents at end of
year.................................. $ 1,452 $ 1,088 $ 783
========= ========== ==========
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Bellwether Exploration Company ("the Company") was formed as a Delaware
corporation in 1994 to succeed to the business and properties of its predecessor
company pursuant to a merger, the primary purpose of which was to change the
predecessor company's state of incorporation from Colorado to Delaware. The
predecessor company was formed in 1980 from the consolidation of the business
and properties of related oil and gas limited partnerships. References to
Bellwether or the Company include the predecessor company, unless the context
requires otherwise.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bellwether
Exploration Company and its wholly-owned subsidiaries. Snyder Gas Plant Venture
and NGL/Torch Gas Plant Venture and their 11.98% and 35.78% investments in the
Snyder and Diamond M-Sharon Ridge Gas Plants have been pro rata consolidated.
Minority interests have been deducted from results of operations and
stockholders' equity in the appropriate period. All significant intercompany
accounts and transactions have been eliminated in consolidation.
OIL AND GAS PROPERTIES
The Company utilizes the full cost method to account for its investment in
oil and gas properties. Under this method, all costs of acquisition, exploration
and development of oil and gas reserves (including such costs as leasehold
acquisition costs, geological expenditures, dry hole costs and tangible and
intangible development costs) are capitalized as incurred. Oil and gas
properties, the estimated future expenditures to develop proved reserves, and
estimated future abandonment, site remediation and dismantlement costs are
depleted and charged to operations using the unit-of-production method based on
the ratio of current production to proved oil and gas reserves as estimated by
independent engineering consultants. Costs directly associated with the
acquisition and evaluation of unproved properties are excluded from the
amortization computation until it is determined whether or not proved reserves
can be assigned to the properties or whether impairment has occurred. Depletion
expense per equivalent barrel of production was approximately $5.86 in 1996,
$5.52 in 1995 and $5.71 in 1994. Dispositions of oil and gas properties are
recorded as adjustments to capitalized costs, with no gain or loss recognized
unless such adjustments would significantly alter the relationship between
capitalized costs and proved reserves of oil and gas. To the extent that
capitalized costs of oil and gas properties, net of accumulated depreciation,
depletion and amortization, exceed the discounted future net revenues of proved
oil and gas reserves net of deferred taxes, such excess capitalized costs would
be charged to operations. No such write-down in book value was required in 1996,
1995 and 1994.
Any reference to oil and gas reserve information in the Notes to
Consolidated Financial Statements is unaudited.
GAS PLANTS AND GAS GATHERING SYSTEM
Gas plant facilities include the costs to acquire certain gas plants and to
secure rights-of-way. Capitalized costs associated with gas plants facilities
are amortized primarily over the estimated useful lives of the various
components of the facilities utilizing the straight-line method. The estimated
useful lives of such assets range from four to fifteen years.
The Company's gas gathering subsidiary and certain third parties were the
beneficiaries of an agreement whereby another party had an obligation to
purchase, until May 31, 1999, the gas produced by the Company and such third
parties from the West Monroe field in Union Parish, Louisiana at a price of
$4.50 per MMBTU. Bellwether owned a large majority of the gas produced and sold
pursuant to the
F-8
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Purchase Agreement. In March 1996, in exchange for Bellwether's agreement to
assume the purchase obligations under the gas purchase contract, Bellwether was
paid $9.9 million. As a result of this transaction, the Company has written off
the remaining book value of the gas gathering system and has recorded a
liability to cover the estimated future losses under the contract. Gas gathering
operations of the subsidiary and payments to third parties are charged to the
liability as incurred. From the proceeds, $9.5 million was paid on the Company's
credit facility.
GAS IMBALANCES
The Company uses the sales method of accounting for gas imbalances. Under
this method, gas sales are recorded when revenue checks are received or are
receivable on the accrual basis. The Company's imbalance was immaterial at June
30, 1996 and 1995.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 121
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121 is effective
beginning July 1, 1996 and establishes guidelines for determining and measuring
asset impairment and the required timing of asset impairment evaluations.
Management has addressed the requirements of this statement and believes that it
will not have a significant effect on the financial condition and results of
operations of the Company based upon current economic conditions.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 123
In October 1995, the FASB issued Statement No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," which is effective for the Company
beginning July 1, 1996. SFAS 123 permits, but does not require, a
fair-value-based method of accounting for employee stock option plans which
results in compensation expense being recognized in the results of operations
when stock options are granted. The Company plans to continue to use the current
intrinsic-value-based method of accounting for such plans where no compensation
expense is recognized. However, as required by SFAS 123, the Company will
provide pro forma disclosure of net income and earnings per share in the notes
to the consolidated financial statements as if the fair-value-based method of
accounting had been applied.
NATURAL GAS AND CRUDE OIL HEDGING
The Company participated in certain crude oil and natural gas price swaps
to reduce its exposure to price fluctuations on sales during fiscal 1996.
Settlement of gains and losses on price swap contracts are realized monthly,
generally based upon the difference between the contract price and the average
closing New York Mercantile Exchange ("NYMEX") price and are reported as a
component of oil and gas revenues.
EARNINGS PER SHARE
Earnings per share calculations are based on the weighted average number of
common shares and common share equivalents and earnings attributable to common
stockholders. Common share equivalents include dilutive common stock options.
Such options do not have a material effect in the calculations of earnings per
share.
INCOME TAXES
Deferred taxes are accounted for under the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the
F-9
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial statement carrying amounts and the tax basis of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is recognized
in income in the period the change occurs.
STATEMENTS OF CASH FLOWS
For cash flow presentation purposes, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. Interest paid in cash for 1996, 1995 and 1994 was
$1.6 million, $1.2 million and $0.7 million, respectively. Income taxes paid in
cash for 1996 and 1995 were $162,000 and $9,000, respectively. During 1995 and
1994, a portion of the mergers with Associated Gas Resources Inc. ("AGRI"),
Odyssey Partners, Ltd. ("Odyssey") and Hampton Resources Corporation
("Hampton"), collectively the ("Mergers") was financed by assumption of debt
of $6.1 million for AGRI, $1.4 million for Odyssey and $4.1 million for Hampton.
Common stock with a value of $4.0 million and $4.8 million was issued as part of
the costs of the Odyssey and Hampton mergers in 1995, respectively. In 1994,
common stock with a value of $6.8 million was issued in the AGRI merger.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities as well as reserve information which affects
the depletion calculation and the computation of the full cost ceiling
limitation to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from these
estimates.
RECLASSIFICATIONS
Certain reclassifications of prior period statements have been made to
conform with current reporting practices.
3. AGING OF UNEVALUATED PROPERTIES
Oil and natural gas properties not subject to amortization consist of the
cost of undeveloped leaseholds, exploratory and developmental wells in progress,
and secondary recovery projects before the assignment of proved reserves. These
costs are reviewed periodically by management for impairment, with the
impairment provision included in the cost of oil and natural gas properties
subject to amortization. Factors considered by management in its impairment
assessment include drilling results by the Company and other operators, the
terms of oil and gas leases not held by production, production responses to
secondary recovery activities and available funds for exploration and
development. The following table summarizes the cost of properties not subject
to amortization for the year the cost was incurred (000s):
JUNE 30,
--------------------
1995 1996
Year cost incurred:
Remainder
1994....................... $ 360 $ 360
1995....................... 14,765 12,139
1996....................... -- 954
--------- ---------
$ 15,125 $ 13,453
========= =========
The principal acquisitions of undeveloped acreage were received in the
Odyssey acquisition of the Fausse Pointe field and the Hampton acquisition which
included the Cove field and the Ft. Trinidad waterflood project. In 1996, $2.5
million was included in oil and gas properties subject to amortization from
drilling in the Cove and Fausse Pointe fields.
F-10
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS AND MERGERS
During the last three years, the Company has completed the following
mergers and acquisitions:
On February 28, 1995, the Company acquired Hampton in exchange for $17.0
million in cash and 1,006,458 shares of the Company's common stock. The Company
had paid previous to the merger $2.7 million to acquire common and preferred
stock of Hampton and incurred $1.4 million in expenses in arranging the merger.
The total cost of the Hampton acquisition was $25.9 million, consisting of $21.1
million in cash and $4.8 million in common stock. Hampton was an energy company
engaged in the exploration, acquisition and production of oil and natural gas,
primarily in the onshore Gulf Coast region and offshore in Texas state waters.
On August 26, 1994, the Company acquired Odyssey in exchange for $5.6
million in cash (funded from a common stock offering which closed on the same
date) and 916,665 shares of the Company's common stock, for a total cost of $9.6
million. Odyssey is an exploration company which assembles, exploits and
operates oil and gas properties using state-of-the-art 3-D seismic and
computer-aided exploration technology. Odyssey's primary areas of operation have
been the onshore Gulf Coast region and the Permian Basin area of West Texas and
Southeast New Mexico.
On December 31, 1993, AGRI merged into the Company in consideration of the
issuance of 1,419,726 shares of the Company's common stock and cash payments of
$232,000, for a total cost of $7.0 million. AGRI's principal assets are a gas
gathering system located in Union Parish, Louisiana (the "Gathering System");
a 4.12% interest in the Snyder Gas Plant; a 12.52% interest in the Diamond
M-Sharon Ridge Gas Plant (the "Gas Plants"); working interests in
approximately 828 wells in Union, Morehouse and Ouachita Parishes, Louisiana;
and small non-operated working interests in approximately 137 gas wells in
Oklahoma.
On July 30, 1993 the Company acquired certain interests in the Gas Plants,
both in Scurry County, Texas, for a purchase price of $8.5 million.
5. RELATED PARTY TRANSACTIONS
The Company is a party to a management agreement with Torch Energy Advisors
Incorporated ("Torch") which was renewed for one year on September 1, 1993 and
amended effective January 1, 1994. Torch is currently an affiliate of Torchmark
Corporation ("Torchmark"), an insurance and diversified financial services
holding company and the parent corporation of Torch. The management agreement
requires Torch to administer the business activities of the Company for a
monthly fee equal to the sum of one-twelfth of 2% of the average of the book
value of the Company's total assets, excluding cash, plus reimbursement of
certain costs incurred on behalf of the Company for the management of its oil
and gas properties, plus 2% of annual operating cash flows (as defined) during
the period in which the services are rendered. The initial term of this
agreement (as amended) is six years. Thereafter, the agreement renews
automatically for successive one-year periods until terminated by either party
in accordance with the applicable provisions of the agreement. For the years
ended June 30, 1996, 1995 and 1994, management fees paid to Torch amounted to
$1.5 million, $1.2 million and $0.6 million, respectively. Additionally, in the
ordinary course of business, the Company incurs intercompany balances resulting
from the payment of costs and expenses by affiliated entities on behalf of the
Company. Torch may charge interest on any unpaid balances not paid within 30
days, however, no such interest has been charged by Torch since the inception of
the agreement. In December 1993, Torch was issued a warrant to purchase 187,500
shares of the Company's common stock at a price of $6.40 per share for its
services in identifying and negotiating the AGRI merger.
A subsidiary of Torch markets oil and natural gas production from certain
oil and gas properties in which the Company owns an interest. The Company pays
fees of 2% of revenues for such marketing services. Such charges were $114,000,
$12,000 and $3,000 in 1996, 1995 and 1994, respectively.
F-11
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Costs of the evaluation of potential property acquisitions and due
diligence conducted in conjunction with acquisitions closed are incurred by
Torch at the Company's request. The Company was charged $74,000 and $193,000 for
these costs in 1996 and 1995, respectively.
Torch operates certain oil and gas interests owned by the Company. The
Company is charged, on the same basis as other third parties, for all customary
expenses and cost reimbursements associated with these activities. Operator's
overhead charged for these activities for the years ended June 30, 1996, 1995
and 1994 was $367,000, $164,000 and $45,000, respectively.
Torch became the operator of the Gas Plants on December 1, 1993. In fiscal
1996, 1995 and 1994, the fees paid by the Company to Torch were $83,000, $71,000
and $38,000, respectively.
6. STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
The Certificate of Incorporation of the Company authorizes the issuance of
up to 15,000,000 shares of common stock and 1,000,000 shares of preferred stock,
the terms, preferences, rights and restrictions of which are established by the
Board of Directors of the Company. Certain restrictions contained in the
Company's loan agreements limit the amount of dividends which may be declared.
There is no present plan to pay dividends on common stock as the Company intends
to reinvest its cash flows for continued growth of the Company.
On April 4, 1994, shareholders approved the merger of Bellwether
Exploration Company, a Delaware corporation, into the Company. The common stock
of the Company was converted into one-eighth share of the newly formed Company's
common stock.
During the first quarter of fiscal 1995, the Company consummated the sale
of 3,650,000 shares of common stock. The net proceeds to the Company were $17.3
million which were used for the Odyssey and Hampton mergers and general
corporate purposes. Of the shares sold, 3,400,000 were newly-issued by the
Company and 250,000 were sold by certain stockholders.
STOCK INCENTIVE PLANS
The Company has stock option plans that provide for granting of options for
the purchase of common stock to directors, officers and key employees of the
Company and Torch. These stock options may be granted subject to terms ranging
from 6 to 10 years at a price equal to the fair market value of the stock at the
date of grant. At June 30, 1996, options under the plans available for future
grants were 18,000.
F-12
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of activity in the stock option plans is set forth below:
NUMBER OPTION
OF SHARES PRICE RANGE
Balance at June 30, 1993............. 151,715 $3.00 - $5.25
Granted......................... 456,950 $4.88 - $7.00
Surrendered..................... (114,450) $4.50
Exercised....................... (22,890) $3.25
--------- -----------------
Balance at June 30, 1994............. 471,325 $3.00 - $7.00
Granted......................... 450,000 $5.56 - $5.94
--------- -----------------
Balance at June 30, 1995............. 921,325 $3.00 - $7.00
Granted......................... 27,000 $4.375 - $6.375
Surrendered..................... (10,000) $5.75
Exercised....................... (30,000) $5.625
--------- -----------------
Balance at June 30, 1996............. 908,325 $3.00 - $7.00
========= =================
Exercisable at June 30, 1996......... 830,917 $3.00 - $7.00
========= =================
7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company periodically uses derivative financial instruments to manage
oil and gas price risk. As of June 30, 1996, the Company was a party to an oil
swap price agreement for the month of July for 9,300 barrels of crude oil with a
price of $18.25 per barrel. This contract is accounted for as a hedge for
financial reporting purposes and, accordingly, is deferred until the related
sales are made.
8. LONG-TERM DEBT
Long-term debt is comprised of the following at June 30, 1996 and 1995 (in
thousands):
1995 1996
Bank credit facility................. $ 24,548 $ 13,048
Less current maturities.............. (6,023) --
--------- ---------
Long-term debt....................... $ 18,525 $ 13,048
========= =========
On February 28, 1995, the Company entered into a credit facility ("Credit
Facility") with a commercial bank providing for an initial borrowing base of
$29.8 million. The borrowing base is reviewed semiannually. Borrowings under the
Credit Facility are secured by the Company's interests in oil and gas properties
and in the Gathering System and the Gas Plant. The maturity date for the credit
facility as modified in the second quarter, fiscal 1996 is March 31, 2001. A
principal payment of $9.5 million made in the third quarter, fiscal 1996
extinguished all current maturities. The interest rate is either the agent
bank's prime rate or the adjusted Eurodollar Rate plus 1 1/4% at the Company's
option. A commitment fee of three-eighths of one percent (0.375%) per annum is
charged on the unused portion of the Credit Facility. The interest rate on the
Company's borrowings at June 30, 1996 was approximately 7.275%.
F-13
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Debt maturities by fiscal year are as follows (in thousands):
Year ending June 30, 1997............... $ --
Year ending June 30, 1998............... 1,929
Year ending June 30, 1999............... 4,766
Year ending June 30, 2000............... 4,170
Year ending June 30, 2001............... 2,183
---------
$ 13,048
=========
The Credit Facility has various covenants including certain required
financial measurements for a current ratio, consolidated tangible net worth and
a ratio of consolidated liabilities to consolidated tangible net worth. In
addition, the Company may not pay dividends of greater than 20% of its
consolidated after-tax net income in any fiscal year or make any other payment
on account of its capital stock or redeem or repurchase any of its capital
stock.
Currently, the Company is negotiating a syndicated credit facility in an
amount up to $50 million, with the original borrowing base of $27 million, to be
redetermined semi-annually. The interest rate, at the Company's option will
vary, based upon borrowing base usage, from LIBOR plus 7/8% to LIBOR plus
1 1/4%, or the greater of the prime rate or Fed Funds plus 1/2%. The debt
facility will have a termination date four years from closing.
9. GUARANTOR FINANCIAL STATEMENTS
The guarantor consolidating financial statements for the years ended June
30, 1995 and 1996 are as follows:
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BELLWETHER ODYSSEY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Total current assets................. $ 6,001 $ 626 $ -- $ 6,627
Net property, plant and equipment.... 56,273 10,922 -- 67,195
Total other assets................... 10,518 47 (9,737) 828
---------- ------- ------------ ------------
Total assets.................... $ 72,792 $11,595 $ (9,737) $ 74,650
========== ======= ============ ============
Total current liabilities............ $ 6,393 $ 1,480 $ -- $ 7,873
Long-term debt....................... 18,525 -- -- 18,525
Deferred taxes....................... 2,260 140 -- 2,400
Other long-term liabilities.......... 405 -- -- 405
Total stockholders' equity........... 45,209 9,975 (9,737) 45,447
---------- ------- ------------ ------------
Total liabilities and
stockholders' equity.......... $ 72,792 $11,595 $ (9,737) $ 74,650
========== ======= ============ ============
</TABLE>
F-14
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING INCOME STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1995
(IN THOUSANDS)
BELLWETHER ODYSSEY CONSOLIDATED
Revenues............................. $ 16,582 $ 2,727 $ 19,309
Expenses............................. 16,010 2,349 18,359
---------- ------- ------------
Net earnings before income taxes..... 572 378 950
---------- ------- ------------
Income taxes......................... (131) 140 9
---------- ------- ------------
Net earnings......................... $ 703 $ 238 $ 941
========== ======= ============
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1995
(IN THOUSANDS)
BELLWETHER ODYSSEY CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 703 $ 238 $ 941
Non-cash adjustments............ 4,393 1,109 5,502
Change in assets and
liabilities................... (3,725) 2,565 (1,160)
---------- ------- ------------
Net cash provided by operating
activities.................... 1,371 3,912 5,283
---------- ------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil & gas
properties.................... (24,786) (2,478) (27,264)
Proceeds from sale of
properties.................... 265 -- 265
Additions to other properties
and other..................... (292) 2 (290)
---------- ------- ------------
Net cash used in investing
activities.................... (24,813) (2,476) (27,289)
---------- ------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings........ 25,860 -- 25,860
Payments of long-term debt...... (20,031) (1,425) (21,456)
Net proceeds from issuance of
common stock.................. 17,238 -- 17,238
---------- ------- ------------
Net cash provided by (used in)
financing activities.......... 23,067 (1,425) 21,642
---------- ------- ------------
Net increase (decrease) in cash
and cash equivalents.......... (375) 11 (364)
Cash and cash equivalents at
beginning of period........... 1,452 -- 1,452
---------- ------- ------------
Cash and cash equivalents at end
of period..................... $ 1,077 $ 11 $ 1,088
========== ======= ============
F-15
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BELLWETHER ODYSSEY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Total current assets................. $ 7,617 $ 887 $ -- $ 8,504
Net property, plant and equipment.... 47,130 11,005 -- 58,135
Total other assets................... 10,298 25 (9,737) 586
---------- ------- ------------ ------------
Total assets.................... $ 65,045 $11,917 $ (9,737) $ 67,225
========== ======= ============ ============
Total current liabilities............ $ 2,291 $ 1,045 $ -- $ 3,336
Long-term debt....................... 13,048 -- -- 13,048
Deferred taxes....................... 2,449 412 -- 2,861
Other long-term liabilities.......... 1,383 -- -- 1,383
Total stockholders' equity........... 45,874 10,460 (9,737) 46,597
---------- ------- ------------ ------------
Total liabilities and
stockholders' equity.......... $ 65,045 $11,917 $ (9,737) $ 67,225
========== ======= ============ ============
</TABLE>
CONDENSED CONSOLIDATING INCOME STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996
(IN THOUSANDS)
BELLWETHER ODYSSEY CONSOLIDATED
Revenues............................. $ 20,902 $ 3,599 $ 24,501
Expenses............................. 20,644 2,829 23,473
---------- ------- ------------
Net earnings before income taxes..... 258 770 1,028
---------- ------- ------------
Income taxes......................... (239) 285 46
---------- ------- ------------
Net earnings......................... $ 497 $ 485 $ 982
========== ======= ============
F-16
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996
(IN THOUSANDS)
BELLWETHER ODYSSEY CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 497 $ 485 $ 982
Non-cash adjustments............ 6,950 1,506 8,456
Change in assets and
liabilities................... (1,709) (244) (1,953)
---------- ------- ------------
Net cash provided by operating
activities.................... 5,738 1,747 7,485
---------- ------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil & gas
properties.................... (5,432) (1,567) (6,999)
Proceeds from sale of
properties.................... 644 -- 644
Proceeds from gas contract
assumption.................... 9,875 -- 9,875
Additions to other properties
and other..................... 22 -- 22
---------- ------- ------------
Net cash provided by (used in)
investing activities.......... 5,109 (1,567) 3,542
---------- ------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt...... (11,500) -- (11,500)
Net proceeds from issuance of
common stock.................. 168 -- 168
---------- ------- ------------
Net cash used in financing
activities.................... (11,332) -- (11,332)
---------- ------- ------------
Net increase (decrease) in cash
and cash equivalents.......... (485) 180 (305)
Cash and cash equivalents at
beginning of period........... 1,077 11 1,088
---------- ------- ------------
Cash and cash equivalents at end
of period..................... $ 592 $ 191 $ 783
========== ======= ============
10. INCOME TAXES
Income tax expense is summarized as follows (in thousands):
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
Current
Federal............................ $ -- $ 9 $ 126
State.............................. -- -- 103
Deferred -- Federal and State........... -- -- (183)
--------- --------- ---------
Total income tax expense................ $ -- $ 9 $ 46
========= ========= =========
The balances for deferred tax assets and liabilities were modified as of
the effective date of the Hampton merger based on the allocation of the purchase
price.
F-17
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at June 30, 1996 and 1995
are as follows:
AT JUNE 30,
---------------------
1995 1996
Net operating loss carryforwards........ $ 8,858 $ 8,922
Percentage depletion carryforwards...... 271 271
Alternative minimum tax credit
carryforwards......................... -- 126
---------- ---------
Total deferred income tax assets........ 9,129 9,319
---------- ---------
Plant, property and equipment........... (11,529) (8,841)
State income taxes...................... -- (446)
---------- ---------
Total deferred income tax liabilities... (11,529) (9,287)
Valuation allowances.................... -- (2,893)
---------- ---------
Net deferred income tax liability....... $ (2,400) $ (2,861)
========== =========
The Company files a consolidated federal income tax return. Deferred income
taxes are provided for transactions which are recognized in different periods
for financial and tax reporting purposes. Such temporary differences arise
primarily from the deduction for tax purposes of certain oil and gas development
costs which are capitalized for financial statement purposes. In the years ended
June 30, 1995 and 1994, the Company did not provide a provision for deferred
income taxes due to the availability of sufficient net operating losses
("NOLs") to offset net income.
Total income tax differs from the amount computed by applying the Federal
income tax rate to income before income taxes and minority interest. The reasons
for the differences are as follows:
AT JUNE 30,
--------------------
1995 1996
Statutory Federal income tax rate....... 34.0% 34.0%
Increase (Decrease) in tax rate
resulting from:
State income taxes, net of federal
benefit........................... 0.0 7.0
Nondeductable travel and
entertainment......................... 1.2 .3
Reduction of valuation allowance due to
utilization of net operating loss
carryforwards......................... (34.2) (36.5)
--------- ---------
1.0% 4.8%
========= =========
The Company issued 3,400,000 shares of its common stock on July 20, 1994.
As a result of the common stock issuance, the Company has undergone an ownership
change. Therefore, the Company's ability to use its NOL for federal income tax
purposes is subject to significant restrictions.
Section 382 of the Internal Revenue Code significantly limits the amount of
NOL and investment tax credit carryforwards that are available to offset future
taxable income and related tax liability when a change in ownership occurs after
December 31, 1986.
At June 30, 1996, the Company had NOLs of approximately $26.2 million which
will expire in future years beginning in 1997. Due to provisions of Section 382,
the Company is limited to approximately $4.6 million utilization of NOL per
year.
F-18
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SEGMENT INFORMATION
The Company's operations are concentrated in two segments. The results of
operations of these business segments are as follows (in thousands):
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
Revenues:
Oil............................. $ 2,620 $ 4,864 $ 9,856
Gas............................. 1,086 3,643 5,810
Gas plants and gas gathering.... 6,930 10,705 8,719
Other revenues.................. 63 97 116
--------- --------- ---------
Total revenues............. $ 10,699 $ 19,309 $ 24,501
========= ========= =========
Operating profit before income tax:
Oil and gas..................... $ 859 $ 1,758 $ 3,416
Gas plants and gas gathering.... 1,847 3,251 2,319
--------- --------- ---------
2,706 5,009 5,735
Unallocated corporate expenses....... 1,172 2,823 2,943
Other expenses....................... -- -- 153
Interest expense..................... 721 1,245 1,657
--------- --------- ---------
Income before taxes.................. $ 813 $ 941 $ 982
========= ========= =========
Identifiable assets:
Oil and gas..................... $ 13,763 $ 53,218 $ 47,727
Gas plants and gas gathering.... 19,285 18,289 10,408
--------- --------- ---------
33,048 71,507 58,135
Corporate assets..................... 2,822 3,143 9,090
--------- --------- ---------
Total assets............... $ 35,870 $ 74,650 $ 67,225
========= ========= =========
Capital expenditures:
Oil and gas..................... $ 3,199 $ 41,676 $ 6,934
Gas plants and gas gathering.... 18,835 225 65
--------- --------- ---------
$ 22,034 $ 41,901 $ 6,999
========= ========= =========
Depreciation, depletion and
amortization:
Oil and gas..................... $ 1,553 $ 3,893 $ 6,933
Gas plants and gas gathering......... 936 1,376 1,215
--------- --------- ---------
$ 2,489 $ 5,269 $ 8,148
========= ========= =========
In 1996, 1995 and 1994, the Company had 3 customers which accounted for 33%
of its revenues, two customers which accounted for 42% of its revenues and three
customers which accounted for 58% of its revenues, respectively.
12. CONTINGENCIES
The Company has been named as a defendant in certain lawsuits incidental to
its business. Management does not believe that the outcome of such litigation
will have a material adverse impact on the Company.
F-19
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SELECTED QUARTERLY FINANCIAL DATA (AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA) (UNAUDITED):
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994(1) 1994 1995(2) 1995
<S> <C> <C> <C> <C>
Revenues............................. $ 3,997 $4,186 $ 4,783 $6,343
Operating Income..................... $ 424 $ 272 $ 238 $ 188
Net income........................... $ 378 $ 224 $ 199 $ 140
Earnings per common equivalent
share.............................. $ 0.07 $ 0.03 $ 0.02 $ 0.02
QUARTER ENDED
------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
Revenues............................. $ 5,678 $6,444 $ 6,338 $6,041
Operating Income..................... $ 38 $ 95 $ 542 $ 353
Net income (loss).................... $ 13 $ (12) $ 557 $ 424
Earnings per common equivalent
share.............................. $ 0.00 $ 0.00 $ 0.06 $ 0.05
</TABLE>
- - ------------
(1) Includes the acquisition of Odyssey on August 26, 1994.
(2) Includes the acquisition of Hampton on February 28, 1995.
14. SUPPLEMENTAL INFORMATION -- (UNAUDITED)
OIL AND GAS PRODUCING ACTIVITIES
Included herein is information with respect to oil and gas acquisition,
exploration, development and production activities, which is based on estimates
of year-end oil and gas reserve quantities and estimates of future development
costs and production schedules. Reserve quantities and future production are
based primarily upon reserve reports prepared by the Company's independent
petroleum engineering firms. These estimates are inherently imprecise and
subject to substantial revision.
Estimates of future net cash flows from proved reserves of gas, oil,
condensate and natural gas liquids were made in accordance with Statement of
Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing
Activities." The estimates are based on prices at year-end. Estimated future
cash inflows are reduced by estimated future development and production costs
based on year-end cost levels, assuming continuation of existing economic
conditions, and by estimated future income tax expense. Tax expense is
calculated by applying the existing statutory tax rates, including any known
future changes, to the pre-tax net cash flows, less depreciation of the tax
basis of the properties and depletion allowances applicable to the gas, oil,
condensate and NGL production. The results of these disclosures should not be
construed to represent the fair market value of the Company's oil and gas
properties. A market value determination would include many additional factors
including: (i) anticipated future increases or decreases in oil and gas prices
and production and development costs; (ii) an allowance for return on
investment; (iii) the value of additional reserves, not considered proved at the
present, which may be recovered as a result of further exploration and
development activities; and (iv) other business risks.
F-20
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COSTS INCURRED
The following table sets forth the costs incurred in property acquisition
and development activities (in thousands):
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
Property acquisition:
Proved properties............... $ 1,896 $ 25,072 $ 128
Unproved properties............. 295 13,233 424
Exploration.......................... 364 530 824
Development.......................... 644 2,841 5,558
--------- --------- ---------
$ 3,199 $ 41,676 $ 6,934
========= ========= =========
CAPITALIZED COSTS
The following table sets forth the capitalized costs relating to oil and
gas activities and the associated accumulated depreciation, depletion and
amortization (in thousands):
YEARS ENDED JUNE 30,
----------------------------------
1994 1995 1996
Proved properties....................... $ 28,917 $ 56,300 $ 62,590
Unproved properties..................... 832 15,125 13,453
---------- ---------- ----------
Total capitalized costs................. 29,749 71,425 76,043
Accumulated depreciation, depletion and
amortization.......................... (17,043) (20,983) (28,316)
---------- ---------- ----------
Net capitalized costs................... $ 12,706 $ 50,442 $ 47,727
========== ========== ==========
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES (IN THOUSANDS):
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
Revenues from oil and gas producing
activities............................ $ 3,706 $ 8,507 $ 15,666
Production costs........................ 1,294 2,856 5,317
Depreciation, depletion and
amortization.......................... 1,553 3,893 6,933
--------- --------- ---------
Results of operations from producing
activities (excluding corporate
overhead and interest costs).......... $ 859 $ 1,758 $ 3,416
========= ========= =========
PER UNIT SALES PRICES AND COSTS:
YEARS ENDED JUNE 30,
-------------------------------
1994 1995 1996
Average sales price:(1)
Oil (per barrel)................... $ 15.27 $ 16.89 $ 17.81
Gas (per MCF)...................... 2.17 1.66 2.02
Average production cost per equivalent
barrel................................ 4.75 4.05 4.49
Average unit depletion rate per
equivalent barrel..................... 5.71 5.52 5.86
- - ------------
(1) Average sales price is exclusive of the effect of natural gas and crude oil
price swaps.
F-21
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESERVES:
The Company's estimated total proved and proved developed reserves of oil
and gas are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------------
1994 1995 1996
---------------- ---------------- ----------------
OIL GAS OIL GAS OIL GAS
DESCRIPTION (MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
<S> <C> <C> <C> <C> <C> <C>
Proved reserves at beginning of year.... 438 7,202 393 10,671 2,597 30,159
Revisions of previous estimates......... (44) 58 (61) (988) (534) 2,855
Extensions and discoveries.............. -- -- 724 1,179 89 7,128
Production.............................. (71) (1,206) (216) (2,932) (334) (5,099)
Sales of reserves in-place.............. -- -- (1) (3) (14) (2,023)
Purchases of reserves in-place.......... 67 287 -- 163 4 176
Reserves added in Mergers............... 3 4,330 1,758 22,069 -- --
------ ------ ------ ------ ------ ------
Proved reserves at end of year.......... 393 10,671 2,597 30,159 1,808 33,196
====== ====== ====== ====== ====== ======
Proved developed reserves --
Beginning of year.................. 410 7,151 361 9,154 1,891 23,795
====== ====== ====== ====== ====== ======
End of year........................ 361 9,154 1,891 23,795 1,494 22,698
====== ====== ====== ====== ====== ======
</TABLE>
The standardized measure of discounted future net cash flows and changes therein
related to proved oil and gas reserves are shown below:
YEARS ENDED JUNE 30,
----------------------------------
1994 1995 1996
(IN THOUSANDS)
Future cash inflows.................. $ 31,180 $ 96,738 $ 113,554
Future production costs.............. (11,462) (34,093) (33,131)
Future income taxes.................. -- -- (11,095)
Future development costs............. (402) (7,738) (8,961)
---------- ---------- ----------
Future net cash flows................ 19,316 54,907 60,367
10% discount factor.................. (7,272) (17,616) (15,191)
---------- ---------- ----------
Standardized measure of discounted
future net cash flows.............. $ 12,044 $ 37,291 $ 45,176
========== ========== ==========
The following are the principal sources of change in the standardized
measure of discounted future net cash flows:
YEARS ENDED JUNE 30,
----------------------------------
1994 1995 1996
(IN THOUSANDS)
Standardized measure -- beginning of
year............................... $ 10,519 $ 12,044 $ 37,291
Sales, net of production costs....... (2,412) (5,651) (10,349)
Purchases of reserves in-place....... 566 162 246
Reserves received in Mergers......... 3,598 34,039 --
Net change in prices and production
costs.............................. (1,500) (8,326) 11,458
Net change in income taxes........... -- -- (2,958)
Extensions, discoveries and improved
recovery, net of future production
and development costs.............. -- 5,085 7,709
Changes in estimated future
development costs.................. (163) (3,148) 497
Development costs incurred during the
period............................. 644 629 883
Revisions of quantity estimates...... (194) (4) (438)
Accretion of discount................ 1,052 1,204 3,729
Sales of reserves in-place........... -- (5) (1,614)
Changes in production rates and
other.............................. (66) 1,262 (1,278)
---------- ---------- ----------
Standardized measure -- end of
year............................... $ 12,044 $ 37,291 $ 45,176
========== ========== ==========
F-22
<PAGE>
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1996
-------- ------------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents............... $ 783 $ 450
Accounts receivable and accrued
revenues.............................. 5,990 7,296
Accounts receivable -- related
parties............................... 1,417 303
Prepaid expenses and other.............. 314 586
-------- ------------
Total current assets............... 8,504 8,635
-------- ------------
Property, Plant and Equipment, at cost:
Oil and gas properties (full cost
method)............................... 76,043 83,473
Gas plant facilities and gas gathering
system................................ 12,840 12,843
-------- ------------
88,883 96,316
Accumulated depreciation, depletion and
amortization.......................... (30,748) (36,561)
-------- ------------
58,135 59,755
-------- ------------
Other Assets............................ 586 592
-------- ------------
$ 67,225 $ 68,982
======== ============
Current Liabilities:
Accounts payable and accrued
liabilities........................... $ 2,634 $ 3,867
Due to affiliates....................... 702 411
Current maturities of long-term debt.... -- --
-------- ------------
Total current liabilities.......... 3,336 4,278
-------- ------------
Long-term debt, excluding current
maturities............................ 13,048 11,000
Deferred income taxes................... 2,861 3,805
Other liabilities....................... 1,383 1,148
Stockholders' Equity:
Preferred stock, $0.01 par value,
1,000,000 shares authorized, none
issued or outstanding at June 30, 1996
and December 31, 1996................. -- --
Common stock, $0.01 par value,
15,000,000 shares authorized,
9,075,479
and 9,152,979 shares issued and
outstanding at June 30, 1996 and
December 31, 1996, respectively....... 91 92
Additional paid-in capital.............. 41,639 42,059
Retained earnings....................... 4,867 6,600
-------- ------------
Total stockholders' equity......... 46,597 48,751
-------- ------------
$ 67,225 $ 68,982
======== ============
See Notes to Condensed Consolidated Financial Statements.
F-23
<PAGE>
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1995 1996 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas revenues............... $ 3,853 $ 5,383 $ 7,142 $ 9,846
Gas plant and gas gathering
revenues......................... 2,555 2,158 4,923 3,879
Interest and other income.......... 36 26 57 53
--------- --------- --------- ---------
6,444 7,567 12,122 13,778
--------- --------- --------- ---------
Costs and Expenses:
Lease operating expenses........... 1,347 1,696 2,447 3,061
Gas plant and gas gathering
expenses......................... 1,549 934 3,006 1,827
Depreciation, depletion and
amortization..................... 1,979 2,173 3,866 4,167
General and administrative
expenses......................... 859 761 1,559 1,452
Interest expense................... 472 232 956 520
Other expense...................... 143 -- 155 --
--------- --------- --------- ---------
6,349 5,796 11,989 11,027
--------- --------- --------- ---------
Income before income taxes.............. 95 1,771 133 2,751
Provision for income taxes.............. 107 655 132 1,018
--------- --------- --------- ---------
Net income......................... $ (12) $ 1,116 $ 1 $ 1,733
========= ========= ========= =========
Net income per share.................... $ -- $ 0.12 $ 0.00 $ 0.19
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding......... 9,045 9,145 9,045 9,118
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-24
<PAGE>
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL TREASURY STOCK
----------------- ----------------- PAID-IN RETAINED ----------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993.................. 2,318 $ 1,156 -- -- $ 7,598 $2,130 29 $(115)
Shares issued in merger with Associated
Gas Resources, Inc.................... 1,419 708 -- -- 6,066 -- -- --
To change par value per share........... -- (1,827) -- -- 1,827 -- -- --
Other................................... -- -- -- -- (1) -- (14) 16
Net earnings............................ -- -- -- -- -- 814 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, June 30, 1994.................. 3,737 37 -- -- 15,490 2,944 15 (99)
Shares issued in public stock
offering.............................. 3,400 34 -- -- 17,204 -- -- --
Cancellation of treasury stock.......... (15) -- -- -- -- -- (15) 99
Shares issued in merger with Odyssey
Partners, Ltd......................... 917 9 -- -- 3,944 -- -- --
Shares issued in merger with Hampton
Resources Corporation................. 1,006 10 -- -- 4,834 -- -- --
Net earnings............................ -- -- -- -- -- 941 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, June 30, 1995.................. 9,045 90 -- -- 41,472 3,885 -- --
Stock options exercised................. 30 1 -- -- 167 -- -- --
Net earnings............................ -- -- -- -- -- 982 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, June 30, 1996.................. 9,075 91 -- -- 41,639 4,867 -- --
Stock options exercised................. 70 1 420
Net earnings............................ -- -- -- -- -- 1,733 -- --
------ ------- ------ ------- ---------- -------- ------ ------
Balance, December 31, 1996 (unaudited).. 9,145 $ 92 -- -- $ 42,059 $6,600 -- $--
====== ======= ====== ======= ========== ======== ====== ======
</TABLE>
TOTAL
Balance, June 30, 1993.................. $10,769
Shares issued in merger with Associated
Gas Resources, Inc.................... 6,774
To change par value per share........... --
Other................................... 15
Net earnings............................ 814
-------
Balance, June 30, 1994.................. 18,372
Shares issued in public stock
offering.............................. 17,238
Cancellation of treasury stock.......... 99
Shares issued in merger with Odyssey
Partners, Ltd......................... 3,953
Shares issued in merger with Hampton
Resources Corporation................. 4,844
Net earnings............................ 941
-------
Balance, June 30, 1995.................. 45,447
Stock options exercised................. 168
Net earnings............................ 982
-------
Balance, June 30, 1996.................. 46,597
Stock options exercised................. 421
Net earnings............................ 1,733
-------
Balance, December 31, 1996 (unaudited).. $48,751
=======
See Notes to Condensed Consolidated Financial Statements.
F-25
<PAGE>
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
SIX MONTHS
ENDED
DECEMBER 31,
---------------------
1995 1996
(IN THOUSANDS)
Net Income........................... $ 1 $ 1,733
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization................... 3,897 4,308
Deferred taxes and other........ -- 951
Change in assets and liabilities:
Accounts receivable and accrued
revenues...................... (439) (1,306)
Accounts payable and other
liabilities................... 405 999
Due (to) from affiliates........ (158) 823
Other........................... (210) (403)
--------- ----------
Net Cash Flows Provided by Operating
Activities......................... 3,496 7,105
--------- ----------
Cash Flows From Investing Activities:
Additions to oil and gas
properties.................... (1,133) (7,430)
Proceeds from sales of
properties.................... -- 1,665
Other........................... (41) (45)
--------- ----------
Net Cash Flows Used In Investing
Activities......................... (1,174) (5,810)
--------- ----------
Cash Flows From Financing Activities:
Proceeds from borrowings........ -- 13,000
Payments of long-term debt...... -- (15,048)
Net proceeds from issuance of
common stock.................. (1,000) 420
--------- ----------
Net Cash Flows (Used In) Provided by
Financing Activities............... (1,000) (1,628)
--------- ----------
Net increase (decrease) in cash
and cash equivalents............ 1,322 (333)
Cash and cash equivalents at
beginning of period............ 1,088 783
--------- ----------
Cash And Cash Equivalents At End of
Period............................. $ 2,410 $ 450
========= ==========
Supplemental Disclosures Of Cash Flow
Information:
Cash paid during the period for:
Interest........................ $ 480 $ 348
Income taxes (net of refund).... 127 63
See Notes to Condensed Consolidated Financial Statements.
F-26
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with instructions to Form 10-Q and, therefore, do
not include all disclosures required by generally accepted accounting
principles. However, in the opinion of management, these statements include all
adjustments, which are of a normal recurring nature, necessary to present fairly
the financial position at December 31, 1996, and June 30, 1996, and the results
of operations and changes in cash flows for the periods ended December 31, 1996,
and 1995. These financial statements should be read in conjunction with the
consolidated financial statements and notes to the consolidated financial
statements in the 1996 Form 10-K of Bellwether Exploration Company ("the
Company") that was filed with the Securities and Exchange Commission.
2. INDUSTRY SEGMENT INFORMATION
The Company's operations are concentrated primarily in two segments; the
exploration and production of oil and natural gas and gas plants and gas
gathering operations.
FOR THE SIX MONTHS
ENDED
DECEMBER 31,
--------------------
1995 1996
(IN THOUSANDS)
Sales to unaffiliated customers:
Oil and gas..................... $ 7,142 $ 9,846
Gas plants and gas gathering.... 4,923 3,879
Other revenues.................. 57 53
--------- ---------
Total revenues............. 12,122 13,778
========= =========
Operating profit before income tax:
Oil and gas..................... 1,520 3,059
Gas plants and gas gathering.... 1,226 1,611
--------- ---------
2,746 4,670
--------- ---------
Unallocated corporate expenses....... 1,657 1,399
Interest expense..................... 956 520
--------- ---------
Income before taxes........ 133 2,751
========= =========
Depreciation, depletion and
amortization:
Oil and gas..................... 3,175 3,726
Gas plants and gas gathering.... 691 441
--------- ---------
$ 3,866 $ 4,167
========= =========
3. LONG TERM DEBT
On February 28, 1995, the Company entered into a credit facility ("Credit
Facility") with a commercial bank providing an initial borrowing base of $29.8
million. The borrowing base is reviewed semi-annually. The borrowings under the
Credit Facility are secured by the Company's interest in oil and gas properties
and in the Gathering System and the Gas Plant. The maturity date, as modified in
the second quarter, fiscal 1996 is March 31, 2001, and the borrowing base is
$20.1 million. The Credit Facility was retired in October 1996.
In October 1996 the Company entered into a syndicated credit facility
("New Credit Facility") in an amount up to $50 million with an initial
borrowing base of $27 million, to be determined semi-annually. The interest
rate, at the Company's option, will vary, based upon borrowing base usage, from
LIBOR plus
F-27
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED)
7/8% to LIBOR plus 1 1/4%, or the greater of the prime rate or Fed Funds plus
1/2%. The New Credit Facility is unsecured with respect to oil and gas assets
and has a termination date of October 15, 2000.
The New Credit Facility contains various covenants including certain
required financial measurements for a current ratio, consolidated tangible net
worth, and interest coverage ratio. In addition, the New Credit Facility
includes certain limitations on restricted payments and dividends, incurrence of
additional funded indebtedness/guarantees and asset sales.
4. GAS CONTRACT LIABILITY
The Company and certain third parties were the beneficiaries of an
agreement ("Purchase Agreement") whereby another party had an obligation to
purchase, until May 1999, the gas produced by the Company and such third parties
from the West Monroe field in Union Parish, Louisiana, at a price of $4.50 per
MMBTU. Bellwether owned a large majority of the gas produced and sold pursuant
to the Purchase Agreement. In March 1996, in exchange for Bellwether's agreement
to assume this obligation to purchase gas under the Purchase Agreement,
Bellwether was paid $9.9 million. As a result of this transaction, the Company
has written off the book value of the gas gathering system and has recorded a
liability of $2.0 million to cover estimated liabilities under the contract. Gas
gathering operations of the subsidiary and payments to third parties are charged
to the liability as incurred. From the proceeds, $9.5 million was paid on the
Company's credit facility.
5. GUARANTOR FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEETS -- UNAUDITED
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BELLWETHER ODYSSEY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Total current assets................. $ 7,595 $ 1,040 $ -- $ 8,635
Net property, plant and equipment.... 47,385 12,370 -- 59,755
Total other assets................... 10,314 15 (9,737) 592
---------- ------- ------------ ------------
Total assets.................... $ 65,294 $13,425 $ (9,737) $ 68,982
========== ======= ============ ============
Total current liabilities............ $ 2,254 $ 2,024 $ -- $ 4,278
Long-term debt....................... 11,000 -- -- 11,000
Deferred taxes....................... 3,202 603 -- 3,805
Other long-term liabilities.......... 1,148 -- -- 1,148
Total stockholders' equity........... 47,690 10,798 (9,737) 48,751
---------- ------- ------------ ------------
Total liabilities and
stockholders' equity.......... $ 65,294 $13,425 $ (9,737) $ 68,982
========== ======= ============ ============
</TABLE>
CONDENSED CONSOLIDATING INCOME STATEMENTS-- UNAUDITED
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
BELLWETHER ODYSSEY CONSOLIDATED
Revenues............................. $ 11,969 $ 1,808 $ 13,777
Expenses............................. 9,735 1,291 11,026
---------- ------- ------------
Net earnings before income taxes..... 2,234 517 2,751
---------- ------- ------------
Income taxes......................... 839 179 1,018
---------- ------- ------------
Net earnings......................... $ 1,395 $ 338 $ 1,733
========== ======= ============
F-28
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
BELLWETHER ODYSSEY CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 1,395 $ 338 $ 1,733
Non-cash adjustments............ 4,670 589 5,259
Change in assets and
liabilities................... (804) 917 113
---------- ------- ------------
Net cash provided by operating
activities.................... 5,261 1,844 7,105
---------- ------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil & gas
properties.................... (5,487) (1,943) (7,430)
Proceeds from sale of
properties.................... 1,665 -- 1,665
Additions to other properties
and other..................... (45) -- (45)
---------- ------- ------------
Net cash used in investing
activities.................... (3,867) (1,943) (5,810)
---------- ------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings........ 13,000 -- 13,000
Payments of long-term debt...... (15,048) -- (15,048)
Net proceeds from issuance of
common stock.................. 420 -- 420
---------- ------- ------------
Net cash provided by in
financing activities.......... (1,628) -- (1,628)
---------- ------- ------------
Net increase (decrease) in cash
and cash equivalents.......... (234) (99) (333)
Cash and cash equivalents at
beginning of period........... 592 191 783
---------- ------- ------------
Cash and cash equivalents at end
of period..................... $ 358 $ 92 $ 450
========== ======= ============
6. OTHER MATTERS -- (UNAUDITED)
In February 1997, the Company filed a registration statement with the SEC
with regard to an offering by the Company of 4,400,000 shares of common stock
("Common Stock Offering") and $100.0 million in Senior Subordinated Notes
("Notes Offering"), the proceeds of which are to be used to purchase oil and
gas properties and an estimated $18.0 million of working capital for $188.3
million, plus a contingent payment of up to $9.0 million, the actual amount of
which will be based on 1997 gas prices (the "Contingent Payment"). The
effective date of the pending acquisition is July 1, 1996 and the estimated net
adjusted purchase price assuming an April 8, 1997 closing date is $141.9 million
plus the Contingent Payment. As of June 30, 1996, estimated net proved reserves
attributable to the properties were 39.2 MMBOE (89% developed and 59% gas) with
a PV-10 Value (pre-tax) of $212.0 million. The Company is also negotiating a new
$90 million credit facility ("New Credit Facility") with a group of banks. The
Company will finance the cash portion of the acquisition and related fees,
estimated to aggregate $173.8 million, including repayment of an estimated $12.0
million of existing indebtedness with advances under the New Credit Facility and
the proceeds of the Common Stock Offering and the Notes Offering.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Torch Energy Advisors Incorporated:
We have audited the accompanying statements of assets (other than
productive oil and gas properties) and liabilities as of December 31, 1995 and
1996 to be acquired by Bellwether Exploration Company (Acquired Properties) as
described in Note 1 and the related statements of revenues and direct operating
expenses for each of the years in the three-year period ended December 31, 1996.
These financial statements are the responsibility of Torch Energy Advisors
Incorporated'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.
The accompanying statements were prepared as described in Note 1 for the
purpose of complying with certain rules and regulations of the Securities and
Exchange Commission ("SEC") for inclusion in certain SEC regulatory reports
and filings and are not intended to be a complete financial presentation.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets (other than productive oil and gas
properties) and liabilities of the Acquired Properties as of December 31, 1995
and 1996 and the related revenues and direct operating expenses for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
March 11, 1997
F-30
<PAGE>
THE ACQUIRED PROPERTIES
STATEMENTS OF ASSETS ACQUIRED (OTHER THAN PRODUCTIVE OIL
AND GAS PROPERTIES) AND LIABILITIES (NOTE 1)
(IN THOUSANDS)
DECEMBER 31,
--------------------
1995 1996
Assets acquired (other than productive
oil and gas properties)
Cash and cash equivalents.......... $ 603 $ 79
Accounts receivable and other...... 19,291 23,428
Due from affiliates................ 5,798 3,954
Liabilities
Accounts payable and accrued
liabilities....................... (8,968) (9,050)
Due to affiliates.................. (30) (375)
--------- ---------
Excess of assets acquired (other
than productive oil and gas
properties) over liabilities
assumed........................... $ 16,694 $ 18,036
========= =========
See accompanying notes.
F-31
<PAGE>
THE ACQUIRED PROPERTIES
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
REVENUES:
Oil revenues....................... $ 42,215 $ 43,424 $ 42,842
Gas revenues....................... 60,129 49,354 58,132
Natural gas processing income...... 114 126 49
Other oil and gas income........... 655 19,363 1,338
---------- ---------- ----------
103,113 112,267 102,361
---------- ---------- ----------
DIRECT OPERATING EXPENSES:
Lease operating expenses........... $ 26,890 $ 28,894 $ 24,733
Production taxes................... 3,511 2,238 3,081
---------- ---------- ----------
Direct operating expenses.......... 30,401 31,132 27,814
---------- ---------- ----------
REVENUES IN EXCESS OF DIRECT OPERATING
EXPENSES.............................. $ 72,712 $ 81,135 $ 74,547
========== ========== ==========
See accompanying notes.
F-32
<PAGE>
THE ACQUIRED PROPERTIES
NOTES TO STATEMENTS OF ASSETS ACQUIRED (OTHER THAN PRODUCTIVE OIL AND GAS
PROPERTIES) AND LIABILITIES AND STATEMENTS OF REVENUES AND DIRECT OPERATING
EXPENSES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying statements present the assets (other than productive oil
and gas properties) and liabilities to be acquired and the related revenues and
direct operating expenses of oil and gas properties (the "Acquired
Properties") to be acquired by Bellwether Exploration Company from Torch Energy
Advisors Incorporated ("Torch") and certain partnerships and other entities
managed or sponsored by Torch (collectively, the "Partnerships"). The Acquired
Properties are primarily located in Texas, Louisiana, California and the Gulf of
Mexico.
The accompanying financial statements were derived from the historical
accounting records from the Partnerships. Direct operating expenses include
payroll, lease and well repairs, maintenance and other direct operating
expenses.
OMITTED HISTORICAL FINANCIAL INFORMATION
Full historical financial statements, including general and administrative
expense, income tax expense and interest expense have not been presented
historically because the above properties were not accounted for or operated as
a separate division by the Partnerships. Historical depletion expense, including
abandonment provision, also has not been included as the basis in the properties
will be adjusted in the purchase price allocation when they are sold; therefore,
historical depletion no longer will be relevant.
ACCRUAL BASIS STATEMENTS
Memorandum adjustments have been made to the financial information in order
to present the accompanying financial statements in accordance with generally
accepted accounting principles.
CASH AND CASH EQUIVALENTS
The Partnerships consider all highly liquid debt instruments purchased with
an original maturity date of three months or less to be cash equivalents.
GAS BALANCING
Certain Partnerships use the entitlement method for recording sales of
natural gas. Under the entitlement method of accounting, revenue is recorded
based on the Partnerships' net revenue interest in production. Deliveries of
natural gas in excess of the Partnerships' revenue interests are recorded as
liabilities and under-deliveries are recorded as assets. Production imbalances
are recorded at the lower of the sales price in effect at the time of production
or the current market value. At December 31, 1995 and 1996 the Partnerships'
aggregate net receivable was $781,705 and $1,174,950, respectively. Such amounts
have been included in accounts receivable and accounts payable and accrued
liabilities as it is expected that a substantial portion of the production
imbalances will be settled with production in the upcoming year.
Certain other Partnerships use the sales method for recording sales of
natural gas. Under the sales method of accounting, revenue is recorded based on
the Partnerships' sales of production. Substantially all such gas imbalances are
anticipated to be settled with production in future periods. If such
Partnerships had used the entitlement method of recording sales of natural gas,
there would have been no significant impact on the financial statements.
USE OF ESTIMATES
A number of estimates and assumptions relating to the reporting of assets
and liabilities and to the disclosure of contingent assets and liabilities have
been made by Torch to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
F-33
<PAGE>
THE ACQUIRED PROPERTIES
NOTES TO STATEMENTS OF ASSETS ACQUIRED (OTHER THAN PRODUCTIVE OIL AND GAS
PROPERTIES) AND LIABILITIES AND STATEMENTS OF REVENUES AND DIRECT OPERATING
EXPENSES -- (CONTINUED)
DETERMINATION OF FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value for cash, receivables, and payables approximates carrying value.
2. OTHER OIL AND GAS REVENUES
Included in revenues are $0.6 million, $18.2 million and $0.4 million
during 1994, 1995 and 1996, respectively, which were received from various
bankruptcy and contract pricing settlements. Also included in revenues are
payments in lieu of tax credits of $66,000, $0.8 million and $1.0 million,
during 1994, 1995 and 1996, respectively.
3. RELATED PARTY TRANSACTIONS
An affiliate of Torch operates certain oil and gas wells included in the
Acquired Properties. Fees under joint operating agreements related to such wells
in the amount of $1.8 million, $1.8 million and $1.7 million were incurred the
years ended December 31, 1994, 1995 and 1996, and are included in direct
operating expenses. In addition, an affiliate of Torch marketed a portion of the
production of the Acquired Properites, for which service it charged the
Partnerships marketing fees on the same basis as other third parties. The amount
of such fees charged to the Partnerships during 1994, 1995 and 1996 was $1.4
million, $1.5 million and $1.6 million, respectively. Such amounts are included
as a reduction to oil and gas revenues.
4. CAPITAL EXPENDITURES
Direct operating expenses do not include exploration and development
expenditures related to the properties which totaled approximately $14.9
million, $14.0 million and $7.5 million in 1994, 1995 and 1996, respectively.
5. COMMITMENTS AND CONTINGENCIES
Management is unaware of any legal, environmental or other contingencies
that would be materially important in relation to these financial statements.
6. SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
Total proved and proved developed oil and gas reserves of the Acquired
Properties at December 31, 1996 have been estimated based on reserve estimates
prepared by the Company and audited by Ryder Scott Company Petroleum Engineers
as of June 30, 1996, adjusted for production from June 30, 1996 to December 31,
1996. No comparable estimates were available for subsequent or prior periods.
Therefore, reserves for December 31, 1994, 1995 and 1996 have been calculated by
adjusting the June 30, 1996 amounts for the respective period's activities and,
consequently, no revisions of previous estimates have been reflected. All
reserve estimates are based on economic and operating conditions existing at
June 30, 1996. The future net cash flows from production of these proved reserve
quantities were computed by applying current prices of oil and gas, averaging
$16.17 per barrel of oil and $2.22 per thousand cubic foot of gas (with
consideration of price changes only to the extent provided by contractual
arrangements) as of June 30, 1996 to estimated future production of proved oil
and gas reserves less the estimated future expenditures (based on current costs)
as of June 30, 1996, to be incurred in developing and producing the
F-34
<PAGE>
THE ACQUIRED PROPERTIES
NOTES TO STATEMENTS OF ASSETS ACQUIRED (OTHER THAN PRODUCTIVE OIL AND GAS
PROPERTIES) AND LIABILITIES AND STATEMENTS OF REVENUES AND DIRECT OPERATING
EXPENSES -- (CONTINUED)
proved reserves. The Acquired Properties are located primarily in Texas,
Louisiana, Alabama, California and the Gulf of Mexico.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1994 1995 1996
-------------------- -------------------- --------------------
OIL GAS OIL GAS OIL GAS
(MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
Beginning of year............... 23,341 215,441 20,422 181,139 17,351 151,297
Production...................... (2,919) (34,302) (3,071) (29,842) (2,460) (22,387)
--------- --------- --------- --------- --------- ---------
End of Year..................... 20,422 181,139 17,351 151,297 14,891 128,910
========= ========= ========= ========= ========= =========
Proved developed reserves:
Beginning of year............... 20,827 204,626 17,908 170,324 14,837 140,482
--------- --------- --------- --------- --------- ---------
End of year..................... 17,908 170,324 14,837 140,482 12,377 118,095
========= ========= ========= ========= ========= =========
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil & Gas Reserves (in thousands):
AS OF
DECEMBER 31,
1996
------------
Future cash inflows..................... $ 513,741
Future production costs................. (195,576)
Future development costs................ (40,450)
------------
Future net inflows before income
taxes................................. 277,715
Income taxes............................ (54,913)
------------
Future net cash flows................... 222,802
10% discount factor..................... (70,403)
------------
Standardized measure of discounted
future net cash flows................. $ 152,399
============
Changes to Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves (in thousands):
Standardized measure, beginning of
year.................................. $ 182,057
Sales, net of production costs..... (73,160)
Net change in income taxes......... 17,418
Net change in future development
costs............................. 4,336
Accretion of discount.............. 18,206
Net change in timing and other..... 3,542
------------
Standardized measure, end of year....... $ 152,399
============
F-35
<PAGE>
EXHIBIT A
Williamson Petroleum Consultants, Inc.
March 12, 1997
Bellwether Exploration Company
1221 Lamar, Suite 1600
Houston, Texas 77010
Attention Mr. J. Darby Sere'
Gentlemen:
Subject: Revision to the Williamson Petroleum Consultants, Inc. Report Entitled
"Evaluation of Oil and Gas Reserves to the Interests of Bellwether
Exploration Company in Certain Properties, Effective June 30, 1996,
for Disclosure to the Securities and Exchange Commission, Williamson
Project 6.8369"
At your request, Williamson Petroleum Consultants, Inc. (Williamson) has
prepared a revision to the Williamson report entitled "Evaluation of Oil and Gas
Reserves to the Interests of Bellwether Exploration Company in Certain
Properties, Effective June 30, 1996, for Disclosure to the Securities and
Exchange Commission, Williamson Project 6.8369" dated August 20, 1996 (the
August 20, 1996 report). Revisions were made for three properties in the South
Bullocks Church field, Victoria County, Texas and four properties in the Fort
Trinidad field, Houston and Madison Counties, Texas. These revisions were small
increases in ownership interests which resulted in a minor increase in net
reserves and associated future net revenues. All other data, definitions, and
assumptions are as stated in the August 20, 1996 report. The following is a
revised summary of the evaluation effective June 30, 1996:
<TABLE>
<CAPTION>
PROVED PROVED
DEVELOPED DEVELOPED PROVED TOTAL
PRODUCING NONPRODUCING UNDEVELOPED PROVED
---------- --------- ---------- ----------
Net Reserves to the
Evaluated Interests:
<S> <C> <C> <C> <C>
Oil/Condensate, BBL ............................ 1,380,372 113,323 314,658 1,808,353
Gas, MCF ....................................... 17,436,973 5,260,717 10,497,974 33,195,664
Future Net Revenue, $:
Undiscounted ................................... 43,372,307 10,276,435 17,813,708 71,462,450
Discounted Per Annum
at 10.00 Percent ............................... 30,650,666 6,224,432 11,264,518 48,139,616
</TABLE>
A-1
<PAGE>
The total company, state, and field reserves category summaries and individual
lease reserves and economics that were revised are attached.
If you have any questions, please call me at 713-750-7215.
Yours very truly,
/s/ WILLIAMSON PETROLEUM CONSULTANTS, INC.
WILLIAMSON PETROLEUM CONSULTANTS, INC.
JDS/jek
Attachments
A-2
<PAGE>
EXHIBIT B
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS FAX (403) 262-2790
1610, 855-2ND STREET S.W. CALGARY, ALBERTA T2P 2P2 TELEPHONE (403) 262-2799
February 7, 1997
Mr. Darby Sere
Bellwether Exploration Company
1221 Lamar, Suite 1600
Houston, TX 77010
Gentlemen:
At your request, we have reviewed the estimates of the remaining proved reserves
and future net income attributable to certain properties being considered for
purchase by Bellwether Exploration Company (Bellwether), as of July 1, 1996, as
prepared by the engineering and geological consultants to Bellwether and based
on Securities and Exchange Commission (SEC) guidelines for future cost and price
parameters.
The properties that we reviewed represent 84 percent of the total proved
discounted future net income based on constant pricing and costs as taken from
reserve and income projections prepared by Bellwether as of July 1, 1996.
The estimated reserves presented in this report are related to hydrocarbon
prices. June 1996 hydrocarbon prices were used in the preparation of this report
as required by SEC guidelines. However, actual future prices may vary
significantly from those used. Therefore, volumes of reserves actually recovered
and the amounts of income actually received may differ significantly from the
estimated quantities presented in this report. The estimated net reserves and
future net income attributable to the properties being considered for purchase
are summarized as follows:
SEC PARAMETERS
Estimated Net Remaining Reserves and Income Data
Attributable to Certain Properties Considered for Purchase by
BELLWETHER EXPLORATION COMPANY
As of July 1, 1996
<TABLE>
<CAPTION>
Proved
---------------------------------------------------------------------------------
Developed
--------------------------------------------- Proved Total
Producing Non-Producing Undeveloped Costs Proved
----------- ------------- ----------- ------- ------------
NET RESERVES OF PROPERTIES
REVIEWED BY RYDER SCOTT
<S> <C> <C> <C> <C> <C>
Oil/Condensate - Barrels .................. 11,635,800 623,900 2,100,600 0 14,360,400
Gas - MMcf ................................ 103,109 25,134 10,815 0 139,057
Plant Products - Bbls ..................... 1,082,500 193,800 413,100 0 1,689,400
PV(10) Future Net Income ($M) ............. $ 181,897 $ 26,171 $ 19,609 ($15,686) $ 211,992
</TABLE>
<PAGE>
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas volumes
are expressed in millions of cubic feet (MMCF) at the official temperature and
pressure bases of the areas in which the gas reserves are located.
The proved developed non-producing reserves attributable to the reviewed
properties are comprised of shut-in and behind pipe reserves.
The proved reserves, which are attributable to the properties that we reviewed,
conform to the definition as set forth in the Securities and Exchange
Commission's Regulation S-X Part 210.4-10(a) as clarified by subsequent
Commission Staff Accounting Bulletins. The proved reserves are defined as
follows:
PROVED RESERVES of crude oil, condensate, natural gas and natural gas
liquids are estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future from
known reservoirs under existing conditions. Reservoirs are considered proved
if economic producibility is supported by actual production or formation
tests. In certain instances, proved reserves are assigned on the basis of a
combination of core analysis and electrical and other type logs which
indicate the reservoirs are analogous to reservoirs in the same field which
are producing or have demonstrated the ability to produce on a formation
test. The area of a reservoir considered proved includes (1) that portion
delineated by drilling and defined by fluid contacts, if any, and (2) the
adjoining portions not yet drilled that can be reasonably judged as
economically productive on the basis of available geological and engineering
data. In the absence of data on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of the reservoir.
Proved reserves are estimates of hydrocarbons to be recovered from a given
date forward. They may be revised as hydrocarbons are produced and
additional data become available. Proved natural gas reserves are comprised
of non-associated, associated, and dissolved gas. An appropriate reduction
in gas reserves has been made for the expected removal of liquids, for lease
and plant fuel, and the exclusion of non-hydrocarbon gases if they occur in
significant quantities and are removed prior to sale. Reserves that can be
produced economically through the application of established improved
recovery techniques are included in the proved classification when these
qualifications are met: (1) successful testing by a pilot project or the
operation of an installed program in that reservoir or one in the immediate
area with similar rock and fluid properties provides support for the
engineering analysis on which the project or program was based, and (2) it
is reasonably certain the project will proceed. Reserves to be recovered by
improved recovery techniques that have yet to be established through
repeated economically successful applications are included in the proved
category only after testing by a pilot project or after the operation of an
installed program in the reservoir provides support for the engineering
analysis on which the project or program was based. Improved recovery
includes all methods for supplementing natural reservoir forces and energy,
or otherwise increasing ultimate recovery from a reservoir, including (1)
pressure maintenance, (2) cycling, and (3) secondary recovery in its
original sense. Improved recovery also includes the enhanced recovery
methods of thermal, chemical flooding, and the use of miscible and
immiscible displacement fluids. Estimates of proved reserves do not include
crude oil, condensate, natural gas or natural gas liquids being held in
B-2
<PAGE>
underground storage. Depending on the status of development, these proved
reserves are further subdivided into:
1) "developed reserves" which are those proved reserves reasonably
expected to be recovered through existing wells with existing
equipment and operating methods, including (a) "developed producing
reserves" which are those proved developed reserves reasonably
expected to be produced from existing completion intervals now open
for production in existing wells, and (b) "developed non-producing
reserves" which are those proved developed reserves which exist
behind the casing of existing wells which are reasonably expected to
be produced through these wells in the predictable future where the
cost of making such hydrocarbons available for production should be
relatively small compared to the cost of a new well; and
2) "undeveloped reserves" which are those proved reserves reasonably
expected to be recovered from new wells on undrilled acreage, from
existing wells where a relatively large expenditure is required and
from acreage for which an application of fluid injection or other
improved recovery technique is contemplated where the technique has
been proved effective by actual tests in the area in the same
reservoir or one with similar rock and fluid properties. Reserves
from undrilled acreage are limited to those drilling units
offsetting productive units that are reasonably certain of
production when drilled. Proved reserves for other undrilled units
are included only where it can be demonstrated with reasonable
certainty that there is continuity of production from the existing
formation.
REVIEWED PROCEDURE AND OPINION
In performing our review, we have relied upon data furnished by Bellwether with
respect to property interests owned, production and well tests from examined
wells, geological structural and isopach maps, well logs, core analyses, and
pressure measurements. These data were accepted as authentic and sufficient for
determining the reserves unless, during the course of our examination, a matter
of question came to our attention in which case the data were not accepted until
all questions were satisfactorily resolved. Our review included such tests and
procedures as we considered necessary under the circumstances to render the
conclusions set forth herein.
In our opinion, estimates of future reserves for the reviewed properties were
prepared in accordance with generally accepted procedures for the estimation of
future reserves, and we found no bias in the utilization and analysis of data in
estimates for these properties. In general, we were in reasonable agreement with
Bellwether's estimates of remaining proved reserves for the properties which
were reviewed; however, in certain cases there was more than an acceptable
variance in Bellwether's estimates and our estimates due to a difference in
interpretation of data or due to our having access to data which were not
available to Bellwether when its reserve estimates were prepared. In these
cases, Bellwether revised its estimates to conform to our estimates. As a
consequence, it is our opinion that the data presented herein
B-3
<PAGE>
for the properties that we reviewed fairly reflect the estimated net reserves
owned by Bellwether.
Certain technical consultants to Bellwether are responsible for the preparation
of reserve estimates on new properties and for the preparation of revised
estimates, when necessary, on old properties. These personnel assembled the
necessary data and maintained the data and work papers in an orderly manner. We
consulted with these technical personnel and had access to their workpapers and
supporting data in the course of our review.
RESERVES ESTIMATES
The reserves for the properties that we reviewed were estimated by performance
methods or the volumetric method. The reserve estimates by performance method
utilized extrapolations of various historical data in those cases where such
data were definitive. Reserves were estimated by the volumetric method in those
cases where there were inadequate historical data to establish a definitive
trend or where the use of production performance data as a basis for the
reserves estimates was considered to be inappropriate and the volumetric data
were adequate for a reasonable estimate.
The reserves presented herein, as estimated by Bellwether and reviewed by us,
are estimates only and should not be construed as being exact quantities.
Moreover, estimates of reserves may increase or decrease as a result of future
operations.
ECONOMIC EVALUATIONS
Bellwether provided the economic evaluations associated with their reserve
estimates and projections. They also provided the operating and development
costs used in these evaluations. We reviewed these costs for reasonableness, but
did not compare them against actual detailed lease operating expense statements.
We found these provided costs to be within acceptable ranges generally
experienced in their respective areas.
Bellwether provided the initial hydrocarbon prices used in this evaluation. We
have not compared the initial prices provided by Bellwether with actual prices
being received at the effective date of their evaluation.
The cashflow evaluations provided by Belllwether were produced by economic
software not internally authored by Ryder Scott Company. We therefore, cannot
comment as to the accuracy of the internal calculations associated with this
software. It is, however, a widely used and accepted commercial software
package. These economic evaluations, as provided by Bellwether, have not been
reviewed in detail by Ryder Scott.
B-4
<PAGE>
GENERAL
In general, the reserve estimates for the properties that we reviewed are based
on data generally available through June 1996. Gas imbalances, if any, were not
taken into account in the gas reserves estimates reviewed.
Neither we nor any of our employees have any interest in the subject properties
and neither the employment to do this work nor the compensation is contingent on
our estimates of reserves for the properties which were reviewed.
This report was prepared for the exclusive use of Bellwether. The data and work
papers used in the preparation of this report are available for examination by
authorized parties in our offices. Please contact us if we can be of further
service.
Yours very truly,
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
/s/ DOUGLAS G. MANNER
Douglas G. Manner, P.E.
Senior Vice President,
DGM/jkl
[SEAL]
B-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
All capitalized terms used and not defined in Part II of this Registration
Statement shall have the meanings assigned to them in the Prospectus which forms
a part of this Registration Statement.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by Bellwether Exploration Company in
connection with the issuance and distribution of the Common Stock and Notes to
be registered, other than underwriting discounts and commissions, are as
follows:
Securities Act registration fee...... $ 45,170
NASD filing fee...................... 17,500
Blue Sky qualification fees and
expenses............................. 4,000
Printing costs....................... 185,000
Legal fees and expenses.............. 545,000
Accounting fees and expenses......... 85,000
Engineering fees and expenses........ 250,000
Transfer Agent fees.................. 3,500
Trustees fees........................ 10,000
Miscellaneous........................ 281,086
------------
TOTAL........................... $ 1,426,256
- ------------
* To be completed by amendment.
All of the foregoing estimated costs, expenses and fees will be borne by
the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware,
pursuant to which the Company is incorporated, provides generally and in
pertinent part that a Delaware corporation may indemnify its directors and
officers against expenses, judgments, fines, and settlements actually and
reasonably incurred by them in connection with any civil, criminal,
administrative, or investigative suit or action except actions by or in the
right of the corporation if, in connection with the matters in issue, they acted
in good faith and in a manner they reasonably believed to be in or not opposed
to the best interests of the corporation, and in connection with any criminal
suit or proceeding, if in connection with the matters in issue, they had no
reasonable cause to believe their conduct was unlawful. Section 145 further
provides that in connection with the defense or settlement of any action by or
in the right of the corporation, a Delaware corporation may indemnify its
directors and officers against expenses actually and reasonably incurred by them
if, in connection with the matters in issue, they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation, except that no indemnification may be made in respect to any
claim, issue, or matter as to which such person has been adjudged liable to the
corporation unless the Delaware Court of Chancery or other court in which such
action or suit is brought approves such indemnification. Section 145 further
permits a Delaware corporation to grant its directors and officers additional
rights of indemnification through bylaw provisions and otherwise, and to
purchase indemnity insurance on behalf of its directors and officers. Article
Eight of the Certificate of Incorporation of the Company and Article VII of the
Bylaws of the Company provide, in general, that the Company may indemnify its
officers and directors to the full extent of Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has agreed to issue 150,000 shares of Common Stock to Torch
Energy Advisors Incorporated ("Torch") in exchange for services rendered in
connection with the Pending Acquisition. The Company has also agreed to issue to
Torch a warrant to purchase 100,000 shares of Common Stock at the price to the
public in the Common Stock Offering. Such shares and warrant will be issued at
the closing of the Pending Acquisition. The shares and warrant, and shares to be
issued upon exercise of the warrant, will be issued in reliance on the exemption
from registration set forth in Section 4(2) of the Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibit Number and Description
1. Underwriting Agreement.
1.1 Form of Underwriting Agreement for the Common Stock Offering
1.2 Form of Underwriting Agreement for the Notes Offering
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession
2.1 Letter of Intent***
2.2 Acquisition Agreement, dated March 31, 1997, among Bellwether,
Program Acquisition Company, and the other parties thereto
3. Certificate of Incorporation and bylaws.
3.1 Certificate of Incorporation of the Company (incorporated by
reference from Exhibit 3.1 of the Company's Registration
Statement on Form S-1, Reg. No. 33-76570)
3.2 Bylaws of the Company (incorporated by reference from Exhibit
3.2 of the Company's Registration Statement on Form S-1, Reg.
No. 33-76570)
3.3 Certificate of Incorporation of Odyssey Petroleum Company
3.4 Bylaws of Odyssey Petroleum Company
4. Instruments defining the rights of security holders, including
indentures.
4.1 Specimen stock certificate (incorporated by reference from
Exhibit 4.1 of the Company's Registration Statement on Form
S-1, Reg. No. 33-76570)
4.2 Form of Indenture for the Notes
5. Opinion re legality
5.1 Opinion of Butler & Binion, L.L.P.
6. Opinion re discount on capital shares*
7. Opinion re liquidation preference*
8. Opinion re tax matters*
9. Voting trust agreement*
10. Material contracts
10.1 1988 Non-qualified Stock Option Plan (incorporated by reference
to Exhibit 10.37 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1988)
10.4 Administrative Services Agreement with Torch Energy Advisors
Incorporated commencing January 1, 1994 (incorporated by
reference to Exhibit 94-10-3 to the Company's Report on Form
10-Q for the quarter ended March 31, 1994)
10.6 Amended Joint Venture Agreement dated July 29, 1993 between the
Company and NGL Associates (incorporated by reference to
Exhibit 94-10.93.5 to the Company's Report on Form 10-K dated
July 29, 1993)
10.7 Amended Joint Venture dated July 15, 1993 between Torch Energy
Marketing, Inc. and NGL Associates (incorporated by reference
to Exhibit 10.93.8 to the Company's Report on Form 8-K dated
December 31, 1993)
10.10 Registration Rights Agreement dated December 31, 1993 among the
Company and the Stockholders of Associated Gas Resources, Inc.
(incorporated by reference to Exhibit 10.1 of the Company's
Registration Statement No. 33-76570)
10.11 1994 Stock Incentive Plan (incorporated by reference to Exhibit
10.9 of the Company's Registration Statement No. 33-76570)
II-2
<PAGE>
10.12 Torch Energy Warrant to Purchase Common Stock of the Company,
dated December 31, 1993 (incorporated by reference to Exhibit
10.10 of the Company's Registration Statement No. 33-76570)
10.13 Amendment dated March 14, 1994 to the Amended Joint Venture
Agreement dated as of July 29, 1993 between the Company and NGL
Associates (incorporated by reference to Exhibit 10.11 of the
Company's Registration Statement No. 33-76570)
10.14 Amendment dated March 14, 1994 to the Amended Joint Venture
Agreement dated as of July 15, 1993 between Torch Energy
Marketing, Inc. and NGL Associates (incorporated by reference
to Exhibit 10.12 of the Company's Registration Statement No.
33-76570)
10.16 Registration Rights Agreement among the Company, Allstate
Insurance Company and the former owners of Odyssey Partners,
Ltd. (incorporated by reference to Exhibit 10.4 of the
Company's Registration Statement No. 33-76570)
10.18 Assignment of gas purchase contract from Texas Gas Transmission
Corporation to Bellwether (incorporated by reference to Exhibit
96-10-4 of the Company's Report on Form 10-Q for the quarter
ended March 31, 1996)
10.19 Credit Facility between the Company as borrower and Chase
Manhattan Bank as agent (incorporated by reference from Exhibit
10.1 to the Company's Form 10-Q for the quarter ended September
30, 1996 filed November 14, 1996)
10.20 Company's 1996 Stock Incentive Plan***
10.21 Credit Agreement among the Company, Odyssey Petroleum Company,
Morgan Guaranty Trust Company of New York, as agent, and
certain lenders named therein.
11. Statement re computation of per share earnings*
12. Statement re computation of ratios*
14. Material foreign patents*
15. Letter re unaudited interim financial information*
16. Letter re change in certifying accountant*
21. Subsidiaries of the registrant
21.1 Subsidiaries of the Company (incorporated by reference from
Exhibit 21.1 of the Company's Form 10-K for the fiscal year
ended June 30, 1996)
23. Consents of experts and counsel
23.1 Consent of Deloitte & Touche LLP***
23.2 Consent of KPMG Peat Marwick L.L.P.***
23.3 Consent of Williamson Petroleum Consultants, Inc.***
23.4 Consent of Ryder Scott Company Petroleum Engineers
23.5 Consent of Butler & Binion, L.L.P. (included in Exhibit 5.1)
23.6 Consent of Principal Financial Securities, Inc.
24. Power of attorney***
25. Statement of Eligibility of Trustee (filed under separate cover)
26. Invitation for Competitive Bids*
27. Financial Data Schedule*
28. Information from reports furnished to state insurance regulatory
authorities*
99. Additional exhibits*
- ------------
* Inapplicable to this filing
** To be filed by amendment
*** Previously filed
II-3
<PAGE>
(b) Financial Statement Schedules
Schedules have been omitted because they are either not required, are not
applicable, or the required information is shown in the Financial Statements and
related notes.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that claims for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company 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 Company 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 of 1933 and will be
governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON APRIL 3, 1997.
BELLWETHER EXPLORATION COMPANY
By: /s/ J. DARBY SERE
J. DARBY SERE
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ ------------------------------------ ---------------
<S> <C> <C>
J. DARBY SERE President, Chief Executive Officer April 3, 1997
and Director (Principal Executive
J. DARBY SERE Officer)
CHARLES C. GREEN III* Executive Vice President and Chief April 3, 1997
CHARLES C. GREEN III Financial Officer (Principal
Financial and Accounting Officer)
J. P. BRYAN* Chairman of the Board of Directors April 3, 1997
J. P. BRYAN
C. BARTON GROVES* Director April 3, 1997
C. BARTON GROVES
DR. JACK BIRKS* Director April 3, 1997
DR. JACK BIRKS
VINCENT H. BUCKLEY* Director April 3, 1997
VINCENT H. BUCKLEY
HABIB KARIOUZ* Director April 3, 1997
HABIB KARIOUZ
A. K. McLANAHAN* Director April 3, 1997
A. K. MCLANAHAN
MICHAEL D. WATFORD* Director April 3, 1997
MICHAEL D. WATFORD
*By:/s/J. DARBY SERE April 3, 1997
J. DARBY SERE
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON APRIL 3, 1997.
ODYSSEY PETROLEUM COMPANY
By: /s/ J. DARBY SERE
J. DARBY SERE
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS J. DARBY SERE AND CHARLES C. GREEN, AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM IN HIS NAME, PLACE AND STEAD, IN ANY
AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS TO THIS REGISTRATION STATEMENT), AND TO FILE THE SAME, WITH ALL
EXHIBITS HERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE, AS FULLY TO ALL INTENTS
AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR EITHER OF THEM, OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ ------------------------------------ ---------------
<S> <C> <C>
/s/J. DARBY SERE Chief Executive Officer and Director April 3, 1997
(Principal Executive Officer)
J. DARBY SERE
/s/MICHAEL SMITH Vice President, Treasurer and April 3, 1997
MICHAEL SMITH Assistant Secretary(Principal
Financial and Accounting Officer)
/s/C. BARTON GROVES President and Director April 3, 1997
C. BARTON GROVES
/s/J. P. BRYAN Director April 3, 1997
J. P. BRYAN
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
(a) Exhibit Number and Description
1. Underwriting Agreement.
1.1 Form of Underwriting Agreement for the Common Stock Offering
1.2 Form of Underwriting Agreement for the Notes Offering
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession
2.1 Letter of Intent***
2.2 Acquisition Agreement, dated March 31, 1997, among Bellwether,
Program Acquisition Company, and the other parties thereto
3. Certificate of Incorporation and bylaws.
3.1 Certificate of Incorporation of the Company (incorporated by
reference from Exhibit 3.1 of the Company's Registration
Statement on Form S-1, Reg. No. 33-76570)
3.2 Bylaws of the Company (incorporated by reference from Exhibit
3.2 of the Company's Registration Statement on Form S-1, Reg.
No. 33-76570)
3.3 Certificate of Incorporation of Odyssey Petroleum Company.
3.4 Bylaws of Odyssey Petroleum Company.
4. Instruments defining the rights of security holders, including
indentures.
4.1 Specimen stock certificate (incorporated by reference from
Exhibit 4.1 of the Company's Registration Statement on Form
S-1, Reg. No. 33-76570)
4.2 Form of Indenture for the Notes
5. Opinion re legality
5.1 Opinion of Butler & Binion, L.L.P.
6. Opinion re discount on capital shares*
7. Opinion re liquidation preference*
8. Opinion re tax matters*
9. Voting trust agreement*
10. Material contracts
10.1 1988 Non-qualified Stock Option Plan (incorporated by reference
to Exhibit 10.37 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1988)
10.4 Administrative Services Agreement with Torch Energy Advisors
Incorporated commencing January 1, 1994 (incorporated by
reference to Exhibit 94-10-3 to the Company's Report on Form
10-Q for the quarter ended March 31, 1994)
10.6 Amended Joint Venture Agreement dated July 29, 1993 between the
Company and NGL Associates (incorporated by reference to
Exhibit 94-10.93.5 to the Company's Report on Form 10-K dated
July 29, 1993)
10.7 Amended Joint Venture dated July 15, 1993 between Torch Energy
Marketing, Inc. and NGL Associates (incorporated by reference
to Exhibit 10.93.8 to the Company's Report on Form 8-K dated
December 31, 1993)
10.10 Registration Rights Agreement dated December 31, 1993 among the
Company and the Stockholders of Associated Gas Resources, Inc.
(incorporated by reference to Exhibit 10.1 of the Company's
Registration Statement No. 33-76570)
10.11 1994 Stock Incentive Plan (incorporated by reference to Exhibit
10.9 of the Company's Registration Statement No. 33-76570)
10.12 Torch Energy Warrant to Purchase Common Stock of the Company,
dated December 31, 1993 (incorporated by reference to Exhibit
10.10 of the Company's Registration Statement No. 33-76570)
10.13 Amendment dated March 14, 1994 to the Amended Joint Venture
Agreement dated as of July 29, 1993 between the Company and NGL
Associates (incorporated by reference to Exhibit 10.11 of the
Company's Registration Statement No. 33-76570)
10.14 Amendment dated March 14, 1994 to the Amended Joint Venture
Agreement dated as of July 15, 1993 between Torch Energy
Marketing, Inc. and NGL Associates (incorporated by reference
to Exhibit 10.12 of the Company's Registration Statement No.
33-76570)
<PAGE>
10.16 Registration Rights Agreement among the Company, Allstate
Insurance Company and the former owners of Odyssey Partners,
Ltd. (incorporated by reference to Exhibit 10.4 of the
Company's Registration Statement No. 33-76570)
10.18 Assignment of gas purchase contract from Texas Gas Transmission
Corporation to Bellwether (incorporated by reference to Exhibit
96-10-4 of the Company's Report on Form 10-Q for the quarter
ended March 31, 1996)
10.19 Credit Facility between the Company as borrower and Chase
Manhattan Bank as agent (incorporated by reference from Exhibit
10.1 to the Company's Form 10-Q for the quarter ended September
30, 1996 filed November 14, 1996)
10.20 Company's 1996 Stock Incentive Plan***
10.21 Credit Agreement among the Company, Odyssey Petroleum Company,
Morgan Guaranty Trust Company of New York, as agent, and
certain lenders named therein.
11. Statement re computation of per share earnings*
12. Statement re computation of ratios*
14. Material foreign patents*
15. Letter re unaudited interim financial information*
16. Letter re change in certifying accountant*
21. Subsidiaries of the registrant
21.1 Subsidiaries of the Company (incorporated by reference from
Exhibit 21.1 of the Company's Form 10-K for the fiscal year
ended June 30, 1996)
23. Consents of experts and counsel
23.1 Consent of Deloitte & Touche LLP***
23.2 Consent of KPMG Peat Marwick L.L.P.***
23.3 Consent of Williamson Petroleum Consultants, Inc.***
23.4 Consent of Ryder Scott Company Petroleum Engineers
23.5 Consent of Butler & Binion, L.L.P. (included in Exhibit 5.1)
23.6 Consent of Principal Financial Securities, Inc.
24. Power of attorney***
25. Statement of Eligibility of Trustee (filed under separate cover)
26. Invitation for Competitive Bids*
27. Financial Data Schedule*
28. Information from reports furnished to state insurance regulatory
authorities*
99. Additional exhibits*
- ------------
* Inapplicable to this filing
** To be filed by amendment
*** Previously filed
EXHIBIT 1.1
4,875,000 Shares
BELLWETHER EXPLORATION COMPANY
Common Stock
UNDERWRITING AGREEMENT
__________, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
PRINCIPAL FINANCIAL SECURITIES, INC.
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, NY 10172
Dear Sirs:
Bellwether Exploration Company, a Delaware corporation (the
"Company"), and the stockholders of the Company named in Schedule II hereto,
(collectively, the "Selling Stockholders"), severally propose to sell an
aggregate of 4,875,000 shares of common stock, par value $0.01 per share
("Common Stock") of the Company (the "Firm Shares"), to the several underwriters
named in Schedule I hereto (the "Underwriters"). The Firm Shares consist of
4,400,000 shares to be issued and sold by the Company and 475,000 outstanding
shares to be sold by the Selling Stockholders. In addition, the Company and the
Selling Stockholders severally propose to sell not more than an aggregate of
731,250 shares of common stock, par value $0.01 per share, of the Company (the
"Additional Shares"), if requested by the Underwriters as provided in Section 2
hereof. The Additional Shares consist of up to 11,986 shares to be issued and
sold by the Company and up to 719,264 outstanding shares to be sold by the
Selling Stockholders. The Firm Shares and the Additional Shares are herein
collectively called the "Shares." The shares of common stock of the Company to
be outstanding after giving effect to the sales contemplated hereby are
hereinafter referred to as the Common Stock. The
<PAGE>
Company and the Selling Stockholders are hereinafter collectively called the
"Sellers." All references herein to the "Acquired Properties" refer to the oil
and gas properties and associated working capital owned by partnerships and
other entities (the "Program Partnerships") managed by Torch Energy Advisors
Incorporated that are to be acquired (the "Pending Acquisition") by the Company
pursuant to the Acquisition and Consolidation Agreement, dated as of March 31,
1997 (the "Acquisition Agreement"), among the Company and the Program
Partnerships.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively called the "Act"), a registration statement on Form S-1 including
a prospectus relating to the Shares.1 The registration statement, as amended at
the time when it became effective, including information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "Registration Statement";
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred as the "Prospectus."
2. AGREEMENTS TO SELL AND PURCHASE AND LOCK-UP AGREEMENTS. On the
basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
4,400,000 Firm Shares, (ii) the Selling Stockholders agree to sell an aggregate
of 475,000 Firm Shares (the number of Firm Shares which each Selling Stockholder
agrees to sell is set forth opposite their respective names in Schedule II
hereto) and (iii) each Underwriter agrees, severally and not jointly, to
purchase from each Seller at a price per share of $______ (the "Purchase Price")
the number of Firm Shares (subject to such adjustments to eliminate fractional
shares as you may determine) which bears the same proportion to the total number
of Firm Shares to be sold by such Seller as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto bears to the total
number of Firm Shares.
On the basis of the representations and warranties contained in
this Agreement, and subject to its terms and conditions, (i) the Company agrees
to issue and sell up to 11,986 Additional Shares, (ii) the Selling Stockholders
agree to sell up to an aggregate of 719,264 Additional Shares (the maximum
number of Additional Shares which each Selling Stockholder agrees to sell upon
exercise of the over-allotment option is set forth opposite their respective
names in Schedule II hereto) and (iii) the Underwriters shall have the right to
purchase, severally and not jointly, up to an aggregate 731,250 Additional
Shares from the Company and the Selling Stockholders at the Purchase Price.
Additional Shares may be purchased solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. The
- --------
1 The registration statement also includes a form of prospectus to be
used in connection with the concurrent offering of the ____% Senior Subordinated
Notes due 2007 (the "Notes") of the Company.
2
<PAGE>
Underwriters may exercise their right to purchase Additional Shares in whole or
in part from time to time by giving written notice thereof to the Company and
the Selling Stockholders within 30 days after the date of this Agreement. You
shall give any such notice on behalf of the Underwriters and such notice shall
specify the aggregate number of Additional Shares to be purchased pursuant to
such exercise and the date for payment and delivery thereof. The date specified
in any such notice shall be a business day (i) no earlier than the Closing Date
(as hereinafter defined), (ii) no later than ten business days after such notice
has been given and (iii) no earlier than two business days after such notice has
been given. If the Underwriters exercise their right to purchase 402,696 or
fewer Additional Shares, then United Investors Management Company ("United"), a
Selling Stockholder, will sell all such shares (and the Company and PPM America
Inc. ("PPM"), a Selling Stockholder, will sell no such shares) to the
Underwriters. If the Underwriters exercise their right to purchase greater than
402,696 but less than 719,264 Additional Shares, then United will sell 402,696
of such shares and PPM will sell the balance of the Additional Shares (and the
Company will sell no such shares) to the Underwriters. If the Underwriters
exercise their right to purchase less than all but greater than 719,264
Additional Shares, then United and PPM will sell 402,696 and 316,568 of such
shares, respectively, and the Company will sell the balance of the Additional
Shares to the Underwriters. If any Additional Shares are to be purchased, each
Underwriter, severally and not jointly, agrees to purchase from the Company and
the Additional Selling Stockholders the number of Additional Shares (subject to
such adjustments to eliminate fractional shares as you may determine) which
bears the same proportion to the total number of Additional Shares to be
purchased from the Company and the Selling Stockholders as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I bears to
the total number of Firm Shares.
The Sellers hereby agree, severally and not jointly, not to
offer, sell, contract to sell, pledge, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or in any other manner transfer all or a portion
of the economic consequences associated with the ownership of Common Stock
(regardless of whether any of the foregoing transactions is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise),
except to the Underwriters pursuant to this Agreement, for a period of 90 days
after the date of the Prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation and the Company shall, concurrently
with the execution of this Agreement, deliver an agreement executed by each of
the directors and officers of the Company to the effect that such person will
not engage in any of the foregoing transactions with respect to any Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock, in each case, beneficially owed by such person during such period without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. Notwithstanding the foregoing, during such period (i) the Company
may grant stock options pursuant to the Company's existing stock option plans
and (ii) the Company may issue shares of Common Stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date hereof
or issued pursuant to an existing stock option plan.
3
<PAGE>
3. TERMS OF PUBLIC OFFERING. The Sellers are advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
4. DELIVERY AND PAYMENT. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on
________________, 1997 (the "Closing Date") at such place as you shall
designate. The Closing Date and the location of delivery of and the form of
payment for the Firm Shares may be varied by agreement between you and the
Sellers.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at such place as you
shall designate at 10:00 A.M., New York City time, on the date specified in the
applicable exercise notice given by you pursuant to Section 2 (an "Option
Closing Date"). Any such Option Closing Date and the location of delivery of and
the form of payment for such Additional Shares may be varied by agreement
between you and the Sellers.
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date or an Option Closing Date, as the
case may be. Such certificates shall be made available to you for inspection not
later than 9:30 A.M., New York City time, on the business day next preceding the
Closing Date or an Option Closing Date, as the case may be. Certificates in
definitive form evidencing the Shares shall be delivered to you on the Closing
Date or an Option Closing Date, as the case may be, with any transfer taxes
thereon duly paid by the respective Sellers, for the respective accounts of the
several Underwriters, against payment of the Purchase Price therefor by wire
transfer or of Federal or other funds immediately available in New York City to
the order of the applicable Sellers.
5. AGREEMENTS OF THE COMPANY. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to
confirm such advice in writing, (i) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information, (ii) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the
Shares for offering or sale in any jurisdiction, or the initiation of
any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is
required to file a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, when the Rule 462(b) Registration
Statement has become effective, and (v) of the happening of any event
during the period referred to in paragraph (d) below which makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires the making of any
4
<PAGE>
additions to or changes in the Registration Statement or the Prospectus
in order to make the statements therein not misleading. If at any time
the Commission shall issue any stop order suspending the effectiveness
of the Registration Statement, the Company will use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time.
(b) To furnish to you, without charge, four signed copies
of the Registration Statement as first filed with the Commission and of
each amendment to it, including all exhibits, and to furnish to you and
each Underwriter designated by you such number of conformed copies of
the Registration Statement as so filed and of each amendment to it,
without exhibits, as you may reasonably request.
(c) To prepare the Prospectus in a form approved by you
and to file the Prospectus in such form with the Commission within the
applicable time period specified in Rule 424(b) under the Act; not to
file any further amendment to the Registration Statement and not to make
any amendment or supplement to the Prospectus of which you shall not
previously have been advised or to which you shall reasonably object
after being so advised; and to prepare and file with the Commission,
promptly upon your reasonable request, any amendment to the Registration
Statement or supplement to the Prospectus which may be necessary or
advisable in connection with the distribution of the Shares by you, and
to use its best efforts to cause any such amendment to the Registration
Statement to become promptly effective.
(d) Prior to 10:00 A.M. New York City time on the business
day next succeeding the date of this Agreement and from time to time
thereafter for such period as in the opinion of counsel for the
Underwriters a prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, to furnish in New
York City to each Underwriter and dealer as many copies of the
Prospectus (and of any amendment or supplement to the Prospectus) as
such Underwriter or dealer may reasonably request.
(e) If during the period specified in paragraph (d) any
event shall occur as a result of which, in the opinion of written
counsel for the Underwriters, it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if it is necessary to amend or supplement
the Prospectus to comply with applicable law, forthwith to prepare and
file with the Commission an appropriate amendment or supplement to the
Prospectus so that the statements in the Prospectus, as so amended or
supplemented, will not in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with
law, and to furnish to each Underwriter and to such dealers as you shall
specify, such number of copies thereof as such Underwriter or dealers
may reasonably request.
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(f) Prior to any public offering of the Shares, to
cooperate with you and counsel for the Underwriters in connection with
the registration or qualification of the Shares for offer and sale by
the several Underwriters and by dealers under the state securities or
Blue Sky laws of such jurisdictions as you may request, to continue such
qualification in effect so long as required for distribution of the
Shares and to file such consents to service of process or other
documents as may be necessary in order to effect such registration or
qualification.
(g) To mail and make generally available to its
stockholders as soon as reasonably practicable an earnings statement
covering a period of at least twelve months after the effective date of
the Registration Statement (but in no event commencing later than 90
days after such date) which shall satisfy the provisions of Section
11(a) of the Act, and to advise you in writing when such statement has
been so made available.
(h) During the period of three years after the date of
this Agreement, to furnish to you as soon as distributed to stockholders
or filed with the Commission copies of all reports or other
communications furnished to the record holders of Common Stock or filed
with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements
and expenses of the Company's counsel and the Company's accountants in
connection with the registration and delivery of the Shares under the
Act and all other fees or expenses in connection with the preparation,
printing, filing and distribution of the Registration Statement
(including financial statements and exhibits), any preliminary
prospectus, the Prospectus and all amendments and supplements to any of
the foregoing prior to or during the period specified in paragraph (d)
including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all
costs and expenses related to the transfer and delivery of the Shares to
the Underwriters, including any transfer or other taxes payable thereon,
(iii) all costs of printing or producing this Agreement and any other
documents in connection with the offering, purchase, sale or delivery of
the Shares, (iv) all expenses in connection with the registration or
qualification of the Shares for offer and sale under the securities or
Blue Sky laws of the several states and the cost of printing or
producing any Preliminary and Supplemental Blue Sky Memoranda in
connection therewith (including the filing fees and fees and
disbursements of counsel for the Underwriters in connection with such
registration or qualification and memoranda relating thereto), (v) the
filing fees and disbursements of counsel for the Underwriters in
connection with the review and clearance of the offering of the Shares
by the National Association of Securities Dealers, Inc., (vi) all costs
and expenses incident to the listing of the Shares on the Nasdaq
National Market, (vii) the cost of printing certificates representing
the Shares, (viii) the
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costs and charges of any transfer agent, registrar or depositary, (ix)
any expenses incurred by the Company in connection with a "road show"
presentation to potential investors, and (x) and all other costs and
expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section.
(j) To use its best efforts to maintain the listing of the
Common Stock in the Nasdaq National Market for a period of three years
after the date of this Agreement, PROVIDED that the Company may list the
Common Stock on the New York Stock Exchange in lieu of the Nasdaq
National Market.
(k) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by
the Company prior to the Closing Date or any Option Closing Date, as the
case may be, and to satisfy all conditions precedent to the delivery of
the Shares.
(l) If the Registration Statement at the time of the
effectiveness of this Agreement does not cover all of the Shares, to
file a Rule 462(b) Registration Statement with the Commission
registering the Shares not so covered in compliance with Rule 462(b) by
10:00 P.M., New York City time, on the date of this Agreement and to pay
to the Commission the filing fee for such Rule 462(b) Registration
Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under
the Act.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other
than any Rule 462(b) Registration Statement to be filed by the Company
after the effectiveness of this Agreement); any Rule 462(b) Registration
Statement filed after the effectiveness of this Agreement will become
effective no later than 10:00 P.M. New York City time, on the date of
this Agreement; no stop order suspending the effectiveness of the
Registration Statement is in effect, and no proceedings for such purpose
are pending before or, to the Company's knowledge, threatened by the
Commission.
(b) (i) The Registration Statement (other than any Rule
462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, (ii) the Registration Statement (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as
amended or supplemented, if applicable, will comply in all material
respects with the Act, (iii) if the Company is required to filed a Rule
462(b)
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Registration Statement after the effectiveness of this Agreement, such
Rule 462(b) Registration Statement and any amendments or supplements
thereto, when they became effective (1) will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading and (2) will comply in all material respects with the Act,
and (iv) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and
warranties set forth in this paragraph (b) do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act, did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that the representations and warranties set forth
in this paragraph (c) do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(d) Each of the Company and its subsidiaries that are
corporations has been duly incorporated, is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on its
business as described in the Prospectus and to own, lease and operate
its properties, and each is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole; each of the Company's subsidiaries that
are partnerships has been duly formed, is validly existing as a
partnership in good standing under the laws of its jurisdiction of
formation and has the partnership power and authority to carry on its
business as described in the Prospectus and to own, lease and operate
its properties, and each is duly qualified and is in good standing as a
foreign partnership authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(e) There are no outstanding subscriptions, rights,
warrants, options,
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calls, convertible securities, commitments of sale or liens granted or
issued by the Company or any of its subsidiaries related to or entitling
any person to purchase or otherwise to acquire any shares of the capital
stock of the Company or any of its subsidiaries, except as otherwise
disclosed in the Registration Statement.
(f) All the outstanding shares of capital stock of the
Company (including the Shares to be sold by the Selling Stockholders)
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights; and
the Shares to be issued and sold by the Company hereunder have been duly
authorized and, when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive or similar rights.
(g) All of the outstanding shares of capital stock of, or
other ownership interests in, each of the Company's subsidiaries that
are corporations have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, free and
clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature. The portion of the partnership interests in each
of the Company's subsidiaries that are partnerships that the
Registration Statement describes as being owned by the Company is so
owned by the Company, free and clear of any security interest, claim,
lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company, including
the Common Stock, conforms as to legal matters to the description
thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or other organizational
documents, as the case may be, or in default in the performance of any
obligation, agreement or condition contained in any bond, debenture,
note or any other evidence of indebtedness or in any other agreement,
indenture or instrument material to the conduct of the business of the
Company and its subsidiaries, taken as a whole, to which the Company or
any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this
Agreement and the Acquisition Agreement by the Company, compliance by
the Company with all the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will
not require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except as
such may be required under the securities or Blue Sky laws of the
various states) and will not conflict with or constitute a breach of any
of the terms or provisions of, or a default under, the charter or
by-laws or other organizational documents, as the case may be, of the
Company or any of its subsidiaries or any indenture, loan agreement,
mortgage, lease or
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instrument that is material to the Company and its subsidiaries, taken
as a whole, to which it or any of its subsidiaries is a party or by
which it or any of its subsidiaries or their respective property is
bound, or violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or governmental body
or agency having jurisdiction over the Company, any of its subsidiaries
or their respective property.
(k) There are no material legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of their respective property is
the subject that are required to be described in the Registration
Statement or the Prospectus and are not so described; nor are there any
statutes, regulations, contracts or other documents that are required to
be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not described
or filed as required.
(l) Neither the Company nor any of its subsidiaries has
violated any foreign, federal, state or local law or regulation relating
to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), or any provisions of the Employee Retirement
Income Security Act or the rules and regulations promulgated thereunder,
except for such violations which, singly or in the aggregate, would not
have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries,
taken as a whole.
(m) Each of the Company and its subsidiaries has such
permits, licenses, franchises and authorizations of governmental or
regulatory authorities ("permits"), including, without limitation, under
any applicable Environmental Laws, as are necessary to own, lease and
operate its respective properties and to conduct its business and are in
compliance with all terms and conditions thereof; and no event has
occurred which allows, or after notice or lapse of time or both would
allow, revocation or termination of such permits or results or, after
notice or lapse of time or both, would result in any other impairment of
the rights of the holder of any such permit; and, such permits contain
no restrictions that are materially burdensome to the Company or any of
its subsidiaries; except where such failure to have, or comply with the
terms or conditions of, such permits, the occurrence of any such event
or the presence of any such restriction would not, singly or in the
aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material
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adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a
whole.
(o) Each of the Company and its subsidiaries has (i)
generally satisfactory title to all its interests in its oil and gas
properties, title investigations having been carried out by the Company
and its subsidiaries in accordance with the general practice in the oil
and gas industry, (ii) good and marketable title in fee simple to all
other real property owned by it and (iii) good and marketable title to
all personal property owned by it, in each case free and clear of all
liens, encumbrances, claims, security interests, subleases and defects
except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and
its subsidiaries; and any real property and buildings held under lease
by the Company or any of its subsidiaries are held by it under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company or its subsidiaries.
(p) Each of the Company and its subsidiaries maintains
reasonably adequate insurance.
(q) This Agreement has been duly authorized, executed and
delivered by the Company.
(r) The Acquisition Agreement has been duly authorized,
executed and delivered by the Company and each of the Program
Partnerships and constitutes a valid and legally binding obligation of
the Company and each of the Program Partnerships.
(s) Upon consummation of the transactions contemplated by
the Acquisition Agreement, the Company will have (i) generally
satisfactory title to all of the interests of the Program Partnerships
in their oil and gas properties, title investigations having been
carried out by the Company and its subsidiaries in accordance with the
general practice in the oil and gas industry, (ii) good and marketable
title in fee simple to all other real property owned by the Program
Partnerships and (iii) good and marketable title to all personal
property owned by the Program Partnerships, in each case free and clear
of all liens, encumbrances, claims, security interests, subleases and
defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and
its subsidiaries.
(t) Each of Deloitte & Touche LLP, which is certifying the
financial statements of the Company, and KPMG Peat Marwick LLP, which is
certifying the financial statements of the Acquired Properties, are
independent public accountants as
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required by the Act.
(u) Each of Williamson Petroleum Consultants Inc. and
Ryder Scott Company, Petroleum Engineers are independent petroleum
engineers with respect to the Company.
(v) The consolidated historical and pro forma financial
statements, together with related schedules and notes, included in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto), comply as to form in all material respects with the
requirements of the Act. Such historical financial statements present
fairly the consolidated financial position, results of operations and
changes in financial position of the Company and its subsidiaries or the
revenues and direct operating expenses and working capital of the
Acquired Properties, as the case may be, on the basis stated in the
Registration Statement at the respective dates or for the respective
periods to which they apply; such statements and related schedules and
notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods
involved, except as disclosed therein. Such pro forma financial
statements have been prepared on a basis consistent with such historical
statements, except for the pro forma adjustments specified therein, and
give effect to assumptions made on a reasonable basis and present fairly
the proposed transactions contemplated by the Prospectus and this
Agreement. The other financial and statistical information and data
included in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) are accurately presented and prepared
on a basis consistent with such financial statements and the books and
records of the Company and its subsidiaries or of the Acquired
Properties, as the case may be.
(w) The Company is not and, after giving effect to the
offering and sale of the Shares and the Notes and the application of the
proceeds thereof as described in the Prospectus, will not be, an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended.
(x) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement which have not been waived.
(y) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there has
not occurred any material adverse change or any development involving a
prospective material adverse change in the condition, financial or
otherwise, or the earnings, business, management or operations of the
Company and its subsidiaries, taken as a whole, or of the Acquired
Properties, (ii) there has not been any material adverse change or any
development involving a
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prospective material adverse change in the capital stock or in the
long-term debt of the Company or any of its subsidiaries and (iii) none
of the Company, any of its subsidiaries or the Acquired Properties has
incurred any material liability or obligation, direct or contingent
except as disclosed in the Prospectus.
(z) The Company has complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
(aa) Except as disclosed in the Prospectus, there are no
business relationships or related party transactions required to be
disclosed therein by Item 404 of Regulation S-K of the Commission.
(bb) The Company and each of its subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(cc) All material tax returns required to be filed by the
Company and each of its subsidiaries in any jurisdiction have been
filed, other than those filings being contested in good faith, and all
material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due pursuant to such returns or
pursuant to any assessment received by the Company or any of its
subsidiaries have been paid, other than those being contested in good
faith and for which adequate reserves have been provided.
(dd) The Company has filed an application to list the
Shares on the Nasdaq National Market, and has received notification that
the listing has been approved, subject to notice of issuance.
7. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS.
(a) United represents and warrants to each Underwriter
that:
(i) United is the lawful owner of the Shares to be
sold by such Selling Stockholder pursuant to this Agreement and
has, and on the Closing Date (and Option Closing Date, if
applicable) will have, good and clear title to such Shares, free
of all restrictions on transfer, liens, encumbrances, security
interests and claims whatsoever.
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<PAGE>
(ii) Upon delivery of and payment for such Shares
pursuant to this Agreement, good and clear title to such Shares
will pass to the Underwriters, free of all restrictions on
transfer, liens, encumbrances, security interests and claims
whatsoever.
(iii) United has, and on the Closing Date will
have, full legal right, power and authority to enter into this
Agreement and to sell, assign, transfer and deliver such Shares
to be sold by it in the manner provided herein, and this
Agreement has been duly authorized, executed and delivered by
United.
(iv) United has not taken, and will not take,
directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares pursuant to the
distribution contemplated by this Agreement, and other than as
permitted by the Act, United has not distributed and will not
distribute any prospectus or other offering material in
connection with the offering and sale of the Shares.
(v) The execution, delivery and performance of this
Agreement by United, compliance by United with all the provisions
hereof and the consummation of the transactions contemplated
hereby will not require any consent, approval, authorization or
other order of any court, regulatory body, administrative agency
or other governmental body (except as such may be required under
the Act, state securities laws or Blue Sky laws) and will not
conflict with or constitute a breach of any of the terms or
provisions of, or a default under, organizational documents of
United, if not an individual, or any agreement, indenture or
other instrument to which United is a party or by which United or
property of United is bound, or violate or conflict with any
laws, administrative regulation or ruling or court decree
applicable to United or property of United.
(vi) Such parts of the Registration Statement under
the caption "Principal and Selling Stockholders" which
specifically relate to United do not, and will not on the Closing
Date (and any Option Closing Date, if applicable), contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of circumstances under which they
were made, not misleading; United does not have any knowledge or
any reason to believe that any other part of the Registration
Statement or the Prospectus (or any amendment or supplement
thereto) contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
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<PAGE>
(vii) United is not prompted to sell the Shares to
be sold by United hereunder by any information concerning the
Company or any of its subsidiaries which is not set forth in the
Prospectus.
(viii) At any time during the period described in
paragraph 5(e) hereof, if there is any change in the information
referred to in paragraph 7(g) above, United will immediately
notify you of such change.
(b) PPM represents and warrants to each Underwriter that:
(i) PPM is the lawful owner of the Shares to be
sold by PPM pursuant to this Agreement and has, and on the
Closing Date (and Option Closing Date, if applicable) will have,
good and clear title to such Shares, free of all restrictions on
transfer, liens, encumbrances, security interests and claims
whatsoever.
(ii) Upon delivery of and payment for such Shares
pursuant to this Agreement, good and clear title to such Shares
will pass to the Underwriters, free of all restrictions on
transfer, liens, encumbrances, security interests and claims
whatsoever.
(iii) PPM has, and on the Closing Date will have,
full legal right, power and authority to enter into this
Agreement and the Custody Agreement between PPM and the Company,
as Custodian (the "Custody Agreement") and to sell, assign,
transfer and deliver such Shares in the manner provided herein
and therein, and this Agreement and the Custody Agreement have
been duly authorized, executed and delivered by PPM and each of
this Agreement and the Custody Agreement is a valid and binding
agreement of PPM enforceable in accordance with its terms, except
as rights to indemnity and contribution hereunder may be limited
by applicable law.
(iv) The power of attorney signed by PPM appointing
J. Darby Sere and Charles C. Green III, or either one of them, as
its attorney-in-fact to the extent set forth therein with regard
to the transactions contemplated hereby and by the Registration
Statement and the Custody Agreement has been duly authorized,
executed and delivered by or on behalf of PPM and is a valid and
binding instrument of PPM enforceable in accordance with its
terms, and, pursuant to such power of attorney, PPM has
authorized J. Darby Sere and Charles C. Green III, or either one
of them, to execute and deliver on his behalf this Agreement and
any other document necessary or desirable in connection with
transactions contemplated hereby and to deliver the Shares to be
sold by PPM pursuant to this Agreement.
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<PAGE>
(v) PPM has not taken, and will not take, directly
or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the
sale or resale of the Shares pursuant to the distribution
contemplated by this Agreement, and other than as permitted by
the Act, PPM has not distributed and will not distribute any
prospectus or other offering material in connection with the
offering and sale of the Shares.
(vi) The execution, delivery and performance of
this Agreement by PPM, compliance by PPM with all the provisions
hereof and the consummation of the transactions contemplated
hereby will not require any consent, approval, authorization or
other order of any court, regulatory body, administrative agency
or other governmental body (except as such may be required under
the Act, state securities laws or Blue Sky laws) and will not
conflict with or constitute a breach of any of the terms or
provisions of, or a default under, organizational documents of
PPM, if not an individual, or any agreement, indenture or other
instrument to which PPM is a party or by which PPM or property of
PPM is bound, or violate or conflict with any laws,
administrative regulation or ruling or court decree applicable to
PPM or property of PPM.
(vii) Such parts of the Registration Statement
under the caption "Principal and Selling Stockholders" which
specifically relate to PPM do not, and will not on the Closing
Date (and any Option Closing Date, if applicable), contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of circumstances under which they
were made, not misleading; PPM does not have any knowledge or any
reason to believe that any other part of the Registration
Statement or the Prospectus (or any amendment or supplement
thereto) contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(viii) PPM is not prompted to sell the Shares to be
sold by PPM hereunder by any information concerning the Company
or any of its subsidiaries which is not set forth in the
Prospectus.
(ix) At any time during the period described in
paragraph 5(e) hereof, if there is any change in the information
referred to in paragraph 7(g) above, PPM will immediately notify
you of such change.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
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<PAGE>
Underwriter, its directors, its officers and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from and against any and all losses, claims, damages,
liabilities and judgments caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or alleged untrue statement or omission
based upon information relating to any Underwriter furnished in writing
to the Company by or on behalf of such Underwriter through you expressly
for use therein; PROVIDED, HOWEVER, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to
the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages and liabilities and judgments purchased Shares,
or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf
of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended and
supplemented) would have cured the defect giving rise to such loss,
claim, damage, liability or judgment.
(b) In case any proceeding (including any governmental
investigation) shall be brought against any Underwriter or any director
or officer of, or person controlling such Underwriter, based upon any
preliminary prospectus, the Registration Statement or the Prospectus or
any amendment or supplement thereto and with respect to which indemnity
may be sought against the Company, such Underwriter shall promptly
notify the Company in writing and the Company shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to
such indemnified party and payment of all fees and expenses, as
incurred. Any Underwriter or any director or officer of, or person
controlling such Underwriter shall have the right to employ separate
counsel in any such proceeding and participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of
such Underwriter, director, officer or controlling person unless (i) the
employment of such counsel has been specifically authorized in writing
by the Company, (ii) the Company shall have failed to assume the defense
and employ counsel or (iii) the named parties to any such proceeding
(including any impleaded parties) include both such Underwriter,
director, officer or controlling person and the Company and such
Underwriter, director, officer or controlling person shall have been
advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those
available to the Company or the Selling Stockholders, as the case may
be, (in which case the Company shall not have the right to assume the
defense of such proceeding on behalf of such Underwriter,
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director, officer or controlling person). In any such case described in
the immediately preceding sentence, the Company shall not, in connection
with any one proceeding or separate but substantially similar or related
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local
counsel) for all such Underwriters, director, officer and controlling
persons. In any case where any Underwriter or any director or officer of
or person controlling such Underwriter has the right to employ separate
counsel at the Company's expense, such counsel shall be designated in
writing by Donaldson, Lufkin & Jenrette Securities Corporation and that
all the reasonable fees and expenses of such counsel shall be reimbursed
as they are incurred. The Company agrees to indemnify and hold harmless
any Underwriter and any director or officer of, or person controlling,
such Underwriter from and against any loss or liability by reason of any
proceeding (x) settled with the written consent of the Company or (y)
settled more than thirty business days after the Company receives a
request for reimbursement of legal fees and expenses from such
Underwriter, director, officer or controlling person in any case where
such fees and expenses are at the expense of the Company if the Company
shall have failed to comply with such reimbursement request prior to the
date of such settlement. The Company shall not, without the prior
written consent of each Underwriter and each person controlling such
Underwriter, effect any settlement of any pending or threatened
proceeding in respect of which such Underwriter or controlling person or
any director or officer of such Underwriter is or could have been a
party and indemnity could have been sought hereunder by such
Underwriter, director, officer or controlling person, unless such
settlement includes an unconditional release of such Underwriter and
each such director, officer and controlling person from all liability on
claims that are the subject matter of such proceeding.
(c) Each Selling Stockholder, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter, its directors,
its officers and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, the Company, its directors, its officers who sign the
Registration Statement, and any person who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
to the same extent as the foregoing indemnity from the Company to each
Underwriter but only with respect to the information furnished in
writing by or on behalf of such Selling Stockholder expressly for use in
the Registration Statement, the Prospectus or any preliminary
prospectus. Notwithstanding the foregoing, the aggregate liability of
any Selling Stockholder pursuant to the provisions of this paragraph
shall be limited to an amount equal to the aggregate purchase price
received by such Selling Stockholder from the sale of such Selling
Stockholder's Shares hereunder. If any action, suit or proceeding shall
be brought against any Underwriter, its directors, its officers, any
such controlling person of any Underwriter, the Company, any of its
directors, any such officer, or any such controlling person of the
Company, based on the Registration Statement, the Prospectus or any
preliminary prospectus and in respect of which indemnity may be sought
against any
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Selling Stockholder pursuant to this paragraph (c), such Selling
Stockholder shall have the rights and duties given to the Company by
Section 8(b) hereof (except that if the Company shall have assumed the
defense thereof such Selling Stockholder shall not be required to do so,
but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at such
Selling Stockholder's expense), and each Underwriter, each such
controlling person of any Underwriter, the Company, its directors, any
such officer, and any such controlling person of the Company shall have
the rights and duties given to the Underwriters by Section 8(b) hereof.
The foregoing indemnity agreement shall be in addition to any liability
which any Selling Stockholder may otherwise have.
(d) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement, any person controlling the Company
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, each Selling Stockholder and each person, if any,
controlling such Selling Stockholder within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to each Underwriter but only with
reference to information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter through you expressly for
use in the Registration Statement, the Prospectus or any preliminary
prospectus. In case any action shall be brought against the Company, any
of its directors, any such officer or any person controlling the Company
or any Selling Stockholder or any person controlling such Selling
Stockholder based on the Registration Statement, the Prospectus or any
preliminary prospectus and in respect of which indemnity may be sought
against any Underwriter, such Underwriter shall have the rights and
duties given to the Sellers (except that if any Seller shall have
assumed the defense thereof, such Underwriter shall not be required to
do so, but may employ separate counsel therein and participate in the
defense thereof but the fees and expenses of such counsel shall be at
the expense of such Underwriter), and the Company, its directors, any
such officers and any person controlling the Company and the Selling
Stockholders and any person controlling such Selling Stockholders shall
have the rights and duties given to such Underwriter by Section 8(b)
hereof (except that if the Company, any of its directors, any such
officers or any such controlling person shall have the right to employ
separate counsel at such Underwriter's expense pursuant to the second
sentence of Section 8(b), such counsel shall be designated by the
Company).
(e) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages, liabilities or judgments
referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Sellers on
the one hand and the Underwriters on the other hand from the offering
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<PAGE>
of the Shares or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the Sellers and the Underwriters in
connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Sellers and the Underwriters shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Sellers, and the total underwriting discounts
and commissions received by the Underwriters, bear to the total price to
the public of the Shares, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Sellers and the
Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Company, the Selling Stockholders or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Sellers and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 8(e) were
determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to
in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages,
liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, (i)
no Selling Stockholder shall be required to contribute any amount in
excess of an amount equal to the aggregate purchase price received by
such Selling Stockholder for the sale of such Selling Stockholder's
Shares hereunder and (ii) no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Shares underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 8(e) are several in
proportion to the respective number of Shares purchased by each of the
Underwriters hereunder and not joint.
(f) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise
be available to any indemnified party at law or in equity.
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9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing
Date (including after giving effect to the Pending Acquisition) with the
same force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, such
Rule 462(b) Registration Statement shall have become effective by 10:00
P.M., New York City time, on the date of this Agreement, and no stop
order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
commenced or shall be pending before or contemplated by the Commission.
(c) On or after the date hereof there shall not have
occurred any downgrading, nor shall any notice have been given of any
intended or potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change, in the
rating accorded any of the Company's securities (including, without
limitation, the placing of any securities on negative or developing
watch or negative or developing outlook) by any "nationally recognized
statistical rating organization" as such term is defined for purposes of
Rule 436(g)(2) under the Act.
(d) You shall have received on the Closing Date a
certificate dated the Closing Date, signed by J. Darby Sere and Charles
C. Green III, in their capacities as the President and Chief Executive
Officer and the Executive Vice President and Chief Financial Officer of
the Company, confirming the matters set forth in paragraphs (a), (b),
and (c) of this Section 9.
(e) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there shall
not have occurred any change or any development involving a prospective
change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries,
taken as a whole, or of the Acquired Properties, (ii) there shall not
have been any change or any development involving a prospective change
in the capital stock or in the long-term debt of the Company or any of
its subsidiaries other than as disclosed in the Prospectus and (iii)
none of the Company, any of its subsidiaries or the Acquired Properties
shall have incurred any liability or obligation, direct or contingent,
other than as disclosed in the Prospectus, the effect of which, in any
such case described in clause (i), (ii) or (iii), in your judgment, is
material and adverse and, in your judgment, makes it impracticable to
market the Shares on the terms and in the manner contemplated in the
Prospectus.
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<PAGE>
(f) All the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct on
the Closing Date with the same force and effect as if made on and as of
the Closing Date and you shall have received a certificate to such
effect, dated the Closing Date, from each Selling Stockholder.
(g) You shall have received on the Closing Date an opinion
(satisfactory to you), dated the Closing Date, of Butler & Binion,
L.L.P., counsel for the Company, to the effect that:
(i) each of the Company and its subsidiaries that
are corporations has been duly incorporated, is validly existing
as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Prospectus
and to own, lease and operate its properties; each subsidiary of
the Company that is a partnership has been duly formed and is
validly existing as a partnership in good standing under the laws
of its jurisdiction of formation, with all necessary power and
authority granted by its respective partnership agreement, as
amended, to carry on its business as described in the Prospectus
and to own, lease and operate its properties;
(ii) each of the Company and its subsidiaries is
duly qualified and is in good standing as a foreign corporation
or partnership, as the case may be, authorized to do business in
each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification,
except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(iii) all the outstanding shares of Common Stock
(including the Shares to be sold by the Selling Stockholders)
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar
rights arising by operation of law, under the charter or by-laws
of the Company, or to the best of such counsel's knowledge after
due inquiry, otherwise;
(iv) the Shares to be issued and sold by the
Company hereunder have been duly authorized, and when issued and
delivered to the Underwriters against payment therefor as
provided by this Agreement, will be validly issued, fully paid
and non-assessable, and the issuance of such Shares is not
subject to any preemptive or similar rights arising by operation
of law, under the charter or by-laws of the Company, or to the
best of such counsel's knowledge after due inquiry, otherwise;
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(v) all of the outstanding shares of capital stock
of, or other ownership interests in, each of the Company's
subsidiaries that are corporations have been duly and validly
authorized and issued and are fully paid and non-assessable, and
are owned of record by the Company, free and clear of any
security interest, claim, lien, encumbrance or adverse interest
of any nature; to the best of such counsel's knowledge after due
inquiry, the portion of the partnership interests in each of the
Company's subsidiaries that are partnerships that the Prospectus
describes as being owned by the Company is so owned by the
Company, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature;
(vi) this Agreement has been duly authorized,
executed and delivered by the Company;
(vii) the authorized capital stock of the Company,
including the Common Stock, conforms as to legal matters to the
description thereof contained in the Prospectus;
(viii) the Registration Statement has become
effective under the Act, no stop order suspending its
effectiveness has been issued and no proceedings for that purpose
are, to the best of such counsel's knowledge after due inquiry,
pending before or contemplated by the Commission;
(ix) the statements under the captions "Risk
Factors -- Environmental and Other Regulation", "Business and
Properties -- Litigation", "Business and Properties -- Federal
Regulation", "Business and Properties -- Environmental
Regulation", "Transactions with Related Persons", "Description of
Capital Stock", "Description of Indebtedness" and "Underwriting"
in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement insofar as such statements constitute a
summary of legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect
to such legal matters, documents and proceedings;
(x) to the best of such counsel's knowledge after
due inquiry, neither the Company nor any of its subsidiaries is
in violation of its respective charter or by-laws and neither the
Company nor any of its subsidiaries is in default in the
performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or
other instrument material to the Company and its subsidiaries,
taken as a whole, to which the Company or any of its subsidiaries
is a party or by which it or any of its subsidiaries or their
respective property is bound;
(xi) The Acquisition Agreement has been duly
authorized,
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executed and delivered by the Company and constitutes a valid and
legally binding obligation of the Company.
(xii) the execution, delivery and performance of
this Agreement and the Acquisition Agreement by the Company,
compliance by the Company with all the provisions hereof and
thereof and the consummation of the transactions contemplated
hereby and thereby will not require any consent, approval,
authorization or other order of, or qualification with, any court
or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states) and
will not conflict with or constitute a breach of any of the terms
or provisions of, or a default under, the charter or by-laws of
the Company or any of its subsidiaries or, to the best of such
counsel's knowledge after due inquiry, any indenture, loan
agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a
whole, to which it or any of its subsidiaries is a party or by
which it or any of its subsidiaries or their respective property
is bound, or violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over the Company,
any of its subsidiaries or their respective property;
(xiii) after due inquiry, such counsel does not
know of any legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a
party or to which any of their respective property is subject
that are required to be described in the Registration Statement
or the Prospectus and are not so described, or of any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not
described or filed as required;
(xiv) the Company is not and, after giving effect
to the offering and sale of the Shares and the Notes and the
application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended;
(xv) to the best of such counsel's knowledge after
due inquiry, there are no contracts, agreements or understandings
between the Company and any person granting such person the right
to require the Company to file a registration statement under the
Act with respect to any securities of the Company or to require
the Company to include such securities with the Shares registered
pursuant to the Registration Statement that have not been waived;
(xvi) the Registration Statement and the Prospectus
and any supplement or amendment thereto (except for the financial
statements and other
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<PAGE>
financial and statistical data included therein as to which no
opinion need be expressed) comply as to form in all material
respects with the Act; and
(xvii) such counsel shall also state that such
counsel has no reason to believe that (except for the financial
statements and other financial and statistical data as to which
such counsel need not express any belief) at the time the
Registration Statement became effective and on the date of this
Agreement, the Registration Statement and the prospectus included
therein contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and such
counsel has no reason to believe that the Prospectus, as amended
or supplemented, if applicable (except for the financial
statements and other financial and statistical data, as
aforesaid) contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
The opinion of Butler & Binion, L.L.P. described in
paragraph (g) above shall be rendered to you at the request of the
Company and shall so state therein.
(h) You shall have received on the Closing Date an opinion
(satisfactory to you), dated the Closing Date, of ____________________,
counsel for United, to the effect that:
(i) United has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation;
(ii) this Agreement has been duly authorized,
executed and delivered by United;
(iii) the execution, delivery and performance of
this Agreement by United, compliance by United with all the
provisions hereof and the consummation of the transactions
contemplated hereby will not require any consent, approval,
authorization or other order of , or qualification with, any
court or governmental body or agency (except such as may be
required under the securities or Blue Sky laws of the various
states) and will not conflict with or constitute a breach of any
of the terms or provisions of, or a default under, the charter or
by-laws of United or, to the best of such counsel's knowledge
after due inquiry, any indenture, loan agreement, mortgage, lease
or other agreement or instrument that is material to United to
which it is a party or by which it or its property is bound, or
violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or
governmental body or agency having jurisdiction over United or
its property;
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<PAGE>
(iv) United has full legal right, power and
authority, and any approval required by law (other than any
approval imposed by the applicable state securities and Blue Sky
laws) to sell, assign, transfer and deliver the Shares to be sold
by it in the manner provided in this Agreement; and
(v) United has good and clear title to the
certificates for the Shares to be sold by it and upon delivery
thereof, pursuant hereto and payment therefor, good and clear
title will pass to the Underwriters, severally, free of all
restrictions on transfer, liens, encumbrances, security interests
and claims whatsoever.
The opinion of ________________ described in paragraph (h)
above shall be rendered to you at the request of United and shall so
state therein.
(i) You shall have received on the Closing Date an opinion
(satisfactory to you), dated the Closing Date, of ____________________,
counsel for PPM, to the effect that:
(i) PPM has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(ii) this Agreement has been duly authorized,
executed and delivered by PPM;
(iii) the Custody Agreement has been duly
authorized, executed and delivered by PPM and is a valid and
binding agreement of PPM enforceable in accordance with its terms
(except as may be limited by bankruptcy, insolvency,
reorganization or other laws of general application relating to
or affecting creditors' rights generally or the availability of
equitable remedies, regardless of whether such enforcement is
considered in a proceeding in equity or at law);
(iv) the execution, delivery and performance of
this Agreement by PPM, compliance by PPM with all the provisions
hereof and the consummation of the transactions contemplated
hereby will not require any consent, approval, authorization or
other order of , or qualification with, any court or governmental
body or agency (except such as may be required under the
securities or Blue Sky laws of the various states) and will not
conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of PPM
or, to the best of such counsel's knowledge after due inquiry,
any indenture, loan agreement, mortgage, lease or other agreement
or instrument that is material to PPM to which it is a party or
by which it or its property is bound, or violate or conflict with
any applicable law or any rule, regulation, judgment, order or
decree of any court or governmental body or agency having
jurisdiction over PPM or its property;
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<PAGE>
(v) PPM has full legal right, power and authority,
and any approval required by law (other than any approval imposed
by the applicable state securities and Blue Sky laws) to sell,
assign, transfer and deliver the Shares to be sold by it in the
manner provided in this Agreement and the Custody Agreement;
(vi) PPM has good and clear title to the
certificates for the Shares to be sold by it and upon delivery
thereof, pursuant hereto and payment therefor, good and clear
title will pass to the Underwriters, severally, free of all
restrictions on transfer, liens, encumbrances, security interests
and claims whatsoever; and
(vii) the power of attorney signed by PPM
appointing J. Darby Sere and Charles C. Green III, or either of
them, as its attorney-in-fact to the extent set forth therein
with regard to the transactions contemplated hereby and by the
Registration Statement has been duly authorized, executed and
delivered by or on behalf of PPM and is a valid and binding
instrument of PPM enforceable in accordance with its terms, and
pursuant to such power of attorney, PPM has authorized J. Darby
Sere and Charles C. Green III, or either of them, to execute and
deliver on its behalf this Agreement and any other document
necessary or desirable in connection with transactions
contemplated hereby and to deliver the Shares to be sold by it
pursuant to this Agreement. The opinion of ________________
described in paragraph (i) above shall be rendered to you at the
request of PPM and shall so state therein.
(j) You shall have received on the Closing Date an
opinion, dated the Closing Date, of Baker & Botts, L.L.P., counsel for
the Underwriters, as to the matters referred to in clauses (iv), (vi),
(viii), (ix) (but only with respect to the statements under the captions
"Description of Capital Stock" and "Underwriting"), (xvi) and (xvii) of
the foregoing paragraph (g).
In giving such opinion with respect to the matters covered
by clause (xvii), Butler & Binion, L.L.P. and Baker & Botts, L.L.P. may
state that their opinion and belief are based upon their participation
in the preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification
except as specified.
(k) You shall have received on each of the date hereof and
the Closing Date, a letter dated the date hereof or the Closing Date, as
the case may be, in form and substance satisfactory to you, from
Deloitte & Touche LLP, independent public accountants, containing the
information and statements of the type ordinarily included in
accountants' "comfort letters" to Underwriters with respect to certain
financial statements and certain financial information contained in the
Registration Statement and the
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Prospectus.
(l) You shall have received on each of the date hereof and
the Closing Date, a letter dated the date hereof or the Closing Date, as
the case may be, in form and substance satisfactory to you, from KPMG
Peat Marwick LLP, independent public accountants, containing the
information and statements of the type ordinarily included in
accountants' "comfort letters" to Underwriters with respect to certain
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(m) The Company shall have delivered to you the agreements
specified in Section 2 hereof which agreements shall be in full force
and effect on the Closing Date.
(n) The Shares shall have been duly listed for quotation
on the Nasdaq National Market.
(o) The sale by the Company of $100,000,000 aggregate
principal amount of Notes pursuant to the Underwriting Agreement, dated
as of even date herewith, among the Company and J.P. Morgan Securities
Inc. and Chase Securities Inc. shall have been consummated prior to or
concurrently with the sale by the Company of the Firm Shares pursuant to
this Agreement.
(p) The acquisition of the Acquired Properties pursuant to
the Acquisition Agreement shall have been consummated prior to or
concurrently with the sale by the Company of the Firm Shares pursuant to
this Agreement.
(q) The Company and the Selling Stockholders shall not
have failed at or prior to the Closing Date to perform or comply with
any of the agreements herein contained and required to be performed or
complied with by the Company at or prior to the Closing Date.
(r) You shall have received on the Closing Date, a
certificate of each Selling Stockholder who is not a U.S. Person to the
effect that such Selling Stockholder is not a U.S. Person (as defined
under applicable U.S. federal tax legislation), which certificate may be
in the form of a properly completed and executed United States Treasury
Department Form W-8 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
The several obligations of the Underwriters to purchase any Additional Shares
hereunder are subject to the delivery to you on the applicable Option Closing
Date of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of such Additional
Shares and other matters related to the issuance of such
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Additional Shares.
10. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and would, in your judgment, make it impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus,
(ii) the suspension or material limitation of trading in securities on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq National Market
or limitation on prices for securities on any such exchange or the Nasdaq
National Market, (iii) the suspension of trading of any securities of the
Company on any exchange or in the over-the-counter market, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
your opinion materially and adversely affects, or will materially and adversely
affect, the business or operations of the Company or any of its subsidiaries,
(v) the declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
If on the Closing Date or on an Option Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase on such date; PROVIDED that in no event shall the number of Firm Shares
or Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 10
by an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to you
and the applicable Sellers for purchase of such Firm Shares are
29
<PAGE>
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter and the
applicable Sellers. In any such case which does not result in termination of
this Agreement, either you or the Sellers shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. If, on an Option Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased on such date, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
such Additional Shares or (ii) purchase not less than the number of Additional
Shares that such non-defaulting Underwriters would have been obligated to
purchase on such date in the absence of such default. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of any such Underwriter under this Agreement.
11. AGREEMENTS OF THE SELLING STOCKHOLDERS. Each Selling
Stockholder severally agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes with
respect to the Shares to be sold by such Selling Stockholder; and
(b) To take all reasonable actions in cooperation with the
Company and the Underwriters to cause the Registration Statement to
become effective at the earliest possible time, to do and perform all
things to be done and performed under this Agreement prior to the
Closing Date and to satisfy all conditions precedent to the delivery of
the Shares pursuant to this Agreement.
12. MISCELLANEOUS. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (a) if to the Company, to
Bellwether Exploration Company, 1331 Lamar, Suite 1455, Houston, TX 77010,
Attention: J. Darby Sere, (b) if to United, to United Investors Management
Company, 2001 Third Avenue South, Birmingham, Alabama 35223, Attention: Duncan
Hamilton, Esq., (c) if to PPM, to J. Darby Sere, c/o Bellwether Exploration
Company, 1331 Lamar, Suite 1455, Houston, TX 77010 and (d) if to any Underwriter
or to you, to you c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277
Park Avenue, New York, New York 10172, Attention: Syndicate Department, or in
any case to such other address as the person to be notified may have requested
in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Selling Stockholders,
the Company, its officers and directors and of the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Shares,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the officers or directors of any
Underwriter, any person controlling any Underwriter
30
<PAGE>
or by or on behalf of the Sellers, the officers or directors of the Company or
any controlling person of the Sellers, (ii) acceptance of the Shares and payment
for them hereunder and (iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of
the Sellers as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10), the Sellers agree to reimburse the
several Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Sellers, the
Underwriters, the Underwriters' directors and officers, any controlling persons
referred to herein, the Company's directors and the Company's officers who sign
the Registration Statement and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Shares from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with
the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
31
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement between the Company, the Selling Stockholders and the several
Underwriters.
Very truly yours,
BELLWETHER EXPLORATION COMPANY
By: _________________________
J. Darby Sere
President and Chief Executive Officer
THE SELLING STOCKHOLDERS NAMED
IN SCHEDULE II HERETO
UNITED INVESTORS MANAGEMENT COMPANY
By: _____________________
Name: ___________________
Title: __________________
PPM AMERICA INC.
By: _____________________
Attorney-in-fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
PRINCIPAL FINANCIAL SECURITIES, INC.
Acting severally on behalf of
themselves and the several
32
<PAGE>
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: ________________________
Name: __________________
Title: _________________
33
<PAGE>
SCHEDULE I
Number of Firm Shares
Underwriters to be Purchased
------------ ---------------
Donaldson, Lufkin & Jenrette
Securities Corporation
J.P. Morgan Securities Inc.
Principal Financial Securities, Inc.
------------------------------
Total 4,875,000
==============================
34
<PAGE>
SCHEDULE II
SELLING STOCKHOLDERS
Maximum Number
Number of Firm of Additional Shares
Name Shares Being Sold Being Sold
- ---- --------------- ---------------
United Investors Management Company .... 285,000 402,696
PPM America Inc. ....................... 190,000 316,568
--------------- ---------------
Total ...... 475,000 719,264
=============== ===============
35
EXHIBIT 1.2
$100,000,000
BELLWETHER EXPLORATION COMPANY
____% SENIOR SUBORDINATED NOTES DUE 2007
UNDERWRITING AGREEMENT
__________, 1997
J.P. MORGAN SECURITIES INC.
CHASE SECURITIES INC.
As underwriters
c/o J. P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Dear Sirs:
Bellwether Exploration Company, a Delaware corporation (the
"Company") proposes to issue and sell $100,000,000 principal amount of its ___%
Senior Subordinated Notes due 2007 (the "Securities") to the several
underwriters named in Schedule I hereto (the "Underwriters"). The Securities are
to be issued pursuant to the provisions of an Indenture to be dated as of
__________ __, 1997 (the "Indenture"), among the Company, as issuer,
________________________________, as guarantors (the "Subsidiary Guarantors")
and ____________, as Trustee (the "Trustee"). As provided in the Indenture, the
Securities are to be guaranteed on an unsecured senior subordinated basis
pursuant to guarantees (the "Subsidiary Guarantees") of the Subsidiary
Guarantors. All references herein to the "Acquired Properties" refer to the oil
and gas properties and associated working capital owned by partnerships and
other entities (the "Program Partnerships") managed by Torch Energy Advisors
Incorporated that are to be acquired (the "Pending Acquisition") by the Company
pursuant to the Acquisition and Consolidation Agreement, dated as of March 31,
1997 (the "Acquisition Agreement"), among the Company and the Program
Partnerships.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company and the
Subsidiary Guarantors have prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and
<PAGE>
the rules and regulations of the Commission thereunder (collectively called the
"Act"), a registration statement on Form S-1 including a prospectus relating to
the Securities.1 The registration statement, as amended at the time when it
became effective, including information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Act, is hereinafter referred to as the "Registration Statement"; and the
prospectus in the form first used to confirm sales of Shares is hereinafter
referred as the "Prospectus."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell, and each Underwriter
agrees, severally and not jointly, to purchase from the Company the principal
amount of Securities set forth opposite the name of such Underwriter in Schedule
I hereto, at ____% of the principal amount thereof (the "Purchase Price") plus
accrued interest thereon, if any, from __________ __, 1997 to the date of
payment and delivery.
3. TERMS OF PUBLIC OFFERING. The Company is advised by you that the
Underwriters propose (i) to make a public offering of their respective portions
of the Securities as soon after the execution and delivery of this Agreement is
advisable and (ii) initially to offer the Securities upon the terms set forth in
the Prospectus.
4. DELIVERY AND PAYMENT. Delivery to the Underwriters of and payment
for the Securities shall be made at 10:00 A.M., New York City time, on
____________, 1997 (the "Closing Date") at such place as you shall designate.
The Closing Date and the location of delivery of and the form of payment for the
Securities may be varied by agreement between you and the Company.
Certificates for the Securities shall be registered in such names
and issued in such denominations as you shall request in writing not later than
two full business days prior to the Closing Date. Such certificates shall be
made available to you for inspection not later than 9:30 A.M., New York City
time, on the business day next preceding the Closing Date. Certificates in
definitive form evidencing the Securities shall be delivered to you on the
Closing Date with any transfer taxes thereon duly paid by the Company, for the
respective accounts of the several Underwriters, against payment to the Company
of the Purchase Price therefor by wire transfer of Federal or other funds
immediately available in New York City.
5. AGREEMENTS OF THE COMPANY. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to
confirm such advice in writing, (i) of any request by the Commission for
amendments to the
- --------
1 The registration statement also includes a form of prospectus to be used
in connection with the concurrent offering of 4,875,000 shares of common stock,
par value $0.01 per share ("Common Stock"), of the Company.
2
<PAGE>
Registration Statement or amendments or supplements to the Prospectus or
for additional information, (ii) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
of the suspension of qualification of the Securities for offering or sale
in any jurisdiction, or the initiation of any proceeding for such
purposes, (iii) when any amendment to the Registration Statement becomes
effective, (iv) if the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, when the
Rule 462(b) Registration Statement has become effective, and (v) of the
happening of any event during the period referred to in paragraph (d)
below which makes any statement of a material fact made in the
Registration Statement or the Prospectus untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading. If at
any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will use its best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.
(b) To furnish to you, without charge, three signed copies of
the Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits, and to furnish to you and each
Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
(c) To prepare the Prospectus in a form approved by you and to
file the Prospectus in such form with the Commission within the applicable
time period specified in Rule 424(b) under the Act; not to file any
further amendment to the Registration Statement and not to make any
amendment or supplement to the Prospectus of which you shall not
previously have been advised or to which you shall reasonably object after
being so advised; and to prepare and file with the Commission, promptly
upon your reasonable request, any amendment to the Registration Statement
or supplement to the Prospectus which may be necessary or advisable in
connection with the distribution of the Shares by you, and to use its best
efforts to cause any such amendment to the Registration Statement to
become promptly effective.
(d) Prior to 10:00 A.M. New York City time on the business day
next succeeding the date of this Agreement and from time to time
thereafter for such period as in the opinion of counsel for the
Underwriters a prospectus is required by law to be delivered in connection
with sales by an Underwriter or a dealer, to furnish in New York City to
each Underwriter and dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer
may reasonably request.
(e) If during the period specified in paragraph (d) any event
shall occur as a result of which, in the written opinion of counsel for
the Underwriters, it
3
<PAGE>
becomes necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with applicable
law, forthwith to prepare and file with the Commission an appropriate
amendment or supplement to the Prospectus so that the statements in the
Prospectus, as so amended or supplemented, will not in the light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with law, and to furnish to each Underwriter and to
such dealers as you shall specify, such number of copies thereof as such
Underwriter or dealers may reasonably request.
(f) Prior to any public offering of the Securities, to
cooperate with you and counsel for the Underwriters in connection with the
registration or qualification of the Securities and the Subsidiary
Guarantees for offer and sale by the several Underwriters and by dealers
under the state securities or Blue Sky laws of such jurisdictions as you
may request, to continue such qualification in effect so long as required
for distribution of the Securities and the Subsidiary Guarantees and to
file such consents to service of process or other documents as may be
necessary in order to effect such registration or qualification.
(g) To mail and make generally available to its stockholders
as soon as reasonably practicable an earnings statement covering a period
of at least twelve months after the effective date of the Registration
Statement (but in no event commencing later than 90 days after such date)
which shall satisfy the provisions of Section 11(a) of the Act, and to
advise you in writing when such statement has been so made available.
(h) So long as the Securities are outstanding, to furnish to
you as soon as distributed to the security holders of the Company or filed
with the Commission copies of all reports or other communications
furnished to the security holders of the Company or filed with the
Commission and such other publicly available information concerning the
Company and its subsidiaries as you may reasonably request.
(i) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause
to be paid all expenses incident to the performance of its obligations
under this Agreement, including: (i) the fees, disbursements and expenses
of the Company's counsel and the Company's accountants in connection with
the registration and delivery of the Securities under the Act and all
other fees or expenses in connection with the preparation, printing,
filing and distribution of the Registration Statement (including financial
statements and exhibits), any preliminary prospectus, the Prospectus and
all amendments and supplements to any of the foregoing prior to or during
the period specified in paragraph (d) including the mailing and delivering
of copies thereof to the Underwriters and dealers in the quantities
specified herein, (ii) all costs and expenses related to the transfer and
delivery of the Securities to the Underwriters, including any transfer or
other taxes payable thereon, (iii)
4
<PAGE>
all costs of printing or producing this Agreement and any other documents
in connection with the offering, purchase, sale or delivery of the
Securities, (iv) all expenses in connection with the registration or
qualification of the Securities for offer and sale under the securities or
Blue Sky laws of the several states and the cost of printing or producing
any Preliminary and Supplemental Blue Sky Memoranda in connection
therewith (including the filing fees and fees and disbursements of counsel
for the Underwriters in connection with such registration or qualification
and memoranda relating thereto), (v) the filing fees and disbursements of
counsel for the Underwriters in connection with the review and clearance
of the offering of the Securities by the National Association of
Securities Dealers, Inc., (vi) all costs and expenses incident to the
listing of the Securities on the Nasdaq National Market, (vii) the cost of
printing certificates representing the Securities, (viii) the costs and
charges of any transfer agent, registrar or depositary, (ix) all costs and
expenses payable to rating agencies in connection with the rating of the
Securities, (x) any expenses incurred by the Company in connection with a
"road show" presentation to potential investors, and (xi) and all other
costs and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this
Section.
(j) During the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell contract
to sell or otherwise dispose of any debt securities of or guaranteed by
the Company or any Subsidiary Guarantor or warrants to purchase debt
securities of the Company substantially similar to the Securities (other
than (i) the Securities, (ii) the Subsidiary Guarantees and (iii)
commercial paper issued in the ordinary course of business), without the
prior written consent of J.P. Morgan Securities Inc.
(k) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by the
Company prior to the Closing Date and to satisfy all conditions precedent
to the delivery of the Securities.
(l) If the Registration Statement at the time of the
effectiveness of this Agreement does not cover all of the Securities, to
file a Rule 462(b) Registration Statement with the Commission registering
the Securities not so covered in compliance with Rule 462(b) by 10:00
P.M., New York City time, on the date of this Agreement and to pay to the
Commission the filing fee for such Rule 462(b) Registration Statement at
the time of the filing thereof or to give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Act.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company and
the Subsidiary Guarantors represent and warrant to each Underwriter that:
(a) The Registration Statement has become effective (other
than any Rule 462(b) Registration Statement to be filed by the Company
after the effectiveness of
5
<PAGE>
this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00
P.M. New York City time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the
Company's knowledge, threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness
of this Agreement) when it became effective, did not contain and, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, (ii) the Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness
of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Act, (iii) if the Company is required to filed a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement and any amendments or supplements thereto, when
they became effective (1) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and (2)
will comply in all material respects with the Act, and (iv) the Prospectus
does not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph (b) do not
apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Underwriter furnished to
the Company in writing by such Underwriter expressly for use therein.
(c) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act, did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph (c) do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter expressly for use
therein.
(d) Each of the Company and its subsidiaries that are
corporations has been duly incorporated, is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on its
business as described in the Prospectus and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a
foreign corporation authorized to
6
<PAGE>
do business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification, except
where the failure to be so qualified would not have a material adverse
effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole; each of
the Company's subsidiaries that are partnerships has been duly formed, is
validly existing as a partnership in good standing under the laws of its
jurisdiction of formation and has the partnership power and authority to
carry on its business as described in the Prospectus and to own, lease and
operate its properties, and each is duly qualified and is in good standing
as a foreign partnership authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(e) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
granted or issued by the Company or any of its subsidiaries related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of the Company or any of its subsidiaries, except as
otherwise disclosed in the Registration Statement.
(f) All the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights.
(g) All of the outstanding shares of capital stock of, or
other ownership interests in, each of the Company's subsidiaries that are
corporations have been duly authorized and validly issued and are fully
paid and non-assessable, and are owned by the Company, free and clear of
any security interest, claim, lien, encumbrance or adverse interest of any
nature. The portion of the partnership interests in each of the Company's
subsidiaries that are partnerships that the Registration Statement
describes as being owned by the Company is so owned by the Company, free
and clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature.
(h) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or other organizational
documents, as the case may be, or in default in the performance of any
obligation, agreement or condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any other agreement, indenture
or instrument material to the conduct of the business of the Company and
its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective property is bound.
(i) The execution, delivery and performance of this Agreement,
the Indenture, the Securities and the Acquisition Agreement by the
Company, compliance by
7
<PAGE>
the Company with all the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will not
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except as
such may be required under the securities or Blue Sky laws of the various
states) and will not conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the charter or by-laws or
other organizational documents, as the case may be, of the Company or any
of its subsidiaries or any indenture, loan agreement, mortgage, lease or
instrument that is material to the Company and its subsidiaries, taken as
a whole, to which it or any of its subsidiaries is a party or by which it
or any of its subsidiaries or their respective property is bound, or
violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or governmental body or agency
having jurisdiction over the Company, any of its subsidiaries or their
respective property.
(j) There are no material legal or governmental proceedings
pending or threatened to which the Company or any of its subsidiaries is a
party or to which any of their respective property is the subject that are
required to be described in the Registration Statement or the Prospectus
and are not so described; nor are there any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(k) The Securities have been duly authorized, and, when issued
and delivered pursuant to this Agreement, will have been duly executed,
authenticated, issued and delivered and will constitute valid and binding
obligations of the Company entitled to the benefits provided by the
Indenture; the Indenture has been duly authorized and upon effectiveness
of the Registration Statement will have been duly qualified under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and,
when executed and delivered by the Company, the Subsidiary Guarantors and
the Trustee, the Indenture will constitute a valid and binding instrument;
and the Securities and the Indenture will conform to the descriptions
thereof in the Prospectus.
(l) The Subsidiary Guarantees have been duly authorized, and,
when issued and delivered pursuant to this Agreement, will have been duly
executed, authenticated, issued and delivered and will constitute valid
and binding obligations of the Subsidiary Guarantors; and the Subsidiary
Guarantees will conform to the descriptions thereof in the Prospectus.
(m) The fair salable value of the assets of each of the
Company and the Subsidiary Guarantors exceed the amount that will be
required to be paid on or in respect of the existing debts and other
liabilities (including contingent liabilities) of the Company and the
Subsidiary Guarantors, respectively, as they mature; the respective assets
of the Company and the Subsidiary Guarantors do not constitute
unreasonably small capital to
8
<PAGE>
carry out their respective businesses as conducted or as proposed to be
conducted; none of the Company and the Subsidiary Guarantors intends to,
and does not believe that it will, incur debts beyond its ability to pay
such debts as they mature; upon the issuance of the Securities and the
Subsidiary Guarantees, the fair salable value of the assets of the Company
and its subsidiaries taken as a whole, will exceed the amount that will be
required to be paid on or in respect of the existing debts and other
liabilities (including contingent liabilities) of the Company and its
subsidiaries, taken as a whole, as they mature; the assets of the Company
and its subsidiaries do not, and upon the issuance of the Securities and
the Subsidiary Guarantees will not, constitute unreasonably small capital
for the Company and its subsidiaries to carry out their respective
businesses as now conducted or as proposed to be conducted including the
capital needs of the Company and its subsidiaries, and projected capital
requirements of the business conducted by the Company and each of its
subsidiaries, and projected capital requirements and capital availability
thereof; and the Company and the Subsidiary Guarantors do not intend to,
and do not intend to permit any of their subsidiaries to, incur debts
beyond their respective ability to pay such debts as they mature.
(n) Neither the Company nor any of its subsidiaries has
violated any foreign, federal, state or local law or regulation relating
to the protection of human health and safety, the environment or hazardous
or toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), or any provisions of the Employee Retirement Income Security Act
or the rules and regulations promulgated thereunder, except for such
violations which, singly or in the aggregate, would not have a material
adverse effect on the business, prospects, financial condition or results
of operation of the Company and its subsidiaries, taken as a whole.
(o) Each of the Company and its subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and operate
its respective properties and to conduct its business and are in
compliance with all terms and conditions thereof; and no event has
occurred which allows, or after notice or lapse of time or both would
allow, revocation or termination of such permits or results or, after
notice or lapse of time or both, would result in any other impairment of
the rights of the holder of any such permit; and, such permits contain no
restrictions that are materially burdensome to the Company or any of its
subsidiaries; except where such failure to have, or comply with the terms
or conditions of, such permits, the occurrence of any such event or the
presence of any such restriction would not, singly or in the aggregate,
have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole.
(p) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for
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clean-up, closure of properties or compliance with Environmental Laws or
any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which would,
singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole.
(q) Each of the Company and its subsidiaries has (i) generally
satisfactory title to all its interests in its oil and gas properties,
title investigations having been carried out by the Company and its
subsidiaries in accordance with the general practice in the oil and gas
industry, (ii) good and marketable title in fee simple to all other real
property owned by it and (iii) good and marketable title to all personal
property owned by it, in each case free and clear of all liens,
encumbrances, claims, security interests, subleases and defects except
such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company or any of its subsidiaries are held by it under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company or its subsidiaries.
(r) Each of the Company and its subsidiaries maintains
reasonably adequate insurance.
(s) This Agreement has been duly authorized, executed and
delivered by the Company and each of the Subsidiary Guarantors.
(t) The Acquisition Agreement has been duly authorized,
executed and delivered by the Company and each of the Program Partnerships
and constitutes a valid and binding obligation of the Company and each of
the Program Partnerships.
(u) Upon consummation of the transactions contemplated by the
Acquisition Agreement, the Company will own have (i) generally
satisfactory title to all of the interests of the Program Partnerships in
their oil and gas properties, title investigations having been carried out
by the Company and its subsidiaries in accordance with the general
practice in the oil and gas industry, (ii) good and marketable title in
fee simple to all other real property owned by the Program Partnerships
and (iii) good and marketable title to all personal property owned by the
Program Partnerships, in each case free and clear of all liens,
encumbrances, claims, security interests, subleases and defects except
such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company and its
subsidiaries.
(v) Each of Deloitte & Touche LLP, which is certifying the
financial
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statements of the Company, and KPMG Peat Marwick LLP, which is certifying
the financial statements of the Acquired Properties, are independent
public accountants as required by the Act.
(w) Each of Williamson Petroleum Consultants Inc. and Ryder
Scott Company, Petroleum Engineers are independent petroleum engineers
with respect to the Company.
(x) The consolidated historical and pro forma financial
statements, together with related schedules and notes, included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), comply as to form in all material respects with the requirements
of the Act. Such historical financial statements present fairly the
consolidated financial position, results of operations and changes in
financial position of the Company and its subsidiaries or the revenues and
direct operating expenses and working capital of the Acquired Properties,
as the case may be, on the basis stated in the Registration Statement at
the respective dates or for the respective periods to which they apply;
such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein. Such
pro forma financial statements have been prepared on a basis consistent
with such historical statements, except for the pro forma adjustments
specified therein, and give effect to assumptions made on a reasonable
basis and present fairly the proposed transactions contemplated by the
Prospectus and this Agreement. The other financial and statistical
information and data included in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) are accurately
presented and prepared on a basis consistent with such financial
statements and the books and records of the Company and its subsidiaries
or of the Acquired Properties, as the case may be.
(y) The Company is not and, after giving effect to the
offering and sale of the Securities and the Common Stock and the
application of the proceeds thereof as described in the Prospectus, will
not be, an "investment company" as such term is defined in the Investment
Company Act of 1940, as amended.
(z) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement which have not been waived.
(aa) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there has not
occurred any material adverse change or any development involving a
prospective material adverse change in the condition, financial or
otherwise, or the earnings, business, management or operations of
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the Company and its subsidiaries, taken as a whole, or of the Acquired
Properties, (ii) there has not been any material adverse change or any
development involving a prospective material adverse change in the capital
stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) none of the Company, any of its subsidiaries or the Acquired
Properties has incurred any material liability or obligation, direct or
contingent except as disclosed in the Prospectus.
(bb) The Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
(cc) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire any
shares of the capital stock of, or other ownership interest in, the
Company or any subsidiary thereof except as otherwise disclosed in the
Registration Statement.
(dd) Except as disclosed in the Prospectus, there are no
business relationships or related party transactions required to be
disclosed therein by Item 404 of Regulation S-K of the Commission.
(ee) The Company and each of its subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(ff) All material tax returns required to be filed by the
Company and each of its subsidiaries in any jurisdiction have been filed,
other than those filings being contested in good faith, and all material
taxes, including withholding taxes, penalties and interest, assessments,
fees and other charges due pursuant to such returns or pursuant to any
assessment received by the Company or any of its subsidiaries have been
paid, other than those being contested in good faith and for which
adequate reserves have been provided.
7. INDEMNIFICATION.
(a) The Company and each Subsidiary Guarantor, jointly and
severally, agree to indemnify and hold harmless each Underwriter, its
directors, its officers and each person, if any, who controls any
Underwriter within the meaning of
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Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), from and against any and all
losses, claims, damages, liabilities and judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) or
any preliminary prospectus, or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by any
such untrue statement or omission or alleged untrue statement or omission
based upon information relating to any Underwriter furnished in writing to
the Company by such Underwriter expressly for use therein; PROVIDED,
HOWEVER, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any such losses, claims, damages and
liabilities and judgments purchased Securities, or any person controlling
such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Securities to
such person, and if the Prospectus (as so amended and supplemented) would
have cured the defect giving rise to such loss, claim, damage, liability
or judgment.
(b) In case any proceeding (including any governmental
investigation) shall be brought against any Underwriter or any director or
officer of, or person controlling such Underwriter, based upon any
preliminary prospectus, the Registration Statement or the Prospectus or
any amendment or supplement thereto and with respect to which indemnity
may be sought against the Company or the Subsidiary Guarantors, such
Underwriter shall promptly notify the Company in writing and the Company
shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to such indemnified party and payment of all fees
and expenses, as incurred. Any Underwriter or any director or officer of,
or person controlling such Underwriter shall have the right to employ
separate counsel in any such proceeding and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense
of such Underwriter, director, officer or controlling person unless (i)
the employment of such counsel has been specifically authorized in writing
by the Company, (ii) the Company shall have failed to assume the defense
and employ counsel or (iii) the named parties to any such proceeding
(including any impleaded parties) include both such Underwriter, director,
officer or controlling person and the Company or any Subsidiary Guarantor
and such Underwriter, director, officer or controlling person shall have
been advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available
to the Company or any Subsidiary Guarantor, as the case may be, (in which
case the Company shall not have the right to assume the defense of such
proceeding on behalf of such Underwriter, director, officer or controlling
person). In any
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<PAGE>
such case described in the immediately preceding sentence, the Company and
the Subsidiary Guarantors shall not, in connection with any one proceeding
or separate but substantially similar or related proceedings in the same
jurisdiction arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) for all such Underwriters,
director, officer and controlling persons. In any case where any
Underwriter or any director or officer of or person controlling such
Underwriter has the right to employ separate counsel at the Company's
expense, such counsel shall be designated in writing by J.P. Morgan
Securities Inc. and that all the reasonable fees and expenses of such
counsel shall be reimbursed as they are incurred. The Company and the
Subsidiary Guarantors agree to indemnify and hold harmless any Underwriter
and any director or officer of, or person controlling, such Underwriter
from and against any loss or liability by reason of any proceeding (x)
settled with the written consent of the Company or (y) settled more than
thirty business days after the Company receives a request for
reimbursement of legal fees and expenses from such Underwriter, director,
officer or controlling person in any case where such fees and expenses are
at the expense of the Company if the Company shall have failed to comply
with such reimbursement request prior to the date of such settlement. The
Company and the Subsidiary Guarantors shall not, without the prior written
consent of each Underwriter and each person controlling such Underwriter,
effect any settlement of any pending or threatened proceeding in respect
of which such Underwriter or controlling person or any director or officer
of such Underwriter is or could have been a party and indemnity could have
been sought hereunder by such Underwriter, director, officer or
controlling person, unless such settlement includes an unconditional
release of such Underwriter and each such director, officer and
controlling person from all liability on claims that are the subject
matter of such proceeding.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement and any person controlling the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act, to the same extent as the foregoing indemnity from the Company to
each Underwriter but only with reference to information relating to such
Underwriter furnished in writing by such Underwriter expressly for use in
the Registration Statement, the Prospectus or any preliminary prospectus.
In case any proceeding shall be brought against the Company, any of its
directors, any such officer or any person controlling the Company based on
the Registration Statement, the Prospectus or any preliminary prospectus
and in respect of which indemnity may be sought against any Underwriter,
such Underwriter shall have the rights and duties given to the Company
(except that if the Company shall have assumed the defense thereof, such
Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Underwriter), and
the Company, its directors, any such officers and any person controlling
the Company shall have the rights and duties given to such Underwriter by
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Section 7(b) hereof (except that if the Company, any of its directors, any
such officers or any such controlling person shall have the right to
employ separate counsel at such Underwriter's expense pursuant to the
second sentence of Section 7(b), such counsel shall be designated by the
Company).
(d) To the extent the indemnification provided for in this
Section 7 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages, liabilities or judgments referred
to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
and judgments (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Securities or (ii)
if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the
relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Underwriters shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the
Company, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Securities,
in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and the Underwriters shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities or judgments referred
to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of
15
<PAGE>
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 7(d) are
several in proportion to the respective number of Securities purchased by
each of the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 7 are not
exclusive and shall not limit any rights or remedies which may otherwise
be available to any indemnified party at law or in equity.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters to purchase the Securities under this Agreement are subject
to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing Date
(including after giving effect to the Pending Acquisition) with the same
force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, such
Rule 462(b) Registration Statement shall have become effective by 10:00
P.M., New York City time, on the date of this Agreement, and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been commenced or
shall be pending before or contemplated by the Commission.
(c) On or after the date hereof there shall not have occurred
any downgrading, nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating accorded any
of the Company's securities (including, without limitation, the placing of
any securities on negative or developing watch or negative or developing
outlook) by any "nationally recognized statistical rating organization" as
such term is defined for purposes of Rule 436(g)(2) under the Act.
(d) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by J. Darby Sere and Charles C. Green III,
in their capacities as the President and Chief Executive Officer and the
Executive Vice President and Chief Financial Officer of the Company,
confirming the matters set forth in paragraphs (a), (b), and (c) of this
Section 8.
(e) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there shall
not have occurred any change or any development involving a prospective
change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries,
16
<PAGE>
taken as a whole, or of the Acquired Properties, (ii) there shall not have
been any change or any development involving a prospective change in the
capital stock or in the long-term debt of the Company or any of its
subsidiaries other than as disclosed in the Prospectus and (iii) none of
the Company, any of its subsidiaries or the Acquired Properties shall have
incurred any liability or obligation, direct or contingent, other than as
disclosed in the Prospectus, the effect of which, in any such case
described in clause (i), (ii) or (iii), in your judgment, is material and
adverse and, in your judgment, makes it impracticable to market the
Securities on the terms and in the manner contemplated in the Prospectus.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you), dated the Closing Date, of Butler & Binion, L.L.P.,
counsel for the Company and the Subsidiary Guarantors, to the effect that:
(i) each of the Company and its subsidiaries that are
corporations has been duly incorporated, is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on
its business as described in the Prospectus and to own, lease and
operate its properties; each subsidiary of the Company that is a
partnership has been duly formed and is validly existing as a
partnership in good standing under the laws of its jurisdiction of
formation, with all necessary power and authority granted by its
respective partnership agreement, as amended, to carry on its
business as described in the Prospectus and to own, lease and
operate its properties;
(ii) each of the Company and its subsidiaries is duly
qualified and is in good standing as a foreign corporation or
partnership, as the case may be, authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect
on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole;
(iii) all the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully
paid, non-assessable and not subject to any preemptive or similar
rights arising by operation of law, under the charter or by-laws of
the Company, or to the best of such counsel's knowledge after due
inquiry, otherwise;
(iv) all of the outstanding shares of capital stock of,
or other ownership interests in, each of the Company's subsidiaries
that are corporations have been duly and validly authorized and
issued and are fully paid and non-assessable, and are owned of
record by the Company, free and clear of any
17
<PAGE>
security interest, claim, lien, encumbrance or adverse interest of
any nature; to the best of such counsel's knowledge after due
inquiry, the portion of the partnership interests in each of the
Company's subsidiaries that are partnerships that the Prospectus
describes as being owned by the Company is so owned by the Company,
free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature;
(v) this Agreement has been duly authorized, executed
and delivered by the Company and each Subsidiary Guarantor;
(vi) the Securities have been duly authorized, executed
and delivered by the Company and, when duly authenticated in
accordance with the terms of the Indenture and delivered to and paid
for by the Underwriters in accordance with the terms of this
Agreement, will constitute valid and binding obligations of the
Company entitled to the benefits provided by the Indenture;
(vii) the Indenture has been duly authorized, executed
and delivered by the Company and the Subsidiary Guarantors and
constitutes a valid and binding instrument of the Company and the
Subsidiary Guarantors; and the Indenture has been duly qualified
under the Trust Indenture Act;
(viii) the Subsidiary Guarantees have been duly
authorized, executed and delivered by the Subsidiary Guarantors and,
when duly authenticated in accordance with the terms of the
Indenture and delivered to and paid for by the Underwriters in
accordance with the terms of this Agreement, will constitute valid
and obligations of the Subsidiary Guarantors; the Subsidiary
Guarantees do not violate any law applicable to the Subsidiary
Guarantees or the offering and issuance of the Securities and the
Subsidiary Guarantees;
(ix) the Registration Statement has become effective
under the Act, no stop order suspending its effectiveness has been
issued and no proceedings for that purpose are, to the best of such
counsel's knowledge after due inquiry, pending before or
contemplated by the Commission;
(x) the statements under the captions "Risk Factors --
Environmental and Other Regulation", "Business and Properties --
Litigation", "Business and Properties -- Federal Regulation",
"Business and Properties -- Environmental Regulation", "Transactions
with Related Persons", "Description of Notes", "Description of
Indebtedness" and "Underwriting" in the Prospectus and Items 14 and
15 of Part II of the Registration Statement insofar as such
statements constitute a summary of legal matters, documents or
proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and
proceedings;
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(xi) to the best of such counsel's knowledge after due
inquiry, neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws and neither the
Company nor any of its subsidiaries is in default in the performance
of any obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other instrument
material to the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which
it or any of its subsidiaries or their respective property is bound;
(xii) The Acquisition Agreement has been duly
authorized, executed and delivered by the Company and constitutes a
valid and legally binding obligation of the Company.
(xiii) the execution, delivery and performance of this
Agreement, the Indenture, the Securities and the Acquisition
Agreement by the Company, compliance by the Company with all the
provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not require any
consent, approval, authorization or other order of, or qualification
with, any court or governmental body or agency (except such as may
be required under the securities or Blue Sky laws of the various
states) and will not conflict with or constitute a breach of any of
the terms or provisions of, or a default under, the charter or
by-laws of the Company or any of its subsidiaries or, to the best of
such counsel's knowledge after due inquiry, any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its subsidiaries, taken as a whole, to
which it or any of its subsidiaries is a party or by which it or any
of its subsidiaries or their respective property is bound, or
violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or
agency having jurisdiction over the Company, any of its subsidiaries
or their respective property;
(xiv) after due inquiry, such counsel does not know of
any legal or governmental proceedings pending or threatened to which
the Company or any of its subsidiaries is a party or to which any of
their respective property is subject that are required to be
described in the Registration Statement or the Prospectus and are
not so described, or of any statutes, regulations, contracts or
other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits
to the Registration Statement that are not described or filed as
required;
(xv) the Company is not and, after giving effect to the
offering and sale of the Securities and the Common Stock and the
application of the proceeds thereof as described in the Prospectus,
will not be, an "investment
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company" as such term is defined in the Investment Company Act of
1940, as amended;
(xvi) to the best of such counsel's knowledge after due
inquiry, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company or to require the
Company to include such securities with the Securities registered
pursuant to the Registration Statement that have not been waived;
(xvii) the Registration Statement and the Prospectus and
any supplement or amendment thereto (except for the financial
statements and other financial and statistical data included therein
as to which no opinion need be expressed and other than that part of
the Registration Statement which constitutes the Form T-1 of the
Trustee under the Trust Indenture Act) comply as to form in all
material respects with the Act; and
(xviii) such counsel shall also state that such counsel
has no reason to believe that (except for the financial statements
and other financial and statistical data as to which such counsel
need not express any belief and other than that part of the
Registration Statement which constitutes the Form T-1 of the Trustee
under the Trust Indenture Act) at the time the Registration
Statement became effective and on the date of this Agreement, the
Registration Statement and the prospectus included therein contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and such counsel has no reason to
believe that the Prospectus, as amended or supplemented, if
applicable (except for the financial statements and other financial
and statistical data, as aforesaid) contains any untrue statement of
a material fact or omits to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
The opinion of Butler & Binion, L.L.P. described in paragraph (f)
above shall be rendered to you at the request of the Company and shall so state
therein.
(g) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Baker & Botts, L.L.P., counsel for the
Underwriters, as to the matters referred to in clauses (v), (vi), (vii),
(x) (but only with respect to the statements under the caption
"Description of Securities" and "Underwriting"), (xvii) and (xviii) of the
foregoing paragraph (f).
In giving such opinion with respect to the matters covered by clause
(xviii), Butler & Binion, L.L.P. and Baker & Botts, L.L.P. may state that
their opinion and belief
20
<PAGE>
are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and
review and discussion of the contents thereof, but are without independent
check or verification except as specified.
(h) You shall have received on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to you, from Deloitte &
Touche LLP, independent public accountants, containing the information and
statements of the type ordinarily included in accountants' "comfort
letters" to Underwriters with respect to certain financial statements and
certain financial information contained in the Registration Statement and
the Prospectus.
(i) You shall have received on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to you, from KPMG Peat
Marwick LLP, independent public accountants, containing the information
and statements of the type ordinarily included in accountants' "comfort
letters" to Underwriters with respect to certain financial statements and
certain financial information contained in the Registration Statement and
the Prospectus.
(j) The sale by the Company of 4,400,000 shares of Common
Stock pursuant to the Underwriting Agreement, dated as of even date
herewith, among the Company and Donaldson, Lufkin & Jenrette Securities
Corporation, J.P. Morgan Securities Inc. and Principal Financial
Securities, Inc., as representatives of the several underwriters, shall
have been consummated prior to or concurrently with the sale by the
Company of the Securities pursuant to this Agreement.
(k) The acquisition of the Acquired Properties pursuant to the
Acquisition Agreement shall have been consummated prior to or concurrently
with the sale by the Company of the Securities pursuant to this Agreement.
(l) The Company shall not have failed at or prior to the
Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company at
or prior to the Closing Date.
9. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. This Agreement shall
become effective upon the execution and delivery of this Agreement by the
parties hereto.
Notwithstanding anything herein contained, this Agreement may be
terminated in the absolute discretion of the Underwriters, by notice given to
the Company, if after the execution and delivery of this Agreement and prior to
the Closing Date (i) trading generally shall have been suspended or materially
limited on or by, as the case may be, any of the New York Stock Exchange, the
American Stock Exchange or the National Association of Securities Dealers, Inc.,
(ii) trading of any securities of or guaranteed by the Company shall have been
21
<PAGE>
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been declared
by either Federal or New York State or Texas authorities, or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in the judgment of the
Underwriters, is material and adverse and which, in the judgment of the
Underwriters, makes it impracticable to market the Securities on the terms and
in the manner contemplated in the Prospectus.
10. MISCELLANEOUS. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company, to Bellwether
Exploration Company, 1331 Lamar, Suite 1455, Houston, TX 77010, Attention: J.
Darby Sere, and (b) if to any Underwriter or to you, to you c/o J. P. Morgan
Securities Inc., 60 Wall Street, New York, New York 10260, Attention: High Yield
Syndicate Department, or in any case to such other address as the person to be
notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company, the Subsidiary
Guarantors and of the several Underwriters set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will survive
delivery of and payment for the Securities, regardless of (i) any investigation,
or statement as to the results thereof, made by or on behalf of any Underwriter,
the officers and directors of any Underwriter, any person controlling any
Underwriter, the Company, the officers or directors of the Company or any person
controlling the Company, (ii) acceptance of the Securities and payment for them
hereunder and (iii) termination of this Agreement.
If for any reason the Securities are not delivered by or on behalf
of the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 9), the Company agrees to reimburse the
several Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Subsidiary
Guarantors, the Underwriters, the Underwriters' officers and directors, any
controlling persons referred to herein, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Securities from any of the several Underwriters merely because of
such purchase.
This Agreement shall be governed and construed in accordance with
the laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
22
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
BELLWETHER EXPLORATION COMPANY
By:
Name:
Title:
SUBSIDIARY GUARANTORS
By:
Name:
Title:
By:
Name:
Title:
J.P. MORGAN SECURITIES INC.
CHASE SECURITIES INC.
As Underwriters
By: J.P. MORGAN SECURITIES INC.
By:
Name:
Title:
23
<PAGE>
SCHEDULE I
Number of Securities
UNDERWRITERS TO BE PURCHASED
J. P. Morgan Securities Inc.
Chase Securities Inc.
-----------
Total $100,000,000
===========
EXHIBIT 2.2
================================================================================
ACQUISITION AND CONSOLIDATION AGREEMENT
by and among
BELLWETHER EXPLORATION COMPANY
(a Delaware corporation)
PROGRAM ACQUISITION COMPANY
(a Delaware corporation)
AND
THOSE OTHER ENTITIES LISTED ON THE SIGNATURE PAGES HERETO
March 31, 1997
===============================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I. CERTAIN TERMS DEFINED..............................................1
Section 1.1 Defined Terms..........................................1
Section 1.2 Construction...........................................9
Section 1.3 References.............................................9
ARTICLE II. THE MERGER AND PARTNERSHIP INTEREST TRANSFER......................9
Section 2.1 The Merger.............................................9
Section 2.2 The Certificate of Incorporation.......................9
Section 2.3 The Bylaws.............................................9
Section 2.4 Conversion of Interests................................9
Section 2.5 Effective Time.........................................9
Section 2.6 Subsequent Actions....................................10
Section 2.7 Transfer of Limited Partner
Interests in 1988-II Limited
Partnership, 1989-I Limited
Partnership, TEAI VIII-A and
TEAI VIII-B...........................................10
Section 2.8 Transfer of General Partner
Interests in 1988-II Limited
Partnership, 1989-I Limited
Partnership, TEAI VIII-A and TEAI VIII-B..............10
ARTICLE III. THE TRANSFERS AND CONVEYANCES...................................11
Section 3.1 Note Transfers.........................................11
Section 3.2 Conveyance of Type 5 Assets............................11
Section 3.3 Conveyance of Black Hawk Stock........................11
Section 3.4 Conveyance of TOGCO Stock.............................12
Section 3.5 Conveyance of TEA Properties..........................12
Section 3.6 Conveyance of TOC Properties..........................12
Section 3.7 Extinguishment of Certain Notes.......................12
Section 3.8 Further Assurances....................................12
ARTICLE IV. PAYMENT OF EXCHANGE VALUE; CONTINGENT PAYMENT.....................13
Section 4.1 Payment of Exchange Value.............................13
Section 4.2 Contingent Payment....................................13
Section 4.3 Escrow Deposits.......................................13
ARTICLE V. REPRESENTATIONS AND WARRANTIES....................................15
Section 5.1 Representations and Warranties
of Bellwether and Buyer...............................15
Section 5.2 Representations and Warranties
of each Partnership...................................16
Section 5.3 Representations and Warranties
of Each Partner.......................................19
Section 5.4 Representations and Warranties of the Type
3 Noteholder and Type 4 Noteholder....................21
Section 5.5 Representations and Warranties of
Type 5 Investors......................................23
Section 5.6 Representations and Warranties of Black Hawk,
TEA, TOC and TOGCO....................................25
Section 5.7 Representations and Warranties of Torch...............27
ARTICLE VI. COVENANTS AND AGREEMENTS.........................................30
Section 6.1 Consent...............................................30
Section 6.2 Conduct of Business...................................30
Section 6.3 Preferential Rights...................................30
Section 6.4 Filings; Consents.....................................31
Section 6.5 No Other Agreements...................................31
Section 6.6 Reasonable Efforts....................................31
Section 6.7 SEC Matters...........................................32
Section 6.8 AFE's.................................................32
Section 6.9 Torchmark Payments....................................32
Section 6.10 Right of Inspection...................................32
ARTICLE VII. CONDITIONS TO CLOSING; TERMINATION..............................32
Section 7.1 Closing...............................................32
Section 7.2 Actions and Deliveries at Closing.....................32
Section 7.3 Closing Conditions to all Transactions................34
Section 7.4 Conditions to Merger..................................35
Section 7.5 Conditions to the Note Transfers......................36
Section 7.6 Conditions to the Type 5 Transfers....................37
Section 7.7 Conditions to Black Hawk Transfer,
TEA Transfer, TOC Transfer and
TOGCO Transfer........................................38
Section 7.8 Termination...........................................39
Section 7.9 Waivers of Conditions.................................40
ARTICLE VIII. ASSUMPTION AND INDEMNIFICATION.................................40
Section 8.1 Indemnity by Bellwether and Buyer.....................40
Section 8.2 Indemnification by Torch..............................41
Section 8.3 Waivers...............................................42
ARTICLE IX. STEERING COMMITTEE AGREEMENT.....................................42
Section 9.1 Continuation of Agreements............................42
Section 9.2 Amendment of Agreements...............................42
Section 9.3 No Liability of Bellwether............................44
ARTICLE X. MISCELLANEOUS AND GENERAL.........................................44
Section 10.1 Survival.............................................44
Section 10.2 Modification or Amendment............................44
Section 10.3 Waiver of Conditions.................................44
Section 10.4 Counterparts.........................................45
Section 10.5 GOVERNING LAW........................................45
Section 10.6 Entire Agreement, etc................................45
Section 10.7 Captions.............................................45
Section 10.8 Guaranty.............................................45
Section 10.9 Limited Partner Execution............................46
Section 10.10 Allocation of purchase price........................46
Section 10.11 No Partnership or Third Party Beneficiary...........46
Section 10.12 Effectiveness of this Agreement.....................46
Section 10.13 Notices.............................................47
Section 10.14 Settlement Agreement................................47
Section 10.15 Investment Advisor..................................47
(ii)
<PAGE>
Exhibit A...........................................Programs and Exchange Values
Exhibit B.................................................Certificates of Merger
Exhibit C...........................................Allocation of Exchange Value
Exhibit D...................................Excerpts from Registration Statement
Exhibit E.......................................................Escrow Agreement
Exhibit F...................................................Settlement Agreement
Schedule A................................................Schedule of Properties
Schedule B...................................Schedule of Net Profits Conveyances
(iii)
================================================================================
<PAGE>
ACQUISITION AND CONSOLIDATION AGREEMENT
THIS ACQUISITION AND CONSOLIDATION AGREEMENT (this "Agreement"), is made
and entered into as of this 31st day of March, 1997, by and among Program
Acquisition Company, a Delaware corporation ("Buyer"), Bellwether Exploration
Company, a Delaware corporation ("Bellwether"), and those other entities that
are parties hereto and are listed on the signature pages hereof.
RECITALS
WHEREAS, Torch (as defined) has formed partnerships and other entities, or
has entered into acquisition agreements, through which the Institutional Sellers
(as defined) make investments in oil and gas properties and related assets;
WHEREAS, Buyer and Bellwether wish to acquire and consolidate the business
and properties of such partnerships, and certain properties of certain other
entities, into the Buyer pursuant to and as described in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements, and conditions herein
contained, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I. CERTAIN TERMS DEFINED
SECTION 1.1 DEFINED TERMS. The following are definitions of certain terms
capitalized and used throughout this Agreement:
"1988-II LIMITED PARTNERSHIP" means 1988-II TEAI Limited
Partnership, a Texas limited partnership.
"1989-I LIMITED PARTNERSHIP" means 1989-I TEAI Limited Partnership,
a Texas limited partnership.
"AVERAGE NYMEX PRICE" is defined in Section 4.2 of this Agreement.
"BELLWETHER" is defined in the Preamble of this Agreement.
"BLACK HAWK" means Black Hawk Oil Company, a Delaware corporation.
"BLACK HAWK STOCK" is defined in Section 5.7(g) of this Agreement.
"BLACK HAWK TRANSFER" means the sale, transfer and conveyance of the
Black Hawk Stock to Buyer.
"BLACK HAWK PROPERTIES" means those Properties described on Schedule
A as owned by Black Hawk and subject to the net profits interests of the
Type 5 Properties, the Properties of the Type 4 Partnerships or the
Properties of certain of the Type 2 Partnerships.
"BUYER" is defined in the Preamble of this Agreement.
"CALCULATION DATE" is defined in Section 4.2 of this Agreement.
"CLAIMS" means all security interests, liens, pledges, claims,
charges, escrows, encumbrances, options, rights of first refusal,
mortgages, indentures, security agreements or other agreements,
arrangements, contracts, commitments, understandings, obligations, whether
written or oral and whether or not relating in any way to credit or the
borrowing of money, voting agreements or proxies, but not including those
created pursuant to the applicable agreements and other instruments
creating the Institutional Programs.
"CLOSING" is defined in Section 7.1 of this Agreement.
"CLOSING ESCROW DEPOSIT" is defined in Section 4.3(b) of this
Agreement.
"CLOSING DATE" is defined in Section 7.1 of this Agreement.
"CONTINGENT PAYMENT" is defined in Section 4.1 of this Agreement.
"CONTRACT" is defined in Section 4.2 of this Agreement.
"DGCL" means the Delaware General Corporation Law, as amended.
"EFFECTIVE DATE" means July 1, 1996.
"EFFECTIVE TIME" is defined in Section 2.5 of this Agreement.
"ESCROW AGENT" is defined in Section 4.3(a) of this Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE VALUE" means each Seller's share, as determined by Torch
and such Seller, of the $188,347,731 purchase price less Interim
Distributions paid to such Seller and shall equal the following,
(a) with respect to the interest of each General Partner and
each Limited Partner in each Type 1 Partnership, each Type 2
Partnership, the Type 3 Partnership and the Type 4 Partnerships, the
amount of cash set forth next to each such Partner's name under the
column "Exchange Value as of July 1, 1996" on Exhibit A hereto, less
Interim Distributions made to such partner with respect to such
Partnership;
(b) with respect to the Type 3 Note owned by the Type 3
Noteholder and the Type 4 Notes owned by the Type 4 Noteholder, the
amount of cash set forth next to such entity's name under the column
"Exchange Value as of July 1, 1996" on Exhibit A hereto, less
Interim Distributions to such entity;
(c) with respect to each portion of the Type 5 Assets owned by
a Type 5 Investor, the amount of cash set forth next to such Type 5
Investor's name under the column "Exchange Value as of July 1, 1996"
on Exhibit A hereto, less Interim Distributions made to such
Investor with respect to such portion of such assets;
(d) with respect to the Black Hawk Stock, the amount of cash
set forth next to Black Hawk's name under the column "Exchange Value
as of
2
<PAGE>
July 1, 1996" on Exhibit A hereto, less Interim Distributions made
by Black Hawk;
(e) with respect to the TOGCO Stock, the amount of cash set
forth next to TOGCO's name under the column "Exchange Value as of
July 1, 1996" on Exhibit A hereto, less Interim Distributions made
by TOGCO;
(f) with respect to each portion of the TEA Assets, the amount
of cash set forth next to TEA's name under the column "Exchange
Value as of July 1, 1996" on Exhibit A hereto, less Interim
Distributions made to TEA with respect to such portion of such
assets; and
(g) with respect to each portion of the TOC Assets, the amount
of cash set forth next to TOC's name under the column "Exchange
Value as of July 1, 1996" on Exhibit A hereto, less Interim
Distributions made to TOC with respect to such portion of such
assets.
"EXCLUDED BLACK HAWK ASSETS" means all properties and other assets
of any kind or nature currently or previously owned by Black Hawk or in
which Black Hawk had or has an interest, other than the Black Hawk
Properties.
"EXCLUDED TOGCO ASSETS" means all properties and other assets of any
kind or nature currently or previously owned by TOGCO or in which TOGCO
had an interest, other than the TOGCO Properties.
"GENERAL PARTNERS" means Torch and TEA in their respective
capacities as the general partners of those Partnerships set forth on
Exhibit A hereto.
"INSTITUTIONAL PROGRAMS" means the Partnerships and the agreements
among the Type 5 Investors and Torch, TOGCO and/or Black Hawk relating to
the purchase of the Type 5 Properties, collectively.
"INSTITUTIONAL SELLERS" means all Sellers except the General
Partners, TEA, TOC, Torchmark and any subsidiary of Torchmark,
collectively.
"INTERIM DISTRIBUTIONS" means,
(a) with respect to the interest of each of the General
Partners and Limited Partners of each Type 1 Partnership, 1988-II
Limited Partnership, 1989-I Limited Partnership, TEAI VIII-A, TEAI
VIII-B, each Type 2 Partnership, the Type 3 Partnership and the Type
4 Partnerships, the aggregate amount of cash distributions paid to
such partner by such Partnership from the net cash flow received by
each such Partnership during the Interim Period, other than any
distributions received by such partner under or pursuant to the
Settlement Agreement;
(b) with respect to the Type 3 Note and the Type 4 Notes, the
aggregate amount of principal and interest payments made on the Type
3 Note and Type 4 Notes, respectively, during the Interim Period,
other than any cash distributions received by the Type 3 Noteholder
or Type 4 Noteholder, respectively, under or pursuant to the
Settlement Agreement;
(c) with respect to a Type 5 Investor's Type 5 Assets, the
aggregate amount paid to such Type 5 Investor by reason of the Type
5 Property owned by it during the Interim Period, other than any
amounts paid to or received by such Type 5
3
<PAGE>
Investor under or pursuant to the Settlement Agreement;
(d) with respect to the Black Hawk Stock, the dividends or
other amounts paid to Torch or its affiliates during the Interim
Period other than dividends of the Excluded Black Hawk Assets;
(e) with respect to the TOGCO Stock, the dividends or other
amounts paid to Torch or its affiliates) during the Interim Period
other than dividends of the Excluded TOGCO Assets;
(f) with respect to the TEA Assets, the excess, if any, of the
aggregate revenues received by TEA over the aggregate costs and
other amounts paid by TEA with respect to the TEA Properties
(including payments made with respect to the Properties of the Type
2 Partnerships) during the Interim Period; and
(g) with respect to the TOC Assets, the excess, if any, of the
aggregate revenues received by TOC over the aggregate costs and
other amounts paid by TOC with respect to the TOC Properties during
the Interim Period.
"INTERIM PERIOD" means the period commencing on July 1, 1996, and
ending on the close of business on the day prior to the Closing Date.
"INVESTORS" is defined in Section 9.2.
"LIMITED PARTNERS" means those entities identified as the limited
partners of the Partnerships on Exhibit A hereto, collectively.
"MATERIAL ADVERSE CHANGE" means an adverse change in the reserves,
condition or liabilities of the Transaction Assets which is material to
all of the Transaction Assets, taken as a whole, other than as a result of
conditions affecting the oil and gas industry in general (without
limitation, a reduction in prevailing prices for oil and gas is not a
Material Adverse Change).
"MATERIAL OIL AND GAS PROPERTIES" means those Properties,
individually or in the aggregate, which if not acquired by Buyer, directly
or indirectly, would be material to all of the Properties to be
transferred to Buyer hereunder, taken as a whole.
"MERGER" is defined in Section 2.1 of this Agreement.
"NOTE TRANSFERS" is defined in Section 3.1 of this Agreement.
"NOTEHOLDERS" means the Type 3 Noteholder and the Type 4 Noteholder,
collectively.
"NYMEX" is defined in Section 4.2 of this Agreement.
"OIL AND GAS PROPERTIES" means the Properties described in paragraph
(a) and (b) of the definition of Properties.
4
<PAGE>
"PARTNERS" means the General Partners and the Limited Partners,
collectively.
"PARTNERSHIP ASSETS" means the assets of the Partnerships, including
the Partnership Properties.
"PARTNERSHIP PROPERTIES" means the Properties owned by the
Partnerships as set forth on Schedule A.
"PARTNERSHIPS" means the Type 1 Partnerships, 1988-II Limited
Partnership, 1989-I Limited Partnership, TEAI VIII-A, TEAI VIII-B, the
Type 2 Partnerships, the Type 3 Partnership and the Type 4 Partnerships,
collectively.
"PROPERTIES" means the following described properties, rights and
interests:
(a) All right, title and interest of a Partnership, Black Hawk, TEA,
TOC or TOGCO in and to the oil and gas wells, the oil and gas units and
the other oil, gas and mineral interests (and in all associated oil, gas
and/or mineral leases and/or fee mineral interests) described on Schedule
A hereto (and any ratifications and/or amendments to such leases, whether
or not such ratifications or amendments are described on Exhibit A),
together with all right, title and interest of a Type 5 Investor to a Type
5 Property; and
(b) All rights, titles and interests of a Partnership, a Type 5
Investor, Black Hawk, TEA, TOC or TOGCO in and to, or otherwise derived
from, all presently existing and valid oil, gas and/or mineral
unitization, pooling, and/or communitization agreements, declarations
and/or orders (including, without limitation, all units formed under
orders, rules, regulations, or other official acts of any federal, state,
or other authority having jurisdiction, and voluntary unitization
agreements, designations and/or declarations) relating to the properties
described in subsection (a) above, to the extent and only to the extent
such rights, titles and interests are attributable to the properties
described in subsection (a) above; and
(c) All rights, titles and interests of a Partnership, a Type 5
Investor, Black Hawk, TEA, TOC or TOGCO in and to all presently existing
and valid production sales contracts, operating agreements, and other
agreements and contracts which relate to any of the properties described
in subsections (a) and (b) above, to the extent and only to the extent
such rights, titles and interests are attributable to the properties
described in subsections (a) and (b) above; and
(d) All rights, titles and interests of a Partnership, a Type 5
Investor, Black Hawk, TEA, TOC or TOGCO in and to all materials, supplies,
machinery, equipment, improvements and other personal property and
fixtures (including, but not by way of limitation, all wells, wellhead
equipment, pumping units, flowlines, tanks, buildings, injection
facilities, saltwater disposal facilities, compression facilities,
gathering systems, processing or other plants and other equipment) located
on the properties described in subsections (a) and (b) above and used in
connection with the exploration, development, operation or maintenance
thereof, to the extent and only to the extent such rights, titles and
interests are attributable to the properties described in subsections (a)
and (b) above.
"REGISTRATION STATEMENT" means the Form S-1 Registration Statement,
as amended from time to time, filed by Bellwether on February 14, 1997,
with the Securities and Exchange Commission under the Securities Act with
respect to
5
<PAGE>
Bellwether's proposed sale of the Common Stock and Subordinated Notes
described therein.
"RESERVE REPORTS" means (i) that certain reserve report dated as of
June 30, 1996 prepared by Torch and audited by Ryder Scott Company
Petroleum Engineers (the "June 30 Report") and (ii) those reserve reports
prepared by Netherland, Sewell & Associates, Inc., Ryder Scott Company
Petroleum Engineers, Gruy Engineering Company and H.J. Gruy & Associates,
Inc. (collectively, the "Reserve Engineers") dated as of January 1, 1997
(the "January 1 Reports"), all as furnished by Torch to the Institutional
Sellers or their representatives.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLERS" means, collectively, the General Partners, Limited
Partners, the Type 3 Noteholder, the Type 4 Noteholder, the Type 5
Investors, Torch, TEA and TOC.
"SELLERS' FINANCIAL ADVISOR" means Petrie Parkman & Co., Inc. and
any successor or additional investment advisor for the Institutional
Sellers as shall be appointed pursuant to the SCA (as defined in Section
9.1).
"SETTLEMENT AGREEMENT" means (i) that certain Release and
Confidentiality Agreement to be dated as of the Closing Date, in
substantially the form of Exhibit F hereto, (ii) the substantially similar
agreement to be entered into among Torch, Torchmark and Price Waterhouse
LLP and (iii) the substantially similar agreement to be entered into
between Torch, Torchmark and Bernard Feshback.
"SIGNING ESCROW ACCOUNT" is defined in Section 4.3(a) of this
Agreement.
"TEA" means Torch Energy Associates Ltd., a Texas limited
partnership.
"TEA ASSETS" is defined in Section 3.5 of this Agreement.
"TEA TRANSFER" means the sale, transfer and conveyance of the TEA
Assets to Buyer.
"TEA PROPERTIES" means those Properties described on Schedule A as
owned by TEA and burdened by the Properties of certain of the Type 2
Partnerships.
"TEAI VIII-A" means TEAI VIII-A Limited Partnership, a Texas limited
partnership.
"TEAI VIII-B" means TEAI VIII-B Limited Partnership, a Texas limited
partnership.
"TORCH" means Torch Energy Advisors Incorporated, a Delaware
corporation.
"TORCHMARK" means Torchmark Corporation, a Delaware corporation.
"TOC" means Torch Operating Company, a Texas corporation.
"TOC ASSETS" is defined in Section 3.6 of this Agreement.
6
<PAGE>
"TOC TRANSFER" means the sale, transfers and conveyance of the TOC
Assets to Buyer.
"TOC PROPERTIES" means those assets owned by TOC which are described
in the definition of Properties that relate to any of the other Properties
being purchased by Buyer hereunder.
"TOGCO" means TEAI Oil & Gas Company, a Delaware corporation.
"TOGCO STOCK" is defined in Section 5.7(g) of this Agreement.
"TOGCO TRANSFER" means the sale, transfers and conveyance of the
TOGCO Stock to Buyer.
"TOGCO PROPERTIES" means those Properties owned by TOGCO (as
burdened by the Type 5 Properties and/or the Properties of certain of the
Type 2 Partnerships) and described on Schedule A.
"TRLPA" means the Texas Revised Limited Partnership Act, as amended.
"TRANSACTION" means the specific Merger, purchase and sale of a
General Partner or Limited Partner interest in 1988-II Limited
Partnership, 1989-I Limited Partnership, TEAI VIII-A or TEAI VIII-B and
each Transfer and each other transaction contemplated by this Agreement,
individually, with respect to a particular party, and Transactions means
all of such transactions, collectively.
"TRANSACTION ASSETS" means the Type 3 Note, the Type 4 Notes, the
Type 5 Assets, the Black Hawk Stock, the TEA Assets, the TOC Assets, the
TOGCO Stock and the Partnership Assets, collectively.
"TRANSFERS" means the Note Transfers, Type 5 Transfers, the Black
Hawk Transfer, the TEA Transfer, the TOC Transfer and the TOGCO Transfer,
collectively.
"TYPE 1 PARTNERSHIPS" means the limited partnerships identified as
Type 1 Partnerships on Exhibit A hereto other than 1988-II Limited
Partnership, 1989-I Limited Partnership and TEAI VIII-A.
"TYPE 2 PARTNERSHIPS" means the limited partnerships identified as
Type 2 Partnerships on Exhibit A hereto other than TEAI VIII-B.
"TYPE 3 CREDIT AGREEMENT" means the Credit Agreement dated October
25, 1991, between the Type 3 Noteholder and the Type 3 Partnership.
"TYPE 3 LIMITED PARTNER" means N.E. Financial, Inc., a Delaware
corporation and wholly owned subsidiary of Torch and the sole limited
partner of the Type 3 Partnership, and any successor or assign thereof.
"TYPE 3 NOTE" means the promissory note issued by the Type 3
Partnership and payable to the order of the Type 3 Noteholder pursuant to
the Type 3 Credit Agreement.
7
<PAGE>
"TYPE 3 NOTEHOLDER" means Metropolitan Life Insurance Company, as
successor to New England Mutual Life Insurance Company, and any successor
or assign thereof.
"TYPE 3 PARTNERSHIP" means the limited partnership identified as the
Type 3 Partnership on Exhibit A hereto.
"TYPE 4 CREDIT AGREEMENTS" means the Credit Agreements dated October
30, 1991, and March 8, 1993, between the Type 4 Noteholder and the Type 4
Partnerships.
"TYPE 4 LIMITED PARTNER" means T.I. Financial, Inc., a Delaware
corporation and wholly owned subsidiary of Torch and the sole limited
partner of each of the Type 4 Partnerships, and any successor or assign
thereof.
"TYPE 4 NOTES" means the promissory notes issued by the Type 4
Partnerships and payable to the order of the Type 4 Noteholder pursuant to
the Type 4 Credit Agreements.
"TYPE 4 NOTEHOLDER" means Teachers Insurance and Annuity Association
of America and any successor or assign thereof.
"TYPE 4 PARTNERSHIPS" means the limited partnerships identified as
the Type 4 Partnerships on Exhibit A hereto.
"TYPE 5 AGREEMENTS" means the Acquisition Agreements and related
agreements between the Type 5 Investors and Torch or an affiliate of Torch
relating to the acquisition of the Type 5 Properties.
"TYPE 5 ASSETS" is defined in Section 3.2 of this Agreement.
"TYPE 5 INVESTORS" means the parties to Type 5 Agreements as set
forth on Exhibit A to this Agreement as Type 5 Investors, including Torch,
but excluding Black Hawk and TOGCO.
"TYPE 5 PROPERTIES" means all right, title and interest of the Type
5 Investors in and to the net profits interests conveyed by the
conveyances listed on Schedule B hereto.
"TYPE 5 TRANSFERS" is defined in Section 3.2.
SECTION 1.2 CONSTRUCTION. Whenever the context requires, the gender of all
words used herein shall include the masculine, feminine and neuter, and the
number of all words shall include the singular and plural.
SECTION 1.3 REFERENCES. Unless otherwise specified, references in this
Agreement to "Sections", "Subsections" or "Articles" refer to the sections,
subsections or articles in this Agreement.
ARTICLE II. THE MERGER AND PARTNERSHIP INTEREST TRANSFER
SECTION 2.1 THE MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time, each Type 1 Partnership, each Type 2
Partnership, the Type 3 Partnership and each Type 4 Partnership shall be merged
(the "Merger") with and into
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Buyer and the separate existence of each such Partnership shall thereupon cease.
Buyer shall be the surviving entity of the Merger and shall continue to be
governed by the laws of the State of Delaware. Buyer shall succeed to and assume
all of the assets, liabilities, rights and obligations of each such Partnership
and the existence of Buyer with all its rights, privileges, immunities, and
franchises shall continue. The Merger shall have the effects specified in the
TRLPA and the DGCL with respect to each Type 1, Type 2, Type 3 and Type 4
Partnership and Buyer.
SECTION 2.2 THE CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of Buyer in effect at the Effective Time shall be the Certificate
of Incorporation of Buyer as the surviving entity of the Merger, until duly
amended in accordance with the terms thereof and the DGCL.
SECTION 2.3 THE BYLAWS. The Bylaws of Buyer in effect at the Effective
Time shall be the Bylaws of Buyer as the surviving entity of the Merger, until
duly amended in accordance with the terms thereof and the DGCL.
SECTION 2.4 CONVERSION OF INTERESTS.
(a) At the Effective Time, the interest of each General Partner and
Limited Partner shall, by virtue of the Merger and without any action on
the part of the owner thereof, be converted into the right to receive the
Exchange Value attributable to such interest plus the Contingent Payment
attributable to such interest. All such General Partner and Limited
Partner interests in the Partnerships shall, by virtue of the Merger and
without any action on the part of the owner thereof, no longer be
outstanding and shall be canceled and shall cease to exist, and each owner
of such interests shall thereafter cease to have any rights, interest or
privileges with respect to such interests or the Partnerships, except the
right to receive the Exchange Value and Contingent Payment.
(b) Each share of Common Stock, $0.01 par value per share ("Common
Stock"), of Buyer issued and outstanding at the Effective Time shall
remain one (1) validly issued, fully paid and nonassessable share of
Common Stock of Buyer, as the surviving entity of the Merger, and all
outstanding shares of Common Stock of Buyer shall continue to represent
shares of Common Stock of Buyer.
SECTION 2.5 EFFECTIVE TIME. At the Closing, each of Buyer, the Type 1
Partnerships, the Type 2 Partnerships, the Type 3 Partnership and the Type 4
Partnerships will cause the certificates of merger (the "Certificates of
Merger") attached hereto as Exhibit B-1 and B-2 to be signed by an authorized
officer of Buyer and by the General Partner of such Type 1, Type 2, Type 3 and
Type 4 Partnerships. On the Closing Date, the Buyer shall cause the Certificates
of Merger to be filed with the Secretary of State of Delaware and the Secretary
of State of Texas in accordance with the provisions of the DGCL and the TRLPA.
The Merger shall become effective at the later of the effective times set forth
in the certified copies of the Certificates of Merger issued by the Secretary of
State of Delaware and the Secretary of State of Texas with respect to the
Merger, and such time is hereinafter referred to as the "Effective Time."
SECTION 2.6 SUBSEQUENT ACTIONS. If, at any time after the Effective Time,
Buyer shall consider or be advised that any deeds, bills of sale, assignments,
assurances, or any other actions or things are necessary or desirable to vest,
perfect, or confirm of record or otherwise in Buyer its right, title, or
interest in, to, or under any of the rights, properties, or assets of any of the
Partnerships acquired or to be acquired by Buyer as a result of or in connection
with the Merger, or otherwise to carry out this Agreement, the officers and
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directors of Buyer shall be authorized to execute and deliver, in the name and
on behalf of each such Partnership, all such deeds, bills of sale, assignments,
and assurances, and to take and do, in the name and on behalf of such
Partnership, all such other actions and things as may be necessary or desirable
to vest, perfect, or confirm any and all right, title, and interest in, to, and
under such rights, properties, or assets in Buyer or otherwise to carry out this
Agreement.
SECTION 2.7 TRANSFER OF LIMITED PARTNER INTERESTS IN 1988-II LIMITED
PARTNERSHIP, 1989-I LIMITED PARTNERSHIP, TEAI VIII-A AND TEAI VIII-B. On the
terms and conditions set forth herein, on the Closing Date, each Limited Partner
of 1988-II Limited Partnership, 1989-I Limited Partnership, TEAI VIII-A and/or
TEAI VIII-B shall sell, assign and transfer to Bellwether all right, title and
interest in and to the limited partner interest in 1988-II Limited Partnership,
1989-I Limited Partnership, TEAI VIII-A and/or TEAI VIII-B owned by such Limited
Partner, free and clear of all Claims. As consideration for each such transfer,
Buyer shall, upon the terms and subject to the conditions set forth in Article
VII hereof, pay to each Limited Partner of 1988-II Limited Partnership, 1989-I
Limited Partnership, TEAI VIII-A and/or TEAI VIII-B the Exchange Values of such
Limited Partner's interests therein plus the Contingent Payment allocable to
such Limited Partner's interests therein under Article IV. Each Limited Partner
of 1988-II Limited Partnership, 1989-I Limited Partnership, TEAI VIII-A and/or
TEAI VIII-B, by execution of this Agreement, consents to the admission of Black
Hawk as a general partner of such partnerships upon the acquisition by Black
Hawk of the General Partner interests therein on the Closing Date as
contemplated by Section 2.8.
SECTION 2.8 TRANSFER OF GENERAL PARTNER INTERESTS IN 1988-II LIMITED
PARTNERSHIP, 1989-I LIMITED PARTNERSHIP, TEAI VIII-A AND TEAI VIII-B. On the
terms and conditions set forth herein, on the Closing Date, Torch shall sell,
assign and transfer to Black Hawk all right title and interest in and to the
General Partner's interests in 1988-II Limited Partnership, 1989-I Limited
Partnership, TEAI VIII-A and TEAI VIII-B owned by Torch, free and clear of all
Claims. As consideration for such transfers, Buyer shall, upon the terms and
subject to the conditions set forth in Article VII hereof, pay to Torch the
Exchange Values of the General Partner interests in 1988-II Limited Partnership,
1989-I Limited Partnership, TEAI VIII-A and TEAI VIII-B plus the Contingent
Payment allocable to such General Partner interests under Article IV. Torch, by
execution of this Agreement, consents to the admission of Bellwether as a
limited partner of 1988-II Limited Partnership, 1989-I Limited Partnership, TEAI
VIII-A and TEAI VIII-B upon the acquisition by Bellwether of the limited partner
interests therein on the Closing Date as contemplated by Section 2.7.
ARTICLE III. THE TRANSFERS AND CONVEYANCES
SECTION 3.1 NOTE TRANSFERS. On the terms and subject to the conditions set
forth herein, on the Closing Date, the Type 3 Noteholder and the Type 4
Noteholder shall each sell, assign, convey, deliver and transfer to Buyer, and
Buyer shall purchase from the Type 3 Noteholder and the Type 4 Noteholder, free
and clear of all Claims, the Type 3 Note and the Type 4 Notes, respectively;
provided that the Noteholders shall not sell to Buyer their rights to receive
the amounts payable to them under the Settlement Agreement (the sale, transfer
and conveyance of the Type 3 Note and the Type 4 Notes being hereinafter
collectively referred to as the "Note Transfers" and individually as a "Note
Transfer"). As consideration for the Note Transfers, Buyer shall, upon the terms
and subject to the conditions set forth in Article VII hereof, pay to the Type 3
Noteholder and the Type 4 Noteholder the Exchange Value of the Type 3 Note and
Type 4 Notes, respectively, plus the Contingent Payment allocable to such Type 3
Note or Type 4 Notes under Article IV.
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SECTION 3.2 CONVEYANCE OF TYPE 5 ASSETS. On the terms and subject to the
conditions contained herein, on the Closing Date, but for all purposes
immediately following the Merger, each Type 5 Investor shall, severally and not
jointly, sell, assign, convey, deliver and transfer to Buyer, and Buyer shall
purchase from such Type 5 Investors (collectively, the "Type 5 Transfers"), (i)
the Type 5 Properties owned by such Type 5 Investor, (ii) all accounts
receivable and prepaid items existing as of July 1, 1996, which such Type 5
Investor has a right to receive pursuant to the Type 5 Properties (including any
receivables due to such Type 5 Investor from Torch and its affiliates), and
(iii) all contingent claims and all other rights and obligations under contracts
of such Type 5 Investor that relate to the Type 5 Properties, whether such
claims, obligations and other rights relate to periods before, on or after July
1, 1996; provided, that the Type 5 Investors shall not sell to Buyer their
rights to receive the amounts payable to them under the Settlement Agreement
(such accounts receivable, prepaid items, contingent claims and other rights and
obligations, together with the Type 5 Properties, being hereinafter collectively
referred to as the "Type 5 Assets"). As consideration for the Type 5 Transfers,
Buyer shall, upon the terms and subject to the conditions set forth in Article
VII hereof, pay to each Type 5 Investor the Exchange Value of such Type 5 Assets
plus the Contingent Payment allocable to the Type 5 Assets under Article IV.
SECTION 3.3 CONVEYANCE OF BLACK HAWK STOCK. On the terms and subject to
the conditions contained herein, on the Closing Date, Torch shall sell, assign,
convey, deliver and transfer to Buyer, and Buyer shall purchase from Torch (the
"Black Hawk Transfer"), all of the Black Hawk Stock. As consideration for the
Black Hawk Transfer, Buyer shall, upon the terms and subject to the conditions
set forth in Article VII hereof, pay to Torch the Exchange Value of the Black
Hawk Stock plus the Contingent Payment allocable to the Black Hawk Stock under
Article IV.
SECTION 3.4 CONVEYANCE OF TOGCO STOCK. On the terms and subject to the
conditions contained herein, on the Closing Date, Torch shall sell, assign,
convey, deliver and transfer to Buyer, and Buyer shall purchase from Torch (the
"TOGCO Transfer"), all of the TOGCO Stock. As consideration for the TOGCO
Transfer, Buyer shall, upon the terms and subject to the conditions set forth in
Article VII hereof, pay to Torch the Exchange Value of the TOGCO Stock plus the
Contingent Payment allocable to the TOGCO Stock under Article IV.
SECTION 3.5 CONVEYANCE OF TEA PROPERTIES. On the terms and subject to the
conditions contained herein, on the Closing Date, TEA shall sell, assign,
convey, deliver and transfer to Buyer, and Buyer shall purchase from TEA (the
"TEA Transfer"), (i) the TEA Properties, (ii) all accounts receivable and
prepaid items existing as of July 1, 1996, which are related to the TEA
Properties (including any receivables due to TEA from Torch and its affiliates),
and (iii) all contingent claims and all other rights and obligations under any
contracts to which TEA is a party that relate to the TEA Properties, whether
such claims, obligations and other rights relate to periods before, on or after
July 1, 1996 (such accounts receivable, prepaid items, contingent claims and
other rights and obligations, together with the TEA Properties, being
hereinafter collectively referred to as the "TEA Assets"). As consideration for
the TEA Transfer, Buyer shall, upon the terms and subject to the conditions set
forth in Article VII hereof, pay to TEA the Exchange Value of the TEA Assets
plus the Contingent Payment allocable to the TEA Assets under Article IV.
SECTION 3.6 CONVEYANCE OF TOC PROPERTIES. On the terms and subject to the
conditions contained herein, on the Closing Date, TOC shall sell, assign,
convey, deliver and transfer to Buyer, and Buyer shall purchase from TOC (the
"TOC Transfer"), (i) the TOC Properties, (ii) all accounts receivable and
prepaid items existing as of July 1, 1996,
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which are related to the TOC Properties (including any receivables due to TOC
from Torch and its affiliates), and (iii) all contingent claims and all other
rights and obligations under any contracts to which TOC is a party that relate
to the TOC Properties, whether such claims, obligations and other rights relate
to periods before, on or after July 1, 1996 (such accounts receivable, prepaid
items, contingent claims and other rights and obligations, together with the TOC
Properties, being hereinafter collectively referred to as the "TOC Assets"). As
consideration for the TOC Transfer, Buyer shall, upon the terms and subject to
the conditions set forth in Article VII hereof, pay to TOC the Exchange Value of
the TOC Assets plus the Contingent Payment allocable to the TOC Assets under
Article IV.
SECTION 3.7 EXTINGUISHMENT OF CERTAIN NOTES. On the terms and subject to
the conditions contained herein, immediately prior to the Closing, the notes
provided for in the respective partnership agreements for 1987-VI STEA Limited
Partnership and 1988-VI STEA Limited Partnership evidencing loans by the limited
partners to such Partnerships shall be deemed to be contributed to the capital
of the respective Partnerships by the limited partners of such Partnerships, and
such notes shall be considered for all purposes to be duly paid and
extinguished.
SECTION 3.8 FURTHER ASSURANCES. If, at any time after the Effective Time,
Buyer shall consider or be advised that any deeds, bills of sale, assignments,
assurances, or any other actions or things are necessary to effectuate the
Transactions contemplated herein in which a party is involved, the Type 5
Investors, TEA or TOC, as appropriate, shall execute and deliver, in the name
and on behalf of such entity, all such deeds, bills of sale, assignments, and
assurances, and to take and do, in the name and on behalf of such entity, all
such other actions and things as may be necessary to effectuate such
Transactions; provided, however, that no Type 5 Investor shall have any
obligation to incur any financial obligation in connection therewith or have any
obligation to prepare such documents.
ARTICLE IV. PAYMENT OF EXCHANGE VALUE; CONTINGENT PAYMENT
SECTION 4.1 PAYMENT OF EXCHANGE VALUE. At the Closing, Buyer will pay to
each Seller the aggregate Exchange Values allocable to the Transaction Assets
owned by such Seller, in cash, by wire transfer of immediately available funds
to the account specified by each such Seller to Buyer prior to Closing. Buyer
shall also pay to each Seller its share of the contingent payment described in
Section 4.2 (the "Contingent Payment"), at the time and in the manner set forth
in Section 4.3.
SECTION 4.2 CONTINGENT PAYMENT. The aggregate amount of the Contingent
Payment payable to the Sellers in the aggregate will be calculated by Buyer on
the 30th day following the Closing Date (the "Calculation Date") and shall be
equal to the lesser of (A) the Closing Escrow Deposit and (B) the product of (i)
13,554,728, MULTIPLIED BY (ii) the amount, if any, by which (x) the Average
NYMEX Price per MMBtu of gas exceeds (y) $2.10 per MMBtu of gas. The Average
NYMEX Price will be determined based upon the closing prices of the New York
Mercantile Exchange ("NYMEX") Natural Gas futures contracts for delivery in each
of the calendar months January through December 1997 (each contract for delivery
in a particular calendar month being herein called a "Contract"). The price for
each Contract for which trading has closed on or prior to the Calculation Date
will be equal to the closing price with respect to such Contract on the last day
on which such Contract was traded on the NYMEX (e.g., the price for the January
1997 Contract is equal to the closing price on the last trading day in December
1996 of the NYMEX January 1997 Natural Gas futures contract). The actual prices
of Contracts for January, February and March, 1997, are $4.00, $2.99 and $1.78,
respectively. The price
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for each Contract for which trading has not closed on or prior to the
Calculation Date will be equal to the average of the closing prices with respect
to such Contract on each of the days on which such Contract is traded on the
NYMEX between the Closing Date and the Calculation Date (e.g., assuming the
Closing Date is April 30, 1997, the price for the December 1997 Contract will be
equal to the average of the closing prices on each trading day beginning May 1
and ending May 29, 1997, for the NYMEX December 1997 Natural Gas futures
contract). The "Average NYMEX Price" will be equal to the quotient of (A) the
sum of the prices for the January through December 1997 Contracts, DIVIDED BY
(B) twelve (12).
SECTION 4.3 ESCROW DEPOSITS.
(a) Contemporaneously with the execution of this Agreement, Buyer
will deposit $10,000,000.00 (the "Deposit") in an interest bearing escrow
account (the "Signing Escrow Account") with Bank One, Texas, N.A. (the
"Escrow Agent"). In the event the Transactions are consummated in
accordance with the terms hereof, the Deposit, together with interest
thereon, shall be applied first to the Closing Escrow Deposit, and the
remainder shall be paid to Buyer in order that Buyer may apply such
amounts to the payments required to be made by Buyer to Sellers at the
Closing. In the event that the Transactions fail to close for reasons
other than a breach by any Institutional Seller of any of its obligations
under this Agreement, the failure of a Type 5 Investor to receive all
consents and other actions required by Section 7.3(b)(ii) or the failure
of Sellers' Financial Advisor to deliver the fairness opinion required by
Section 7.3(b)(iii), the entire amount of the Deposit, together with
interest thereon, shall be disbursed and paid to the Sellers, pro-rata in
accordance with the ratio the Exchange Value as of July 1, 1996 of each
such Seller bears to the aggregate Exchange Value of all Sellers as of
such date, by wire transfer of immediately available funds, upon the
Escrow Agent's receipt of written instructions to such effect signed by a
duly authorized officer of Buyer and each of the Institutional Sellers. In
the event this Agreement is terminated by Buyer because of a breach by any
Institutional Seller of any of its obligations under this Agreement, the
failure of a Type 5 Investor to receive all consents and other actions
required by Section 7.3(b)(ii) or the failure of Sellers' Financial
Advisor to deliver the fairness opinion required by Section 7.3(b)(iii),
then the entire amount of the Deposit, together with interest thereon,
shall be released to Buyer upon the Escrow Agent's receipt of written
instructions to such effect signed by a duly authorized officer of Buyer
and each of the Institutional Sellers. Torch and each of the Institutional
Sellers agree that any amounts received from Bellwether pursuant to this
Section 4.3(a) in the event the Transactions do not close shall not be
taken into account in determining "payout" with regard to any
Institutional Program. THE PARTIES HEREBY ACKNOWLEDGE THAT THE EXTENT OF
DAMAGES TO SELLERS OCCASIONED BY THE FAILURE OF THE TRANSACTIONS TO BE
CONSUMMATED WOULD BE IMPOSSIBLE OR EXTREMELY DIFFICULT TO ASCERTAIN AND
THAT THE AMOUNT OF THE DEPOSIT IS A FAIR AND REASONABLE ESTIMATE OF SUCH
DAMAGES UNDER THE CIRCUMSTANCES AND DOES NOT CONSTITUTE A PENALTY.
(b) At the Closing, Buyer will deposit $9,011,853.00 (the "Closing
Escrow Deposit") in an interest bearing escrow account (the "Closing
Escrow Account") with the Escrow Agent to secure payment of the Contingent
Payment. On the Calculation Date, an amount equal to the Contingent
Payment calculated under Section 4.2 will be released from the Closing
Escrow Account and paid to the Sellers participating in the Transactions,
in accordance with each such Seller's
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share of such Contingent Payment as set forth below, by wire transfer of
immediately available funds. Each Seller's share of the Contingent Payment
shall be calculated by determining the Exchange Value which would have
been paid to such Seller if the Contingent Payment were added to the
$188,347,731 purchase price and such amount were allocated among the
Sellers using the procedures employed to allocate the Exchange Value set
forth on Exhibit A. The balance of the principal amount of the Closing
Escrow Deposit, if any, shall be paid to Buyer by wire transfer of
immediately available funds simultaneous with the payments to Sellers. If
a person identified as a Seller on Exhibit A does not participate in a
Transaction, the Contingent Payment allocable to such Seller with respect
to the assets not transferred will be paid to Buyer. Interest on the
Closing Escrow Deposit will be disbursed from the Closing Escrow Account
and paid to Buyer and each of the Sellers participating in the
Transactions pro rata based upon the principal amount of the Closing
Escrow Deposit distributed to each of them. Buyer and Sellers' Financial
Advisor shall certify the amount of the Contingent Payment and Torch and
Sellers' Financial Advisor shall certify each Seller's share thereof to
the Escrow Agent promptly after it is calculated.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
SECTION 5.1 REPRESENTATIONS AND WARRANTIES OF BELLWETHER AND BUYER.
Bellwether and Buyer hereby jointly and severally represent and warrant, as of
the date hereof and as of the Closing Date, to the parties hereto as follows:
(a) ORGANIZATION, QUALIFICATION AND GOOD STANDING. Each of
Bellwether and Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to carry on its business, as now
con ducted, and to own or lease its properties and other assets as now
owned or leased. Each of Bellwether and Buyer is duly qualified and in
good standing in all jurisdictions where the nature of its assets or
business requires such qualification, except where the failure to be so
qualified or in good standing would not have a material adverse effect on
it.
(b) DUE AUTHORIZATION; VALID, BINDING AND ENFORCEABLE. Each of
Bellwether and Buyer has all requisite corporate power and authority to
execute and deliver this Agreement and to consummate the Transactions. The
execution, delivery and performance of this Agreement and the consummation
of the Transactions have been duly authorized by all necessary corporate
action on the part of Bellwether and Buyer. This Agreement has been duly
executed and delivered by Bellwether and Buyer and, assuming the due
authorization, execution and delivery hereof by the other parties hereto,
constitutes the legal, valid and binding obligation of Bellwether and
Buyer enforceable in accordance with its terms, except as limited by
bankruptcy or other laws applicable generally to creditor's rights and as
limited by general equitable principles.
(c) NO VIOLATION; APPROVALS. The execution, delivery and performance
by Bellwether and Buyer of this Agreement and the consummation of the
Transactions, will not violate any provision of law or conflict with, or
result in any breach of, or constitute a default under, or result in the
creation of a lien, claim or encumbrance on any of the properties or
assets of Bellwether or Buyer pursuant to any corporate charter, bylaw or
regulation or any agreement, instrument, judgment or decree to which
Bellwether or Buyer is a party or by either of them or their respective
properties is or may be bound or affected, or eliminate or impair any
intangible right, concession (including any tax concession), license or
privilege
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allowed to or enjoyed by Bellwether or Buyer. Other than those requisite
consents and approvals, if any, relating solely to the Properties, no ap
proval, authorization, consent, order or other action of, or filing with,
any person, firm or corporation, or any court, administrative agency or
other governmental authority, domestic or foreign, is required in
connection with the execution and delivery by Buyer of this Agreement and
the consummation by Bellwether or Buyer of the Transactions.
(d) COMPLETE DISCLOSURE. No representation or warranty made by
Bellwether or Buyer in this Agreement nor any certificate, schedule,
statement, document or instrument furnished or to be furnished to Sellers
pursuant hereto, or in connection with the negotiation, execution or
performance of this Agreement or the consummation of the Transactions,
contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact required to be stated herein or
therein or necessary to make any statement herein or therein, under the
circumstances under which they are or will be made, not misleading.
(e) KNOWLEDGEABLE BUYER; NO DISTRIBUTION. Each of Bellwether and
Buyer is a knowledgeable purchaser, owner and operator of oil and gas
properties, has the ability to evaluate (and in fact has evaluated) the
Properties and the other Transaction Assets for purchase, and is acquiring
the Properties and the other Transaction Assets for its own account and
not with the intent to make a distribution thereof in violation of the
Securities Act (and the rules and regulations pertaining thereto) or in
violation of any other applicable securities law, rule or regulation.
(f) TORCH CONSIDERATION. Pages 12, 13, 57 and 58 from the Common
Stock Prospectus attached hereto as Exhibit D and constituting a part of
the Registration Statement describe, in all material respects, the
payments and all other direct and indirect consideration to be made or
paid to Torch and its affiliates by Buyer, Bellwether and Bellwether
affiliates in connection with the Transactions.
(g) REGISTRATION STATEMENT. Each of Bellwether and Buyer acknowledge
and agree that none of the Institutional Sellers have provided any
information for inclusion in the Registration Statement, have reviewed or
commented on the Registration Statement, have had any duty or obligation
to provide information for, or to review or comment on, the Registration
Statement, or otherwise have any duties or responsibilities with respect
thereto. Unless required by law, no Institutional Seller's name or any
derivative thereof shall be disclosed, referred to or otherwise used in
the Registration Statement or any press releases or other agreements or
material prepared in connection with the Registration Statement.
(h) PARTY IN INTEREST. Neither Bellwether nor Buyer is a "party in
interest" relative to the Type 5 Investors pursuant to the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder.
(i) HSR ACT. Each of Bellwether and Buyer represent and warrant that
as a result of the Transactions, Sellers are not required to file notice
pursuant to the Hart Scott Rodino Antitrust Improvements Act of 1976, as
amended.
SECTION 5.2 REPRESENTATIONS AND WARRANTIES OF EACH PARTNERSHIP. Each
Partnership hereby severally and not jointly represents and warrants, as of the
date hereof and as of the Closing Date, as to itself, to the parties hereto as
follows (provided that no
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Partnership has any duties or obligations with respect to the representations
and warranties of any other Partnership):
(a) FORMATION AND AUTHORITY OF EACH PARTNERSHIP. Such Partnership is
a limited partnership legally formed, duly organized and validly existing
under the laws of the State of Texas. Such Partnership has the power and
authority to carry on its business as now conducted and to own or lease
its properties and other assets as now owned or leased. Such Partnership
is duly qualified and in good standing in all jurisdictions where the
nature of its assets or business requires such qualification, except where
the failure to be so qualified or in good standing would not have a
material adverse effect on such Partnership.
(b) IDENTITY OF PARTNERS. The identity of each General Partner and
Limited Partner of such Partnership and their respective interests in such
Partnership on the date hereof are set forth on Exhibit A hereto. There
are outstanding no options, warrants, rights, calls, subscription rights
or commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, any general or limited
partner interest of such Partnership, or contracts, understandings or
arrangements to which such Partnership is a party, or by which it is or
may be bound, to issue additional general or limited partner interests, or
options, warrants, rights, calls, subscription rights or rights
convertible into or exchangeable for, any additional general or limited
partner rights other than options held by the Type 3 Noteholder or Type 4
Noteholder to acquire the Limited Partner interests in the Type 3
Partnership or the Type 4 Partnerships (as the case may be) and the
respective loan agreements relating thereto or except as specifically set
forth in the partnership agreement of such Partnership.
(c) DUE AUTHORIZATION; VALID, BINDING AND ENFORCEABLE. Such
Partnership has all requisite power and authority to enter into this
Agreement and all agreements contemplated hereby and to consummate the
Merger (or in the case of 1988-II Limited Partnership, 1989-I Limited
Partnership, TEAI VIII-A and TEAI VIII-B, the transactions contemplated by
Sections 2.7 and 2.8) and perform its obligations hereunder. Subject to
the approvals obtained in Sections 2.7, 2.8 and 6.1, the execution,
delivery and performance of this Agreement and all agreements contemplated
hereby and the consummation of the Merger (or in the case of 1988-II
Limited Partnership, 1989-I Limited Partnership, TEAI VIII-A and TEAI
VIII-B, the transactions contemplated by Sections 2.7 and 2.8) have been
duly authorized by all required actions of such Partnership. This
Agreement has been duly executed and delivered by such Partnership and
constitutes the legal, valid and binding obligation of such Partnership
enforceable in accordance with its terms, except as limited by bankruptcy,
or other laws applicable generally to creditor's rights and as limited by
general equitable principles.
(d) NO VIOLATION; APPROVALS. Other than the consents and approvals
obtained in Sections 2.7, 2.8 and 6.1 and those relating solely to the Oil
and Gas Properties being transferred hereunder, the execution, delivery
and performance by such Partnership of this Agreement and the consummation
of the Merger (or in the case of 1988-II Limited Partnership, 1989-I
Limited Partnership, TEAI VIII-A and TEAI VIII-B, the transactions
contemplated by Sections 2.7 and 2.8), will not violate any provision of
law or conflict with, or result in any breach of, or constitute a default
under, or result in the creation of a lien, claim or encumbrance on any of
the material properties or assets of such Partnership pursuant to any
term, provision or regulation of its certificate or agreement of limited
partnership or similar constituent document or any agreement, instrument,
judgment or decree
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to which such Partnership is a party or by which it or its properties is
or may be bound or affected, or eliminate or impair any intangible right,
concession (including any tax concession), license or privilege allowed to
or enjoyed by such Partnership. Other than the consents and approvals
obtained in Sections 2.7, 2.8 and 6.1 and those relating solely to the Oil
and Gas Properties being transferred hereunder, no approval,
authorization, consent, order or other action of, or filing with, any
person, firm or corporation, or any court, administrative agency or other
governmental authority, domestic or foreign, is required in connection
with the execution and delivery by such Partnership of this Agreement or
the consummation by such Partnership of the Merger (or in the case of
1988-II Limited Partnership, 1989-I Limited Partnership, TEAI VIII-A and
TEAI VIII-B, the transactions contemplated by Sections 2.7 and 2.8).
(e) WARRANTY OF TITLE. Such Partnership warrants its right, title
and interest to its respective Properties unto Buyer by, through and under
such Partnership, but not otherwise.
(f) DISCLAIMERS. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF THE
PARTNERSHIPS CONTAINED IN THIS SECTION 5.2 (INCLUDING, WITHOUT LIMITATION,
THE SPECIAL WARRANTY OF TITLE CONTAINED IN SECTION 5.2(e) ABOVE) ARE
EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES,
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND THE PARTNERSHIPS EXPRESSLY
DISCLAIM ANY AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES. WITHOUT
LIMITATION OF THE FOREGOING, THE PARTNERSHIPS MAKE NO WARRANTY OR
REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, OR
RELATING TO ANY LIABILITIES OF THE PARTNERSHIPS, INCLUDING ANY
ENVIRONMENTAL LIABILITIES, THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A
PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES OF MATERIALS OR
MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE, OR,
EXCEPT AS PROVIDED OTHERWISE IN THIS SECTION, ANY OTHER EXPRESS, IMPLIED,
STATUTORY OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. BUYER SHALL HAVE
INSPECTED, OR WAIVED (AND UPON CLOSING SHALL BE DEEMED TO HAVE WAIVED) ITS
RIGHT TO INSPECT, THE OIL AND GAS PROPERTIES FOR ALL PURPOSES AND
SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH
SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED TO CONDITIONS
SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS
SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN MADE FIBERS, OR NATURALLY
OCCURRING RADIOACTIVE MATERIALS. BUYER IS RELYING SOLELY UPON ITS OWN
INSPECTION OF THE PROPERTIES, AND BUYER SHALL, EXCEPT AS PROVIDED
OTHERWISE HEREIN, ACCEPT ALL OF THE SAME IN THEIR "AS IS, WHERE IS"
CONDITION. ALSO WITHOUT LIMITATION OF THE FOREGOING, AND EXCEPT AS
PROVIDED OTHERWISE IN THIS SECTION, NO PARTNERSHIP MAKES ANY WARRANTY OR
REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE
ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS,
INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE
AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT
LIMITATION, RELATIVE TO
17
<PAGE>
PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF
ANY) ATTRIBUTABLE TO THE PROPERTIES OR THE ABILITY OR POTENTIAL OF THE
PROPERTIES TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE
PROPERTIES OR ANY OTHER MATTERS CONTAINED IN THE DATA OR ANY OTHER
MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY ANY PARTNERSHIP OR BY
ANY PARTNERSHIP'S AGENTS OR REPRESENTATIVES OR BY ANY OTHER PARTY. ANY AND
ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER
MATERIALS (WRITTEN OR ORAL) FURNISHED OR OTHERWISE MADE AVAILABLE OR
DISCLOSED TO BUYER ARE PROVIDED TO BUYER AS A CONVENIENCE AND SHALL NOT
CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST ANY PARTNERSHIP AND ANY
RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S SOLE RISK TO THE
MAXIMUM EXTENT PERMITTED BY LAW. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED HEREIN OR IN ANY PARTNERSHIP OR OTHER AGREEMENT OR PURSUANT TO
ANY LAW, RULE OR REGULATION APPLICABLE TO ANY PARTNERSHIP, NEITHER THE
TYPE 3 NOTEHOLDER NOR THE TYPE 4 NOTEHOLDER NOR ANY LIMITED PARTNER SHALL
EVER HAVE ANY OBLIGATION OR LIABILITY TO BUYER OR BELLWETHER TO RETURN OR
REPAY ANY EXCHANGE VALUE, CONTINGENT PAYMENT OR OTHER AMOUNT BECAUSE OF
ANY BREACH OR VIOLATION BY ANY PARTNERSHIP OF ITS REPRESENTATIONS,
WARRANTIES OR AGREEMENTS SET FORTH IN THIS SECTION 5.2 OR ELSEWHERE IN
THIS AGREEMENT.
SECTION 5.3 REPRESENTATIONS AND WARRANTIES OF EACH PARTNER. Each Partner
(including Torch and its affiliates in their capacities as a Partner) hereby
severally and not jointly represents and warrants, as of the date hereof and as
of the Closing Date, as to itself, to the parties hereto as follows (provided
that no Partner has any duties or obligations with respect to the
representations and warranties of any other Partner):
(a) ORGANIZATION, CORPORATE POWER AND GOOD STANDING OF EACH PARTNER.
Such Partner, if it is a corporation, is duly organized, validly existing
in good standing under the laws of the state of its incorporation and, if
not a corporation, is legally formed, duly organized, validly existing
and, if applicable, in good standing under the laws of its state of
formation. Such Partner has the power and authority to own its interests
in the Partnerships.
(b) OWNERSHIP OF INTERESTS. Such Partner owns all right, title and
interest in and to (and has the unrestricted right, power and authority to
vote) the General Partner or Limited Partner interests identified on
Exhibit A as being owned by such Partner, free and clear of any Claims,
and such Partner has not made any assignment thereof to any other person.
(c) DUE AUTHORIZATION; VALID, BINDING AND ENFORCEABLE. Such Partner
has all requisite power and authority to enter into this Agreement and all
agreements contemplated hereby and to perform its obligations hereunder
and thereunder. The execution, delivery and performance of this Agreement
and all agreements contemplated hereby and the consummation of each
Transaction applicable to such Partner have been duly authorized by all
required actions of such Partner. This Agreement has been duly executed
and delivered by such Partner and constitutes the legal, valid and binding
obligation of such Partner enforceable in accordance with its terms,
except as limited by bankruptcy, or other laws
18
<PAGE>
applicable generally to creditor's rights and as limited by general
equitable principles.
(d) NO VIOLATION; APPROVALS. The execution, delivery and performance
by such Partner of this Agreement and the consummation of each Transaction
applicable to such Partner will not violate any provision of law that
would have a material adverse effect on the Transactions applicable to
such Partner.
(e) DISCLAIMERS. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF THE
PARTNERS CONTAINED IN THIS SECTION 5.3 ARE EXCLUSIVE AND ARE IN LIEU OF
ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, AND THE PARTNERS EXPRESSLY DISCLAIM ANY AND ALL SUCH OTHER
REPRESENTATIONS AND WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING, THE
PARTNERS MAKE NO WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, OR RELATING TO ANY LIABILITIES OF THE
PARTNERSHIPS, INCLUDING ANY ENVIRONMENTAL LIABILITIES, THE CONDITION,
QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE
MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS
FITNESS FOR ANY PURPOSE, OR, EXCEPT AS PROVIDED OTHERWISE IN THIS SECTION,
ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY OR REPRESENTATION
WHATSOEVER. BUYER SHALL HAVE INSPECTED, OR WAIVED (AND UPON CLOSING SHALL
BE DEEMED TO HAVE WAIVED) ITS RIGHT TO INSPECT, THE OIL AND GAS PROPERTIES
FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND
ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT
LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR
DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN
MADE FIBERS, OR NATURALLY OCCURRING RADIOACTIVE MATERIALS. BUYER IS
RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTIES, AND BUYER SHALL,
EXCEPT AS PROVIDED OTHERWISE HEREIN, ACCEPT ALL OF THE SAME IN THEIR "AS
IS, WHERE IS" CONDITION. ALSO WITHOUT LIMITATION OF THE FOREGOING, AND
EXCEPT AS PROVIDED OTHERWISE IN THIS SECTION, NO PARTNER MAKES ANY
WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS
TO THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS,
PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER
FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT
INCLUDING, WITHOUT LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY
OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE
PROPERTIES OR THE ABILITY OR POTENTIAL OF THE PROPERTIES TO PRODUCE
HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE PROPERTIES OR ANY OTHER
MATTERS CONTAINED IN THE DATA OR ANY OTHER MATERIALS FURNISHED OR MADE
AVAILABLE TO BUYER BY ANY PARTNER OR BY ANY PARTNER'S AGENTS OR
REPRESENTATIVES OR BY ANY OTHER PARTY. ANY AND ALL SUCH DATA, RECORDS,
REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL)
FURNISHED OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED
TO BUYER AS A
19
<PAGE>
CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR
AGAINST ANY PARTNER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT
BUYER'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW. NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN ANY PARTNERSHIP OR OTHER
AGREEMENT OR PURSUANT TO ANY LAW, RULE OR REGULATION APPLICABLE TO ANY
PARTNERSHIP, NO LIMITED PARTNER SHALL EVER HAVE ANY OBLIGATION OR
LIABILITY TO BUYER OR BELLWETHER TO RETURN OR REPAY ANY EXCHANGE VALUE,
CONTINGENT PAYMENT OR OTHER AMOUNT BECAUSE OF ANY BREACH OR VIOLATION BY
ANY OTHER PARTNER OF ITS REPRESENTATIONS, WARRANTIES OR AGREEMENTS SET
FORTH IN THIS SECTION 5.3 OR ELSEWHERE IN THIS AGREEMENT.
SECTION 5.4 REPRESENTATIONS AND WARRANTIES OF THE TYPE 3 NOTEHOLDER AND
TYPE 4 NOTEHOLDER. The Type 3 Noteholder and Type 4 Noteholder hereby severally
and not jointly represents and warrants as to itself, as of the date hereof and
as of the Closing Date, as to itself, to the parties hereto as follows (provided
that no Noteholder has any duties or obligations with respect to the
representations and warranties of any other Noteholder):
(a) ORGANIZATION, CORPORATE POWER AND GOOD STANDING OF EACH
NOTEHOLDER. Such Noteholder, if it is a corporation, is duly organized,
validly existing in good standing under the laws of the state of its
incorporation and, if not a corporation, is legally formed, duly
organized, validly existing and, if applicable, in good standing under the
laws of its state of formation. Such Noteholder has the power and
authority to own the Type 3 Note or Type 4 Notes, as the case may be.
(b) OWNERSHIP OF NOTES. Such Noteholder owns all right, title and
interest in and to (and has the unrestricted right, power and authority to
transfer and sell) the Type 3 Note or Type 4 Note owned by it, free and
clear of any Claims, and such Noteholder has not made any assignment
thereof to any other person.
(c) DUE AUTHORIZATION; VALID, BINDING AND ENFORCEABLE. Such
Noteholder has all requisite power and authority to enter into this
Agreement and all agreements contemplated hereby and to consummate the
applicable Note Transfer and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement and all agreements
contemplated hereby and the consummation of the applicable Note Transfer
have been duly authorized by all required actions of such Noteholder. This
Agreement has been duly executed and delivered by such Noteholder and
constitutes the legal, valid and binding obligation of such Noteholder
enforceable in accordance with its terms, except as limited by bankruptcy,
or other laws applicable generally to creditor's rights and as limited by
general equitable principles.
(d) NO VIOLATION; APPROVALS. The execution, delivery and performance
by such Noteholder of this Agreement and the consummation of the
applicable Note Transfer will not violate any provision of law that would
have a material adverse effect on the Transactions.
(e) PURCHASE OPTIONS. Such Noteholder owns the option to purchase an
interest in a Type 3 Partnership or a Type 4 Partnership (as the case may
be) free of any Claim.
20
<PAGE>
(f) DISCLAIMERS. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF THE
NOTEHOLDERS CONTAINED IN THIS SECTION 5.4 ARE EXCLUSIVE AND ARE IN LIEU OF
ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, AND THE NOTEHOLDERS EXPRESSLY DISCLAIM ANY AND ALL SUCH OTHER
REPRESENTATIONS AND WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING, THE
NOTEHOLDERS MAKE NO WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, OR RELATING TO ANY LIABILITIES, INCLUDING
ENVIRONMENTAL LIABILITIES, THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A
PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES OF MATERIALS OR
MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE, OR,
EXCEPT AS PROVIDED OTHERWISE IN THIS SECTION, ANY OTHER EXPRESS, IMPLIED,
STATUTORY OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. BUYER SHALL HAVE
INSPECTED, OR WAIVED (AND UPON CLOSING SHALL BE DEEMED TO HAVE WAIVED) ITS
RIGHT TO INSPECT, THE OIL AND GAS PROPERTIES FOR ALL PURPOSES AND
SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH
SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED TO CONDITIONS
SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS
SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN MADE FIBERS, OR NATURALLY
OCCURRING RADIOACTIVE MATERIALS. BUYER IS RELYING SOLELY UPON ITS OWN
INSPECTION OF THE PROPERTIES, AND BUYER SHALL, EXCEPT AS PROVIDED
OTHERWISE HEREIN, ACCEPT ALL OF THE SAME IN THEIR "AS IS, WHERE IS"
CONDITION. ALSO WITHOUT LIMITATION OF THE FOREGOING, AND EXCEPT AS
PROVIDED OTHERWISE IN THIS SECTION, NO NOTEHOLDER MAKES ANY WARRANTY OR
REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE
ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS,
INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE
AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT
LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF
HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES OR THE
ABILITY OR POTENTIAL OF THE PROPERTIES TO PRODUCE HYDROCARBONS OR THE
ENVIRONMENTAL CONDITION OF THE PROPERTIES OR ANY OTHER MATTERS CONTAINED
IN THE DATA OR ANY OTHER MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY
ANY NOTEHOLDER OR BY ANY NOTEHOLDER'S AGENTS OR REPRESENTATIVES OR BY ANY
OTHER PARTY. ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS,
INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED OR OTHERWISE
MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED TO BUYER AS A
CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR
AGAINST ANY NOTEHOLDER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT
BUYER'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW. NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN ANY PARTNERSHIP OR OTHER
AGREEMENT OR PURSUANT TO ANY LAW, RULE OR REGULATION APPLICABLE TO ANY
PARTNERSHIP OR NOTEHOLDER, NO NOTEHOLDER SHALL EVER HAVE ANY OBLIGATION OR
LIABILITY TO BUYER OR BELLWETHER TO RETURN OR REPAY ANY
21
<PAGE>
EXCHANGE VALUE, CONTINGENT PAYMENT OR OTHER AMOUNT BECAUSE OF ANY BREACH
OR VIOLATION BY ANY OTHER NOTEHOLDER OF ITS REPRESENTATIONS, WARRANTIES OR
AGREEMENTS SET FORTH IN THIS SECTION 5.4 OR ELSEWHERE IN THIS AGREEMENT.
SECTION 5.5 REPRESENTATIONS AND WARRANTIES OF TYPE 5 INVESTORS. Each Type
5 Investor (including Torch in its capacity as a Type 5 Investor) hereby
severally and not jointly represents and warrants, as of the date hereof and as
of the Closing Date, as to itself, to the parties hereto as follows (provided
that no Type 5 Investor has any duties or obligations with respect to the
representations and warranties of any other Type 5 Investor):
(a) ORGANIZATION, CORPORATE POWER AND GOOD STANDING. Such Type 5
Investor, if a corporation, is a corporation duly organized, validly
existing in good standing under the laws of its state of incorporation. If
such Type 5 Investor is another entity, it is legally formed, duly
organized, validly existing in good standing under the laws of its state
of formation. Such Type 5 Investor has the power and authority to carry on
its business as now conducted and to own or lease its properties and other
assets as now owned or leased.
(b) DUE AUTHORIZATION; VALID, BINDING AND ENFORCEABLE. Such Type 5
Investor has all requisite power and authority to enter into this
Agreement and all agreements contemplated hereby and to consummate the
applicable Type 5 Transfer and perform its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and
all agreements contemplated hereby and the consummation of the applicable
Type 5 Transfer have been duly authorized by all required actions of such
Type 5 Investor. This Agreement has been duly executed and delivered by
such Type 5 Investor and constitutes the legal, valid and binding
obligation of such Type 5 Investor enforceable in accordance with its
terms, except as limited by bankruptcy, or other laws applicable generally
to creditor's rights and as limited by general equitable principles.
(c) NO VIOLATION; APPROVALS. Other than the consents and approvals
obtained in Sections 2.7, 2.8 and 6.1 and those relating solely to the Oil
and Gas Properties being transferred hereunder, the execution, delivery
and performance by such Type 5 Investor of this Agreement and the
consummation of the applicable Type 5 Transfer, will not violate any
provision of law or conflict with, or result in any breach of, or
constitute a default under, or result in the creation of a lien, claim or
encumbrance on any of the properties or assets of such Type 5 Investor
pursuant to any corporate charter, bylaw or regulation or any agreement,
instrument, judgment or decree to which such entity is a party or by which
it or its properties is or may be bound or affected, or eliminate or
impair any intangible right, concession (including any tax concession),
license or privilege allowed to or enjoyed by such party. Other than the
consents and approvals obtained in Sections 2.7, 2.8 and 6.1 and those
relating solely to the Oil and Gas Properties being transferred hereunder,
no approval, authorization, consent, order or other action of, or filing
with, any person, firm or corporation, or any court, administrative agency
or other governmental authority, domestic or foreign, is required in
connection with the execution and delivery by such Type 5 Investor of this
Agreement or the consummation by such Type 5 Investor of the applicable
Type 5 Transfer.
(d) WARRANTY OF TITLE. Such Type 5 Investor warrants that is has not
conveyed, or created a Claim on, any interest conveyed to such Type 5
Investor in
22
<PAGE>
the conveyances listed on Schedule B except in transactions in which
Torch, Black Hawk, TOC or TOGCO was also a party.
(e) DISCLAIMERS. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF THE
TYPE 5 INVESTORS CONTAINED IN THIS SECTION 5.5 (INCLUDING, WITHOUT
LIMITATION, THE SPECIAL WARRANTY OF TITLE CONTAINED IN SECTION 5.5(d)
ABOVE) ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND THE TYPE 5
INVESTORS EXPRESSLY DISCLAIM ANY AND ALL SUCH OTHER REPRESENTATIONS AND
WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING, THE TYPE 5 ASSETS SHALL
BE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR REPRESENTATION WHETHER
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, OR RELATING TO ANY LIABILITIES
RELATED TO THE PROPERTIES FROM WHICH THE NET PROFITS INTERESTS ARE
CREATED, INCLUDING ANY ENVIRONMENTAL LIABILITIES, THE CONDITION, QUANTITY,
QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR
SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS
FOR ANY PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE IN THIS SECTION,
WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY OR
REPRESENTATION WHATSOEVER. BUYER SHALL HAVE INSPECTED, OR WAIVED (AND UPON
CLOSING SHALL BE DEEMED TO HAVE WAIVED) ITS RIGHT TO INSPECT, THE
PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND
ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT
LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR
DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN
MADE FIBERS, OR NATURALLY OCCURRING RADIOACTIVE MATERIALS. BUYER IS
RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTIES, AND BUYER SHALL,
EXCEPT AS PROVIDED OTHERWISE HEREIN, ACCEPT ALL OF THE SAME IN THEIR "AS
IS, WHERE IS" CONDITION. ALSO WITHOUT LIMITATION OF THE FOREGOING, AND
EXCEPT AS PROVIDED OTHERWISE IN THIS SECTION, NO TYPE 5 INVESTOR MAKES ANY
WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS
TO THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS,
PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER
FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT
INCLUDING, WITHOUT LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY
OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE
PROPERTIES OR THE ABILITY OR POTENTIAL OF THE PROPERTIES TO PRODUCE
HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE PROPERTIES OR ANY OTHER
MATTERS CONTAINED IN THE DATA OR ANY OTHER MATERIALS FURNISHED OR MADE
AVAILABLE TO BUYER BY ANY TYPE 5 INVESTOR OR BY ANY OF SUCH PARTY'S AGENTS
OR REPRESENTATIVES OR BY ANY OTHER PARTY. ANY AND ALL SUCH DATA, RECORDS,
REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL)
FURNISHED OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED
TO BUYER AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY
LIABILITY OF OR AGAINST ANY TYPE 5 INVESTOR
23
<PAGE>
AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S SOLE RISK TO
THE MAXIMUM EXTENT PERMITTED BY LAW. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED HEREIN OR IN ANY OTHER AGREEMENT OR PURSUANT TO ANY
LAW, RULE OR REGULATION APPLICABLE TO ANY TYPE 5 INVESTOR, NO TYPE 5
INVESTOR SHALL EVER HAVE ANY OBLIGATION OR LIABILITY TO BUYER OR
BELLWETHER TO RETURN OR REPAY ANY EXCHANGE VALUE, CONTINGENT PAYMENT OR
OTHER AMOUNT BECAUSE OF ANY BREACH OR VIOLATION BY ANY OTHER TYPE 5
INVESTOR OF ITS REPRESENTATIONS, WARRANTIES OR AGREEMENTS SET FORTH IN
THIS SECTION 5.5 OR ELSEWHERE IN THIS AGREEMENT.
SECTION 5.6 REPRESENTATIONS AND WARRANTIES OF BLACK HAWK, TEA, TOC AND
TOGCO. Each of Black Hawk, TEA, TOC and TOGCO hereby severally and not jointly
represents and warrants, as of the date hereof and as of the Closing Date, as to
itself, to the parties hereto as follows:
(a) ORGANIZATION, CORPORATE POWER AND GOOD STANDING. Each of Black
Hawk, TEA, TOC and TOGCO is a corporation duly organized, validly existing
in good standing under the laws of its state of incorporation. Black Hawk,
TEA, TOC and TOGCO each has the power and authority to carry on its
business as now conducted and to own or lease its properties and other
assets as now owned or leased. Black Hawk, TEA, TOC and TOGCO is each duly
qualified and in good standing in all jurisdictions where the nature of
its assets or business requires such qualification, except where the
failure to be so qualified or in good standing would not have a material
adverse effect on Black Hawk, TEA, TOC or TOGCO, as appropriate.
(b) DUE AUTHORIZATION; VALID, BINDING AND ENFORCEABLE. Black Hawk,
TEA, TOC and TOGCO each has all requisite power and authority to enter
into this Agreement and all agreements contemplated hereby and to
consummate the applicable Transactions and perform its obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement and all agreements contemplated hereby and the consummation of
the applicable Transactions have been duly authorized by all required
actions of Black Hawk, TEA, TOC and TOGCO. This Agreement has been duly
executed and delivered by Black Hawk, TEA, TOC and TOGCO and constitutes
the legal, valid and binding obligation of Black Hawk, TEA, TOC and TOGCO
enforceable in accordance with its terms, except as limited by bankruptcy,
or other laws applicable generally to creditor's rights and as limited by
general equitable principles.
(c) NO VIOLATION; APPROVALS. Other than the consents and approvals
obtained in Sections 2.7, 2.8 and 6.1 and those relating solely to the Oil
and Gas Properties being transferred hereunder, the execution, delivery
and performance by Black Hawk, TEA, TOC and TOGCO of this Agreement and
the consummation of the applicable Transactions, will not violate any
provision of law or conflict with, or result in any breach of, or
constitute a default under, or result in the creation of a lien, claim or
encumbrance on any of the properties or assets of Black Hawk, TEA, TOC and
TOGCO pursuant to any corporate charter, bylaw or regulation or any
agreement, instrument, judgment or decree to which such entity is a party
or by which it or its properties is or may be bound or affected, or
eliminate or impair any intangible right, concession (including any tax
concession), license or privilege allowed to or enjoyed by such party.
Other than the consents and approvals obtained in Sections 2.7, 2.8 and
6.1 and those relating solely to the Oil and Gas
24
<PAGE>
Properties being transferred hereunder, no approval, authorization,
consent, order or other action of, or filing with, any person, firm or
corporation, or any court, administrative agency or other governmental
authority, domestic or foreign, is required in connection with the
execution and delivery by Black Hawk, TEA, TOC and TOGCO of this Agreement
or the consummation by Black Hawk, TEA, TOC and TOGCO of the applicable
Transactions.
(d) NO UNTRUE STATEMENTS. Neither this Agreement or any certificate,
exhibit or other instrument, list or information required to be furnished
by Black Hawk, TEA, TOC or TOGCO pursuant to this Agreement, nor any
statement made by Black Hawk, TEA, TOC or TOGCO in connection with the
Transactions contains, or will contain, any untrue statement of a material
fact or omits, or will omit, to state any material fact necessary in order
to make the statements contained herein or therein, under the
circumstances under which they are or will be made, not misleading.
(e) WARRANTY OF TITLE. Black Hawk, TEA, TOC and TOGCO each warrants
title to the Oil and Gas Properties owned by it as indicated on Schedule A
unto Buyer by, through and under Black Hawk, TEA, TOC and TOGCO,
respectively, but not otherwise.
(f) DISCLAIMERS. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF BLACK
HAWK, TEA, TOC AND TOGCO CONTAINED IN THIS SECTION 5.6 (INCLUDING, WITHOUT
LIMITATION, THE SPECIAL WARRANTY OF TITLE CONTAINED IN SECTION 5.6(e)
ABOVE) ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND BLACK HAWK, TEA,
TOC AND TOGCO EXPRESSLY DISCLAIM ANY AND ALL SUCH OTHER REPRESENTATIONS
AND WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING, THE OIL AND GAS
PROPERTIES SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR
REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, OR
RELATING TO ANY LIABILITIES, INCLUDING ANY ENVIRONMENTAL LIABILITIES, THE
CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY
TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT
OR ITS FITNESS FOR ANY PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE IN THIS
SECTION, WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY
OR REPRESENTATION WHATSOEVER. BUYER SHALL HAVE INSPECTED, OR WAIVED (AND
UPON CLOSING SHALL BE DEEMED TO HAVE WAIVED) ITS RIGHT TO INSPECT, THE
PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND
ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT
LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR
DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN
MADE FIBERS, OR NATURALLY OCCURRING RADIOACTIVE MATERIALS. BUYER IS
RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTIES, AND BUYER SHALL,
EXCEPT AS PROVIDED OTHERWISE HEREIN, ACCEPT ALL OF THE SAME IN THEIR "AS
IS, WHERE IS" CONDITION. ALSO WITHOUT LIMITATION OF THE FOREGOING, AND
EXCEPT AS PROVIDED OTHERWISE IN THIS SECTION, NEITHER BLACK HAWK, TOGCO
NOR TOGCO MAKES ANY WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED,
STATUTORY OR
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OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS,
RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR
HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS
AGREEMENT INCLUDING, WITHOUT LIMITATION, RELATIVE TO PRICING ASSUMPTIONS,
OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO
THE PROPERTIES OR THE ABILITY OR POTENTIAL OF THE PROPERTIES TO PRODUCE
HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE PROPERTIES OR ANY OTHER
MATTERS CONTAINED IN THE DATA OR ANY OTHER MATERIALS FURNISHED OR MADE
AVAILABLE TO BUYER BY BLACK HAWK, TEA, TOC OR TOGCO OR BY EITHER OF SUCH
PARTY'S AGENTS OR REPRESENTATIVES OR BY ANY OTHER PARTY. ANY AND ALL SUCH
DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS
(WRITTEN OR ORAL) FURNISHED OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO
BUYER ARE PROVIDED TO BUYER AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE
RISE TO ANY LIABILITY OF OR AGAINST BLACK HAWK, TEA, TOC OR TOGCO AND ANY
RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S SOLE RISK TO THE
MAXIMUM EXTENT PERMITTED BY LAW.
SECTION 5.7 REPRESENTATIONS AND WARRANTIES OF TORCH. In order to induce
the Buyer and other Sellers to enter into this Agreement, Torch hereby
represents and warrants, as of the date hereof and as of the Closing Date, to
the parties hereto as follows:
(a) ORGANIZATION, QUALIFICATION AND GOOD STANDING. Torch is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business, as now conducted, and to own or
lease its properties and other assets as now owned or leased. Torch is
duly qualified and in good standing in all jurisdictions where the nature
of its assets or business requires such qualification, except where the
failure to be so qualified or in good standing would not have a material
adverse effect on it.
(b) DUE AUTHORIZATION; VALID, BINDING AND ENFORCEABLE. Torch has all
requisite power and authority to enter into this Agreement and all
agreements contemplated hereby and to consummate the Transactions and
perform its obligations hereunder and thereunder. The execution, delivery
and performance of this Agreement and all agreements contemplated hereby
and the consummation of the Transactions have been duly authorized by all
required actions of Torch. This Agreement has been duly executed and
delivered by Torch and constitutes the legal, valid and binding obligation
of Torch enforceable in accordance with its terms, except as limited by
bankruptcy, or other laws applicable generally to creditor's rights and as
limited by general equitable principles.
(c) NO VIOLATION; APPROVALS. Other than the consents and approvals
obtained in Sections 2.7, 2.8 and 6.1 and those relating solely to the Oil
and Gas Properties being transferred hereunder, the execution, delivery
and performance by Torch of this Agreement and the consummation of the
Transactions will not violate any provision of law or conflict with, or
result in any breach of, or constitute a default under, or result in the
creation of a lien, claim or encumbrance on any of the properties or
assets of Torch pursuant to any corporate charter, bylaw or regulation or
any agreement, instrument, judgment or decree to which Torch is a party or
by which it or its properties is or may be bound or affected, or eliminate
or impair any
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intangible right, concession (including any tax concession), license or
privilege allowed to or enjoyed by such party. Other than the consents and
approvals obtained in Sections 2.7, 2.8 and 6.1 and those relating solely
to the Oil and Gas Properties being transferred hereunder, no approval,
authorization, consent, order or other action of, or filing with, any
person, firm or corporation, or any court, administrative agency or other
governmental authority, domestic or foreign, is required in connection
with the execution and delivery by Torch of this Agreement or the
consummation by Torch of the Transactions.
(d) NO UNTRUE STATEMENTS. All of the information furnished by Torch
to Buyer, Bellwether and Sellers in connection with the Transactions is
true, complete and accurate in all material respects and does not contain
any untrue statement of any material fact and does not omit to state any
material fact necessary to make the statements contained therein, in light
of the circumstances under which they were made, not false or misleading.
(e) REGISTRATION STATEMENT. Torch represents and warrants to the
Institutional Sellers only that pages 12, 13, 57 and 58 from the Common
Stock Prospectus attached hereto as Exhibit D and constituting a part of
the Registration Statement describe, in all material respects, the
payments and all other direct and indirect consideration to be made or
paid to Torch and its affiliates by Buyer, Bellwether and Bellwether's
affiliates in connection with the Transactions.
(f) OTHER DISCLOSURES. The June 30 Report was prepared by Torch and
the January 1 Reports were prepared by the Reserve Engineers in each case
in accordance with accepted oil and gas reserve engineering practices,
using reasonable assumptions. All information regarding historical facts
contained in the Reserve Reports or otherwise furnished by Torch to the
Institutional Sellers in connection with the properties covered thereby
(or furnished to Ryder Scott Company Petroleum Engineers in connection
with their audit of the June 30 Report, to the Reserve Engineers in
connection with their preparation of the January 1 Reports, or to Sellers'
Financial Advisor) is accurate and complete in all material respects in
accordance with industry standards.
(g) BLACK HAWK AND TOGCO STOCK. The authorized capitalization of
Black Hawk consists of 5,000,000 shares of common stock, $.10 par value,
and 1,000,000 shares of preferred stock, $1.00 par value, of which 814,000
shares of common stock are currently outstanding ("Black Hawk Stock") and
the authorized capitalization of TOGCO consists of 1,000 shares of common
stock, $.01 par value, of which 1,000 shares of common stock are currently
outstanding ("TOGCO Stock"). The Black Hawk Stock and TOGCO Stock are
owned by Torch, free and clear of all Claims. Torch has full power and
authority to sell the Black Hawk Stock and TOGCO Stock to Buyer as
contemplated by this Agreement, and at the closing will deliver to Buyer
good and marketable title to the Black Hawk Stock and TOGCO Stock, free
and clear of all Claims.
(h) DISCLAIMERS. THE EXPRESS REPRESENTATIONS AND WARRANTIES TORCH
CONTAINED IN THIS SECTION 5.7 ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE,
AND TORCH EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND
WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING, THE OIL AND GAS
PROPERTIES SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR
REPRESENTATION
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WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, OR RELATING TO ANY
LIABILITIES, INCLUDING ANY ENVIRONMENTAL LIABILITIES, THE CONDITION,
QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE
MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS
FITNESS FOR ANY PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE IN THIS
SECTION, WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY
OR REPRESENTATION WHATSOEVER. BUYER SHALL HAVE INSPECTED, OR WAIVED (AND
UPON CLOSING SHALL BE DEEMED TO HAVE WAIVED) ITS RIGHT TO INSPECT, THE OIL
AND GAS PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR
PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE,
INCLUDING BUT NOT LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE
PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES,
ASBESTOS AND OTHER MAN MADE FIBERS, OR NATURALLY OCCURRING RADIOACTIVE
MATERIALS. BUYER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE OIL AND
GAS PROPERTIES, AND BUYER SHALL, EXCEPT AS PROVIDED OTHERWISE HEREIN,
ACCEPT ALL OF THE SAME IN THEIR "AS IS, WHERE IS" CONDITION. ALSO WITHOUT
LIMITATION OF THE FOREGOING, AND EXCEPT AS PROVIDED OTHERWISE IN THIS
SECTION, TORCH MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA,
REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR
HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS
AGREEMENT INCLUDING, WITHOUT LIMITATION, RELATIVE TO PRICING ASSUMPTIONS,
OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO
THE OIL AND GAS PROPERTIES OR THE ABILITY OR POTENTIAL OF THE OIL AND GAS
PROPERTIES TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE
OIL AND GAS PROPERTIES OR ANY OTHER MATTERS CONTAINED IN THE DATA OR ANY
OTHER MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY TORCH OR BY ANY OF
SUCH PARTY'S AGENTS OR REPRESENTATIVES OR BY ANY OTHER PARTY. ANY AND ALL
SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS
(WRITTEN OR ORAL) FURNISHED OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO
BUYER ARE PROVIDED TO BUYER AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE
RISE TO ANY LIABILITY OF OR AGAINST TORCH FOR RELIANCE ON OR USE OF THE
SAME SHALL BE AT BUYER'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.
ARTICLE VI. COVENANTS AND AGREEMENTS
SECTION 6.1 CONSENT. Each of the General Partners and the Limited Partners
by their execution hereof, immediately prior to the Effective Time, hereby
irrevocably (a) votes for, consents to, adopts and approves the form, terms and
provisions of this Agreement and the consummation of each of the Transactions,
including, without limitation, the Merger and the sale by TEA and TOC of the
working interests from which any net profits interest is created, upon the terms
and conditions set forth herein and (b) amends the respective Partnership
Agreements to the extent required under Section 2.11 of the TRLPA and any other
applicable provisions of the TRLPA and the DGCL to effect the Transactions
contemplated hereby. Each Type 5 Investor, Type 3 Noteholder, Type 4
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Noteholder, Black Hawk, TOC and Torch by their execution hereof, immediately
prior to the Effective Time, amends the agreements among them relating to the
assets being conveyed to Bellwether or Buyer to the extent required to effect
each Transaction applicable to such party.
SECTION 6.2 CONDUCT OF BUSINESS. Each Partnership, Black Hawk and TOGCO
agree, as applicable, that prior to the Effective Time, and except as otherwise
contemplated herein or consented to in writing by the other parties hereto, each
shall (a) not pay or declare dividends or other distribu tions payable in
partnership interests or other equity securities, split, combine or otherwise
reclassify their respective capital stock or partnership interests or directly
or indirectly repurchase or otherwise acquire shares of their capital stock; (b)
not issue any capital stock, partnership interests or debt securities having
voting rights for directors or general partners or any rights, options
securities convertible or exchangeable therefor, and (c) not to amend their
respective certificates of incorporation, bylaws, partnership agreements or
other governing documents.
SECTION 6.3 PREFERENTIAL RIGHTS. Torch, the Partnerships, Black Hawk, TEA,
TOC and TOGCO will use their respective reasonable efforts, consistent with
industry practices in transactions of this type, to identify, with respect to
all Material Oil and Gas Properties, (i) all preferential rights to purchase and
consents to assign ("Preferential Rights") which would be applicable to the
transactions contemplated hereby and (ii) the names and addresses of parties
holding such rights; in attempting to identify such Preferential Rights, and the
names and addresses of such parties holding the same, such persons, however,
shall in no event be obligated to go beyond their own records. Torch will
request, from the parties so identified (and in accordance with the documents
creating such rights), execution of waivers of the Preferential Rights so
identified. Torch shall have no obligation other than to so attempt to identify
such Preferential Rights and to so request such execution of waivers of
Preferential Rights (including, without limitation, Torch shall have no
obligation to assure that waivers of Preferential Rights are obtained). No
Institutional Seller shall have any obligation to take any action regarding
Preferential Rights. Except to the extent that Buyer can establish that Torch
failed to fulfill the obligations set forth above in this Section 6.3 (in which
case Buyer shall not indemnify Torch but shall continue to indemnify the
Institutional Sellers), Buyer shall indemnify and hold Sellers (and their
respective affiliates and the respective officers, directors, trustees,
fiduciaries, participants, beneficiaries, employees, attorneys, contractors and
agents of Sellers and such affiliates) harmless from and against all claims,
actions, causes of action, liabilities, damages, losses, costs or expenses
(including, without limitation, court costs and attorney's fees) whatsoever that
arise out of the failure to obtain waivers of Preferential Rights, or consents
to assignment, with respect to any transfer by Sellers to Buyer of any part of
the Properties and with respect to any subsequent transfers WHETHER OR NOT SUCH
CLAIMS, ACTIONS, CAUSES OF ACTION, LIABILITIES, DAMAGES, LOSSES, COSTS OR
EXPENSES ARISE OUT OF NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE,
CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY NOT INCLUDING
GROSS NEGLIGENCE) OF ANY INDEMNIFIED PARTY.
SECTION 6.4 FILINGS; CONSENTS. Subject to the terms of this Agreement,
Buyer, the Partnerships, Black Hawk, TEA, TOC and TOGCO shall (i) make any
necessary filings with respect to the Transactions and shall use all reasonable
efforts to obtain approvals and clearances with respect thereto; (ii) obtain all
consents, waivers, approvals and authorizations required in connection with the
Transactions under the terms of any oil and gas lien; (iii) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
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practical the Transactions. The Type 5 Investors shall make any necessary
filings identified and properly prepared by Buyer, Black Hawk and TOGCO.
SECTION 6.5 NO OTHER AGREEMENTS. Torch, Bellwether and Buyer each
covenants and agrees with each Seller that neither Torch, Bellwether nor Buyer
nor any of their affiliates will negotiate or make any agreement with any Seller
or other participant in an Institutional Program including IBM Retirement Plan
Trust and its title-holding subsidiary, Henry Jane Corporation (collectively,
"IBM"), relating to the Transactions and/or the Institutional Programs except as
provided in the written terms of this Agreement; PROVIDED, HOWEVER, that (a)
Bellwether and Buyer may make the additional agreements and arrangements with
Torch and Torchmark and their respective affiliates which are described in
Exhibit D hereto; (b) Torch or its subsidiary may sell the interests owned by it
from which IBM's or such other participant's net profits interests are carved
(I.E., the working interest in each applicable lease equal to ten ninths
(10/9ths) of IBM's net profits interest in such lease); and (c) IBM may enter
into the Settlement Agreement with the other parties thereto.
SECTION 6.6 REASONABLE EFFORTS Torch, as general partner or sponsor of the
Institutional Programs, covenants and agrees with Bellwether and each of the
Sellers to use its reasonable efforts to cause each of the conditions to the
consummation of the Transactions specified in Article VII hereof which are
within Torch's control to be effected as contemplated by this Agreement.
Further, Torch agrees to cause each of its subsidiaries to comply fully with the
terms of this Agreement and to use their respective reasonable efforts to cause
each of the conditions to the consummation of the Transactions specified in
Article VII hereof which are within such subsidiary's reasonable control to be
effected as contemplated by this Agreement.
SECTION 6.7 SEC MATTERS. Following the execution of this Agreement, each
of the Partnerships, Torch, TEA and TOC will provide (at Bellwether's sole cost
and expense) Bellwether and its authorized officers, directors, representatives,
accountants and attorneys, with reasonable access to all information within
their respective control necessary to comply with the reporting requirements
under the Securities Act and the Exchange Act; PROVIDED, HOWEVER, that such
access shall be subject to Section 5.1(g) and none of the Institutional Sellers
shall have any duties, responsibilities or obligations with respect to such
information or Registration Statement.
SECTION 6.8 AFE'S. Following the execution of this Agreement, Bellwether
shall have the right to direct Torch to consent or non-consent to all
Authorizations for Expenditures ("AFE's") submitted to the Institutional
Programs at any time prior to the Closing if Bellwether reasonably believes that
the deadline for responding to any AFE is likely to pass prior to the Closing;
PROVIDED, HOWEVER, that such consent or non-consent does not violate any of the
provisions of the constituent documents governing the Institutional Programs.
SECTION 6.9 TORCHMARK PAYMENTS. As partial consideration for the execution
and delivery to each Seller of a Settlement Agreement, Torch shall pay to
Torchmark the sum of $500,000 in cash and Buyer shall pay to Torchmark the sum
of $1,500,000 in cash. Further, Torch agrees to execute and deliver to each
Seller a Settlement Agreement and Torch, Buyer and Bellwether agree to use their
respective reasonable efforts to cause Torchmark to execute and deliver to such
Seller a Settlement Agreement.
SECTION 6.10 RIGHT OF INSPECTION. Without limiting any Seller's rights to
inspect and copy books and records relating to the Transaction, each Seller and
each Seller's authorized representatives shall have the right to inspect and
verify the calculation of the
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Exchange Value and the determination of the Contingent Payment and the payment
of all Interim Distributions, and to receive from Torch upon request reasonably
detailed recapitulations thereof.
ARTICLE VII. CONDITIONS TO CLOSING; TERMINATION
SECTION 7.1 CLOSING. The Transactions shall be effective as of the
Effective Time. The closing of the Transactions (the "Closing") shall take place
at the offices of Butler & Binion, L.L.P., 1000 Louisiana, Suite 1600, Houston,
Texas 77002 (or such other time or place as the parties hereto shall mutually
agree), on April 8, 1997, or such other later date selected by Bellwether not
later than April 30, 1997 (the "Closing Date"), provided that the conditions set
forth in this Article VII shall have been fulfilled or waived in accordance with
this Agreement.
SECTION 7.2 ACTIONS AND DELIVERIES AT CLOSING. At the Closing, Buyer and
the Sellers shall simultaneously take the following actions and make the
following deliveries:
(a) INSTRUMENTS OF TRANSFER. Torch, TOC, TEA, and the Type 5
Investors shall execute, acknowledge and deliver to Buyer such instruments
of sale, conveyance, transfer and assignment and stock powers as Buyer
reasonably deems necessary, and is reasonably satisfactory to each such
Seller, to transfer all of their right, title and interest in and to the
Transaction Assets in each case effective, as to runs of oil and
deliveries of gas, and for all other purposes, as of 7 o'clock a.m., local
time at the locations of the Oil and Gas Properties, respectively, on the
Effective Date.
(b) FEDERAL AND STATE CONVEYANCE FORMS. Torch, TEA, TOC, the Type 5
Investors and the Partnerships shall, where appropriate, prepare, execute
(and, where required, acknowledge) and deliver to Buyer forms of
conveyance or assignment as required by the applicable authorities for
transfers of interests in state or federal leases, if any, included in the
Properties; PROVIDED, HOWEVER, that no Type 5 Investor shall have any
obligation to prepare any such conveyance or assignment or any
responsibility or obligation with respect to the accuracy of such
conveyance or assignment.
(c) LETTERS IN LIEU. Torch, TEA, TOC, the Type 5 Investors and the
Partnerships shall, if requested by Buyer, prepare, execute and deliver to
Buyer letters in lieu of transfer orders (or similar documentation) in
form acceptable to Sellers and Buyer; PROVIDED, HOWEVER, that no Type 5
Investor shall have any obligation to prepare any such letters in lieu or
any responsibility or obligation with respect to the accuracy of such
letters in lieu.
(d) DELIVERY OF NOTES. The Type 3 Noteholder and the Type 4
Noteholder shall deliver the originally executed Type 3 Note and the Type
4 Notes, respectively, to Buyer duly endorsed for transfer to Buyer along
with releases of the mortgages related thereto; provided, however, that no
such Noteholder shall have any obligation to prepare any such lease or any
responsibility or obligation with respect to the accuracy of such
releases.
(e) CERTIFICATES OF MERGER; ASSIGNMENT DOCUMENTS. Each of the
Partnerships other than 1988-II Limited Partnership, 1989-I Limited
Partnership, TEAI VIII-A and TEAI VIII-B shall deliver the Certificates of
Merger to Buyer duly executed by their respective general partner. Torch
will deliver certificates duly endorsed for transfer to Buyer representing
all of the Black Hawk Stock and
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TOGCO Stock and will deliver to Black Hawk a bill of sale and assignment
transferring all right, title and interest in and to the General Partner
interest in 1988-II Limited Partnership, 1989- I Limited Partnership, TEAI
VIII-A and TEAI VIII-B. Each Limited Partner of 1988-II Limited
Partnership, 1989-I Limited Partnership, TEAI VIII-A and TEAI VIII-B will
deliver a bill of sale and assignment to Bellwether transferring all
right, title and interest in and to the Limited Partner interests in
1988-II Limited Partnership, 1989-I Limited Partnership, TEAI VIII-A
and/or TEAI VIII-B owned by such Limited Partner.
(f) PAYMENT OF EXCHANGE VALUE. Buyer shall deliver to each of the
Sellers participating in the Transactions, by wire transfer of immediately
available funds, the amount of the Exchange Value to which such Seller is
entitled hereunder.
(g) ESCROW DEPOSIT. Buyer shall deposit the Closing Escrow Deposit
in the Escrow Account pursuant to an Escrow Agreement in the form attached
as Exhibit E.
(h) NON-FOREIGN STATUS AFFIDAVIT. If Buyer so requests, each Seller
will, to the extent that it is able, execute and deliver to Buyer an
affidavit or other acceptable certification that such Seller is not a
"foreign person" within the meaning of the Internal Revenue Code of 1986,
as amended (e.g., such Seller is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust or foreign estate as such
terms are defined in such code and the regulations promulgated
thereunder).
(i) TERMINATION OF ACQUISITION AGREEMENTS, CREDIT AGREEMENTS. Torch
and the Type 5 Investors shall execute agreements, in form and substance
satisfactory to Torch and the Type 5 Investors, terminating the Type 5
Agreements. The appropriate parties will execute agreements terminating
the Type 4 Credit Agreements and Type 3 Credit Agreement.
(j) SETTLEMENT AGREEMENTS. Each signatory to the Settlement
Agreement shall execute and deliver a counterpart thereof.
(l) OTHER DOCUMENTS. The parties to this Agreement and their
affiliates shall execute and deliver all other instruments and documents
as are required or contemplated in this Agreement and/or are reasonably
necessary to consummate the Transactions.
SECTION 7.3 CLOSING CONDITIONS TO ALL TRANSACTIONS. (a) The obligations of
Buyer and Bellwether to consummate the Transactions are subject to the
fulfillment of each of the following conditions, any or all of which may be
waived in whole or in part by Bellwether, to the extent permitted by applicable
law:
(i) GOVERNMENTAL AND REGULATORY CONSENTS; NO INJUNCTION. No order,
stay, injunction or decree of any court of competent jurisdiction shall
have been issued that prevents or materially delays the consummation of
the Transactions and no proceedings shall be threatened to such effect.
(ii) SIMULTANEOUS CLOSING. A sufficient number of Transactions shall
close simultaneously such that the pre-tax present value, discounted at
10%, of future net cash flows of the oil and gas reserves attributable to
the Oil and Gas Properties which are transferred to Buyer in the
Transactions, as of July 1, 1996,
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equal at least 95% of the pre-tax present value, discounted at 10%, of
future net cash flows of oil and gas reserves attributable to all of the
Oil and Gas Properties (such present value shall be based on the reserve
reports as of June 30, 1996 set forth in Bellwether's Registration
Statement which excludes any interests owned by IBM).
(iii) SETTLEMENT AGREEMENT. The Settlement Agreement shall have been
executed and delivered by each of the parties thereto and Torchmark shall
have paid all amounts required to be paid by Torchmark thereunder.
(b) The obligations of the Sellers to consummate the Transactions are
subject to the fulfillment of each of the following conditions, any or all of
which may be waived in whole or in part by a Seller as to itself, to the extent
permitted by applicable law:
(i) GOVERNMENTAL AND REGULATORY CONSENTS; NO INJUNCTION. No order,
stay, injunction or decree of any court of competent jurisdiction shall
have been issued that prevents or materially delays the consummation of
the Transactions and no proceedings shall be threatened to such effect.
(ii) TYPE 5 CONSENTS. Any determination, directive or other action
required from a Qualified Professional Asset Manager for a Type 5 Investor
necessary, as determined by such Type 5 Investor, to comply with
applicable law shall have been received.
(iii) FAIRNESS OPINION. The Institutional Sellers shall have
received a fairness opinion from Sellers' Financial Advisor, special
advisers to the Institutional Sellers, in form and substance satisfactory
to the Institutional Sellers, to the effect that the Transactions are fair
to the Institutional Sellers from a financial perspective.
(iv) SETTLEMENT AGREEMENT. The Settlement Agreement shall have been
executed and delivered by each of the parties thereto and Torchmark shall
have paid all amounts required to be paid by Torchmark thereunder.
(v) LEGAL OPINION. Butler & Binion, L.L.P shall have delivered to
each of the Seller's its opinion regarding the matters set forth in
paragraphs (a), (b), (c) and (i) of Section 5.1 hereof and regarding the
effectiveness of the Merger upon the filing of the Certificates of Merger.
SECTION 7.4 CONDITIONS TO MERGER.
(a) The obligations of each of the Partnerships and their respective
Partners to proceed with the Merger shall be subject to the satisfaction,
at or prior to the Closing, of each of the following conditions, each of
which may be waived by the Partnerships, as to itself, except as otherwise
provided by law:
(i) REPRESENTATIONS AND WARRANTIES, AGREEMENTS AND COVENANTS.
All representations and warranties of Buyer and Bellwether contained
in this Agreement or in any schedule or document delivered pursuant
to the provisions of this Agreement shall be true and correct in all
material respects as of the Closing Date, except for representations
or warranties made as of a specific date, which shall be true and
correct as of such date. Each of the agreements, covenants and
obligations of Buyer and Bellwether required by this Agreement to be
performed by them at or prior
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to the Closing shall have been duly performed and complied with as
of the Closing. Each of the deliveries required to be made by Buyer
and Bellwether at the Closing shall have been made by Buyer and
Bellwether, respectively.
(ii) ABSENCE OF INJUNCTION. No order, stay, injunction or decree of
any court of competent jurisdiction shall have been issued that prevents
or materially delays the consummation of the Merger with such Partnership
and no proceedings shall be threatened to such effect.
(b) The obligation of Bellwether and Buyer to proceed with the
Merger with any Partnership shall be subject to the satisfaction, at or
prior to the Closing, of each of the following conditions with respect to
such Partnership, each of which may be waived by Bellwether or Buyer
except as otherwise provided by law:
(i) REPRESENTATIONS AND WARRANTIES, AGREEMENTS AND COVENANTS.
All representations and warranties of such Partnership and their
General Partner and Limited Partners contained in this Agreement or
in any schedule or document delivered pursuant to the provisions of
this Agreement shall be true and correct in all material respects as
of the Closing Date, except for representations and warranties made
as of a specific date, which shall be true and correct as of such
date. Each of the agreements, covenants and obligations of such
Partnership and its General Partner and Limited Partners required by
this Agreement to be performed by them at or prior to the Closing
shall have been duly performed and complied with as of the Closing.
Each of the deliveries required to be made by such Partnership and
its General Partner and Limited Partners at the Closing shall have
been made by the Partnerships and its General Partner and Limited
Partners.
(ii) ABSENCE OF INJUNCTION. No order, stay, injunction or
decree of any court of competent jurisdiction shall have been issued
that prevents or materially delays the consummation of the Merger
with such Partnership and no proceedings shall be threatened to such
effect.
(iii) CONSENTS. To the extent any person or persons shall
refuse to give a required consent or consents to the transfer to
Buyer of Material Oil and Gas Properties, the parties hereto shall
have reached a mutual agreement on a method of dealing with such
non-consent.
(iv) NO MATERIAL ADVERSE CHANGE. There shall not have occurred
any Material Adverse Change.
SECTION 7.5 CONDITIONS TO THE NOTE TRANSFERS.
(a) The obligations of the Type 3 Noteholder and the Type 4
Noteholder to proceed with the Note Transfers at the Closing shall be
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions, each of which may be waived by the Type 3 Noteholder
or the Type 4 Noteholder, as to itself, except as otherwise provided by
law:
(i) REPRESENTATIONS AND WARRANTIES, AGREEMENTS AND COVENANTS.
All representations and warranties of Bellwether and Buyer contained
in this Agreement or in any schedule or document delivered pursuant
to the provisions of this Agreement shall be true and correct in all
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material respects as of the Closing Date, except for representations
or warranties made as of a specific date, which shall be true and
correct as of such date. Each of the agreements, covenants and
obligations of Bellwether and Buyer required by this Agreement to be
performed by them at or prior to the Closing shall have been duly
performed and complied with as of the Closing. Each of the
deliveries required to be made by Bellwether and Buyer at the
Closing shall have been made by Bellwether and Buyer.
(ii) ABSENCE OF INJUNCTION. No order, stay, injunction or
decree of any court of competent jurisdiction shall have been issued
that prevents or materially delays the consummation of the Note
Transfer by such Noteholder and no proceedings shall be threatened
to such effect.
(b) The obligation of Bellwether and Buyer to proceed with each of
the Note Transfers at the Closing shall be subject to the satisfaction, at
or prior to the Closing, of each of the following conditions, each of
which may be waived by Bellwether and Buyer as to any or all Note
Transfers, except as otherwise provided by law:
(i) REPRESENTATIONS AND WARRANTIES; AGREEMENTS AND COVENANTS.
All representations and warranties of the Type 3 Noteholder and the
Type 4 Noteholder contained in this Agreement or in any schedule or
document delivered pursuant to the provisions of this Agreement
shall be true and correct in all material respects as of the Closing
Date, except for representations and warranties made as of a
specific date, which shall be true and correct as of such date. Each
of the agreements, covenants and obligations of the Type 3
Noteholder and the Type 4 Noteholder required by this Agreement to
be performed by them at or prior to the Closing shall have been duly
performed and complied with as of the Closing. Each of the
deliveries required to be made by the Type 3 Noteholder and the Type
4 Noteholder at the Closing shall have been made by the Type 3
Noteholder and the Type 4 Noteholder, respectively.
(ii) ABSENCE OF INJUNCTION. No order, stay, injunction or
decree of any court of competent jurisdiction shall have been issued
that prevents or materially delays the consummation of the Note
Transfers and no proceedings shall be threatened to such effect.
(iii) NO MATERIAL ADVERSE CHANGE. There shall not have
occurred any Material Adverse Change.
SECTION 7.6 CONDITIONS TO THE TYPE 5 TRANSFERS.
(a) The obligations of each Type 5 Investor to proceed with the Type
5 Transfers at the Closing shall be subject to the satisfaction, at or
prior to the Closing, of each of the following conditions, each of which
may be waived by the Type 5 Investors, as to itself, except as otherwise
provided by law:
(i) REPRESENTATIONS AND WARRANTIES, AGREEMENTS AND COVENANTS.
All representations and warranties of Bellwether and Buyer contained
in this Agreement or in any schedule or document delivered pursuant
to the provisions of this Agreement shall be true and correct in all
material respects as of the Closing Date, except for representations
or warranties made as of a specific date, which shall be true and
correct as of such date. Each of the agreements, covenants and
obligations of Bellwether and Buyer required by this Agreement to be
performed by them at or prior to the Closing shall have been duly
performed and complied with as of the Closing. Each of the
deliveries required to be made by Bellwether and Buyer at the
Closing shall have been made by Bellwether and Buyer.
(ii) ABSENCE OF INJUNCTION. No order, stay, injunction or
decree of any court of competent jurisdiction shall have been issued
that prevents or materially delays any of the Type 5 Transfers and
no proceedings shall be threatened to such effect.
(b) The obligation of Bellwether and Buyer to proceed with a Type 5
Transfer at the Closing shall be subject to the satisfaction, at or prior
to the Closing, of each of the following conditions with respect to the
applicable Type 5 Investor, each of which may be waived by Bellwether and
Buyer, except as otherwise provided by law:
(i) REPRESENTATIONS AND WARRANTIES; AGREEMENTS AND COVENANTS.
All representations and warranties of the Type 5 Investors contained
in this Agreement or in any schedule or document delivered pursuant
to the provisions of this Agreement shall be true and correct in all
material respects as of the Closing Date, except for representations
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and warranties made as of a specific date, which shall be true and
correct as of such date. Each of the agreements, covenants and
obligations of the Type 5 Investors required by this Agreement to be
performed by them at or prior to the Closing shall have been duly
performed and complied with as of the Closing. Each of the
deliveries required to be made by the Type 5 Investors at the
Closing shall have been made by the Type 5 Investors.
(ii) ABSENCE OF INJUNCTION. No order, stay, injunction or
decree of any court of competent jurisdiction shall have been issued
that prevents or materially delays any of the Type 5 Transfers and
no proceedings shall be threatened to such effect.
(iii) CONSENTS. To the extent any person or persons shall
refuse to give a required consent or consents to the transfer to
Buyer of Material Oil and Gas Properties, the parties hereto shall
have reached a mutual agreement on a method of dealing with such
non-consent.
(iv) NO MATERIAL ADVERSE CHANGE. There shall not have occurred
any Material Adverse Change.
SECTION 7.7 CONDITIONS TO BLACK HAWK TRANSFER, TEA TRANSFER, TOC TRANSFER
AND TOGCO TRANSFER.
(a) The obligation of Torch, TEA and TOC to proceed with the Black
Hawk Transfer, TEA Transfer, TOC Transfer or the TOGCO Transfer (as the
case may be) at the Closing shall be subject to the satisfaction, at or
prior to the Closing, of each of the following conditions, each of which
may be waived by Torch, TEA or TOC as to itself except as otherwise
provided by law:
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(i) REPRESENTATIONS AND WARRANTIES, AGREEMENTS AND COVENANTS.
All representations and warranties of Bellwether and Buyer contained
in this Agreement or in any schedule or document delivered pursuant
to the provisions of this Agreement shall be true and correct in all
material respects as of the Closing Date, except for representations
or warranties made as of a specific date, which shall be true and
correct as of such date. Each of the agreements, covenants and
obligations of Bellwether and Buyer required by this Agreement to be
performed by them at or prior to the Closing shall have been duly
performed and complied with as of the Closing. Each of the
deliveries required to be made by Bellwether and Buyer at the
Closing shall have been made by Bellwether and Buyer.
(ii) ABSENCE OF INJUNCTION. No order, stay, injunction or
decree of any court of competent jurisdiction shall have been issued
that prevents or materially delays the consummation of the Black
Hawk Transfer, TEA Transfer, TOC Transfer or the TOGCO Transfer and
no proceedings shall be threatened to such effect.
(b) The obligation of Bellwether and Buyer to proceed with the Black
Hawk Transfer, TEA Transfer, TOC Transfer and the TOGCO Transfer at the
Closing shall be subject to the satisfaction, at or prior to the Closing,
of each of the following conditions, each of which may be waived by
Bellwether and Buyer except as otherwise provided by law:
(i) REPRESENTATIONS AND WARRANTIES; AGREEMENTS AND COVENANTS.
All representations and warranties of each of Torch, Black Hawk,
TEA, TOC and TOGCO contained in this Agreement or in any schedule or
document delivered pursuant to the provisions of this Agreement
shall be true and correct in all material respects as of the Closing
Date, except for representations and warranties made as of a
specific date, which shall be true and correct as of such date. Each
of the agreements, covenants and obligations of Torch, Black Hawk,
TEA, TOC and TOGCO required by this Agreement to be performed by
them at or prior to the Closing shall have been duly performed and
complied with as of the Closing. Each of the deliveries required to
be made by Torch, Black Hawk, TEA, TOC and TOGCO at the Closing
shall have been made by Torch, Black Hawk, TEA, TOC and TOGCO,
respectively.
(ii) ABSENCE OF INJUNCTION. No order, stay, injunction or
decree of any court of competent jurisdiction shall have been issued
that prevents, enjoins or materially delays the consummation of the
Black Hawk Transfer, the TEA Transfer, the TOC Transfer or the TOGCO
Transfer and no proceedings shall be threatened to such effect.
(iii) CONSENTS. To the extent any person or persons shall
refuse to give a required consent or consents to the transfer to
Buyer of Material Oil and Gas Properties, the parties hereto shall
have reached a mutual agreement on a method of dealing with such
non-consent.
(iv) NO MATERIAL ADVERSE CHANGE. There shall not have occurred
any Material Adverse Change.
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SECTION 7.8 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, regardless of whether approved by the Institutional
Sellers, as among the parties hereto:
(i) by mutual consent of all of the parties hereto;
(ii) by any of the parties hereto, as to itself, if the
Closing shall not have taken place prior to April 30, 1997;
(iii) by any of the parties hereto, as to itself, if any court
of competent jurisdiction shall have issued an order, stay,
injunction or decree preventing the Transactions contemplated by
this Agreement;
(iv) by Bellwether or Buyer as to any Seller if there has been
a material violation or material breach by such Seller of any
representation, warranty, covenant or obligation contained in this
Agreement, and such violation or breach has not been waived by
Bellwether or Buyer or cured within ten (10) days after notice
thereof in writing delivered to the party in breach or violation;
and
(v) by a Seller, as to itself, if there has been a material
violation or material breach by Bellwether or Buyer of any
representation, warranty, covenant or obligation contained in this
Agreement, and such violation or breach has not been waived by such
Seller or cured within ten (10) days after notice thereof in writing
delivered to the party in breach or violation.
If any party hereto shall terminate this Agreement pursuant to the provisions
hereof, such termination shall be effected by written notice to the other
parties specifying the provision hereof pursuant to which such termination is
made. Termination by a Seller or by Bellwether or Buyer with respect to a
specific Seller shall terminate this Agreement as to such Seller and Bellwether
and Buyer and shall not affect the rights and obligations of the other Sellers;
provided, however, that in the event that any Seller shall terminate this
Agreement pursuant to Section 7.8(v), such Seller shall have the right to
receive its proportionate share of the Signing Escrow Account.
SECTION 7.9 WAIVERS OF CONDITIONS. Notwithstanding anything to the
contrary contained in this Article VII or elsewhere in this Agreement, neither
Torch, Buyer nor Bellwether shall waive any condition with respect to any
Transaction unless Torch, Buyer and Bellwether shall waive such condition (or
any similar condition) with respect to all other Transactions to which such
condition (or any similar condition) applies. Further, Torch, Buyer and
Bellwether shall not otherwise allow any Transaction to be consummated unless
all other Transactions are concurrently consummated except for any Transaction
where the satisfaction of any condition to such consummation is beyond the
reasonable control of Buyer, Bellwether and Torch and their respective
subsidiaries; provided, however, that this sentence shall not require Buyer,
Bellwether or Torch to waive any condition except to the extent required by the
first sentence of this Section 7.9.
ARTICLE VIII. ASSUMPTION AND INDEMNIFICATION
SECTION 8.1 INDEMNITY BY BELLWETHER AND BUYER. Bellwether and Buyer shall,
on the Closing Date, agree (and, at the Effective Time, shall be deemed to have
agreed), (a) to assume, and to timely pay and perform, all duties, obligations
and liabilities relating to the documents creating the Institutional Programs,
the ownership and/or operation of the Properties before and after the Effective
Date (including, without limitation, those arising under the contracts and
agreements described in paragraph (c) of the definition of
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Property), (b) to assume, and to timely pay and perform, all duties, obligations
and liabilities of each of Black Hawk, TEA and TOGCO as the respective grantors
of the net profits interests that constitute the Properties, including, without
limitation, the obligations of Black Hawk, TEA and TOGCO to indemnify the
grantees of such net profits interests pursuant to Section 4.1 of each
conveyance set forth on Schedule B, and (c) to indemnify and hold Sellers, and
their respective affiliates (and the respective present and former directors,
officers, trustees, fiduciaries, employees, attorneys, contractors and agents of
Sellers and such affiliates) harmless from and against any and all claims,
actions, causes of action, liabilities, damages, losses, costs or expenses
(including, without limitation, court costs and attorneys' fees) of any kind or
character arising, directly or indirectly, out of or otherwise relating to the
ownership and/or operation of the Properties by the Partnerships before and
after the Effective Date. In connection with (but not in limitation of) the
foregoing, it is specifically understood and agreed that such duties,
obligations and liabilities arising out or otherwise relating to the ownership
and/or operation of the Properties before and after the Effective Date shall be
deemed to include all existing or threatened litigation and matters arising out
of the condition of the Properties on the Effective Date (including, without
limitation, within such matters all obligations to properly plug and abandon, or
replug and re-abandon, wells located on the Properties, to restore the
Properties and to comply with, or to bring the Properties into compliance with,
applicable environmental laws, rules, regulations and orders, including
conducting any remediation activities which may be required on or otherwise in
connection with activities on the Properties), regardless of whether such
condition or the events giving rise to such condition arose or occurred before
or after the Effective Date, and the assumptions and indemnifications by Buyer
provided for in the first sentence of this section shall expressly cover and
include such matters. THE FOREGOING ASSUMPTIONS AND INDEMNIFICATIONS SHALL APPLY
WHETHER OR NOT SUCH DUTIES, OBLIGATIONS OR LIABILITIES, OR SUCH CLAIMS, ACTIONS,
CAUSES OF ACTION, LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES, ARISE OUT OF
(i) NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE, CONCURRENT
NEGLIGENCE, ACTIVE, PASSIVE NEGLIGENCE OR GROSS NEGLIGENCE) OF ANY INDEMNIFIED
PARTY, OR (ii) STRICT LIABILITY.
SECTION 8.2 INDEMNIFICATION BY TORCH. Torch shall (a) assume, and timely
pay and perform, all duties, obligations and liabilities relating to the
ownership and/or operation of the Excluded Black Hawk Assets and Excluded TOGCO
Assets before and after the Effective Date (including, without limitation, those
arising under the contracts and agreements described in paragraph (c) of the
definition of Property), (b) assume, and to timely pay and perform, all duties,
obligations and liabilities of Black Hawk and TOGCO related to the Excluded
Black Hawk Assets or Excluded TOGCO Assets, as the case may be, and (c)
indemnify and hold Bellwether, Buyer, Black Hawk and TOGCO, and their respective
affiliates (and the respective present and former directors, officers, trustees,
fiduciaries, employees, attorneys, contractors and agents of Sellers and such
affiliates) harmless from and against any and all claims, actions, causes of
action, liabilities, damages, losses, costs or expenses (including, without
limitation, court costs and attorneys' fees) of any kind or character arising
out of or otherwise relating to the ownership and/or operation of the Excluded
Black Hawk Assets or Excluded TOGCO Assets before and after the Effective Date.
In connection with (but not in limitation of the foregoing, it is specifically
understood and agreed that such duties, obligations and liabilities arising out
of or otherwise relating to the ownership and/or operation of the Excluded Black
Hawk Assets or Excluded TOGCO Assets before and after the Effective Date shall
be deemed to include all existing or threatened litigation and matters arising
out of the condition of the Excluded Black Hawk Assets or Excluded TOGCO Assets
on the Effective Date (including, without limitation, within such matters all
obligations to
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properly plug and abandon, or replug and re-abandon, wells located on the
Excluded Black Assets or Excluded TOGCO Assets, to restore the Excluded Black
Hawk Assets or Excluded TOGCO Assets and to comply with, or to bring the
Excluded Black Hawk Assets or Excluded TOGCO Assets into compliance with,
applicable environmental laws, rules, regulations and orders, including
conducting any remediation activities which may be required on or otherwise in
connection with activities on the Excluded Black Hawk Assets or Excluded TOGCO
Assets), regardless of whether such condition or the events giving rise to such
condition arose or occurred before or after the Effective Date, and the
assumptions and indemnifications by Torch provided for in the first sentence of
this section shall expressly cover and include such matters. THE FOREGOING
ASSUMPTIONS AND INDEMNIFICATIONS SHALL APPLY WHETHER OR NOT SUCH DUTIES,
OBLIGATIONS OR LIABILITIES, OR SUCH CLAIMS, ACTIONS, CAUSES OF ACTION,
LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES, ARISE OUT OF (i) NEGLIGENCE
(INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE, CONCURRENT NEGLIGENCE, ACTIVE,
PASSIVE NEGLIGENCE OR GROSS NEGLIGENCE) OF ANY INDEMNIFIED PARTY, OR (ii) STRICT
LIABILITY. Notwithstanding anything set forth in this Section 8.2, the maximum
amount for which Torch shall be liable under this Section with respect to the
Excluded Black Hawk Assets shall be the amount of the Exchange Value and
Contingent Payment allocated to the Black Hawk Assets and with respect to the
Excluded TOGCO Assets shall be the amount of the Exchange Value and Contingent
Payment allocated to the TOGCO Assets.
SECTION 8.3 WAIVERS. Except as provided in Section 8.2, if the Closing
occurs, each of Bellwether and Buyer on behalf of itself and each of its
affiliates, successors and assigns (and their respective stockholders,
directors, officers, employees, attorneys, contractors and agents) shall be
deemed to have waived, to the fullest extent permitted under applicable law, any
right of contribution against Sellers or any of their respective affiliates,
successors and assigns (and their respective stockholders, directors, officers,
employees, attorneys, contractors and agents) arising under or based on any
federal, state or local statute, law, ordinance, rule or regulation or common
law or otherwise relating to the Properties acquired by Buyer pursuant to the
Transactions.
ARTICLE IX. STEERING COMMITTEE AGREEMENT
SECTION 9.1 CONTINUATION OF AGREEMENTS. The Steering Committee Agreement
(the "SCA") dated as of October 24, 1996, by and among certain of the
Institutional Sellers, a copy of which has been furnished to each party, is
hereby continued as provided in Section 9.2 by the Institutional Sellers who
were original parties thereto and is hereby joined into and made by the
Institutional Sellers who originally were not parties thereto. The Related
Agreement (the "Related Agreement") dated as of October 24, 1996, attached to
the SCA as Exhibit C and made by Torch for the benefit of the parties named
therein is hereby continued so that it also relates to the SCA, as amended in
Section 9.2. Torch hereby agrees to the amendment of the SCA as set forth in
Section 9.2.
SECTION 9.2. AMENDMENT OF AGREEMENTS. The SCA is hereby amended as set
forth below in this Section 9.2. References in the Related Agreement to the SCA
shall mean the SCA as continued and amended by this Article IX. Terms which are
defined in the SCA shall have the same meanings when used herein.
(a) INVESTORS. After the date of this Agreement, "Investor" shall
mean the Institutional Sellers who are parties to this Agreement.
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(b) EXPENSE PERCENTAGE. After the date of this Agreement, the
"Expense Percentage" shall mean for Torch or each Investor a fraction
expressed as a percentage, the numerator of which for Torch is the
aggregate of the Exchange Values for the General Partners, Black Hawk,
TEA, TOC and TOGCO, the numerator of which for an Investor is the
aggregate of the Exchange Values for such Investor, and the denominator of
which is the aggregate of the Exchange Values for the General Partners,
Black Hawk, TEA, TOC, TOGCO and all Investors. The Expense Percentages
shall aggregate 100% for Torch and all Investors.
(c) INVESTOR PERCENTAGE. After the date of this Agreement, the
"Investor Percentage" shall mean for each Investor a fraction expressed as
a percentage, the numerator of which is the aggregate of the Exchange
Values for such Investor, and the denominator of which is the aggregate of
the Exchange Values for all Investors.
(d) MEMBERS OF STEERING COMMITTEE. After this Agreement becomes
effective, Betty Sheets and Nina Scherago shall no longer be Members of
the Committee.
(e) ROLE OF COMMITTEE. After the date of this Agreement, the role of
the Committee shall be expanded to facilitate the closing of the
Transactions under this Agreement. The limitations on the Committee and
its Members set forth in Section 2.4(b) and elsewhere in the SCA shall
continue in full force and effect. The Committee and its Members shall
continue to have the authority set forth in Section 2.4(c) and elsewhere
in the SCA.
(f) PAYMENT OF EXPENSES. The expenses payable pursuant to Section
3.1 of the SCA shall be payable as follows:
(i) Those expenses which were incurred prior to March 1, 1997,
shall be paid by IBM and each other original Investor which does not
become an Institutional Seller under this Agreement, to the extent
of their respective original Expense Percentages and otherwise in
accordance with the original terms of the SCA and prior to the
amendments made pursuant to this Section 9.2; and
(ii) The expenses heretofore paid by Torch and the
Institutional Sellers under the SCA and hereafter payable by Torch
and the Institutional Sellers under the SCA shall be paid by Torch
and the Institutional Sellers in accordance with the amended
Expenses Percentages provided for in this Section 9.2. Adjustments
shall be made in the future payment of expenses by Torch and the
Institutional Sellers to properly allocate the past payment of
expenses by such parties in accordance with the foregoing provisions
of this subsection. The future payment of expenses pursuant to this
subsection shall include the payment to the Advisor of that portion
of its fee which is contingent upon, and becomes payable solely by
virtue of, the Transactions.
(g) PAYMENT OF INDEMNIFICATION COSTS. The Indemnification Costs
payable pursuant to Sections 2.5 and 3.2 of the SCA shall be payable as
follows:
(i) Those Indemnification Costs which arise or relate to acts
or omissions which occurred prior to February 14, 1997, shall be
paid by IBM and each other original Investor which does not become
an Institutional Seller under this Agreement, to the extent of their
respective original
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Investor Percentages and otherwise in accordance with the original
terms of the SCA and prior to the amendments made pursuant to this
Section 9.2; and
(ii) All other Indemnification Costs shall be paid by the
Institutional Sellers in accordance with the amended Investor
Percentages provided for in this Section 9.2.
(h) PAYMENT OF EXPENSES. Torch shall continue to pay expenses in
accordance with Section 3.3 of the SCA, subject to the amendments provided
for in this Section 9.2. Further, Buyer shall pay at the Closing (or at
the Calculation Date) those expenses and Indemnification Costs payable
under the SCA which are then owing or which can be estimated and are
approved by the Committee and shall deduct the amount of such payments
from the amounts payable at Closing (or at the Calculation Date) from
Torch and the Institutional Sellers, all in accordance with Section 3.3
(which shall also be applicable to Buyer) and the other applicable
provisions of the SCA, as amended by this Section 9.2.
(i) TERM. The original term of the SCA is hereby extended
until the Closing Date and for a period of thirty days thereafter.
(j) OTHER PROVISIONS. The other provisions of the SCA shall
continue in full force and effect.
SECTION 9.3 NO LIABILITY OF BELLWETHER. Except as provided in Section
9.2(h), the covenants, agreements and obligations set forth in this Article IX
are solely those of Torch and the Institutional Sellers and the parties hereto
acknowledge and agree that Bellwether shall have no responsibility, liability or
obligation, direct or indirect, of any nature whatsoever with respect to the
breach, violation or performance of any of the provisions of this Article IX.
ARTICLE X. MISCELLANEOUS AND GENERAL
SECTION 10.1 SURVIVAL. The agreements of the parties contained herein
shall survive the consummation of the Transactions.
SECTION 10.2 MODIFICATION OR AMENDMENT. The parties hereto may modify or
amend this Agreement only by an agreement in writing executed and delivered by
duly authorized officers or representatives of each of the respective parties
hereto.
SECTION 10.3 WAIVER OF CONDITIONS. The conditions to the parties'
obligations to consummate the Transactions are for the sole benefit of such
party and may be waived by such party in whole or in part, to the extent
permitted by applicable law.
SECTION 10.4 COUNTERPARTS. This Agreement may be separately executed by
the parties hereto in any number of counterparts, each such counterpart being
deemed to be an original, and all such counterparts taken together shall
constitute the same agreement.
SECTION 10.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
SECTION 10.6 ENTIRE AGREEMENT, ETC. This Agreement (a) constitutes the
entire agreement, and supersedes all other prior agreements and understandings,
both written and oral, among the parties, with respect to the subject matter
hereof, including, without
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limitation, the letter of intent and attached term sheet dated as of February
25, 1997, and (b) shall not be assignable by operation of law or otherwise and
is not intended to create any obligations to, or rights in respect of, any
persons other than the parties hereto.
SECTION 10.7 CAPTIONS. The Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
SECTION 10.8 GUARANTY. (a) Bellwether hereby absolutely and
unconditionally guarantees the prompt, complete and full performance, when due,
of all obligations, agreements and undertakings of the Buyer under, by reason
of, or pursuant to this Agreement and any other agreement to which Buyer shall
become a party which may be made with respect to this Agreement.
(b) The obligations of Bellwether pursuant to this Section 10.8 are
independent of the obligations of the Buyer, and any Seller may proceed
directly to enforce all rights under this section without proceeding
against or joining the Buyer or any other person.
(c) The obligations of Bellwether arising under this Section 10.8
shall remain in full force and effect without regard to, and shall not be
affected or impaired by, any of the following:
(i) Any amendment to or modification of this Agreement or any
related document;
(ii) Any failure, omission or delay to enforce, assert or
exercise any right, power, privilege or remedy conferred by the
terms of this Agreement or any related document;
(iii) Any exercise or waiver of any right, power, privilege or
remedy conferred by the terms of this Agreement or any related
document, or the waiver of any default thereunder; or
(iv) The voluntary or involuntary liquidation, dissolution,
sale of all or substantially all assets, marshaling of assets or
liabilities, receivership, conservatorship, assignment for the
benefit of creditors, insolvency, bankruptcy, reorganization,
arrangement, composition or other proceedings under laws for the
protection of debtors affecting the Buyer, or any of the assets of
Buyer, or any discharge from liabilities or rejection of burdensome
contracts or obligations in the course of or resulting from any such
proceedings.
SECTION 10.9 LIMITED PARTNER EXECUTION. Each of the Limited Partners is
executing this Agreement solely for the purpose of making the representations
and warranties set forth in Section 5.3 and giving the consents specified in
Sections 2.7 and 6.1.
SECTION 10.10 ALLOCATION OF PURCHASE PRICE. Each party hereto agrees that
the purchase price shall be allocated among the individual Oil and Gas
Properties as described on Exhibit C.
SECTION 10.11 NO PARTNERSHIP OR THIRD PARTY BENEFICIARY. This Agreement
does not and shall not be construed to create a partnership, joint venture or
any other
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relationship between the parties hereto. No person or party is intended to be or
shall be construed to be a third party beneficiary of this agreement or any
provision hereof.
SECTION 10.12 EFFECTIVENESS OF THIS AGREEMENT. (a) This Agreement shall
become effective as to those parties who are signatories hereto at the earlier
of the following (i) such time as this Agreement is executed by a sufficient
number of the parties listed on the signature pages hereof to transfer to the
Buyer at the Closing Oil and Gas Properties with a pre-tax present value,
discounted at 10%, of future net cash flows of the oil and gas reserves
attributable thereto, as of July 1, 1996, equal to at least 95% of the pre-tax
present value, discounted at 10%, of future net cash flows of oil and gas
reserves attributable to all of the Oil and Gas Properties (such present value
shall be based on the reserve reports as of June 30, 1996 set forth in
Bellwether's Registration Statement which excludes any interests owned by IBM)
or (ii) the date Bellwether shall notify the signatories to this Agreement that
the condition to closing the Transactions set forth in Section 7.3(a)(iii) will
be waived by Bellwether and Buyer if the signatories to this Agreement close the
Transactions.
(b) Bellwether and Buyer acknowledge that the Orange County Employees'
Retirement System ("Orange County") may be unable to execute this Agreement,
consent to a merger of TEAI VIII-B or sell its interest in TEAI VIII-B until
April 15, 1997, because of certain required approvals. Subject to the conditions
set forth in this Agreement, if Orange County is not able to execute this
Agreement prior to April 15:
(i) Buyer will purchase from the other Limited Partners of TEAI
VIII-B their respective Limited Partner interests in TEAI VIII-B.
(ii) The Exchange Value payable to Torch at the Closing will be
reduced by the Exchange Value attributable to the working interests
("Subject Interests") burdened by the Net Profits Interests owned by TEAI
VIII-B and by the Exchange Value attributable to the General Partner
interest in TEAI VIII-B and Torch will not be required to sell such
General Partner interest to Black Hawk and may distribute the Subject
Interests out of TOGCO prior to Closing.
(iii) Orange County will be permitted to execute a counterpart of
this Agreement on or prior to April 15, 1997, and following such execution
will be deemed a party hereto as if Orange County had executed this
Agreement on March 31, 1997. Promptly following the execution of this
Agreement by Orange County, Bellwether will purchase the Limited Partner
interest of Orange County in TEAI VIII-B for the Exchange Value (and when
payable as provided for in Section 4.3, the Contingent Payment)
attributable thereto, and Black Hawk will purchase the General Partner
interest in TEAI VIII-B and the Subject Interests from Torch for the
Exchange Value (and, when payable, the Contingent Payment) attributable
thereto.
(iv) If Orange County does not execute a counterpart of this
Agreement, the Contingent Payment allocable to the Subject Interests and
the General Partner interest in TEAI VIII-B will be paid to Bellwether.
(v) This Section 10.12(b) will not effect Bellwether's, Buyer's and
Black Hawk's rights and obligations hereunder with respect to any other
party other than the Limited Partners of TEAI VIII-B and Torch.
(vi) This Section 10.12(b) will control over the other applicable
provisions of this Agreement with respect to Orange County and TEAI
VIII-B.
44
<PAGE>
SECTION 10.13 NOTICES. All notices, requests, consents and other
communications under this Agreement shall be in writing and shall be deemed to
have been delivered on the date mailed, postage prepaid, by certified mail,
return receipt requested, or on the date personally delivered or delivered by an
over-night delivery service or telecopied and confirmed to the address of such
party as it appears on the signature page of this Agreement. Any party hereto
may designate a different address by notice to the other parties.
SECTION 10.14 SETTLEMENT AGREEMENT. Torchmark is executing this Agreement
solely to agree to enter into the Settlement Agreement at the Closing. The
amount to be paid by Torchmark to each Investor is set forth on Exhibit A of the
Settlement Agreement, which amounts are considered principal and interest for
the Type 3 Noteholder and the Type 4 Noteholder, and payments of overriding
royalties to the Type 2 Partnerships and the Type 5 Investors.
SECTION 10.15 INVESTMENT ADVISOR. Torch is a registered investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). Each
of the Institutional Sellers agrees that neither Torch nor any of its affiliates
are acting or have acted as an investment adviser under the Advisers Act to any
of the Institutional Sellers with respect to or in connection with, (i) any
decision to sell any of the Properties to any person, (ii) any of the
transactions contemplated in this Agreement or (iii) any of the terms or
conditions contained in this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers and representatives of the parties hereto on the
date first hereinabove written.
45
<PAGE>
Program Acquisition Company PROGRAM ACQUISITION COMPANY,
Attention: J. Darby Sere a Delaware corporation
1331 Lamar, Suite 1455
Houston, Texas 77010 By:
Phone: (713) 753-1420 J. Darby Sere, President
Fax: (713) 652-2916
Bellwether Exploration Company BELLWETHER EXPLORATION
Attention: J. Darby Sere COMPANY
1331 Lamar, Suite 1455
Houston, Texas 77010
Phone: (713) 753-1420 By:
Fax: (713) 652-2916 J. Darby Sere,
Chief Executive Officer
Torch Energy Advisors Incorporated TORCH ENERGY ADVISORS
Attention: Roland E. Sledge INCORPORATED
1221 Lamar, Suite 1600
Houston, Texas 77010
Phone: (713) 753-1370 By:
Fax: (713) 655-1711 Roland E. Sledge, Senior
Vice President
Black Hawk Oil Company BLACK HAWK OIL COMPANY
Attention: Roland E. Sledge
1221 Lamar, Suite 1600
Houston, Texas 77010 By:
Phone: (713) 753-1370 Roland E. Sledge,
Fax: (713) 655-1711 Vice President
Torch Operating Company TORCH OPERATING COMPANY
Attention: Roland E. Sledge
1221 Lamar, Suite 1600
Houston, Texas 77010 By:
Phone: (713) 753-1370 Roland E. Sledge,
Fax: (713) 655-1711 Vice President
TEAI Oil & Gas Company TEAI OIL & GAS COMPANY
Attention: Roland E. Sledge
1221 Lamar, Suite 1600
Houston, Texas 77010 By:
Phone: (713) 753-1370 Roland E. Sledge,
Fax: (713) 655-1711 Vice President
c/o Torch Energy Advisors Incorporated TORCH ENERGY ASSOCIATES LTD.
Attention: Roland E. Sledge
1221 Lamar, Suite 1600 By: Torch Energy Advisors Incorporated,
Houston, Texas 77010 General Partner
Phone: (713) 753-1370
Fax: (713) 655-1711
By:
Roland E. Sledge, Senior
Vice President
Torchmark Corporation TORCHMARK CORPORATION
Attention: Duncan Hamilton
2001 Third Avenue, South
Birmingham, Alabama 35233
Telephone: (205) 325-4200 By:
Telefax: (205) 325-4198 Keith A. Tucker, Vice Chairman
of the Board
46
<PAGE>
c/o Torch Energy Advisors 1986-STEA LIMITED PARTNERSHIP I,
Incorporated a Texas limited partnership
Attention: Roland E. Sledge
1221 Lamar, Suite 1600 By: TORCH ENERGY ASSOCIATES
Houston, Texas 77010 LTD., General Partner
Phone: (713) 753-1370 By: Torch Energy Advisors Incorporated,
Fax: (713) 655-1711 General Partner
By:
Roland E. Sledge, Senior
Vice President
c/o American General Life Insurance Co. KNICKERBOCKER CORPORATION
Attention: Susan Hendrix
2727 Allen Parkway - Building A
Houston, Texas 77019 By
Phone: (713) 831-1218 Name:
Fax: (713) 831-1231 Title:
c/o AEGON USA Investment Management LIFE INVESTORS INSURANCE
Attention: Donald E. Flynn COMPANY OF AMERICA
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Phone: (319) 398-8783 By
Fax: (319) 369-2808 Name:
Title:
c/o Torch Energy Advisors Incorporated TORCH ENERGY ASSOCIATES LTD.
Attention: Roland E. Sledge
1221 Lamar, Suite 1600 By: Torch Energy Advisors Incorporated,
Houston, Texas 77010 General Partner
Phone: (713) 753-1370
Fax: (713) 655-1711
By:
Roland E. Sledge, Senior
Vice President
47
<PAGE>
c/o Torch Energy Advisors Incorporated 1986 STEA LIMITED PARTNERSHIP II,
Attention: Roland E. Sledge
1221 Lamar, Suite 1600 By: TORCH ENERGY ASSOCIATES
Houston, Texas 77010 LTD., General Partner
Phone: (713) 753-1370 By: Torch Energy Advisors Incorporated,
Fax: (713) 655-1711 General Partner
By:
Roland E. Sledge, Senior
Vice President
Canada Life Investment Management THE CANADA LIFE ASSURANCE
Attention: Donald M. Cooper COMPANY
330 University Avenue, spp11
Toronto, Ontario
CANADA M5G1R8 By
Phone: (416) 597-1456 Name:
Fax: (416) 864-9678 Title:
c/o Torch Energy Advisors Incorporated 1987-I STEA LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ASSOCIATES
Phone: (713) 753-1370 LTD., General Partner
Fax: (713) 655-1711 By: Torch Energy Advisors Incorporated,
General Partner
By:
Roland E. Sledge, Senior
Vice President
c/o MetLife Corporation Equities METROPOLITAN LIFE
Attention: Craig Samples INSURANCE COMPANY
334 Madison Avenue
Convent Station, New Jersey 07961
Phone: (201) 254-3353 By
Fax: (201) 254-3055 Name:
Title:
c/o UNUM Corp. FIRST UNUM LIFE INSURANCE
Attention: David R. Murray COMPANY
2211 Congress Street
Portland, Maine 04122-0002
Phone: (207) 770-4240 By
Fax: (207) 770-4152 Name:
Title:
48
<PAGE>
c/o Torchmark Corporation GLOBE LIFE AND ACCIDENT
Attention: Duncan Hamilton INSURANCE COMPANY
2001 Third Avenue, South Birmingham,
Alabama 35233
Telephone: (205) 325-4200
Telefax: (205) 325-4198 By
Name:
Title:
c/o Torchmark Corporation LIBERTY NATIONAL LIFE INSURANCE
Attention: Duncan Hamilton COMPANY
2001 Third Avenue, South
Birmingham, Alabama 35233
Telephone: (205) 325-4200
Telefax: (205) 325-4198 By
Name:
Title:
c/o Torchmark Corporation UNITED AMERICAN INSURANCE
Attention: Duncan Hamilton COMPANY
2001 Third Avenue,
South Birmingham, Alabama 35233
Telephone: (205) 325-4200
Telefax: (205) 325-4198 By
Name:
Title:
c/o UNUM Corp. TRUSTEES OF THE UNUM EMPLOYEES
Attention: David R. Murray PENSION PLAN & TRUST
2211 Congress Street
Portland, Maine 04122-0002 By
Phone: (207) 770-4240 Name:
Fax: (207) 770-4152 Title:
Security Benefit Life Insurance Company SECURITY BENEFIT LIFE INSURANCE
Attention: James L. Woods COMPANY
700 Harrison Street
Topeka, Kansas 66636-0001
Phone: (913) 295-3131 By
Fax: (913) 295-3099 Name:
Title:
c/o Torch Energy Advisors Incorporated 1987-II STEA LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ASSOCIATES
Phone: (713) 753-1370 LTD., General Partner
Fax: (713) 655-1711 By: Torch Energy Advisors Incorporated,
General Partner
By:
Roland E. Sledge, Senior
Vice President
49
<PAGE>
Canada Life Investment Management THE CANADA LIFE ASSURANCE
Attention: Donald M. Cooper COMPANY
330 University Avenue, spp11
Toronto, Ontario
CANADA M5G1R8 By
Phone: (416) 597-1456 Name:
Fax: (416) 864-9678 Title:
c/o Torch Energy Advisors Incorporated 1987-VI STEA LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ASSOCIATES
Phone: (713) 753-1370 LTD., General Partner
Fax: (713) 655-1711 By: Torch Energy Advisors Incorporated,
General Partner
By:
Roland E. Sledge, Senior
Vice President
Phoenix Home Life Mutual Insurance PHOENIX HOME LIFE MUTUAL
Attention: Paul M. Chute INSURANCE COMPANY
56 Prospect Street
Hartford, Connecticut 06115-0480
Phone: (203) 275-5594 By:
Fax: (203) 275-5451 Name:
Title:
Copy to:
William E. Weidner
6 Wilcox Street, Suite 8
Simsbury, Connecticut 06070
Phone: (860) 651-6428
Fax: (860) 651-6326
c/o Torch Energy Advisors Incorporated 1988-I TEAI LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ASSOCIATES
Phone: (713) 753-1370 LTD., General Partner
Fax: (713) 655-1711 By: Torch Energy Advisors Incorporated,
General Partner
By:
Roland E. Sledge, Senior
Vice President
50
<PAGE>
UNUM Corp. FIRST UNUM LIFE INSURANCE
Attention: David R. Murray COMPANY
2211 Congress Street
Portland, Maine 04122-0002
Phone: (207) 770-4240 By
Fax: (207) 770-4152 Name:
Title:
c/o Torchmark Corporation GLOBE LIFE AND ACCIDENT
Attention: Duncan Hamilton INSURANCE COMPANY
2001 Third Avenue, South Birmingham, Alabama 35233
Telephone: (205) 325-4200
Telefax: (205) 325-4198 By
Name:
Title:
c/o Torchmark Corporation LIBERTY NATIONAL LIFE INSURANCE
Attention: Duncan Hamilton COMPANY
2001 Third Avenue, South Birmingham, Alabama 35233
Telephone: (205) 325-4200
Telefax: (205) 325-4198 By
Name:
Title:
Provident Mutual Life Insurance PROVIDENT MUTUAL LIFE
Attention: Bruce L. Lehman, Jr. INSURANCE COMPANY OF
1050 Westlakes Drive PHILADELPHIA
Berwyn, Pennsylvania 19312
Phone: (610) 407-1654
Fax: (610) 407-1322 By
Name:
Title:
Security Benefit Life Insurance Company SECURITY BENEFIT LIFE INSURANCE
Attention: James L. Woods COMPANY
700 Harrison Street
Topeka, Kansas 66636-0001
Phone: (913) 295-3131 By
Fax: (913) 295-3099 Name:
Title:
c/o Torchmark Corporation UNITED AMERICAN INSURANCE
Attention: Duncan Hamilton COMPANY
2001 Third Avenue, South Birmingham, Alabama 35233
Telephone: (205) 325-4200
Telefax: (205) 325-4198 By
Name:
Title:
51
<PAGE>
c/o UNUM Corp. TRUSTEES OF THE UNUM EMPLOYEES PENSION
Attention: David R. Murray PLAN & TRUST
2211 Congress Street
Portland, Maine 04122-0002 By
Phone: (207) 770-4240 Name:
Fax: (207) 770-4152 Title:
c/o Torch Energy Advisors Incorporated 1988-II TEAI LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ASSOCIATES
Phone: (713) 753-1370 LTD., General Partner
Fax: (713) 655-1711 By: Torch Energy Advisors Incorporated,
General Partner
By:
Roland E. Sledge, Senior
Vice President
Canada Life Investment Management CANADA LIFE INSURANCE COMPANY
Attention: Donald M. Cooper OF AMERICA
330 University Avenue, spp11
Toronto, Ontario
CANADA M5G1R8 By
Phone: (416) 597-1456 Name:
Fax: (416) 864-9678 Title:
c/o Torch Energy Advisors Incorporated 1988-V TEAI LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ASSOCIATES
Phone: (713) 753-1370 LTD., General Partner
Fax: (713) 655-1711 By: Torch Energy Advisors Incorporated,
General Partner
By:
Roland E. Sledge, Senior
Vice President
New York Life Insurance Company NEW YORK LIFE INSURANCE
Attention: Lisa A. Scuderi COMPANY
51 Madison Avenue
New York, New York 10010
Phone: (212) 576-7825 By
Fax: (212) 447-4122 Name:
Title:
52
<PAGE>
c/o Torch Energy Advisors Incorporated 1988-VI TEAI LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ASSOCIATES
Phone: (713) 753-1370 LTD., General Partner
Fax: (713) 655-1711 By: Torch Energy Advisors Incorporated,
General Partner
By:
Roland E. Sledge, Senior
Vice President
Phoenix Home Life Mutual Insurance PHOENIX HOME LIFE MUTUAL
Attention: Paul M. Chute INSURANCE COMPANY
56 Prospect Street
Hartford, Connecticut 06115-0480
Phone: (203) 275-5594 By
Fax: (203) 275-5451 Name:
Title:
Copy to:
William E. Weidner
6 Wilcox Street, Suite 8
Simsbury, Connecticut 06070
Phone: (860) 651-6428
Fax: (860) 651-6326
c/o Torch Energy Advisors Incorporated 1989-I TEAI LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ADVISORS
Phone: (713) 753-1370 INCORPORATED,
Fax: (713) 655-1711 Its General Partner
By:
Name:
Title:
Canada Life Investment Management CANADA LIFE INSURANCE COMPANY
Attention: Donald M. Cooper OF AMERICA
330 University Avenue, spp11
Toronto, Ontario
CANADA M5G1R8 By
Phone: (416) 597-1456 Name:
Fax: (416) 864-9678 Title:
53
<PAGE>
UNUM Corp. FIRST UNUM LIFE INSURANCE
Attention: David R. Murray COMPANY
2211 Congress Street
Portland, Maine 04122-0002
Phone: (207) 770-4240 By
Fax: (207) 770-4152 Name:
Title:
c/o Torchmark Corporation GLOBE LIFE AND ACCIDENT
Attention: Duncan Hamilton INSURANCE COMPANY
2001 Third Avenue, South
Birmingham, Alabama 35233
Telephone: (205) 325-4200
Telefax: (205) 325-4198 By
Name:
Title:
c/o Torchmark Corporation LIBERTY NATIONAL LIFE INSURANCE
Attention: Duncan Hamilton COMPANY
2001 Third Avenue, South
Birmingham, Alabama 35233
Telephone: (205) 325-4200
Telefax: (205) 325-4198 By
Name:
Title:
AEGON USA Investment Management LIFE INVESTORS INSURANCE
Attention: Donald E. Flynn COMPANY OF AMERICA
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Phone: (319) 398-8783 By
Fax: (319) 369-2808 Name:
Title:
Provident Mutual Life Insurance PROVIDENT MUTUAL LIFE
Attention: Bruce L. Lehman, Jr. INSURANCE COMPANY OF
1050 Westlakes Drive PHILADELPHIA
Berwyn, Pennsylvania 19312
Phone: (610) 407-1654
Fax: (610) 407-1322 By
Name:
Title:
Security Benefit Life Insurance Company SECURITY BENEFIT LIFE INSURANCE
Attention: James L. Woods COMPANY
700 Harrison Street
Topeka, Kansas 66636-0001
Phone: (913) 295-3131 By
Fax: (913) 295-3099 Name:
Title:
54
<PAGE>
c/o Torchmark Corporation UNITED AMERICAN INSURANCE
Attention: Duncan Hamilton COMPANY
2001 Third Avenue, South Birmingham, Alabama 35233
Telephone: (205) 325-4200
Telefax: (205) 325-4198 By
Name:
Title:
UNUM Corp. TRUSTEES OF THE UNUM EMPLOYEES PENSION
Attention: David R. Murray PLAN & TRUST
2211 Congress Street
Portland, Maine 04122-0002 By
Phone: (207) 770-4240 Name:
Fax: (207) 770-4152 Title:
MetLife Corporation Equities METROPOLITAN LIFE
Attention: Craig Samples INSURANCE COMPANY
334 Madison Avenue
Convent Station, New Jersey 07961
Phone: (201) 254-3353 By
Fax: (201) 254-3055 Name:
Title:
c/o Torch Energy Advisors Incorporated TEAI VII-A LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ADVISORS
Phone: (713) 753-1370 INCORPORATED,
Fax: (713) 655-1711 Its General Partner
By:
Roland E. Sledge, Senior
Vice President
Alfa Corporation ALFA MUTUAL INSURANCE COMPANY
Attention: Stephen G. Rutledge
2108 East South Boulevard
Montgomery, Alabama 36166 By
Phone: (334) 613-4500 Name:
Fax: (334) 613-4709 Title:
Alfa Corporation ALFA FIRE INSURANCE COMPANY
Attention: Stephen G. Rutledge
2108 East South Boulevard
Montgomery, Alabama 36166 By
Phone: (334) 613-4500 Name:
Fax: (334) 613-4709 Title:
55
<PAGE>
Alfa Corporation ALFA LIFE INSURANCE
Attention: Stephen G. Rutledge CORPORATION
2108 East South Boulevard
Montgomery, Alabama 36166
Phone: (334) 613-4500 By
Fax: (334) 613-4709 Name:
Title:
Alfa Corporation ALFA MUTUAL GENERAL INSURANCE COMPANY
Attention: Stephen G. Rutledge
2108 East South Boulevard
Montgomery, Alabama 36166 By
Phone: (334) 613-4500 Name:
Fax: (334) 613-4709 Title:
Alfa Corporation ALFA GENERAL INSURANCE
Attention: Stephen G. Rutledge CORPORATION
2108 East South Boulevard
Montgomery, Alabama 36166
Phone: (334) 613-4500 By
Fax: (334) 613-4709 Name:
Title:
Alfa Corporation ALFA INSURANCE CORPORATION
Attention: Stephen G. Rutledge
2108 East South Boulevard
Montgomery, Alabama 36166 By
Phone: (334) 613-4500 Name:
Fax: (334) 613-4709 Title:
Security Benefit Life Insurance Company SECURITY BENEFIT LIFE
Attention: James L. Woods INSURANCE COMPANY
700 Harrison Street
Topeka, Kansas 66636-0001
Phone: (913) 295-3131 By
Fax: (913) 295-3099 Name:
Title:
c/o Torchmark Corporation UNITED INVESTORS LIFE INSURANCE
Attention: Duncan Hamilton COMPANY
2001 Third Avenue, South
Birmingham, Alabama 35233
Telephone: (205) 325-4200
Telefax: (205) 325-4198 By
Name:
Title:
56
<PAGE>
UNUM Corp. TRUSTEES OF THE UNUM EMPLOYEES
Attention: David R. Murray PENSION PLAN & TRUST
2211 Congress Street
Portland, Maine 04122-0002
Phone: (207) 770-4240 By
Fax: (207) 770-4152 Name:
Title:
c/o Torch Energy Advisors Incorporated TEAI VIII-A LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ADVISORS
Phone: (713) 753-1370 INCORPORATED,
Fax: (713) 655-1711 Its General Partner
By:
Roland E. Sledge, Senior
Vice President
Alfa Corporation ALFA INVESTORS PARTNERSHIP
Attention: Stephen G. Rutledge
2108 East South Boulevard
Montgomery, Alabama 36166 By
Phone: (334) 613-4500 Name:
Fax: (334) 613-4709 Title:
Security Benefit Life Insurance Company SECURITY BENEFIT LIFE INSURANCE
Attention: James L. Woods COMPANY
700 Harrison Street
Topeka, Kansas 66636-0001
Phone: (913) 295-3131 By
Fax: (913) 295-3099 Name:
Title:
c/o Torch Energy Advisors Incorporated 1987-III STEA LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ASSOCIATES
Phone: (713) 753-1370 LTD., General Partner
Fax: (713) 655-1711 By: Torch Energy Advisors Incorporated,
General Partner
By:
Roland E. Sledge, Senior
Vice President
57
<PAGE>
Richard King Mellon Foundation RICHARD KING MELLON FOUNDATION
Attention: Gerald T. Ellermeyer
Mill Street Extension
Laughlintown, Pennsylvania 15655 By
Phone: (412) 238-7085 Name:
Fax: (412) 238-8482 Title:
The Howard Hughes Medical Institute HOWARD HUGHES MEDICAL
Attention: Nina F. Scherago INSTITUTE
4000 Jones Bridge Road
Chevy Chase, Maryland 20815-6789
Phone: (301) 215-8687 By
Fax: (301) 215-8691 Name:
Title:
c/o Torch Energy Advisors Incorporated 1987-IV STEA LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ASSOCIATES
Phone: (713) 753-1370 LTD., General Partner
Fax: (713) 655-1711 By: Torch Energy Advisors Incorporated,
General Partner
By:
Roland E. Sledge, Senior
Vice President
c/o GE Investments TRUSTEES OF GENERAL ELECTRIC
Attention: Andreas Hildebrand PENSION TRUST
3003 Summer Street
Stamford, Connecticut 06905-4316
Phone: (203) 326-4229 By
Fax: (203) 326-4251 Name:
Title:
c/o Torch Energy Advisors Incorporated 1988-III TEAI LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ASSOCIATES
Phone: (713) 753-1370 LTD., General Partner
Fax: (713) 655-1711 By: Torch Energy Advisors Incorporated,
General Partner
By:
Roland E. Sledge, Senior
Vice President
58
<PAGE>
Richard King Mellon Foundation RICHARD KING MELLON
Attention: Gerald T. Ellermeyer FOUNDATION
Mill Street Extension
Laughlintown, Pennsylvania 15655
Phone: (412) 238-7085 By
Fax: (412) 238-8482 Name:
Title:
c/o Torch Energy Advisors Incorporated 1988-IV STEA LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ASSOCIATES
Phone: (713) 753-1370 LTD., General Partner
Fax: (713) 655-1711 By: Torch Energy Advisors Incorporated,
General Partner
By:
Roland E. Sledge, Senior
Vice President
c/o GE Investments TRUSTEES OF GENERAL ELECTRIC
Attention: Andreas Hildebrand PENSION TRUST
3003 Summer Street
Stamford, Connecticut 06905-4316
Phone: (203) 326-4229 By
Fax: (203) 326-4251 Name:
Title:
c/o Torch Energy Advisors Incorporated 1988-VII TEAI LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ASSOCIATES
Phone: (713) 753-1370 LTD., General Partner
Fax: (713) 655-1711 By: Torch Energy Advisors Incorporated,
General Partner
By:
Roland E. Sledge, Senior
Vice President
The Howard Hughes Medical Institute HOWARD HUGHES MEDICAL INSTITUTE
Attention: Nina F. Scherago
4000 Jones Bridge Road
Chevy Chase, Maryland 20815-6789 By
Phone: (301) 215-8687 Name:
Fax: (301) 215-8691 Title:
59
<PAGE>
c/o Torch Energy Advisors Incorporated 1989-III TEAI LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ADVISORS
Phone: (713) 753-1370 INCORPORATED,
Fax: (713) 655-1711 Its General Partner
By:
Roland E. Sledge, Senior
Vice President
Decurion Employees Retirement Trust RETIREMENT TRUST FOR THE
Attention: Jeannie Kim EMPLOYEES OF THE DECURION
121 North Robertson, Suite 310 CORPORATION
Los Angeles, California 90048
Phone: (310) 855-8217
Fax: (310) 854-6017 By
Name:
Title:
Doane College DOANE COLLEGE
Attention: Ibrahim E. Khouri
1014 Boswell Street
Crete, Nebraska 68333-2430 By
Phone: (402) 826-2161 Name:
Fax: (402) 826-8600 Title:
The Howard Hughes Medical Institute HOWARD HUGHES MEDICAL
Attention: Nina F. Scherago INSTITUTE
4000 Jones Bridge Road
Chevy Chase, Maryland 20815-6789
Phone: (301) 215-8687 By
Fax: (301) 215-8691 Name:
Title:
Richard King Mellon Foundation RICHARD KING MELLON
Attention: Gerald T. Ellermeyer FOUNDATION
Mill Street Extension
Laughlintown, Pennsylvania 15655
Phone: (412) 238-7085 By
Fax: (412) 238-8482 Name:
Title:
TIAA-CREF TEACHERS INSURANCE AND
Attention: Loren S. Archibald ANNUITY ASSOCIATION OF
730 Third Avenue AMERICA
New York, New York 10017
Phone: (212) 916-4308
Fax: (212) 916-6667 By
Name:
Title:
60
<PAGE>
University of Chicago THE UNIVERSITY OF CHICAGO
Attention: Charles O'Connell
450 North Cityfront Plaza Drive
Suite 440 By
Chicago, Illinois 60611 Name:
Phone: (312) 595-1000 Title:
Fax: (312) 595-1025
UNUM Corp. TRUSTEES OF THE UNUM EMPLOYEES
Attention: David R. Murray PENSION PLAN & TRUST
2211 Congress Street
Portland, Maine 04122-0002
Phone: (207) 770-4240 By
Fax: (207) 770-4152 Name:
Title:
c/o Torch Energy Advisors Incorporated TEAI VII-B LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ADVISORS
Phone: (713) 753-1370 INCORPORATED,
Fax: (713) 655-1711 Its General Partner
By:
Roland E. Sledge, Senior
Vice President
The Howard Hughes Medical Institute HOWARD HUGHES MEDICAL
Attention: Nina F. Scherago INSTITUTE
4000 Jones Bridge Road
Chevy Chase, Maryland 20815-6789
Phone: (301) 215-8687 By
Fax: (301) 215-8691 Name:
Title:
Richard King Mellon Foundation RICHARD KING MELLON FOUNDATION
Attention: Gerald T. Ellermeyer
Mill Street Extension
Laughlintown, Pennsylvania 15655 By
Phone: (412) 238-7085 Name:
Fax: (412) 238-8482 Title:
University of Chicago THE UNIVERSITY OF CHICAGO
Attention: Charles O'Connell
450 North Cityfront Plaza Drive
Suite 440
Chicago, Illinois 60611 By
Phone: (312) 595-1000 Name:
Fax: (312) 595-1025 Title:
Fire & Police Pension Association COLORADO FIRE & POLICE
of Colorado PENSION ASSOCIATION
Attention: Ruth T. Sieler
5290 DTC Parkway
Englewood, Colorado 80111-2721 By
Phone: (303) 770-3772 Name:
Fax: (303) 771-7622 Title:
c/o Torch Energy Advisors Incorporated TEAI VIII-B LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ADVISORS
Phone: (713) 753-1370 INCORPORATED,
Fax: (713) 655-1711 Its General Partner
By:
Roland E. Sledge, Senior
Vice President
61
<PAGE>
Fire & Police Pension Association COLORADO FIRE & POLICE
of Colorado PENSION ASSOCIATION
Attention: Ruth T. Sieler
5290 DTC Parkway
Englewood, Colorado 80111-2721 By
Phone: (303) 770-3772 Name:
Fax: (303) 771-7622 Title:
Orange County Retirement System ORANGE COUNTY EMPLOYEES'
Attention: Raymond A. Fleming RETIREMENT SYSTEM
2942 Daimler Street
Santa Ana, California 92705-5838
Phone: (714) 975-1962 By
Fax: (714) 975-6154 Name:
Title:
Richard King Mellon Foundation RICHARD KING MELLON FOUNDATION
Attention: Gerald T. Ellermeyer
Mill Street Extension
Laughlintown, Pennsylvania 15655 By
Phone: (412) 238-7085 Name:
Fax: (412) 238-8482 Title:
62
<PAGE>
c/o Torch Energy Advisors Incorporated TEAI VIII-C LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ADVISORS
Phone: (713) 753-1370 INCORPORATED,
Fax: (713) 655-1711 Its General Partner
By:
Roland E. Sledge, Senior
Vice President
University of Chicago THE UNIVERSITY OF CHICAGO
Attention: Charles O'Connell
450 North Cityfront Plaza Drive
Suite 440
Chicago, Illinois 60611 By
Phone: (312) 595-1000 Name:
Fax: (312) 595-1025 Title:
c/o Torch Energy Advisors Incorporated TEAI VIII-M LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ADVISORS
Phone: (713) 753-1370 INCORPORATED,
Fax: (713) 655-1711 Its General Partner
By:
Roland E. Sledge, Senior
Vice President
Michigan Department of Treasury STATE TREASURER OF THE STATE OF
Bureau of Investments MICHIGAN, CUSTODIAN OF THE MICHIGAN
Attention: Mr. Garry A. Neal PUBLIC SCHOOL EMPLOYEES' RETIREMENT
430 West Allegan SYSTEM, STATE EMPLOYEES' RETIREMENT
Lansing, Michigan 48922 SYSTEM, MICHIGAN STATE POLICE
Phone: (517) 373-4330 RETIREMENT SYSTEM, AND MICHIGAN JUDGES
Fax: (517) 335-3668 RETIREMENT SYSTEM
By
Name:
Title:
63
<PAGE>
c/o Torch Energy Advisors Incorporated TEAI VII-C LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ADVISORS
Phone: (713) 753-1370 INCORPORATED,
Fax: (713) 655-1711 Its General Partner
By:
Roland E. Sledge, Senior
Vice President
c/o Torch Energy Advisors Incorporated N. E. FINANCIAL INC.
Attention: Roland E. Sledge
1221 Lamar, Suite 1600
Houston, Texas 77010 By
Phone: (713) 753-1370 Roland E. Sledge,
Fax: (713) 655-1711 Vice President
MetLife Corporation Equities METROPOLITAN LIFE
Attention: Craig Samples INSURANCE COMPANY
334 Madison Avenue (as noteholder)
Convent Station, New Jersey 07961
Phone: (201) 254-3353 By
Fax: (201) 254-3055 Name:
Title:
c/o Torch Energy Advisors Incorporated TEAI VII-D LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ADVISORS
Phone: (713) 753-1370 INCORPORATED,
Fax: (713) 655-1711 Its General Partner
By:
Roland E. Sledge, Senior
Vice President
c/o Torch Energy Advisors Incorporated T. I. FINANCIAL, INC.
Attention: Roland E. Sledge
1221 Lamar, Suite 1600 By:
Houston, Texas 77010 Roland E. Sledge,
Phone: (713) 753-1370 Vice President
Fax: (713) 655-1711
64
<PAGE>
TIAA-CREF TEACHERS INSURANCE AND
Attention: Loren S. Archibald ANNUITY ASSOCIATION OF
730 Third Avenue AMERICA (as noteholder)
New York, New York 10017
Phone: (212) 916-4308
Fax: (212) 916-6667 By:
Name:
Title:
c/o Torch Energy Advisors Incorporated TEAI VIII-D LIMITED PARTNERSHIP,
Attention: Roland E. Sledge a Texas limited partnership
1221 Lamar, Suite 1600
Houston, Texas 77010 By: TORCH ENERGY ADVISORS
Phone: (713) 753-1370 INCORPORATED,
Fax: (713) 655-1711 Its General Partner
By:
Roland E. Sledge, Senior
Vice President
c/o Torch Energy Advisors Incorporated T. I. FINANCIAL, INC.
Attention: Roland E. Sledge
1221 Lamar, Suite 1600 By:
Houston, Texas 77010 Roland E. Sledge,
Phone: (713) 753-1370 Vice President
Fax: (713) 655-1711
TIAA-CREF TEACHERS INSURANCE AND
Attention: Loren S. Archibald ANNUITY ASSOCIATION OF
730 Third Avenue AMERICA (as noteholder)
New York, New York 10017
Phone: (212) 916-4308
Fax: (212) 916-6667 By:
Name:
Title:
GE Investments GEAPPL CORP.
Attention: Andreas Hildebrand
3003 Summer Street
Stamford, Connecticut 06905-4316 By:
Phone: (203) 326-4229 Name:
Fax: (203) 326-4251 Title:
Delta Air Lines Benefit Trust ZETA MT HOLDING, INC.
Attention: Linda Sutton
1007 Virginia Avenue, Suite 208
Atlanta, Georgia 30354 By:
Phone: (404) 715-5635 Name:
Fax: (404) 715-2601 Title:
65
<PAGE>
CITIBANK, F.S.B., AS DIRECTED
TRUSTEE OF THE DELTA MASTER
Delta Air Lines Benefit Trust TRUST
Attention: Linda Sutton
1007 Virginia Avenue, Suite 208
Atlanta, Georgia 30354 By:
Phone: (404) 715-5635 Name:
Fax: (404) 715-2601 Title:
66
CERTIFICATE OF INCORPORATION
OF
PARTNERS ACQUISITION SUB, INC.
1. The name of the Corporation is Partners Acquisition Sub, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purpose to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The aggregate number of shares which the Corporation will have
authority to issue is 1 share of Common Stock, with $0.01 par value per share.
5. The name and mailing address of the incorporator is as follows:
NAME ADDRESS
George G. Young III Butler & Binion, L.L.P.
1600 First Interstate
Bank Plaza
Houston, Texas 77002
6. The Corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the bylaws of the Corporation.
8. Elections of directors need not be by written ballot unless the bylaws
of the Corporation shall so provide.
9. Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the bylaws of the Corporation.
10. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
<PAGE>
11. No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of his fiduciary duty as a
director provided that this provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for an
unlawful payment of a dividend or unlawful stock purchase or redemption; or (iv)
for any transaction from which the director derived an improper personal
benefit.
The undersigned, being the incorporator hereinbefore named, for the
purpose of forming a Corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that this is his/her act and deed and the facts herein stated are true, and
accordingly has hereunto set his/her hand this 19th day of July, 1994.
--------------------------------------
George G. Young III
<PAGE>
CERTIFICATE OF MERGER
OF
ODYSSEY PARTNERS, LTD.
(a Texas limited partnership)
with and into
PARTNERS ACQUISITION SUB, INC.
(a Delaware corporation)
Partners Acquisition Sub, Inc., a Delaware corporation, for the purpose of
merging Odyssey Partners, Ltd., a Texas limited partnership, with and into
itself hereby certifies as follows:
1. The name and state of domicile of each of the constituent entities are:
NAME JURISDICTION
---- ------------
Odyssey Partners, Ltd. Texas
Partners Acquisition Sub, Inc. Delaware
2. An agreement of merger has been approved, adopted, certified, executed
and acknowledged by each of the constituent entities in accordance with
Subsection 263(c) of the Delaware General Corporation Law.
3. The name of the surviving corporation is Partners Acquisition Sub, Inc.
4. Article One of the Certificate of Incorporation of Partners Acquisition
Sub, Inc. shall be amended in its entirety so that, as amended, it shall be and
read as follows:
"1. The name of the Corporation is Odyssey Petroleum Company."
5. The executed agreement of merger is on file at the principal place of
business of Partners Acquisition Sub, Inc., 1221 Lamar, Suite 1600, Houston,
Texas 77010.
6. A copy of the agreement of merger will be furnished by
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<PAGE>
Partners Acquisition Sub, Inc., on request and without cost, to any stockholder
of any constituent corporation or any partner of any constituent limited
partnership.
IN WITNESS WHEREOF, this Certificate of Merger has been duly executed as
of this __ day of August, 1994, and is being filed by Partners Acquisition Sub,
Inc., the surviving corporation.
PARTNERS ACQUISITION SUB, INC.
By:__________________________________
J. Darby Sere, President
By:__________________________________
Roland E. Sledge, Secretary
BYLAWS OF
PARTNERS ACQUISITION SUB, INC.
(the "Corporation")
ARTICLE I
OFFICES
SECTION 1.1. The registered office of the Corporation shall be in the City
of Wilmington, County of New Castle, State of Delaware.
SECTION 2.2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
board of directors, which place may be within or without the State of Delaware
as shall be designated from time to time by the board of directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
SECTION 2.2. Annual meetings of stockholders, commencing within the year
1995, shall be held on the third Tuesday in May at 10:00 A.M. Houston, Texas
time, if not a legal holiday, and if a legal holiday, then on the next secular
day following, at 10:00 A.M. or at such other date and time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting, at which they shall elect by a plurality vote a board of
directors, and transact such other business as may properly be brought before
the meeting.
SECTION 2.3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
SECTION 2.4. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alpha-
<PAGE>
betical order, and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, for any purpose germane to
the meeting, which shall be open to the inspection of any stockholder during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the Corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
SECTION 2.6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
SECTION 2.7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
SECTION 2.8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
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<PAGE>
SECTION 2.9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
SECTION 2.10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
SECTION 2.11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of a corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 3.1. The number of directors which shall constitute the whole
board shall be two. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders.
SECTION 3.2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner
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<PAGE>
provided by statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
SECTION 3.3. The business of the Corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 3.4. The board of directors of the Corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
SECTION 3.5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
SECTION 3.6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
SECTION 3.7. Special meetings of the board may be called by the president
on one days notice to each director, either personally or by mail or by
telegram; special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of two directors (unless the
board consists of only one director; in which case special meetings shall be
called by the president or secretary in like manner and on like
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<PAGE>
notice on the written request of the sole director).
SECTION 3.8. At all meetings of the board two directors shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the board of directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the board of directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
SECTION 3.9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
SECTION 3.10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 3.11. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of the board
of directors, shall have and may exercise all the powers and authority of the
board of directors in the management of
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<PAGE>
the business affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the board of directors as provided in Section 151(a) of the
General Corporation Law of Delaware, fix any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such shares
for, shares of any other class of classes or any other series of the same or any
other class or classes of stock of the Corporation) adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution or amending the bylaws of the Corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of ownership and
merger. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the board of directors.
SECTION 3.12. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
SECTION 3.13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
SECTION 3.14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
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<PAGE>
ARTICLE IV
NOTICES
SECTION 4.1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed or mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
SECTION 4.2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
SECTION 5.1. The officers of the Corporation shall be chosen by the board
of directors and shall be a president, a vice president, a secretary and a
treasurer. The board of directors may also choose additional vice presidents and
one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
SECTION 5.2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, one or more vice presidents, a
secretary and a treasurer.
SECTION 5.3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
SECTION 5.4. The salaries of all officers and agents of the Corporation
shall be fixed by the board of directors.
SECTION 5.5. The officers of the Corporation shall hold office until their
successors are chosen and qualify. Any officer
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<PAGE>
elected or appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the board of directors. Any vacancy occurring
in any office of the Corporation shall be filled by the board of directors.
THE PRESIDENT
SECTION 5.6. The president shall be the chief executive officer of the
Corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
SECTION 5.7. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the Corporation.
THE VICE PRESIDENTS
SECTION 5.8. In the absence of the president or in the event of his
inability or refusal to act, the vice president (or in the event there be more
than one vice president, the vice presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
SECTION 5.9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the Corporation and he, or any assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
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<PAGE>
secretary. The board of directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature.
SECTION 5.10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
SECTION 5.11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the board of directors.
SECTION 5.12. He shall disburse the funds of the Corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
Corporation.
SECTION 5.13. If required by the board of directors, he shall give the
Corporation a bond (which shall be renewed every six (6) years) in such sum and
with such surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of his office and for the restoration
to the Corporation, in case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
SECTION 5.14. The assistant treasurer, or if there be more than one, the
assistant treasurers in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the treasurer and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
ARTICLE VI
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<PAGE>
CERTIFICATES FOR SHARES
SECTION 6.1. The shares of the Corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be signed by, or in
the name of the Corporation by, the chairman of the board of directors, or the
president or vice president and the secretary or an assistant secretary of the
Corporation.
Upon the face or back of each stock certificate issued to represent any
partly paid shares, or upon the books and records of the Corporation in the case
of uncertificated partly paid shares, shall be set forth the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the Corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the General
Corporation Law of Delaware or a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, designations
preferences and relative participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
SECTION 6.2. Any or all the signatures on a certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a
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certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
LOST CERTIFICATES
SECTION 6.3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates or uncertificated shares, the board
of directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
SECTION 6.4. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be cancelled and issuance
of new equivalent uncertificated shares or uncertificated shares shall be made
to the person entitled thereto and the transaction shall be recorded upon the
books of the corporation.
FIXING RECORD DATE
SECTION 6.5. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than
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ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
SECTION 6.6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS/DIVIDENDS
SECTION 7.1. Dividends upon the capital stock of the Corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
SECTION 7.2. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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<PAGE>
ANNUAL STATEMENT
SECTION 7.3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
CHECKS
SECTION 7.4. All checks or demand for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
SECTION 7.5. The fiscal year of the Corporation shall be fixed by
resolution of the board of directors.
SEAL
SECTION 7.6. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
SECTION 7.7. The Corporation shall indemnify its officers and directors to
the full extent permitted by the General Corporation Law of Delaware.
ARTICLE VIII
AMENDMENTS
SECTION 8.1. These bylaws may be altered, amended or repealed or new
bylaws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. The power to adopt,
amend or repeal bylaws conferred upon the board of directors by the certificate
of incorporation or hereby shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
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BELLWETHER EXPLORATION COMPANY
SUBSIDIARY GUARANTOR
Named Herein
and
[___________________________________]
Trustee
---------------
INDENTURE
Dated as of __________ ___, 1997
---------------
$100,000,000
____% Senior Subordinated Notes due 2007
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS AND OTHER PROVISIONS OF GENERAL
APPLICATION ......................................................... 2
Section 1.1 Definitions ............................................. 2
Section 1.2 Other Definitions ....................................... 23
Section 1.3 Incorporation by Reference of Trust Indenture Act ....... 23
Section 1.4 Rules of Construction ................................... 24
ARTICLE II - SECURITY FORMS ............................................... 24
Section 2.1 Forms Generally ......................................... 24
Section 2.2 Form of Face of Security ................................ 25
Section 2.3 Form of Reverse of Security ............................. 27
Section 2.4 Form of Notation Relating to Subsidiary Guarantees ...... 31
Section 2.5 Form of Trustee's Certificate of Authentication ......... 33
ARTICLE III - THE SECURITIES .............................................. 33
Section 3.1 Title and Terms ......................................... 33
Section 3.2 Denominations ........................................... 34
Section 3.3 Execution, Authentication, Delivery and Dating .......... 34
Section 3.4 Temporary Securities .................................... 35
Section 3.5 Registration of Transfer and Exchange ................... 36
Section 3.6 Book-Entry Provisions for Global Security ............... 37
Section 3.7 Mutilated, Destroyed .................................... 38
Section 3.8 Payment of Interest; Interest Rights Preserved .......... 39
Section 3.9 Persons Deemed Owners ................................... 40
Section 3.10 Cancellation ........................................... 40
Section 3.11 Computation of Interest ................................ 40
ARTICLE IV - SATISFACTION AND DISCHARGE ................................... 40
Section 4.1 Satisfaction and Discharge of Indenture ................. 40
Section 4.2 Application of Trust Money .............................. 42
ARTICLE V - REMEDIES ...................................................... 42
Section 5.1 Events of Default ....................................... 42
Section 5.2 Acceleration of Maturity; Rescission and Annulment ...... 44
Section 5.3 Collection of Indebtedness and Suits for
Enforcement by Trustee .................................. 45
Section 5.4 Trustee May File Proofs of Claim ........................ 46
Section 5.5 Trustee May Enforce Claims Without Possession of
Securities .............................................. 47
Section 5.6 Application of Money Collected .......................... 47
Section 5.7 Limitation on Suits ..................................... 48
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<PAGE>
Section 5.8 Unconditional Right of Holders to Receive Principal
Premium and Interest .................................... 48
Section 5.9 Restoration of Rights and Remedies ...................... 48
Section 5.10 Rights and Remedies Cumulative ......................... 49
Section 5.11 Delay or Omission Not Waiver ........................... 49
Section 5.12 Control by Holders ..................................... 49
Section 5.13 Waiver of Past Defaults ................................ 50
Section 5.14 Waiver of Stay ......................................... 50
ARTICLE VI - THE TRUSTEE .................................................. 50
Section 6.1 Duties of Trustee ....................................... 50
Section 6.2 Certain Rights of Trustee ............................... 51
Section 6.3 Trustee Not Responsible for Recitals or Issuance
of Securities ........................................... 52
Section 6.4 May Hold Securities ..................................... 53
Section 6.5 Money Held in Trust ..................................... 53
Section 6.6 Compensation and Reimbursement .......................... 53
Section 6.7 Corporate Trustee Required: Eligibility ................. 54
Section 6.8 Conflicting Interests ................................... 54
Section 6.9 Resignation and Removal; Appointment of Successor ....... 54
Section 6.10 Acceptance of Appointment by Successor ................. 56
Section 6.11 Merger, Conversion, Consolidation or Succession
to Business ............................................. 56
Section 6.12 Preferential Collection of Claims Against Company ...... 57
Section 6.13 Notice of Defaults ..................................... 57
ARTICLE VII - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND
COMPANY ............................................................. 57
Section 7.1 Holders' Lists; Holder Communications; Disclosures
Respecting Holders ....................................... 57
Section 7.2 Reports by Trustee ...................................... 58
Section 7.3 Reports by Company ...................................... 58
ARTICLE VIII - CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER
OF OR LEASE ......................................................... 59
Section 8.1 Company May Consolidate, etc., Only on Certain Terms .... 59
Section 8.2 Successor Substituted ................................... 60
ARTICLE IX - SUPPLEMENTAL INDENTURES ...................................... 61
Section 9.1 Supplemental Indentures Without Consent of Holders ...... 61
Section 9.2 Supplemental Indentures with Consent of Holders ......... 62
Section 9.3 Execution of Supplemental Indentures .................... 63
Section 9.4 Effect of Supplemental Indentures ....................... 63
Section 9.5 Conformity with Trust Indenture Act ..................... 63
Section 9.6 Reference in Securities to Supplemental Indentures ...... 63
Section 9.7 Notice of Supplemental Indentures and Waivers ........... 63
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<PAGE>
Section 9.8 Effect on Senior Indebtedness ........................... 64
ARTICLE X - COVENANTS ..................................................... 64
Section 10.1 Payment of Principal, Premium, if any, and Interest .... 64
Section 10.2 Maintenance of Office or Agency ........................ 64
Section 10.3 Money for Security Payments to Be Held in Trust ........ 65
Section 10.4 Corporate Existence .................................... 66
Section 10.5 Payment of Taxes and Other Claims ...................... 66
Section 10.6 Maintenance of Properties .............................. 66
Section 10.7 Insurance .............................................. 67
Section 10.8 Statement by Officer as to Default ..................... 67
Section 10.9 Provision of Financial Information ..................... 68
Section 10.10 Limitation on Restricted Payments ..................... 68
Section 10.11 Limitation on Other Senior Subordinated Indebtedness .. 72
Section 10.12 Incurrence of Indebtedness ............................ 72
Section 10.13 Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries .................................................. 72
Section 10.14 Limitation on Issuance and Sale of Capital Stock
by Restricted Subsidiaries ............................... 73
Section 10.15 Limitation on Liens ................................... 74
Section 10.16 Purchase of Securities Upon Change of Control ......... 74
Section 10.17 Disposition of Proceeds of Asset Sales ................ 76
Section 10.18 Limitation on Transactions with Affiliates ............ 79
Section 10.19 Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries ........... 80
Section 10.20 Waiver of Certain Covenants ........................... 80
ARTICLE XI - REDEMPTION OF SECURITIES ..................................... 81
Section 11.1 Right of Redemption .................................... 81
Section 11.2 Applicability of Article ............................... 81
Section 11.3 Election to Redeem; Notice to Trustee .................. 81
Section 11.4 Selection by Trustee of Securities to be Redeemed ...... 81
Section 11.5 Notice of Redemption ................................... 82
Section 11.6 Deposit of Redemption Price ............................ 82
Section 11.7 Securities Payable on Redemption Date .................. 83
Section 11.8 Securities Redeemed in Part ............................ 83
ARTICLE XII - DEFEASANCE AND COVENANT DEFEASANCE .......................... 83
Section 12.1 Company's Option to Effect Defeasance or Covenant
Defeasance ............................................. 83
Section 12.2 Defeasance and Discharge ............................... 84
Section 12.3 Covenant Defeasance .................................... 84
Section 12.4 Conditions to Defeasance or Covenant Defeasance ........ 85
Section 12.5 Deposited Money and U.S. Government Obligations to
Be Held in Trust; Other Miscellaneous Provisions ......... 86
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Section 12.6 Reinstatement .......................................... 87
ARTICLE XIII - SUBSIDIARY GUARANTEES ...................................... 87
Section 13.1 Unconditional Guarantee ................................ 87
Section 13.2 Subsidiary Guarantor May Consolidate, etc., on
Certain Terms ............................................ 89
Section 13.3 Release of Subsidiary Guarantors ....................... 89
Section 13.4 Limitation of Subsidiary Guarantors' Liability ......... 90
Section 13.5 Contribution ........................................... 91
Section 13.6 Execution and Delivery of Notations of Subsidiary
Guarantees .............................................. 91
Section 13.7 Severability ........................................... 91
Section 13.8 Subsidiary Guarantees Subordinated to Guarantor Senior
Indebtedness ............................................. 92
Section 13.9 Subsidiary Guarantors Not to Make Payments with
Respect to Subsidiary Guarantees in Certain
Circumstances ............................................ 92
Section 13.10 Subsidiary Guarantees Subordinated to Prior Payment
of All Guarantor Senior Indebtedness Upon Dissolution,
Etc ...................................................... 93
Section 13.11 Holders to be Subrogated to Rights of Holders of
Guarantor Senior Indebtedness ............................ 94
Section 13.12 Obligations of Subsidiary Unconditional ............... 95
Section 13.13 Trustee Entitled to Assume Payments Not Prohibited
in Absence of Notice ..................................... 95
Section 13.14 Application by Trustee of Money Deposited with It ..... 96
Section 13.15 Subordination Rights Not Impaired by Acts or Omissions
of Subsidiary Guarantors or Holders of Guarantor
Senior Indebtedness ...................................... 96
Section 13.16 Holders Authorize Trustee to Effectuate Subordination
of Subsidiary Guarantees ................................. 97
Section 13.17 Right of Trustee to Hold Guarantor Senior Indebtedness 97
Section 13.18 Article XIII Not to Prevent Events of Default ......... 97
Section 13.19 Payment ............................................... 97
ARTICLE XIV - SUBORDINATION OF SECURITIES ................................ 98
Section 14.1 Securities Subordinate to Senior Indebtedness ......... 98
Section 14.2 Payment over of Proceeds upon Dissolution, etc ........ 98
Section 14.3 Suspension of Payment When Senior Indebtedness in
Default ................................................ 99
Section 14.4 Payment Permitted If No Default ....................... 100
Section 14.5 Subrogation to Rights of Holders of Senior Indebtedness 101
Section 14.6 Provisions Solely to Define Relative Rights ........... 101
Section 14.7 Trustee to Effectuate Subordination ................... 101
Section 14.8 No Waiver of Subordination Provision .................. 101
Section 14.9 Notice to Trustee ..................................... 102
Section 14.10 Reliance of Judicial Order or Certificate of
Liquidating Agent Bank .................................. 103
Section 14.11 Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights ........................ 103
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Section 14.12 Article Applicable to Paying Agents .................. 103
Section 14.13 No Suspension of Remedies ............................ 104
Section 14.14 Trust Money Not Subordinated ......................... 104
ARTICLE XV - MISCELLANEOUS ............................................... 104
Section 15.1 Compliance Certificates and Opinions .................. 104
Section 15.2 Form of Documents Delivered to Trustee ................ 105
Section 15.3 Acts of Holders ....................................... 105
Section 15.4 Notices, etc. to Trustee, Company and Subsidiary
Guarantors ............................................ 106
Section 15.5 Notice to Holders; Waiver ............................. 107
Section 15.6 Effect of Headings and Table of Contents .............. 107
Section 15.7 Successors and Assigns ................................ 108
Section 15.8 Separability Clause ................................... 108
Section 15.9 Benefits of Indenture ................................. 108
Section 15.10 Governing Law; Trust Indenture Act Controls .......... 108
Section 15.11 Legal Holidays ....................................... 109
Section 15.12 No Recourse Against Others ........................... 109
Section 15.13 Duplicate Originals .................................. 109
Section 15.14 No Adverse Interpretation of Other Agreements ........ 109
v
<PAGE>
Reconciliation and Tie between Trust Indenture Act of 1939 and
Indenture, dated as of __________ ___, 1997
Trust Indenture Indenture
Act Section Section
ss.310 (a)(1) ............................................... 6.7
(a)(2) ............................................... 6.7
(b) ............................................... 6.7,6.8,6.9
ss.311 (a) ............................................... 6.12
(b) ............................................... 6.12
ss.312 ............................................... 7.1
ss.313 ............................................... 7.2
ss.314 (a) ............................................... 7.3
(a)(4) ............................................... 10.8(i)
(c)(1) ............................................... 15.1
(c)(2) ............................................... 15.1
(e) ............................................... 15.1
ss.315 (a) ............................................... 6.1
(b) ............................................... 6.13
(c) ............................................... 6.1
(d) ............................................... 6.1
ss.316 (a) (last
sentence)............................................. 1.1("Outstanding")
(a)(1)(A)............................................. 5.2,5.12
(a)(1)(B)............................................. 5.13
(b) ............................................... 5.8
(c) ............................................... 15.3(iv)
ss.317 (a)(1) ............................................... 5.3
(a)(2) ............................................... 5.4
(b) ............................................... 10.3
ss.318 (a) ............................................... 15.10(ii)
vi
<PAGE>
THIS INDENTURE, dated as of ______, 1997, is between BELLWETHER EXPLORATION
COMPANY, a Delaware corporation (hereinafter called the "Company"), the
SUBSIDIARY GUARANTORS (as defined hereinafter) and
___________________________________, a _____________ trust company (hereinafter
called the "Trustee").
RECITALS
The Company has duly authorized the creation of an issue of ____% Senior
Subordinated Notes due 2007 (herein, as amended or supplemented from time to
time in accordance with the terms hereof, called the "Securities"), of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
The Company owns, directly or indirectly, all of the equity ownership of
the outstanding Voting Stock of each initial Subsidiary Guarantor, and each
initial Subsidiary Guarantor is a member of the Company's consolidated group of
companies that are engaged in related businesses. Each initial Subsidiary
Guarantor will derive direct and indirect benefit from the issuance of the
Securities; accordingly, each initial Subsidiary Guarantor has authorized its
guarantee of the Company's obligations under this Indenture and the Securities,
and to provide therefor the initial Subsidiary Guarantors have duly authorized
the execution and delivery of this Indenture.
This Indenture is subject to the provisions of the Trust Indenture Act of
1939, as amended, that are required to be part of this Indenture and shall, to
the extent applicable, be governed by such provisions.
All things necessary have been done to make the Securities, when issued and
executed by the Company and authenticated and delivered by the Trustee as herein
provided, the valid obligations of the Company, to make the Subsidiary
Guarantees, when the notations thereof on the Securities are executed by the
initial Subsidiary Guarantors, the valid obligation of the initial Subsidiary
Guarantors and to make this Indenture a valid agreement of the Company, the
initial Subsidiary Guarantors and the Trustee, in accordance with their
respective terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
(together with the related Subsidiary Guarantees) by the Holders thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities (together with the related Subsidiary Guarantees), as
follows:
ARTICLE I
1
<PAGE>
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section I.1 DEFINITIONS.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an acquisition of Properties from such Person or (b) outstanding
at the time such Person becomes a Subsidiary of any other Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such
acquisition or such Person becoming such a Subsidiary). Acquired Indebtedness
shall be deemed to be incurred on the date, of the related acquisition of
Properties from any Person or the date the acquired Person becomes a Subsidiary.
"Act," when used with respect to any Holder, has the meaning specified in
Section 15.3.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date means the
amount by which the fair value of the Properties of such Subsidiary Guarantor
exceeds the total amount of liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), but excluding liabilities under
its Subsidiary Guarantee, of such Subsidiary Guarantor at such date.
"Administrative Services Agreement" means the Administrative Services
Agreement, effective as of January 1, 1994 between the Company and Torch and any
other agreements with Torch or its subsidiaries relating to oil and gas
marketing services or contract operations.
"Affiliate" of any specified Person means (i) any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any other Person who is a director or
executive officer of (a) such specified Person or (b) any Person described in
the preceding clause (i). For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by way of merger or consolidation)
(collectively, for purposes of this definition, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Restricted Subsidiary held by the Company or any Restricted Subsidiary,
(ii) all or substantially all of the Properties of the Company or any of its
Restricted Subsidiaries or (iii) any other Properties of the Company or any of
its Restricted Subsidiaries (including Production Payments) other than (a) a
disposition of hydrocarbons or other mineral products (other than Production
Payments), inventory, accounts receivable, cash, Cash Equivalents or other
property
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in the ordinary course of business, (b) any lease, abandonment, disposition,
relinquishment or farm-out of any oil and gas Property in the ordinary course of
business, (c) the liquidation 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, (d) any transfer of Properties that are
governed by, and made in accordance with, the provisions of Article VIII hereof,
(e) any transfer of Properties to an Unrestricted Subsidiary or other Person, if
permitted under Section 10.10 hereof, (f) any Production Payment 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,
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 interest to be operated and
maintained, in a reasonably 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, or
(g) any transfer, in one or a series of related Transactions, of Properties
having a Fair Market Value of less than $2,000,000.
"Average Life" means, with respect to any Indebtedness, as 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.
"Board of Directors" means, with respect to the Company, either the board
of directors of the Company or any duly authorized committee of such board of
directors and, with respect to any Subsidiary, either the board of directors of
such Subsidiary or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by its Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee, and, with respect to a Subsidiary,
a copy of a resolution certified by the Secretary or an Assistant Secretary of
such Subsidiary to have been duly adopted by its Board of Directors and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in the Borough of Manhattan,
The City of New York, New York or the City of [SPECIFY LOCATION OF TRUSTEE] are
authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests,
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participations, rights in or other equivalents in the equity interests (however
designated) in such Person, and any rights (other than debt securities
convertible into an equity interest), warrants or options exercisable for,
exchangeable for or convertible into such an equity interest in such Person.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
Property (whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP, and, for the purpose of
this Indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500,000,000; (iii) commercial
paper with a maturity of 180 days or less issued by a corporation that is not an
Affiliate of the Company and is organized under the laws of any state of the
United States or the District of Columbia and rated at least A-1 by S&P or at
least P-1 by Moody's; (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) above
entered into with any commercial bank meeting the specifications of clause (ii)
above; (v) overnight bank deposits and bankers' acceptances at any commercial
bank meeting the qualifications specified in clause (ii) above; (vi) deposits
available for withdrawal on demand with any commercial bank not meeting the
qualifications specified in clause (ii) above but which 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 are required to be made in such accounts in the ordinary course of
business, (B) such deposits do not at any one time exceed $5,000,000 in the
aggregate and (C) no funds so deposited remain on deposit in such bank for more
than 30 days; (vii) deposits available for withdrawal on demand with any
commercial bank not meeting the qualifications specified in clause (ii) above
but which is a lending bank under any of the Company's or any Restricted
Subsidiary's credit facilities, PROVIDED all such deposits do not exceed
$5,000,000 in the aggregate at any one time; and (viii) investments in money
market funds substantially all of whose assets comprise securities of the types
described in clauses (i) through (v).
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
l3d-3 under the Exchange Act), directly or indirectly, of more than 50% of the
total voting power of the outstanding Voting Stock of the Company; (ii) the
Company is merged with or into or consolidated with another Person and,
immediately after giving effect to the merger or consolidation, (a) less than
50% of the total
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voting power of the outstanding Voting Stock of the surviving or resulting
Person is then "beneficially owned" (within the meaning of Rule 13d-3 under the
Exchange Act) in the aggregate by the stockholders of the Company immediately
prior to such merger or consolidation, and (b) any "person" or "group" (as
defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act) has become the
direct or indirect "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the total voting power of the Voting Stock of
the surviving or resulting Person; (iii) the Company, either individually or in
conjunction with one or more Restricted Subsidiaries, sells, assigns, conveys,
transfers, leases, or otherwise disposes of, or one or more Restricted
Subsidiaries sells, assigns, conveys, transfers, leases or otherwise disposes
of, all or substantially all of the Properties of the Company and the Restricted
Subsidiaries, taken as a whole (either in one transaction or a series of related
transactions), including Capital Stock of the Restricted Subsidiaries, to any
Person (other than the Company or a Wholly Owned Restricted Subsidiary); (iv)
during any consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors 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 Board of
Directors of the Company then in office; or (v) the liquidation or dissolution
of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations thereunder issued by the
Internal Revenue Service.
"Commission" or "SEC" means the Securities and Exchange Commission; as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding-up
of such Person, to shares of Capital Stock of any other class of such Person.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture, until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio
of (i) the
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sum of Consolidated Net Income, Consolidated Interest Expense, of Consolidated
Income Tax Expense and Consolidated Non-cash Charges deducted in computing
Consolidated Net Income, in each case, for such period, of the Company and its
Restricted Subsidiaries on a consolidated basis, all determined in accordance
with GAAP, decreased (to the extent included in determining Consolidated Net
Income) by the sum of (a) the amount of deferred revenues that are amortized
during such period and are attributable to reserves that are subject to
Volumetric Production Payments and (b) amounts recorded in accordance with GAAP
as repayments of principal and interest pursuant to Dollar-Denominated
Production Payments, to (ii) the sum of such Consolidated Interest Expense for
such period; PROVIDED, HOWEVER, that (a) the Consolidated Fixed Charge Coverage
Ratio shall be calculated on the assumption that (1) the Indebtedness to be
incurred (and all other Indebtedness incurred after the first day of such period
of four full fiscal quarters referred to in Section 10.12(i) hereof through and
including the date of determination) and (if applicable) the application of the
net proceeds therefrom (and from any other such Indebtedness), including to
refinance other Indebtedness, had been incurred on the first day of such
four-quarter period and, in the case of Acquired Indebtedness, on the assumption
that the related transaction (whether by means of purchase, merger or otherwise)
also had occurred on such date with the appropriate adjustments with respect to
such acquisition being included in such pro forma calculation and (2) any
acquisition or disposition by the Company or any Restricted Subsidiary of any
Properties outside the ordinary course of business, or any repayment of any
principal amount of any Indebtedness of the Company or any Restricted Subsidiary
prior to the Stated Maturity thereof, in either case since the first day of such
period of four full fiscal quarters through and including the date of
determination, had been consummated on such first day of such four-quarter
period, (b) in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness required to be computed on a pro
forma basis in accordance with Section 10.12(i) hereof and (1) bearing a
floating interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (2) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or floating rate of interest,
shall be computed by applying, at the option of the Company, either the fixed or
floating rate, (c) in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness under a revolving credit facility
required to be computed on a pro forma basis in accordance with Section 10.12(i)
hereof shall be computed based upon the average daily balance of such
Indebtedness during the applicable period, PROVIDED that such average daily
balance shall be reduced by the amount of any repayment of Indebtedness under a
revolving credit facility during the applicable period, which repayment
permanently reduced the commitments or amounts available to be reborrowed under
such facility, (d) notwithstanding clauses (b) and (c) of this proviso, interest
on Indebtedness determined on a fluctuating basis, to the extent such interest
is covered by agreements relating to Interest Rate Protection Obligations, shall
be deemed to have accrued at the rate per annum resulting after giving effect to
the operation of such agreements, (e) in making such calculation, Consolidated
Interest Expense shall exclude interest attributable to Dollar-Denominated
Production Payments, and (f) if after the first day of the period referred to in
clause (i) of this definition the Company has retired any Indebtedness out of
the net cash proceeds of the issue and sale of shares of Qualified Capital
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Stock of the Company within 30 days of such issuance and sale, Consolidated
Interest Expense shall be calculated on a pro forma basis as if such
Indebtedness had been retired on the first day of such period.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes (including state franchise taxes
accounted for as income taxes in accordance with GAAP) of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
(i) the sum of (a) the interest expense of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, (1) any amortization of debt discount,
(2) the net cost under Interest Rate Protection Obligations (including any
amortization of discounts), (3) the interest portion of any deferred payment
obligation constituting indebtedness, (4) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and (5) all accrued interest, in each case to the extent attributable
to such period, (b) to the extent any Indebtedness of any Person (other than the
Company or a Restricted Subsidiary) is guaranteed by the Company or any
Restricted Subsidiary, the aggregate amount of interest paid (to the extent not
accrued in a prior period) or accrued by such other Person during such period
attributable to any such Indebtedness, in each case to the extent attributable
to that period, (c) the aggregate amount of the interest component of
Capitalized Lease Obligations paid (to the extent not accrued in a prior
period), accrued and/or scheduled to be paid or accrued by the Company and its
Restricted Subsidiaries during such period as determined on a consolidated basis
in accordance with GAAP and (d) the aggregate amount of dividends paid (to the
extent not accrued in a prior period) or accrued on Redeemable Capital Stock of
the Company and its Restricted Subsidiaries, to the extent such Redeemable
Capital Stock is owned by Persons other than the Company or its Restricted
Subsidiaries and to the extent such dividends are not paid in Common Stock, less
(ii) to the extent included in clause (i), amortization of capitalized debt
issuance costs of the Company and its Restricted Subsidiaries during such
period.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding (i) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto),
(ii) net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (iii) the net income (or net loss) of any Person
(other than the Company or any of its Restricted Subsidiaries), in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of the amount of dividends or other
distributions or interest on indebtedness actually paid to the Company or any of
its Restricted Subsidiaries in cash by such other Person during such period
(regardless of whether such cash dividends, distributions or interest on
indebtedness is attributable to net income (or net loss) of such Person during
such period or during any prior period), (iv) net income (or net loss) of any
Person combined with the Company or any of its Restricted Subsidiaries on a
"pooling of
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interests" basis attributable to any period prior to the date of combination and
(v) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary is not at the date of determination permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, orders statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of the Company and its Restricted Subsidiaries less the amount of such
stockholders' equity attributable to Redeemable Capital Stock or treasury stock
of the Company and its Restricted Subsidiaries, as determined in accordance with
GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the Company
and its Restricted Subsidiaries reducing Consolidated Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge which requires an accrual of or reserve for cash
charges for any future period).
"Corporate Trust Office" means the principal corporate trust office of the
Trustee at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Indenture is located
at ______________________________________________.
"Credit Facility" means that certain Credit Agreement dated as of
______________, 1997 among the Company, the Credit Facility Agent, and certain
lenders named therein, as the same may be amended, modified, supplemented,
extended, restated, replaced, renewed or refinanced from time to time.
"Credit Facility Agent" means the "Agent" under the Credit Facility,
initially Morgan Guaranty Trust Company of New York, and thereafter any Person
succeeding to substantially such function and notified to the Company as the new
Credit Facility Agent by the Person then acting in such capacity.
"Default" means any event that is or with the passage of time or giving of
notice or both would be an Event of Default.
"Defaulted Interest" has the meaning specified in Section 3.8 hereof.
"Depositary" means The Depository Trust Company, its nominees and their
respective successors.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of the Company is
required to deliver a Board Resolution hereunder, a member of the Board of
Directors of the Company who does not have any material
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direct or indirect financial interest (other than in interest arising solely
from the beneficial ownership of Capital Stock of the Company) in or with
respect to such transaction or series of transactions.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Event of Default" has the meaning specified in Section 5.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor act thereto.
"Fair Market Value" means the fair market value of a Property (including
shares of Capital Stock) as determined by the Board of Directors of the Company
and evidenced by a Board Resolution in good faith, which determination shall be
conclusive for purposes of this Indenture; PROVIDED, HOWEVER, that unless
otherwise specified herein, the Board of Directors shall be under no obligation
to obtain any valuation or assessment from any investment banker, appraiser or
other third party.
"Federal Bankruptcy Code" means the United States Bankruptcy Code of Title
11 of The United States Code, as amended from time to time.
"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
effective on the date of this Indenture.
The term "guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments or documents for collection
in the ordinary course of business), direct or indirect, in any manner, of any
part or all of such obligation and (ii) an agreement direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of credit;
PROVIDED HOWEVER, that a guarantee by any Person shall not include a contractual
commitment by one Person to invest in another Person PROVIDED that such
Investment is otherwise permitted by this Indenture. When used as a verb,
"guarantee" shall have a corresponding meaning.
"Guarantor Senior Indebtedness" means the principal of (and premium, if
any, on) and interest on (including interest accruing after the filing of a
petition initiating any proceeding
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pursuant to any bankruptcy law) and other amounts due on or in correction with
(including any fees, premiums, expenses, including costs of collection, and
indemnities) any Indebtedness of a Subsidiary Guarantor, whether outstanding on
the date of this Indenture or thereafter created, incurred or assumed, unless,
in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness will be PARI PASSU with or subordinated in right
of payment to its Subsidiary Guarantee. Notwithstanding the foregoing, Guarantor
Senior Indebtedness of a Subsidiary Guarantor shall not include (i) Indebtedness
of such Subsidiary Guarantor evidenced by its Subsidiary Guarantee, (ii)
Indebtedness of such Subsidiary Guarantor that is expressly PARI PASSU with its
Subsidiary Guarantee or is expressly subordinated in right of payment to any
Guarantor Senior Indebtedness of such Subsidiary Guarantor or its Subsidiary
Guarantee, (iii) Indebtedness of such Subsidiary Guarantor to the extent
incurred in violation of Section 10.12 hereof, (iv) Indebtedness of such
Subsidiary Guarantor to the Company or any of the Company's other Subsidiaries
or to any Affiliate of the Company or any Subsidiary of such Affiliate and (v)
Indebtedness which when incurred and without regard to any election under
Section 1111(b) of the Federal Bankruptcy Code is without recourse to such
Subsidiary Guarantor.
"Holder" means a Person in whose name a Security is registered in a
Security Register.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all liabilities of such Person for borrowed money or for the deferred purchase
price of Property or services (excluding any trade accounts payable and other
accrued current liabilities incurred in the ordinary course of business), and
all liabilities of such Person incurred in connection with any letters of
credit, bankers' acceptances or other similar credit transactions or any
agreement to purchase, redeem. exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock outstanding on the date of this Indenture or thereafter, if,
and to the extent, any of the foregoing would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, (ii) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, if, and to the extent, any of the foregoing would appear as
a liability upon a balance sheet of such Person prepared in accordance with
GAAP, (iii) all Indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to Property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such Property), but excluding trade accounts payable arising in the ordinary
course of business, (iv) all Capitalized Lease Obligations of such Person, (v)
all Indebtedness referred to in the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right to be secured by) any Lien
upon Property (including, without limitation, accounts and contract rights)
owned by such Person, even though such Person his not assumed or become liable
for the payment of such Indebtedness (the amount of such obligation being deemed
to be the lesser of the value of such Property or the amount of the obligation
so secured), (vi) all guarantees by such Person of Indebtedness referred to in
this definition (including, with respect to any Production Payment, any
warranties or
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guaranties of production or payment by such Person with respect to such
Production Payment but excluding other contractual obligations of such Person
with respect to such Production Payment), (vii) all Redeemable Capital Stock of
such Person valued at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued dividends and (viii) all obligations of such
Person under or in respect of currency exchange contracts, oil and natural gas
price hedging arrangements and Interest Rate Protection Obligations. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such Redeemable
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to this Indenture, and if such price is based upon, or
measured by the Fair Market Value of such Redeemable Capital Stock, such Fair
Market Value shall be determined in good faith by the board of directors of the
issuer of such Redeemable Capital Stock; PROVIDED, HOWEVER, that if such
Redeemable Capital Stock is not at the date of determination permitted or
required to be repurchased, the "maximum fixed repurchase price" shall be the
book value of such Redeemable Capital Stock. Subject to clause (vi) of the first
sentence of this definition, neither Dollar-Dominated Production Payments nor
Volumetric Production Payments shall be deemed to be Indebtedness.
"Indenture" means this instrument as originally executed and as it my from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Insolvency or Liquidation Proceeding" mean, with respect to any Person,
(i) an insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or similar case or proceeding in connection
therewith, relative to such Person or its creditors, as such, or its assets or
(ii) any liquidation, dissolution or other winding-up proceeding of such Person,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy or (iii) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of such Person.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to protect
against or manage such Person's and any of its Subsidiaries' exposure to
fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan,
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guarantee of Indebtedness or other extension of credit or capital contribution
to (by means of any transfer of cash or other Property to others or any payment
for Property or services for the account or use of others), or any purchase or
acquisition by such Person of any Capital Stock, bonds, notes, debentures or
other securities (including derivatives) or evidences of Indebtedness issued by,
any other Person. In addition, (i) the Fair Market Value of the net assets of
any Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary shall be deemed to be an "Investment" made
by the Company in such Unrestricted Subsidiary at such time and (ii) the fair
market value of Capital Stock retained by the Company or a Restricted Subsidiary
in connection with the sale or issuance of Capital Stock of a Restricted
Subsidiary in accordance with Section 10.14 hereof that, as a result of such
transaction, is no longer a Restricted Subsidiary shall be deemed to be an
"Investment" made at the time of such transaction. "Investments" shall exclude
(a) extensions of trade credit under a joint operating agreement or otherwise in
the ordinary course of business, workers' compensation, utility, lease and
similar deposits and prepaid expenses in the ordinary course of business, (b)
Interest Rate Protection Obligations entered into in the ordinary course of
business or as required by any Permitted Indebtedness or any other Indebtedness
incurred in compliance with Section 10.12 hereof, but only to the extent that
the stated aggregate notional amounts of such Interest Rate Protection
Obligations do not exceed 105% of the aggregate principal amount of such
Indebtedness to which such Interest Rate Protection Obligations relate, (c)
bonds, notes, debentures or other securities received as a result of Asset Sales
permitted under Section 10.17 hereof and (d) endorsements of negotiable
instruments and documents in the ordinary course of business.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing) upon or with respect to any Property of any kind. A Person shall be
deemed to own subject to a Lien any Property which such Person has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"Material Subsidiary" means, at any particular time, 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 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 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.
"Maturity" means, with respect to any Security, the date on which any
principal of such Security becomes due and payable as provided therein or
herein, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase
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or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary), net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel and investment banks) related to such Asset Sale, (ii) provisions for
all taxes payable as a result of such Asset Sale, (iii) amounts required to be
paid to any Person (other than the Company or any Restricted Subsidiary) owning
a beneficial interest in the Property subject to the Asset Sale and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP consistently
applied against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee; PROVIDED,
HOWEVER, that any amounts remaining after adjustments. revaluations or
liquidations of such reserves shall constitute Net Cash Proceeds.
"Non-payment Event of Default" means any event (other than a Payment Event
of Default), the occurrence of which (with or without notice or the passage of
time) entitles one or more Persons to accelerate the maturity of any Specified
Senior Indebtedness.
"Non-Recourse Indebtedness" means indebtedness of the Company or any
Restricted Subsidiary incurred in connection with the acquisition by the Company
or such Restricted Subsidiary of any property with respect to which (i) the
holders of such indebtedness agree that they will look solely to the property so
acquired and securing such indebtedness, and neither the Company nor the
Restricted Subsidiary (a) provides direct or indirect credit support, including
any undertaking, agreement or instrument that would constitute indebtedness
(other than the grant of a Lien on such acquired property) or (b) is directly or
indirectly liable for such indebtedness, and (ii) no default with respect to
such indebtedness would cause, or permit (after notice or passage of time or
otherwise), according to the terms thereof, any holder (or any representative of
any such holder) of any other indebtedness of the Company or a Restricted
Subsidiary to declare a default on such other indebtedness or cause the payment,
repurchase, redemption, defeasance or other acquisition or retirement for value
thereof to be accelerated or payable prior to any scheduled principal payment,
scheduled sinking fund payment or maturity.
"Officer" means, with respect to any Person, the Chairman of the Board, the
President, any Vice President, the Chief Financial Officer or the Treasurer of
such Person.
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"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the President or any Vice President and by the Chief Financial Officer,
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary
of the Company, and delivered to the Trustee.
"Oil and Gas Business" means (i) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
Properties, (ii) the gathering, marketing, treating, processing, storage,
selling and transporting of any production from such interests or Properties,
(iii) any business relating to or arising from exploration for or development,
production, treatment, processing, storage, transportation or marketing of oil,
gas, hydrocarbons and other minerals and products produced in association
therewith and (iv) any activity necessary, appropriate or incidental to the
activities described in the foregoing clauses (i) through (iii) of this
definition.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company (or any Subsidiary Guarantor), including an employee of the
Company (or any Subsidiary Guarantor), and who shall be reasonably acceptable to
the Trustee.
"Outstanding," when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(1) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(2) Securities, or portions thereof, for whose payment or redemption money
in the necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated in
trust by the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities, PROVIDED that, if such Securities are to be
redeemed, notice of such redemption has been duly given Pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
(3) Securities, except to the extent provided in Sections 12.2 and 12.3
hereof, with respect to which the Company has effected legal defeasance or
covenant defeasance as provided in Article XII hereof; and
(4) Securities which have been paid pursuant to Section 3.7 hereof or in
exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in respect
of which there shall have been presented to the Trustee proof satisfactory to it
that such securities are held by a bona fide purchaser in whose hands the
Securities are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section
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313, Securities owned by the Company, any Subsidiary Guarantor or any other
obligor upon the Securities or any Affiliate of the Company, any Subsidiary
Guarantor or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, consent, notice or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company, any
Subsidiary Guarantor or any other obligor upon the Securities or any Affiliate
of the Company, any Subsidiary Guarantor or such other obligor.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is
PARI PASSU in right of payment to the Securities.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of (and premium, if any,
on) or interest on any Securities on behalf of the Company.
"Payment Event of Default" means any default in the payment or required
prepayment of principal of (or premium, if any, on) or interest on any Specified
Senior Indebtedness when due (whether at final maturity, upon scheduled
installment, upon acceleration or otherwise).
"Permitted Guarantor Junior Securities" means with respect to any
Subsidiary Guarantor, equity securities or subordinated debt securities of such
Subsidiary Guarantor or any successor obligor with respect to its Guarantor
Senior Indebtedness provided for by a plan of reorganization or readjustment
that, in the case of any such subordinated debt securities, are subordinated in
right of payment to all Guarantor Senior Indebtedness of such Subsidiary
Guarantor or successor obligor that may at the time be outstanding to
substantially the same extent as, or to a greater extent than, the Subsidiary
Guarantee of such Subsidiary Guarantor is so subordinated as provided in this
Indenture.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness under the Credit Facility in an aggregate principal amount
at any one time outstanding not to exceed $90,000,000 (less any amounts, applied
to repay or prepay permanently any such Indebtedness in accordance with Section
10.17 hereof), including any guarantee of any such Indebtedness (including by
any Subsidiary) and any fees, premiums, expenses (including costs of
collection), indemnities and other amounts payable in connection with such
indebtedness;
(ii) Indebtedness under the Securities and the Subsidiary Guarantees;
(iii) Indebtedness outstanding on the date of this Indenture (and not
repaid or defeased with the proceeds of the offering of the Securities);
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(iv) obligations of the Company or a Restricted Subsidiary pursuant to
Interest Rate Protection Obligations, but only to the extent that the stated
aggregate notional amounts of such obligations do not exceed 105% of the
aggregate principal amount of the Indebtedness covered by such Interest Rate
Protection Obligations; obligations under currency exchange contracts entered
into in the ordinary course of business; and hedging arrangements that the
Company or a Restricted Subsidiary enters into in the ordinary course of
business for the purpose of protecting its production against fluctuations in
oil or natural gas prices;
(v) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary and
Indebtedness of a Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary; PROVIDED, HOWEVER, that upon any subsequent issuance or
transfer of any Capital Stock or any other event which results in any such
Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted
Subsidiary or any other subsequent transfer of any such Indebtedness (except to
the Company or a Wholly Owned Restricted Subsidiary), such Indebtedness shall be
deemed, in each case, to be incurred and shall be treated as an incurrence for
purposes of Section 10.12 at the time the Wholly Owned Restricted Subsidiary in
question ceased to be a Wholly Owned Restricted Subsidiary;
(vi) in-kind obligations relating to net gas balancing positions arising in
the ordinary course of business and consistent with past practice;
(vii) Indebtedness in respect of bid, performance or surety bonds issued
for the account of the Company or any Restricted Subsidiary in the ordinary
course of business, including guaranties and letters of credit supporting such
bid, performance or surety obligations (in each case other than for an
obligation for money borrowed);
(viii) any guarantee of Senior Indebtedness or Guarantor Senior
Indebtedness incurred in compliance with Section 10.12 hereof, by a Restricted
Subsidiary or the Company;
(ix) any renewals, substitutions, financings or replacements (each, for
purposes of this clause, a "refinancing") by the Company or a Restricted
Subsidiary of any Indebtedness incurred pursuant to clause (ii) or (iii) of this
definition, including any successive refinancings by the Company or such
Restricted Subsidiary, so long as (a) any such new Indebtedness shall be in a
principal amount that does not exceed the principal amount (or, if such
Indebtedness being refinanced provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration thereof,
such lesser amount as of the date of determination) so refinanced plus the
amount of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness refinanced or the amount of any
premium reasonably determined by the Company or such Restricted Subsidiary as
necessary to accomplish such refinancing, plus the amount of expenses of the
Company or such Restricted Subsidiary incurred in connection with such
refinancing, and (b) in the case of any refinancing of Indebtedness of the
Company that is not Senior Indebtedness, such new Indebtedness is either
16
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PARI PASSU with the Securities or subordinated to the Securities at least to the
same extent as the Indebtedness being refinanced and (c) such new Indebtedness
has an Average Life equal to or longer than the Average Life of the Indebtedness
being refinanced and a final Stated Maturity equal to or later than the final
Stated Maturity of the Indebtedness being refinanced; and
(x) any additional Indebtedness in an aggregate principal amount not in
excess of $15,000,000 at any one time outstanding.
"Permitted Investments" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in an amount not to exceed $__________ at any one
time outstanding; (iii) Investments by the Company or any of its Restricted
Subsidiaries in another Person, if as a result of such Investment (a) such other
Person becomes a Restricted Subsidiary or (b) such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all of
its Properties to, the Company or a Restricted Subsidiary; (iv) 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 means of actively
exploiting, exploring for, acquiring, developing, processing, gathering,
marketing or transporting oil and gas through agreements, transactions,
interests or arrangements which permit a Person to share risks or costs, comply
with regulatory requirements regarding local ownership or satisfy other
objectives customarily achieved through the conduct of the Oil and Gas Business
jointly with third parties, including, without limitation (a) ownership
interests in oil and gas properties or gathering systems and (b) 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 limited liability company agreements (including Unrestricted
Subsidiaries); (v) entry into any hedging arrangements in the ordinary course of
business for the purpose of protecting the Company's or any Restricted
Subsidiary's production against fluctuations in oil or natural gas prices; (vi)
entry into any currency exchange contract in the ordinary course of business;
and (vii) Investments in stock, obligations or securities received in settlement
of debts owing to the Company or a Restricted Subsidiary as a result of
bankruptcy or insolvency proceedings or upon the foreclosure, perfection or
enforcement of any Lien in favor of the Company or a Restricted Subsidiary, in
each case as to debt owing to the Company or a Restricted Subsidiary that arose
in the ordinary course of business of the Company or any such Restricted
Subsidiary.
"Permitted Junior Securities" means any equity securities or subordinated
debt securities of the Company or any successor obligor with respect to the
Senior Indebtedness provided for by a plan of reorganization or readjustment
that, in the case of any such subordinated debt securities, are subordinated in
right of payment to all Senior Indebtedness that may at the time be outstanding
to substantially the same degree as, or to a greater extent than, the Securities
are so subordinated as provided in this Indenture.
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"Permitted Liens" means any and all of the following:
(i) Liens existing as of the date the Securities are first issued;
(ii) Liens securing the Securities, the Subsidiary Guaranties and other
obligations arising under the Indenture;
(iii) any lien existing on any property 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 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 at the time of the acquisition
thereof (and not incurred in anticipation of such transaction), PROVIDED that
such Liens are not extended to other Property of the Company or the Subsidiary
Guarantors;
(v) Liens to secure any permitted extension, renewal, refinancing,
refunding or exchange (or successive extensions, renewals, refinancings,
refundings or exchanges), in whole or in part, of or for any indebtedness
secured by Liens referred to in clauses (i), (ii), (iii) and (iv) above;
PROVIDED, HOWEVER, that (a) such new Lien shall be limited to all or part of the
same Property that secured the original Lien, plus improvements on such property
and (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 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; and
(vi) Liens in favor of the Company.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.7 hereof in exchange for a mutilated
Security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the date of this Indenture, including, without
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limitation, all classes and series of preferred or preference stock of such
Person.
"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Capital Stock in any other Person.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such person other than Redeemable Capital Stock.
"Record Date" means a Regular Record Date or a Special Record Date.
"Redeemable Capital Stock" means any Capital Stock that, either by its
terms, by the term of any security into which it is convertible or exchangeable
or by contract or otherwise, is, or upon the happening of an event or passage of
time would be, required to be redeemed prior to the final Stated Maturity of the
Securities or is redeemable at the option of the holder thereof at any time
prior to such final Stated Maturity, or is convertible into or exchangeable for
debt securities at any time prior to such final Stated Maturity.
"Redemption Date," when used with respect to any Security to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the __________ or __________ (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Responsible Officer," when used with respect to the Trustee, means any
officer in the [CORPORATE TRUST DEPARTMENT] of the Trustee, and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of this Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of this Indenture.
"S&P" means Standard and Poor's Ratings Service, a division of McGraw-Hill,
Inc., and its successors.
"Securities" has the meaning stated in the first recital of this Indenture
and more
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particularly means any Securities authenticated and delivered under this
Indenture.
"Senior Indebtedness" means the principal of (and premium, if any, on) and
interest on (including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law, whether or not
allowable in such proceeding) and other amounts due on or in connection with
(including any fees, premiums, expenses, including costs of collection, and
indemnities) any Indebtedness of the Company, whether outstanding on the date of
this Indenture or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the, same is outstanding expressly provides that such
Indebtedness will be PARI PASSU with or expressly subordinated in right of
payment to the Securities. Notwithstanding the foregoing, "Senior Indebtedness"
will not include (i) Indebtedness evidenced by the Securities, (ii) Indebtedness
of the Company that is Pari Passu Indebtedness or is expressly subordinated in
right of payment to any other Indebtedness of the Company, (iii) Indebtedness
that is represented by Redeemable Capital Stock, (iv) Indebtedness of the
Company to the extent incurred in violation of Section 10.12(i) hereof, (v)
Indebtedness of the Company to any Subsidiary of the Company or any other
Affiliate of the Company or any subsidiary of such Affiliate and (vi)
Indebtedness which when incurred and without regard to any election under
Section 1111(b) of the Federal Bankruptcy Code is without recourse to the
Company.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.8 hereof.
"Specified Guarantor Senior Indebtedness" means, with respect to a
Subsidiary Guarantor, (a) for so long as any Senior Indebtedness is outstanding
under the Credit Facility, all Guarantor Senior Indebtedness of such Subsidiary
Guarantor in respect of the Credit Facility and any renewals, amendments,
extensions, supplements, modifications, deferrals, refinancings or replacements
(each, for purposes of this definition, a "refinancing") thereof by such
Subsidiary Guarantor, including any successive refinancings thereof by such
Subsidiary Guarantor, and (b) any other Guarantor Senior Indebtedness and any
refinancings thereof having a principal amount of at least $10,000,000 as of the
date of determination and PROVIDED that the agreements, indentures or other
instruments evidencing such Guarantor Senior Indebtedness or pursuant to which
such Guarantor Senior Indebtedness was issued specifically designates such
Guarantor Senior Indebtedness as "Specified Guarantor Senior Indebtedness" for
purposes of this Indenture.
For purposes of this definition, a refinancing of any Specified Guarantor
Senior Indebtedness shall be treated as Specified Guarantor Senior Indebtedness
only if the Indebtedness issued in such refinancing ranks or would rank PARI
PASSU with the Specified Guarantor Senior Indebtedness refund and only if the
Indebtedness issued in such refinancing is permitted under Section 10.12(i)
hereof.
"Specified Senior Indebtedness" means (i) all Senior Indebtedness of the
Company in respect of the Credit Facility and any renewals, amendments,
extensions, supplements, modifications, deferrals, refinancings, or replacements
(each, for purposes of this definition, a
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"refinancing") thereof by the Company, including any successive refinancings
thereof by the Company and (ii) any other Senior Indebtedness and any
refinancings thereof by the Company having a principal amount of at least
$_______ as of the date of determination and PROVIDED that the agreements,
indentures or other instrument evidencing such Senior Indebtedness or pursuant
to which such Senior Indebtedness was issued specifically designates such Senior
Indebtedness as "Specified Senior Indebtedness" for purposes of this Indenture.
For purposes of this definition, a refinancing of any Specified Senior
Indebtedness shall be treated as a Specified Senior Indebtedness only if the
Indebtedness issued in such refinancing ranks or would rank PARI PASSU with the
Specified Senior Indebtedness refinanced and only if Indebtedness issued in such
refinancing is permitted by Section 10.12(i) hereof.
"Stated Maturity" means, when used with respect to any Security or any
installment of interest thereon, the date specified in such Security as the
fixed date on which the principal of such Security or such installment of
interest is due and payable, and, when used with respect to any other
Indebtedness or any installment of interest thereon, means the date specified in
the instrument evidencing or governing such Indebtedness as the fixed date on
which the principal of such Indebtedness or such installment of interest is due
and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to the Securities.
"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, have at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Persons performing
similar functions).
"Subsidiary Guarantee" has the meaning specified in Section 13.1 hereof.
"Subsidiary Guarantor" means (i) Odyssey Petroleum Company, a Delaware
corporation, (ii) each of the other Restricted Subsidiaries, if any, executing a
supplemental indenture in compliance with the provisions of Section 10.13
hereof, and (iii) any Person that becomes a successor guarantor of the
Securities in compliance with the provisions of Section 13.2 hereof.
"Torch" means Torch Energy Advisors Incorporated, a Delaware corporation.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as
amended and in force at the date as of which this Indenture was executed, except
as provided in Section 9.5 hereof.
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"Trustee" means the Person named as the "Trustee" in the first paragraph of this
Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination is designated an Unrestricted Subsidiary by the Board
of Directors of the Company as provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of the Company may designate any
Subsidiary of the Company as an Unrestricted Subsidiary so long as (a) neither
the Company nor any Restricted Subsidiary is directly or indirectly liable
pursuant to the terms of any Indebtedness of such Subsidiary; (b) no default
with respect to any Indebtedness of such Subsidiary would permit (upon notice,
lapse of time or otherwise) any holder of any other Indebtedness of the Company
or any Restricted Subsidiary to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity; (c) neither the Company nor any Restricted Subsidiary has made an
Investment in such Subsidiary unless such Investment was made pursuant to, and
in accordance with, Section 10.10 hereof (other than Investments of the type
described in clause (iv) of the definition of Permitted Investments); and (d)
such designation shall not result in the creation or imposition of any Lien on
any of the Properties of the Company or any Restricted Subsidiary (other than
any Permitted Lien or any Lien the creation or imposition of which shall have
been in compliance with Section 10.15 hereof); PROVIDED, HOWEVER, that with
respect to clause (a), the Company or a Restricted Subsidiary my be liable for
Indebtedness of an Unrestricted Subsidiary if (x) such liability constituted a
Permitted Investment or a Restricted Payment permitted by Section 10.10 hereof,
in each case at the time of incurrence, or (y) the liability would be a
Permitted Investment at the time of designation of such Subsidiary as an
Unrestricted Subsidiary. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by filing a Board Resolution with the
Trustee giving effect to such designation. The Board of Directors of the Company
may designate any Unrestricted Subsidiary as a Restricted Subsidiary if,
immediately after giving effect to such designation, (i) no Default or Event of
Default shall have occurred and be continuing, (ii) the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under
Section 10.12(i) hereof and (iii) if any of the Properties of the Company or any
of its Restricted Subsidiaries would upon such designation become subject to any
Lien (other than a Permitted Lien), the creation or imposition of such Lien
shall have been in compliance with Section 10.15 hereof.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders
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thereof have the general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of any Person
(irrespective of whether or not, at the time, stork of any other class or
classes shall have, or might have, voting power by reason of the happening of
any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent (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 is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of 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 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.
Section I.2 OTHER DEFINITIONS.
Defined Term In Section
------------ ----------
"Agent Members".......................................................3.6
"Change of Control Notice"......................................10.16(ii)
"Change of Control Offer"........................................10.16(i)
"Change of Control Purchase Date"................................10.16(i)
"Change of Control Purchase Price"...............................10.16(i)
"Defaulted Interest...................................................3.8
"Excess Proceeds"...............................................10.17(ii)
"Funding Guarantor"..................................................13.5
"Global Security".....................................................2.1
"Net Proceeds Deficiency"......................................10.17(iii)
"Net Proceeds Offer"...........................................10.17(iii)
"Net Proceeds Payment Date"....................................10.17(iii)
"Offered Price"................................................10.17(iii)
"Pari Passu Indebtedness Amount"...............................10.17(iii)
"Pari Passu Offer".............................................10.17(iii)
"Payment Amount"...............................................10.17(iii)
"Payment Blockage Notice"........................................14.3(ii)
"Payment Blockage Period"........................................14.3(ii)
"Physical Securities".................................................2.1
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"Purchase Notice"..............................................10.17(iii)
"Restricted Payment".............................................10.10(i)
"Security Register"...................................................3.5
"Security Registrar"..................................................3.5
"Subsidiary Guarantor Non-Payment Default".......................13.9(ii)
"Subsidiary Guarantor Payment Default"............................13.9(i)
"Subsidiary Guarantor Payment Notice"............................13.9(ii)
"Surviving Entity..................................................8.1(i)
"Trigger Date..................................................10.17(iii)
"U.S. Government Obligations".....................................12.4(i)
Section I.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rules and
not otherwise defined herein have the meanings assigned to them therein.
Section I.4 RULES OF CONSTRUCTION.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to them
in this Article, and include the plural as well as the singular;
(2) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP;
(3) the words "herein," "hereof" and "hereunder" and other words of
similar import
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refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision;
(4) the masculine gender includes the feminine and the neuter;
(5) provisions apply to successive events and transactions; and
(6) references to agreements and other instruments include subsequent
amendments and waivers but only to the extent not prohibited by this Indenture.
ARTICLE II
SECURITY FORMS
Section II.1 FORMS GENERALLY.
The definitive Securities shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers executing such Securities, or notations of Subsidiary
Guarantees, as the case may be, as evidenced by their execution of such
Securities or notations of Subsidiary Guarantees, as the case may be.
Securities (including the notations thereon relating to the Subsidiary
Guarantees and the Trustee's certificate of authentication) offered and sold
shall be issued initially in the form of one or more permanent global Securities
substantially in the form set forth in Sections 2.2 through 2.5 hereof (the
"Global Security") deposited with the Trustee, as custodian for the Depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. Subject to the limitation set forth in Section 3.1, the principal
amounts of the Global Securities may be increased or decreased from time to time
by adjustments made on the records of the Trustee as custodian for the
Depositary, as hereinafter provided.
Securities (including the notations thereon relating to the Subsidiary
Guarantees and the Trustee's certificate of authentication) offered and sold
other than as described in the preceding paragraph shall be issued in the form
of permanent certificated securities in registered form in substantially the
form set forth in Sections 2.2 through 2.5 hereto ("Physical Securities").
The Securities, the notations thereon relating to the Subsidiary
Guarantees and the Trustee's certificate of authentication shall be in
substantially the respective forms set forth in this Article, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture and may have such letters, CUSIP or
other numbers or other marks of identification and such legends or endorsements
placed thereon as may be required to comply with the rules of the Depositary any
securities exchange or as may, consistently herewith, be determined by the
officers executing such Securities, or notations of Subsidiary Guarantees, as
the case may be, as evidenced by their execution of the Securities or notations
of Subsidiary Guarantees, as the case may be. Any portion of the text of any
Security
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<PAGE>
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Security. In addition to the requirements of Section 2.3, the
Securities may also have set forth on the reverse side thereof a form of
assignment and forms to elect purchase by the Company pursuant to Section 10.16
or 10.17 hereof.
Section II.2 FORM OF FACE OF SECURITY.
BELLWETHER EXPLORATION COMPANY
___% Senior Subordinated Note due 2007
No. _____ $_________
CUSIP No. _________
Bellwether Exploration Company, a Delaware corporation (herein called the
"Company" which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
____________________ or registered assigns the principal sum of ______________
Dollars on ________, 2007, at the office or agency of the Company referred to
below, and to pay interest thereon, commencing on __________, 1997 and
continuing semiannually thereafter, on _________ and _________ in each year,
from____________, 1997, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, at the rate of ___% per annum,
until the principal hereof is paid or duly provided for, and (to the extent
lawful) to pay on demand interest on any overdue interest at the rate borne by
the Securities from the date on which such overdue interest becomes payable to
the date payment of such interest has been made or duly provided for. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered on the
Security Register at the close of business on the Regular Record Date for such
interest, which shall be the ________________ or _______________ (whether or not
a Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the Holder on such Regular Record Date, and such
defaulted interest, and (to the extent lawful) interest on such defaulted
interest at the rate borne by the Securities, may be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered on the
Security Register at the close of business on a Special Record Date for the
payment of such Defaulted Interest to be fixed by the Trustee, notice whereof
shall be given to Holders of Securities not less than 10 days prior to such
Special Record Date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any, on) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in The City of New
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York, in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts; PROVIDED,
HOWEVER, that payment of interest may be made on Physical Securities at the
option of the Company by check mailed to the address of the Person entitled
thereto as such address shall appear on the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
BELLWETHER EXPLORATION COMPANY
[SEAL] By: __________________________
President
Attest:
Secretary
Section II.3 FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of securities of the
Company designated as its ___% Senior Subordinated Notes due 2007 (herein called
the "Securities"), limited (except as otherwise provided in the Indenture
referred to below) in aggregate principal amount to $100,000,000, which may be
issued under an indenture (herein called the "Indenture") dated as of ______ __,
1997 between the Company, the initial Subsidiary Guarantors named therein and
_____________________ (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties, obligations and immunities thereunder of
the Company, the Subsidiary Guarantors, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indebtedness evidenced by the Securities is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness (as defined in the
Indenture) and this Security is issued subject to such provisions. Each Holder
of this Security, by accepting the same, (i) agrees to and shall be bound
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<PAGE>
by such provisions, (ii) authorizes and directs the Trustee on his behalf to
take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (iii) appoints the Trustee as his
attorney-in-fact for such purpose.
The Securities are subject to redemption, at the option of the Company, in
whole or in part, at any time on or after ____________, 2002, upon not less than
30 or more than 60 days' notice at the following Redemption Prices (expressed as
percentages of principal amount) set forth below if redeemed during the 12-month
period beginning ______________ of the years indicated below:
Redemption
Year Price
------------------------- ------
2002 .................... %
2003 .................... %
2004 .................... %
2005 and thereafter ..... 100.00%
together in the case of any such redemption with accrued and unpaid interest, if
any, to the Redemption Date (subject to the right of Holders of record on the
relevant Record Date to receive interest due on an Interest Payment Date that is
on or prior to the Redemption Date), all as provided in the Indenture.
In the case of any redemption of Securities, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to Holders
of such Securities, or one or more Predecessor Securities, of record at the
close of business on the relevant Record Date referred to on the face hereof.
Securities (or portions thereof) for whose redemption and payment provision is
made in accordance with the Indenture shall cease to bear interest from and
after the Redemption Date. In the event of redemption or purchase of this
Security in part only, a new Security or Securities for the unredeemed or
unpurchased portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
The Securities do not have the benefit of any mandatory redemption or
sinking fund obligations.
In the event of a Change of Control of the Company, and subject to certain
conditions and limitations provided in the Indenture, the Company will be
obligated to make an offer to purchase, on a Business Day not more than 60 or
less than 30 days following the occurrence of a Change of Control of the
Company, all of the then Outstanding Securities at a purchase price equal to
101% of the principal amount thereof, together with accrued and unpaid interest
to the Change of Control Purchase Date, all as provided in the Indenture.
In the event of Asset Sales, under certain circumstances, the Company will
be obligated to make a Net Proceeds Offer to purchase all or a specified portion
of each Holder's Securities at
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a purchase price equal to 100% of the principal amount of the Securities,
together with accrued and unpaid interest to the Net Proceeds Payment Date.
As set forth in the Indenture, an Event of Default is generally (i)
failure to pay principal upon maturity, redemption or otherwise (including
pursuant to a Change of Control Offer or a Net Proceeds Offer), (ii) default for
30 days in payment of interest on any of the Securities, (iii) default in the
performance of agreements relating to mergers, consolidations and sales of all
or substantially all assets or the failure to make or consummate a Change of
Control Offer or a Net Proceeds Offer, (iv) failure for 60 days after notice to
comply with any other covenants in the Indenture or the Securities, (v) certain
payment defaults under, and the acceleration prior to the maturity of, certain
Indebtedness of the Company or any Restricted Subsidiary (other than Non-
Recourse Indebtedness) in an aggregate principal amount in excess of
$10,000,000, (vi) the failure of any Subsidiary Guarantee to be in full force
and effect or otherwise to be enforceable (except as permitted by the
Indenture), (vii) certain final judgments or orders against the Company or any
Restricted Subsidiary in an aggregate amount of more than $10,000,000 over the
coverage under applicable insurance policies which remain unsatisfied and either
become subject to commencement of enforcement proceedings or remain unstayed for
a period of 60 days and (viii) certain events of bankruptcy, insolvency or
reorganization of the Company or any Material Subsidiary. If any Event of
Default occurs and is continuing, the Trustee or the holders of at least 25% in
aggregate principal amount of the Outstanding Securities may declare the
principal amount of all the Securities to be due and payable immediately, except
that (i) in the case of an Event of Default arising from certain events of
bankruptcy, insolvency or reorganization of the Company or any Material
Subsidiary, the principal amount of the Securities will become due and payable
immediately without further action or notice, and (ii) in the case of an Event
of Default which relates to certain payment defaults or acceleration with
respect to certain Indebtedness, any Event of Default and any consequential
acceleration of the Securities will be automatically rescinded if any such
Indebtedness is repaid or if the default relating to such Indebtedness is cured
or waived and if the holders thereof have accelerated such Indebtedness then
such holders have rescinded their declaration of acceleration. No Holder may
pursue any remedy under the Indenture unless the Trustee shall have failed to
act after notice from such Holder of an Event of Default and written request by
Holders of at least 25% in aggregate principal amount of the Outstanding
Securities, and the offer to the Trustee of indemnity reasonably satisfactory to
it; however, such provision does not affect the right to sue for enforcement of
any overdue payment on a Security by the Holder thereof. Subject to certain
limitations, Holders of a majority in aggregate principal amount of the
Outstanding Securities my direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders notice of any continuing default
(except default in payment of principal, premium or interest) if it determines
in good faith that withholding the notice is in the interest of the Holders. The
Company is required to file annual and quarterly reports with the Trustee as to
the absence or existence of defaults.
The Indenture contains provisions for (i) defeasance at any time of the
entire indebtedness of the Company on this Security and (ii) discharge from
certain restrictive covenants and the
29
<PAGE>
related Defaults and Events of Default, upon compliance by the Company with
certain conditions set forth therein, which provisions apply to this Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the Subsidiary Guarantors and the rights of the Holders under the
Indenture at any time by the Company, the Subsidiary Guarantors and the Trustee
with the consent of the Holders of a majority in aggregate principal amount of
the Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by or on behalf of the Holder of this Security shall
be conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange here for or in lieu hereof whether or not notation of such consent
or waiver is made upon this Security. Without the consent of any Holder, the
Company, the Subsidiary Guarantors and the Trustee may amend or supplement the
Indenture or the Securities to cure any ambiguity, defect or inconsistency, to
add or release any Subsidiary Guarantor pursuant to the Indenture, to provide
for uncertificated Securities in addition to or in place of certificated
Securities and to make certain other specified changes and other changes that do
not adversely affect the interests of any Holder in any material respect.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any, on)
and interest on this Security at the times, place, and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture, and subject to certain limitations therein
set forth, the transfer of this Security is registerable on the Security
Register of the Company, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for such purpose duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange of Securities,
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but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
A director, officer, employee, incorporator, stockholder or Affiliate of
the Company or any Subsidiary Guarantor, as such, past, present or future, shall
not have any personal liability under this Security or the Indenture by reason
of his or its status as such director, officer, employee, incorporator,
stockholder or Affiliate, or any liability for any obligations of the Company or
any Subsidiary Guarantor under the Securities or the Indenture or for any claim
based on, in respect of, or by reason of such obligations or their creation.
Each Holder, by accepting this Security with the notation of Subsidiary
Guarantee endorsed hereon, waives and releases all such liability. Such waiver
and release are part of the consideration for the issuance of this Security with
the notation of Subsidiary Guarantee endorsed hereon.
Prior to the time of due presentment of this Security for registration of
transfer, the Company, the Subsidiary Guarantors, the Trustee and any agent of
the Company or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security is
overdue, and neither the Company, the Subsidiary Guarantors, the Trustee nor any
agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture. The Company will furnish to
any Holder upon written request and without charge a copy of the Indenture.
Requests may be made to the Company at 1331 Lamar, Suite 1455, Houston, Texas
77010.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders thereof. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identifying information
printed hereon.
Interest on this Security shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
This Security shall be governed by and construed in accordance with the
laws of the State of New York without regard to conflicts of law principles.
Section II.4 FORM OF NOTATION RELATING TO SUBSIDIARY GUARANTEES.
The form of notation to be set forth on each Security relating to the
Subsidiary Guarantees shall be in substantially the following form:
SUBSIDIARY GUARANTEES
Subject to the limitations set forth in the Indenture, the initial
Subsidiary Guarantors and,
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if any, all additional Subsidiary Guarantors (as defined in the Indenture
referred to in the Security upon which this notation is endorsed and each being
hereinafter referred to as a "Subsidiary Guarantor," which term includes any
additional or successor Subsidiary Guarantor under the Indenture) have, jointly
and severally, unconditionally guaranteed (a) the due and punctual payment of
the principal of (and premium, if any) and interest on the Securities, whether
at maturity, acceleration, redemption or otherwise, (b) the due and punctual
payment of interest on the overdue principal of and interest on the Securities,
if any, to the extent lawful, (c) the due and punctual performance of all other
obligations of the Company to the Holders or the Trustee, all in accordance with
the terms set forth in the Indenture, and (d) in case of any extension of time
of payment or renewal of any Securities or any of such other obligations, the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at Stated Maturity, by acceleration
or otherwise.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Subsidiary Guarantor that makes a
payment or distribution under a Subsidiary Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor in a pro rata amount based on
the Adjusted Net Assets of each Subsidiary Guarantor.
The obligations of the Subsidiary Guarantors to the Holders or the Trustee
pursuant to the Subsidiary Guarantees and the Indenture are expressly
subordinate to all Guarantor Senior Indebtedness to the extent set forth in
Article XIII of the Indenture and reference is made to such Indenture for the
precise terms of such subordination.
No stockholder, officer, director, employee, incorporator or Affiliate as
such, past, present or future, of any Subsidiary Guarantor shall have any
personal liability under its Subsidiary Guarantee by reason of his or its status
as such stockholder, officer, director, employee, incorporator or Affiliate, or
any liability for any obligations of any Subsidiary Guarantor under the
Securities or the Indenture or for any claim based on, in respect of, or by
reason of such obligations or their creation.
Any Subsidiary Guarantor may be released from its Subsidiary Guarantee
upon the terms and subject to the conditions provided in the Indenture.
All terms used in this notation of Subsidiary Guarantee which are defined
in the Indenture referred to in this Security upon which this notation of
Subsidiary Guarantees is endorsed shall have the meanings assigned to them in
such Indenture.
The Subsidiary Guarantees shall be binding upon the Subsidiary Guarantors
and shall
32
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inure to the benefit of the Trustee and the Holders and, in the event of any
transfer or assignment of rights by any Holder or the Trustee respecting the
Security upon which the foregoing Subsidiary Guarantees are noted, the rights
and privileges herein conferred upon that party shall automatically extend to
and be vested in such transferee or assignee, all subject to the terms and
conditions hereof and in the Indenture.
The Subsidiary Guarantees shall not be valid or obligatory for any purpose
until the certificate of authentication on the Security upon which the foregoing
Subsidiary Guarantees are noted shall have been executed by the Trustee under
the Indenture by the manual signature of one of its authorized signatories.
ODYSSEY PETROLEUM COMPANY,
_______________________________
___________________________ and
_______________________________
By: ___________________________
Vice President
Section II.5 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificate of authentication shall be in substantially the
following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within mentioned
Indenture.
Dated:_____________ ____________________________________,
as Trustee
By: ________________________________
Authorized Signatory
ARTICLE III
THE SECURITIES
Section III.1 TITLE AND TERMS.
The aggregate principal amount of Securities which may be authenticated
and delivered
33
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under this Indenture for original issue is limited to $100,000,000. The
aggregate principal amount of Securities Outstanding at any one time may not
exceed such amount except as provided in Section 3.7 hereof.
The Securities shall be known and designated as the "___% Senior
Subordinated Notes due 2007," of the Company. Their Stated Maturity shall be
_____________, 2007, and they shall bear interest at the rate of ___% per annum
from ____________, 1997, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, payable semiannually on
____________ and ____________ in each year, commencing ___________, 1997, and at
said Stated Maturity, until the principal thereof is paid or duly provided for.
The principal of (and premium, if any, on) and interest on the Securities
shall be payable at the office or agency of the Company maintained for such
purpose in The City of New York; PROVIDED, HOWEVER, that, at the option of the
Company, interest may be paid on Physical Securities by check mailed to
addresses of the Persons entitled thereto as such addresses shall appear on the
Security Register.
The Securities shall be redeemable as provided in Article XI hereof.
The Securities shall be subject to defeasance at the option of the Company
as provided in Article XII hereof.
The Securities shall be guaranteed by the Subsidiary Guarantors as
provided in Article XIII hereof.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIV hereof.
Section III.2 DENOMINATIONS.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
Section III.3 EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its Chairman,
its President or a Vice President of the Company, under its corporate seal
reproduced thereon and attested by its Secretary or an Assistant Secretary of
the Company. The signature of any of these officers on the Securities may be
manual or facsimile signatures of the present or any future such authorized
officer and may be imprinted or otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such
34
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individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Securities or did not hold such offices at
the date of such Securities.
At any time after the execution and delivery of this Indenture, the
Company may deliver Securities executed by the Company and having the notations
of Subsidiary Guarantees executed by the Subsidiary Guarantors to the Trustee
for authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee, in accordance with such Company
Order, shall authenticate and deliver such Securities with the notations of
Subsidiary Guarantees thereon as provided in this Indenture.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company, pursuant to and in compliance with Article VIII
hereof, shall be consolidated or merged with or into any other Person or shall
sell, convey, transfer, lease or otherwise dispose of all or substantially all
of its Properties to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a sale, conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Article VIII hereof,
any of the Securities authenticated or delivered prior to such sale,
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person be exchanged for other
Securities executed in the name of the successor Person with such changes in
phraseology and form as may be appropriate, but otherwise in substance of like
tenor as the Securities surrendered for such exchange and of like principal
amount; and the Trustee, upon Company Request of the successor Person, shall
authenticate and deliver Securities as specified in such request for the purpose
of such exchange. If Securities shall at any time be authenticated and delivered
in any new name of a successor Person pursuant to this Section in exchange or
substitution for or upon registration of transfer of any Securities, such
successor Person, at the option of the Holders but without expense to them,
shall provide for the exchange of all Securities at the time Outstanding for
Securities authenticated and delivered in such new name.
Section III.4 TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are
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issued and having the notations of Subsidiary Guarantees thereon and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities and notations of Subsidiary Guarantees may
determine, as conclusively evidenced by their execution of such Securities and
notations of Subsidiary Guarantees.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 10.2
hereof, without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations having the notations of
Subsidiary Guarantees thereon. Until so exchanged, the temporary Securities
shall in all respects be entitled to the same benefits under this Indenture as
definitive Securities.
Section III.5 REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept a register (the "Security Register") in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Securities and of transfers of Securities.
The Security Register shall be in written form or any other form capable of
being converted into written form within a reasonable time. At all reasonable
times and during normal business hours, the Security Register shall be open to
inspection by the Trustee. The Trustee is hereby initially appointed as security
registrar (the "Security Registrar") for the purpose of registering Securities
and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at the office
or agency of the Company designated pursuant to Section 10.2 hereof, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations of a like aggregate principal amount,
each such Security having the notation of Subsidiary Guarantees thereon.
Furthermore, any Holder of a Global Security shall, by acceptance of such
Global Security, be deemed to have agreed that transfers of beneficial interests
in such Global Security may be effected only through a book-entry system
maintained by the Depositary (or its agent), and that ownership of a beneficial
interest in a Global Security shall he required to be reflected in a book entry.
At the option of any Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at the office or agency
of the Company designated pursuant to Section 10.2 hereof. Whenever any
Securities are so surrendered for exchange, the Company
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shall execute, the Subsidiary Guarantors shall execute notations of Subsidiary
Guarantees on, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities and the Subsidiary Guarantees noted thereon issued upon any
registration of transfer or exchange of Securities shall be the valid
obligations of the Company and the respective Subsidiary Guarantors, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Security Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 3.4, 9.6 or 11.8 hereof not involving any
transfer.
Neither the Trustee, the Security Registrar nor the Company shall be
required (i) to issue, register the transfer of or exchange any Physical
Security during a period beginning at the opening of business 15 days before the
mailing of a notice of redemption of Securities selected for redemption under
Section 11.4 hereof and ending at the close of business on the day of such
mailing of the relevant notice of redemption, or (ii) to register the transfer
of or exchange of any Physical Security so selected for redemption in whole or
in part, except the unredeemed portion of any Physical Security being redeemed
in part.
Section III.6 BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITY.
Each Global Security shall be registered in the name of the Depositary for
such Global Security or the nominee or such Depositary and be delivered to the
Trustee as custodian for such Depositary.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depositary, or the Trustee as its custodian, or under such
Global Security, and the Depositary may be treated by the Company, the
Subsidiary Guarantors, the Trustee and any agent of the Company, the Subsidiary
Guarantors, or the Trustee as the absolute owner of such Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Subsidiary Guarantors, or the Trustee or any agent of the
Company, the Subsidiary Guarantors, or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or shall impair, as between the Depositary and its
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Agent Members, the operation of customary practices governing the exercise of
the rights of a holder of any Security.
Transfers of a Global Security shall be limited to transfers of such
Global Security in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Security
may be transferred or exchanged for Physical Securities in accordance with the
rules and procedures of the Depositary. Physical Securities shall be transferred
to all beneficial owners in exchange for their beneficial interests in a Global
Security if, and only if, either (i) the Depositary notifies the Company that it
is unwilling or unable to continue as depositary for the Global Security and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Security Registrar has received a request from the Depositary to issue Physical
Securities in lieu of all or a portion of the Global Security (in which case the
Company shall deliver Physical Securities within 30 days of such request).
In connection with the transfer of an entire Global Security to beneficial
owners pursuant to this Section, the Global Security shall be deemed to be
surrendered to the Trustee for cancellation, and the Company shall execute, and
the Trustee shall authenticate and deliver, to each beneficial owner identified
by the Depositary, in exchange for its beneficial interest in the Global
Security, an equal aggregate principal amount of Physical Securities of
authorized denominations.
The Holder of the Global Security may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
Section III.7 MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If (i) any mutilated Security is surrendered to the Trustee or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company, the Subsidiary Guarantors and the Trustee such security or indemnity as
may be required by them to save each of them harmless, then, in the absence of
notice to the Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute, the Subsidiary Guarantors shall
execute the notation of Subsidiary Guarantees, and upon Company Order the
Trustee shall authenticate and deliver, in exchange for any such mutilated
Security or in lieu of any such destroyed, lost or stolen Security, a new
Security of the tenor and principal amount, having the notation of Subsidiary
Guarantees thereon, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
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Upon the issuance of any new Security under this Section, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional continual obligation of the Company and the respective Subsidiary
Guarantors, whether or not the mutilated, destroyed, lost or stolen Security
shall be at any time enforceable by anyone, and shall be entitled to all
benefits of this Indenture equally and proportionately with any and all other
Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section III.8 PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company maintained for such purpose pursuant to Section 10.2
hereof.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of having been such
Holder, and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Securities (such defaulted interest
and interest therein herein collectively called "Defaulted Interest") may be
paid by the Company, at its election in each case, as provided in clause (i) or
(ii) below:
(1) The Company my elect to make payment of any Defaulted Interest to the
persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal in the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, and such
money when deposited shall be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than is 15 days and not less than 10 days prior
to the date of the proposed payment and not less than 10 days after the receipt
by the Trustee of the notice of the proposed payment. The Trustee shall
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promptly notify the Company of such Special Record Date, and in the name and at
the expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be given in the
manner provided for in Section 15.5 hereof, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been so given, such Defaulted
Interest shall be paid to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business on
such Special Record Date and shall no longer be payable pursuant to the
following clause (ii).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Section III.9 PERSONS DEEMED OWNERS.
Prior to the due presentment of a Security for registration of transfer,
the Company, the Subsidiary Guarantors, the Security Registrar, the Trustee and
any agent of the Company, the Subsidiary Guarantors or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of (and premium, if any, on)
and (subject to Section 3.8 hereof) interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and none of the
Company, the Subsidiary Guarantors, the Security Registrar, the Trustee or any
agent of the Company, the Subsidiary Guarantors or the Trustee shall be affected
by notice to the contrary.
Section III.10 CANCELLATION.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly canceled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All Canceled Securities held by
the Trustee shall be disposed of as directed by a Company Order or in accordance
with the Trustee's usual practice; PROVIDED, HOWEVER, that the Trustee shall not
be required to destroy canceled Securities.
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Section III.11 COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section IV.1 SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of
Securities, as expressly provided for in this Indenture) as to all Outstanding
Securities, and the Trustee, at the expense of the Company, shall, upon payment
of all amounts due the Trustee under Section 6.6 hereof, execute proper
instruments acknowledging satisfaction and discharge of this Indenture when
(1) either
(1) all Securities theretofore authenticated and delivered (other
than (1) Securities which have been mutilated destroyed, lost or stolen
and which have been replaced or paid as provided in Section 3.7 hereof and
(2) Securities for whose payment money or United States governmental
obligations of the type described in clause (i) of the definition of Cash
Equivalents have theretofore been deposited in trust with the Trustee or
any Paying Agent or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as
provided in Section 10.3 hereof) have been delivered to the Trustee for
cancellation, or
(2) all such Securities not theretofore delivered to the Trustee for
cancellation
(1) have become due and payable, or
(2) will become due and payable at their Stated Maturity
within one year, or
(3) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of clause (b)(1), (b)(2) or (b)(3) above, has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the
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entire indebtedness on such Securities not theretofore delivered to the Trustee
for cancellation, for principal (and premium, if any) and interest to the date
of such deposit (in the case of Securities which have become due and payable) or
to the Stated Maturity or Redemption Date, as the case may be, together with
instructions from the Company irrevocably directing the Trustee to apply such
funds to the Payment thereof at maturity or redemption, as the case may be;
(2) the Company has paid or caused to be paid all other sums then due and
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, which, taken together, state that all conditions
precedent herein relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.6 hereof and, if money
shall have been deposited with the Trustee pursuant to this Section, the
obligations of the Trustee under Section 4.2 hereof and the last paragraph of
Section 10.3 hereof shall survive.
Section IV.2 APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 10.3 hereof,
all money deposited with the Trustee pursuant to Section 4.1 hereof shall he
held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whom payment such money has been deposited
with the Trustee.
ARTICLE V
REMEDIES
Section V.1 EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article XIV or be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(1) default in the payment of the principal of or premium, if any, on any
of the Securities when the same becomes due and payable, whether such payment is
due at Stated
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Maturity, upon redemption, upon repurchase pursuant to a Change of Control Offer
or a Net Proceeds Offer, upon acceleration or otherwise; or
(2) default in the payment of any installment of interest on any of the
Securities, when it becomes due and payable, and the continuance of such default
for a period of 30 days; or
(3) default in the performance or breach of the provisions of Article VIII
hereof, the failure to make or consummate a Change of Control Offer in
accordance with the provisions of Section 10.16 or the failure to make or
consummate a Net Proceeds Offer in accordance with the provisions of Section
10.17; or
(4) failure of the Company or any Subsidiary Guarantor to comply with any
other term, covenant or agreement contained in the Securities, any Subsidiary
Guarantee or this Indenture (other than a default specified in subparagraph (i),
(ii) or (iii) above) for a period of 60 days after written notice of such
failure stating that it is a "notice of default" hereunder and requiring the
Company or such Subsidiary Guarantor, as the case may be, to remedy the same
shall have been given (a) to the Company by the Trustee or (b) to the Company
and the Trustee by the Holders of at least 25 % in aggregate principal amount of
the Securities then Outstanding; or
(5) the occurrence and continuation beyond any applicable grace period of
any default in the payment when due on final maturity of the principal of (or
premium, if any, on) or interest on any Indebtedness of the Company (other than
the Securities) or any Restricted Subsidiary for money borrowed (other than
Non-Recourse Indebtedness), or any other default resulting in acceleration of
any Indebtedness of the Company or any Restricted Subsidiary for money borrowed
(other than Non-Recourse Indebtedness), PROVIDED that the aggregate principal
amount of such Indebtedness shall exceed $10,000,000; or
(6) any Subsidiary Guarantee shall, for any reason cease to be, or be
asserted by the Company or any Subsidiary Guarantor, as applicable, not to be,
in full force and effect, enforceable in accordance with its terms (except
pursuant to the release or termination of any such Subsidiary Guarantee in
accordance with this Indenture); or
(7) final judgments or orders rendered against the Company or any
Restricted Subsidiary that are unsatisfied and that require the payment in
money, either individually or in an aggregate amount, that is more than
$10,000,000 over the coverage under applicable insurance policies and either (a)
commencement by any creditor of an enforcement proceeding upon such judgment
(other than a judgment that is stayed by reason of pending appeal or otherwise)
or (b) the occurrence of a 60-day period during which a stay of such judgment or
order, by reason of pending appeal or otherwise, was not in effect; or
(8) the entry of a decree or order by a court having jurisdiction in the
premises (a) for relief in respect of the Company or any Material Subsidiary in
an involuntary case or proceeding
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under the Federal Bankruptcy Code or any other applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or (b) adjudging the
Company or any Material Subsidiary bankrupt or insolvent, or approving a
petition seeking reorganization, arrangement, adjustment or composition of the
Company or a Material Subsidiary under the Federal Bankruptcy Code or any
applicable federal or state law, or appointing under any such law a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Company or any Material Subsidiary or of a substantial part of its
consolidated assets, or ordering the winding up or liquidation of its affairs,
and the continuance of any such decree or order for relief or any such other
decree or order unstayed and in effect for a period of 60 consecutive days; or
(9) the commencement by the Company or any Material Subsidiary of a
voluntary case or proceeding under the Federal Bankruptcy Code or any applicable
federal or state bankruptcy, insolvency, reorganization or other similar law or
any other case or proceeding to be adjudicated bankrupt or insolvent, or the
consent by the Company or any Material Subsidiary to the entry of a decree or
order for relief in respect thereof in an involuntary case or proceeding under
the Federal Bankruptcy Code or any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by the
Company or any Material Subsidiary of a petition or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by it under any such law to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or other similar official) of any of the
Company or any Material Subsidiary or of any substantial part of its
consolidated assets, or the making by it of an assignment for the benefit of
creditors under any such law, or the admission by it in writing of its inability
to pay its debts generally as they become due or the taking of corporate action
by the Company or any Material Subsidiary in furtherance of any such action.
Section V.2 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If any Event of Default (other than an Event of Default specified in
Section 5.1(viii) or (ix) hereof) occurs and is continuing, the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Securities
then Outstanding, by written notice to the Company (and to the Trustee if such
notice is given by the Holders), may, and the Trustee upon the request of the
Holders of not less than 25% in aggregate principal amount of the Outstanding
Securities shall, by a notice in writing to the Company, declare all unpaid
principal of, premium, if any, and accrued and unpaid interest on all the
Securities to be due and payable immediately, upon which declaration all amounts
payable in respect of the Securities shall be immediately due and payable;
PROVIDED, HOWEVER, that if any Senior Indebtedness is outstanding pursuant to
the Credit Facility on the date of any such declaration, such acceleration shall
not be effective and such amounts shall not be payable until the earlier of (i)
the day which is five business days after notice of acceleration is given to the
Company and the Credit Facility Agent (unless such Event of Default is cured or
waived prior to such date) and (ii) the date of acceleration of the Senior
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Indebtedness under the Credit Facility. If an Event of Default specified in
Section 5.1(viii) or (ix) hereof occurs and is continuing, then the amounts
described above shall become and be immediately due and payable without any
declaration, notice or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made and before a
judgment or decree for payment of the money due has been obtained by the Trustee
as hereinafter in this Article provided, the Holders of a majority in aggregate
principal amount of the Securities Outstanding, by written notice to the
Company, the Subsidiary Guarantors and the Trustee, may rescind and annul such
declaration and its consequences if
(1) the Company or any Subsidiary Guarantor has paid or deposited with the
Trustee a sum sufficient to pay,
(1) all overdue interest on all Outstanding Securities,
(2) all unpaid principal of (and Premium, if any, on) any
Outstanding Securities which have become due otherwise than by such
declaration of acceleration, including any Securities required to have
been purchased on a Change of Control Date or a Net Proceeds Payment Date
pursuant to a Change of Control Offer or a Net Proceeds Offer, as
applicable, and interest on such unpaid principal at the rate borne by the
Securities,
(3) to the extent that payment of such interest is lawful, interest
on overdue interest and overdue principal at the rate borne by the
Securities (without duplication of any amount paid or deposited pursuant
to clauses (a) and (b) above), and
(4) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
(2) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction as certified to the Trustee by the Company; and
(3) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on Securities which have
become due solely by such declaration of acceleration, have been cured or waived
as provided in Section 5.13 hereof.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the foregoing, if an Event of Default specified in Section
5.1(v) hereof shall have occurred and be continuing, such Event of Default and
any consequential acceleration
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shall be automatically rescinded if the Indebtedness that is the subject of such
Event of Default has been repaid, or if the default relating to such
Indebtedness is waived or cured and if such Indebtedness has been accelerated,
then the holders thereof have rescinded their declaration of acceleration in
respect of such Indebtedness (PROVIDED, in each case, that such repayment,
waiver, cure or rescission is effected within a period of 10 days from the
continuation of such default
beyond the applicable grace period or the occurrence of such acceleration), and
written notice of such repayment, or cure or waiver and rescission, as the case
may be, shall have been given to the Trustee by the Company and countersigned by
the holders of such Indebtedness or a trustee, fiduciary or agent for such
holders or other evidence satisfactory to the Trustee of such events is provided
to the Trustee, within 30 days after any such acceleration in respect of the
Securities, and so long as such rescission of any such acceleration of the
Securities does not conflict with any judgment or decree as certified to the
Trustee by the Company.
Section V.3 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any installment of interest on any
Security when such interest becomes due and payable and such default continues
for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof or with respect to any Security
required to have been purchased by the Company on the Change of Control Purchase
Date or the Net Proceeds Payment Date pursuant to a Change of Control Offer or
Net Proceeds Offer, as applicable, the Company will, upon demand of the Trustee,
pay to the Trustee for the benefit of the Holders of such Securities, the whole
amount then due and payable on such Securities for principal (and premium, if
any) and interest, and interest on any overdue principal (and premium, if any)
and, to the extent that payment of such interest shall be legally enforceable,
upon any overdue installment of interest, at the rate borne by the Securities,
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
money adjudged or decreed to be payable in the manner provided by law out of the
Property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of
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the exercise of any power granted herein, or to enforce any other proper remedy.
Section V.4 TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, any Subsidiary Guarantor or any
other obligor upon the Securities, their creditors or the Property of the
Company, any Subsidiary Guarantor or of such other obligor, the Trustee
(irrespective of whether the principal of the Securities shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company, the Subsidiary
Guarantors or such other obligor for the payment of overdue principal, premium,
if any, or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(1) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities and
to file such other papers or documents and take any other actions including
participation as a full member of any creditor or other committee as may be
necessary or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(2) subject to Article XIV, to collect and receive any moneys or other
Property payable or deliverable on any such claims and to distribute the same,
and any custodian receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.6 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the Subsidiary Guarantees or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section V.5 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.
All rights of action and claims under this Indenture or the Securities or
the Subsidiary Guarantees may be prosecuted and enforced by the Trustee without
the possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name and as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable
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benefit of the Holders of the Securities in respect of which such judgment has
been recovered.
Section V.6 APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in the case of the distribution of such money on account of principal (or
premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid;
FIRST: to the payment of all amounts due the Trustee under Section 6.6
hereof;
SECOND: subject to Article XIV, to the payment of the amounts then due and
unpaid for principal of (and premium, if any, on,) and interest on the
Securities in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal (and premium, if any)
and interest, respectively; and
THIRD: subject to Article XIV, the balance, if any, to the Company.
Section V.7 LIMITATION ON SUITS.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority or more in
aggregate principal amount of the Outstanding Securities;
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it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
Section V.8 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article XII hereof) and
in such Security of the principal of (and premium if any, on) and (subject to
Section 3.8 hereof) interest on, such Security on the respective Stated
Maturities expressed in such Security (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder.
Section V.9 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Subsidiary Guarantors, the Trustee and the
Holders shall be restored severally and respectively to their former positions
hereunder and thereunder and all rights and remedies of the Trustee and the
Holders shall continue as though no such proceeding had been instituted.
Section V.10 RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
3.7 hereof, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section V.11 DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy occurring upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and
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remedy given by this Article or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
Section V.12 CONTROL BY HOLDERS.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities shall, have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, PROVIDED that
(1) such direction shall not be in conflict with any rule of law or with
this Indenture;
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; and
(3) the Trustee need not take any action which might involve it in
personal liability or be unduly prejudicial to the Holders not joining therein.
Section V.13 WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities may, on behalf of the Holders of all the Securities,
waive any existing Default or Event of Default hereunder and its consequences,
except (i) a Default or Event of Default on any Security, or (ii) in respect of
a covenant or provision hereof which under Article IX hereof cannot be modified
or amended without the consent of the Holder of each Outstanding Security
affected thereby.
Upon any such waiver, such Default or Event of Default shall cease to
exist for every purpose under this Indenture, but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon. Any such waiver may (but need not) be given in connection
with a tender offer or exchange offer for the Securities.
Section V.14 WAIVER OF STAY.
Each of the Company and the Subsidiary Guarantors covenants (to the extent
that each may lawfully do so) that it will not at any time insist upon, plead or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension, or usury law or other law wherever enacted, now or at any time
hereafter in force, which would prohibit or forgive the Company or any
Subsidiary Guarantor from paying all or any portion of the principal of
(premium, if any, on) or interest on the Securities as contemplated herein, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) each of the Company and the Subsidiary
Guarantors hereby expressly waives all benefit or advantage of any such law,
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and covenants that they will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
Section VI.1 DUTIES OF TRUSTEE.
(1) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
or use under the circumstances in the conduct of his own affairs.
(2) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, and shall be fully protected in so relying, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; PROVIDED, HOWEVER, the
Trustee shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
(3) No provisions of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:
(a) this subsection shall not be construed to limit the effect of
Section 6.1(ii);
(b) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.12.
Section VI.2 CERTAIN RIGHTS OF TRUSTEE.
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Subject to the provisions of Section 6.1 hereof:
(1) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(6) the Trustee shall not he bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may reasonably see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine, during the business hours and upon reasonable notice the books, records
and premises of the Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee, shall not be responsible, for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture; and
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(9) the Trustee shall not be deemed to have notice or knowledge of any
manner unless a Responsible Officer has actual knowledge thereof or unless
written notice thereof is received by the Trustee at its Corporate Trust Office
and such notice references the Securities generally, the Company or this
Indenture.
The Trustee shall not be required to advance, expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
Section VI.3 TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
SECURITIES.
The recitals contained herein and in the Securities and the notations of
Subsidiary Guarantees thereon, except for the Trustee's certificates of
authentication, shall be taken as the statements of the Company or the
Subsidiary Guarantors, as the case may be, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture, the Subsidiary Guarantees or the
Securities, except that the Trustee represents that it is duly authorized to
execute and deliver this Indenture, authenticate the Securities and perform, its
obligations hereunder, and that the statements made by it in a Statement of
Eligibility and Qualification on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall not
be accountable for the use or application by the Company of Securities or the
proceeds thereof.
Section VI.4 MAY HOLD SECURITIES.
The Trustee, any Paying Agent, any Security Registrar or any other agent
of the Company, the Subsidiary Guarantors or of the Trustee, in its individual
or any other capacity, may become the owner or pledgee of Securities and,
subject to TIA Sections 310(b) and 311 in the case of the Trustee, may otherwise
deal with the Company and the Subsidiary Guarantors with the same rights it
would have if it were not the Trustee, Paying Agent, Security Registrar or such
other agent.
Section VI.5 MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company or any Subsidiary Guarantor.
Section VI.6 COMPENSATION AND REIMBURSEMENT.
The Company agrees:
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(1) to pay to the Trustee from time to time reasonable compensation for
all services tendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to the Trustee's willful misconduct,
negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without willful misconduct, negligence or
bad faith on its part, (a) arising out of or in connection with the acceptance
or administration of this trust, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder or (b) in connection with
enforcing this indemnification provision.
The obligations of the Company under this Section 6.6 to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall not be
subordinated to the payment of Senior Indebtedness pursuant to Article XIV
hereof and shall constitute additional indebtedness hereunder and shall survive
the satisfaction and discharge of this Indenture or any other termination under
any Insolvency or Liquidation Proceeding. As security for the performance of
such obligations of the Company, the Trustee shall have a claim and lien prior
to the Securities upon all property and funds held or collected by the Trustee
as such, except funds held in trust for payment of principal of (and premium, if
any, on) or interest on particular Securities. Such lien shall survive the
satisfaction and discharge of this Indenture or any other termination under any
Insolvency or Liquidation Proceeding.
When, the Trustee incurs expenses or renders services after the occurrence
of an Event of Default specified in paragraph (viii) or (ix) of Section 5.1 of
this Indenture, such expenses and the compensation for such services are
intended to constitute expenses of administration under any Insolvency or
Liquidation Proceeding.
Section VI.7 CORPORATE TRUSTEE REQUIRED: ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be eligible to
act as Trustee, under TIA Section 310(a)(1) and shall have a combined capital
and surplus of at least $10,000,000 in the case of the initial Trustee hereunder
and $50,000,000 in the case of any successor Trustee. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of federal, state, territorial or District of Columbia supervising
or
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examining authority, then for the purposes of this Section 6.7, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
with which the effect hereinafter specified in this Article.
Section VI.8 CONFLICTING INTERESTS.
The Trustee shall comply with the provisions of Section 310(b) of Trust
Indenture Act; PROVIDED, HOWEVER, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met.
Section VI.9 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(1) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.10 hereof.
(2) The Trustee may resign at any time by giving written notice thereof to
the Company. If the instrument of acceptance by a successor Trustee required by
Section 6.10 hereof shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(3) The Trustee may be removed at any time by an Act of the Holders of not
less than a majority in aggregate principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(4) If at any time:
(a) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months; or
(b) the Trustee shall cease to be eligible under Section 6.7 hereof
and shall fail to resign after written request therefor by the Company or
by any Holder who has been a bona fide Holder of a Security for at least
six months; or
(c) the Trustee shall become incapable of acting or shall be adjuged
bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the
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purpose of rehabilitation, conservation or liquidation, then, in any such
case, (1) the Company, by a Board Resolution, may remove the Trustee, or
(2) subject to TIA Section 315(e), any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
(5) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee. If, within
one year after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in aggregate principal amount of the Outstanding Securities delivered
to the Company and the retiring Trustee, the successor Trustee so appointed
shall, forthwith upon its acceptance of such appointment, become the successor
Trustee and supersede the successor Trustee appointed by the Company. If no
successor Trustee shall have been so appointed by the Company or the Holders and
accepted appointment in the manner hereinafter provided, any Holder who has been
a bona fide Holder of a Security for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee. The evidence of such
successorship may, but need not be, evidenced by a supplemental indenture.
(6) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided for in Section 15.5 hereof. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
Section VI.10 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of all amounts, due it under
Section 6.6 hereof, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all money and
other Property held by such retiring Trustee hereunder. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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Section VI.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
PROVIDED such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities;
and in case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee;
and in all such cases such certificates shall have the full force which it is
anywhere in the Securities or in this Indenture; PROVIDED, HOWEVER, that the
right to adopt the certificate of authentication of any predecessor Trustee or
to authenticate Securities in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
Section VI.12 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor under the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
Section VI.13 NOTICE OF DEFAULTS.
Within 60 days after the occurrence of any Default hereunder, the Trustee
shall transmit in the manner and to the extent provided in TIA Section 313(c),
notice of such Default hereunder known to the Trustee, unless such Default shall
have been cured or waived; PROVIDED, HOWEVER, that, except in the case of a
Default in the payment of the principal of (or premium. if any, on) or interest
on any Security, the Trustee shall be protected in withholding such notice if
and so long as the board of directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interest of the
Holders.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
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Section VII.1 HOLDERS' LISTS; HOLDER COMMUNICATIONS; DISCLOSURES
RESPECTING HOLDERS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders. Neither the Company, any Subsidiary Guarantor nor the Trustee shall
be under any responsibility with regard to the accuracy of such list. If the
Trustee is not the Security Registrar, the Company shall furnish to the Trustee
semi-annually before each Regular Record Date, and at such other times as the
Trustee may reasonably request in writing, a list, in such form as the Trustee
my reasonably request, as of such date of the names and addresses of the Holders
then known to the Company. The Company and the Trustee shall also satisfy any
other requirements imposed upon each of them by TIA Section 312(a).
Holders may communicate pursuant to Section 312(b) of the TIA with other
Holders with respect to their rights under this Indenture or the Securities.
Every Holder of Securities, by receiving and holding the same, agrees with
the Company, the Subsidiary Guarantors, the Security Registrar and the Trustee
that none of the Company, the Subsidiary Guarantors, the Security Registrar or
the Trustee, or any agent of any of them, shall be held accountable by reason of
the disclosure of any information as to the names and addresses of the Holders
in accordance with TIA Section 312, regardless of the source from which such
information was derived, that each of such Persons shall have the protection of
TIA Section 312(c) and that the Trustee shall not be held accountable by reason
of mailing any material pursuant to a request made under TIA Section 312(b).
Section VII.2 REPORTS BY TRUSTEE.
Within 60 days after ____________of each year commencing with
_____________, 1997, the Trustee shall transmit by mail to the Holders, as their
names and addresses appear in the Security Register, a brief report dated as of
such in accordance with and to the extent required under TIA Section 313(a). The
Trustee shall also comply with TIA Sections 313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if the Securities
become listed on any stock exchange or automatic quotation system.
A copy of each Trustee's report, at the time of its mailing to Holders of
Securities, shall be mailed to the Company and filed with the Commission and
each stock exchange, if any, on which the Securities are listed.
Section VII.3 REPORTS BY COMPANY.
The Company shall:
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(1) file with the Trustee, within 30 days after the Company is required to file
the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company
is not required to file information, documents or reports pursuant to either of
said Sections, then the Company shall file with the Trustee such information,
documents or reports as required pursuant to Section 10.9 hereof;
(2) file with the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
(3) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), such summaries of any information, documents and
reports (without exhibits except to the extent required by TIA Section 313(c))
required to be filed by the Company pursuant to paragraph (i) or (ii) of this
Section as may be required by rules and regulations prescribed from time to time
by the Commission.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OF OR LEASE
Section VIII.1 COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not, in any single transaction or a series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of the Properties of the Company and its Restricted Subsidiaries on a
consolidated basis to any Person or group of Affiliated Persons, and the Company
shall not permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of the
Properties of the Company and its Restricted Subsidiaries on a consolidated
basis to any other Person or group of Affiliated Persons, unless at the time and
after giving affect thereto:
(1) either (a) if the transaction is a merger or consolidation, the
Company shall be the surviving Person of such merger or consolidation, or (b)
the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or to which the Properties of the Company or its
Restricted Subsidiaries, as the case may be, are sold, assigned, conveyed,
transferred, leased or otherwise disposed of (any such surviving Person or
transferee Person
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being the "Surviving Entity") shall be a corporation organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia and shall, in either case, expressly assume by a
supplemental indenture to this Indenture executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company under
the Securities and this Indenture, and, in each case, this Indenture shall
remain in full force and effect;
(2) immediately before and immediately after giving effect to such
transaction or series of transactions on a PRO FORMA basis (and treating any
Indebtedness not previously an obligation of the Company or any of its
Restricted Subsidiaries which becomes the obligation of the Company or any of
its Restricted Subsidiaries in connection with or as a result of such
transaction or transactions as having been incurred at the time of such
transaction or transactions), no Default or Event of Default shall have occurred
and be continuing;
(3) except in the case of the consolidation or merger of any Restricted
Subsidiary with or into the Company, immediately after giving effect to such
transaction or transactions on a PRO FORMA basis, the Consolidated Net Worth of
the Company (or the Surviving Entity if the Company is not the continuing
obligor under this Indenture) is at least equal to the Consolidated Net Worth of
the Company immediately before such transaction or transactions;
(4) except in the case of the consolidation or merger of the Company with
or into a Wholly-owned Restricted Subsidiary or any Restricted Subsidiary with
or into the Company or any Wholly Owned Restricted Subsidiary, immediately
before and immediately after giving effect to such transaction or transactions
on a PRO FORMA basis (on the assumption that the transaction or transactions
occurred on the first day of the period of four full fiscal quarters ending
immediately prior to the consummation of such transaction or transactions, with
the appropriate adjustments with respect to the transaction or transactions
being included in such PRO FORMA calculation), the Company (or the Surviving
Entity if the Company is not the continuing obligor under this Indenture) could
incur $1.00 of additional Indebtedness (excluding Permitted Indebtedness) under
Section 10.12(i) hereof;
(5) if any of the Properties of the Company or any of its Restricted
Subsidiaries would, upon such transaction or series of related transactions,
become subject to any Lien (other than a Permitted Lien), the creation or
imposition of such Lien shall have been in compliance with Section 10.15 hereof;
(6) if the Company is not the continuing obligor under this Indenture,
then each Subsidiary Guarantor, unless it is the Surviving Entity, shall have by
supplemental indenture to this Indenture confirmed that its Subsidiary Guarantee
of the Securities shall apply to the Surviving Entity's obligations under this
Indenture and the Securities; and
(7) the Company (or the Surviving Entity if the Company is not the
continuing obligor under this Indenture) shall have delivered to the Trustee, in
form and substance
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reasonably satisfactory to the Trustee, (a) an Officers' Certificate stating
that such consolidation, merger, conveyance, transfer, lease or other
disposition and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture, comply with this Indenture and (b) an
Opinion of Counsel stating that the requirements of clause (i) of this paragraph
have been satisfied.
Section VIII.2 SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with or merger of the Company into
any other corporation or any sale, assignment, lease, conveyance, transfer or
other disposition of all or substantially all of the Properties of the Company
and its Restricted Subsidiaries on a consolidated basis in accordance with
Section 8.1 hereof, the Surviving Entity shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such Surviving Entity had been named as the Company
herein, and in the event of any such sale, assignment, lease, conveyance,
transfer or other disposition, the Company (which term shall for this purpose
mean the Person named as the "Company" in the first paragraph of this Indenture
or any successor Person which shall theretofore become such in the manner
described in Section 8.1 hereof), except in the case of a lease, shall be
discharged of all obligations and covenants under this Indenture and the
Securities and the Company may be dissolved and liquidated and such dissolution
and liquidation shall not cause a Change of Control under clause (iii) of the
definition thereof to occur unless the merger, or the sale, assignment, lease,
conveyance, transfer or other disposition of all or substantially all of the
Properties of the Company and its Restricted Subsidiaries on a consolidated
basis to any Person otherwise results in a Change of Control.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section IX.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, each of the Subsidiary Guarantors, when authorized by a Board
Resolution, and the Trustee upon Company Request, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company contained
herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the Holders
or to surrender any right or power herein conferred upon the Company; or
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(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee pursuant to the requirements of Sections 6.9 and 6.10
hereof, or
(5) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture provided that such action shall not adversely affect the
interests of the Holders in any material respect; or
(6) to secure the Securities pursuant to the requirements of Section 10.15
hereof or otherwise; or
(7) to add any Restricted Subsidiary as an additional Subsidiary Guarantor
as provided in Section 10.13(i) hereof or to evidence the succession of another
Person to any Subsidiary Guarantor pursuant to Section 13.2(ii) hereof and the
assumption by any such successor of the covenants and agreements of such
Subsidiary Guarantor contained herein, in the Securities and in the Subsidiary
Guarantee of such Subsidiary Guarantor; or
(8) to release a Subsidiary Guarantor from its Subsidiary Guarantee
pursuant to Section 13.3 hereof; or
(9) to provide for uncertificated Securities in addition to or in place of
certificated Securities; or
(10) to comply with the requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Section IX.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities (which consent may, but need not,
be given in connection with any tender offer or exchange offer for the
Securities), by Act of said Holders delivered to the Company and the Trustee,
the Company, when authorized by a Board Resolution, each of the Subsidiary
Guarantors, when authorized by a Board Resolution, and the Trustee upon Company
Request, may enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of modifying in any manner the rights of
the Holders under this Indenture; PROVIDED, HOWEVER, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Security
affected thereby:
(1) reduce the principal amount of Securities whose Holders must consent
to an amendment, supplement or waiver;
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(2) reduce the principal of or change the Stated Maturity of the principal
of, or any installment of interest on, any Security or after or waive any of the
provisions with respect to the redemption of the Securities, except as provided
below with respect to Sections 10.16 and 10.17 hereof;
(3) reduce the rate of or change the time for payment of interest,
including Defaulted Interest, on any Security;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Securities (except a rescission of
acceleration of the Securities by the Holders of at least a majority in
aggregate, principal amount of the then Outstanding Securities and a waiver of
the payment default that resulted from such acceleration);
(5) make any Security payable in money other than that stated in the
Securities;
(6) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Securities to receive
payments of principal of or interest on the Securities;
(7) waive a redemption payment with respect to any Security (other than a
payment required by Section 10.16 or Section 10.17 hereof); or
(8) make any change in Section 5.8, 5.13 or 10.20 hereof or in the
foregoing amendment and waiver provisions; or
(9) modify any provisions of this Indenture relating to the relative
ranking of the Securities or the Subsidiary Guarantees in a manner adverse to
the Holders thereof.
It shall not be necessary for any Act of the Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section IX.3 EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
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Section IX.4 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section IX.5 CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section IX.6 REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company, with the notations of Subsidiary Guarantees thereon executed by the
Subsidiary Guarantors, and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
Section IX.7 NOTICE OF SUPPLEMENTAL INDENTURES AND WAIVERS.
Promptly after (i) the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.2 hereof or (ii)
a waiver under Section 5.13 or 10.20 hereof becomes effective, the Company shall
give notice thereof to the Holders of each Outstanding Security affected, in the
manner provided for in Section 15.5 hereof, setting forth in general terms the
substance of such supplemental indenture or waiver, as the case may be.
Section IX.8 EFFECT ON SENIOR INDEBTEDNESS.
No supplemental indenture shall adversely affect the rights of the holders
of Senior Indebtedness under Article XIV hereof or the holders of Guarantor
Senior Indebtedness under Sections 13.8, 13.9, 13.10, 13.11, 13.13, 13.14,
13.15, 13.16 and 13.19 hereof unless expressly consented to in writing by or on
behalf of such holders (or by any specified percentage of holders of a class of
Senior Indebtedness or Guarantor Senior Indebtedness, as the case may be,
required to consent thereto pursuant to the terms of the agreement or instrument
creating, evidencing or governing such Senior Indebtedness or Guarantor Senior
Indebtedness as the case may be), in which event such supplemental indenture
shall be binding on all successors and assigns of such holders and on all
persons who become holders of such Senior Indebtedness or Guarantor Senior
Indebtedness issued after the date of such amendment or modification.
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ARTICLE X
COVENANTS
Section X.1 PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST.
The Company covenants and agrees for the benefit of the Holders that it
will duly and punctually pay the principal of (and premium, if any, on) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.
Section X.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in The City of New York an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities, the Subsidiary
Guarantees and this Indenture may be served. The Office of _________, located at
_____________, New York, New York ______, shall be such office or agency of the
Company, unless the Company shall designate and maintain some other office or
agency for one or more of such purposes. The Company will give prompt written
notice to the Trustee of any change in the location of any such Office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office, and the Company hereby appoints the Trustee as its agent
to receive all such presentation, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind any such designation. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and any change in the location of any such other office or agency.
Section X.3 MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it shall, on
or before 11:00 a.m., Eastern time, on each due date of the principal of (and
premium, if any, on) or interest on any of the Securities, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due until such sum
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will
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on or before 11:00 a.m., Eastern time, on each due date of the principal of (and
premium, if any, on), or interest on, any Securities, deposit with a Paying
Agent immediately available funds in a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due, such funds to be held in trust for
the benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company shall promptly notify the
Trustee of such action or any failure so to act.
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
principal, if any, on) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal (and
premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
sums.
Subject to applicable escheat and abandoned property laws, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of (and premium, if any, on) or interest
on any Security and remaining unclaimed for two years after such principal (and
premium, if any) or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified herein, which shall not be less than 30 days from
the date of each publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
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Section X.4 CORPORATE EXISTENCE.
Except as expressly permitted by Article VIII hereof, Section 10.17 hereof
or other provisions of this Indenture, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Restricted Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required
to preserve any such existence of its Restricted Subsidiaries, rights or
franchises, if the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries, taken as a whole,
and that the loss thereof is not disadvantageous in any material respect to the
Holders.
Section X.5 PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or Property of the Company or any
Restricted Subsidiary and (ii) all lawful claims for labor, materials and
supplies, which, if unpaid, might by law become a Lien upon the Property of the
Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which
appropriate provision has been made in accordance with GAAP.
Section X.6 MAINTENANCE OF PROPERTIES.
The Company shall cause all material Properties owned by the Company or
any Restricted Subsidiary and used or held for use in the conduct of its
business or the business of any Restricted Subsidiary to be maintained and kept
in good condition, repair and working order (ordinary wear and tear excepted),
all as in the judgment of the Company or such Restricted Subsidiary may be
necessary so that its or its Restricted Subsidiary's business may be properly
and advantageously conducted at all times; PROVIDED, HOWEVER, that nothing in
this Section shall prevent the Company or any Restricted Subsidiary from
discontinuing the maintenance of any of such Properties if such discontinuance
is, in the judgment of the Company or such Restricted Subsidiary, as the case
may be, desirable in the conduct of the business of the Company or such
Restricted Subsidiary and not disadvantageous in any material respect to the
Holders. Notwithstanding the foregoing, nothing contained in this Section 10.6
shall limit or impair in any way the right of the Company and its Restricted
Subsidiaries to sell, divest and otherwise to engage in transactions that are
otherwise permitted by this Indenture.
Section X.7 INSURANCE.
The Company shall at all times keep all of its, and cause its Restricted
Subsidiaries to keep their, Properties which are of an insurable nature inured
with insurers, believed by the
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Company to be responsible, against loss or damage to the extent that property of
similar character and in a similar location is usually so insured by
corporations similarly situated and owning like Properties.
The Company or any Restricted Subsidiary may adopt such other plan or
method of protection, in lieu of or supplemental to insurance with insurers,
whether by the establishment of an insurance fund or reserve to be held and
applied to make good losses from casualties, or otherwise, conforming to the
systems of self-insurance maintained by corporations similarly situated and in a
similar location and owning like Properties, as may be determined by the Board
of Directors of the Company or such Restricted Subsidiary.
Section X.8 STATEMENT BY OFFICER AS TO DEFAULT.
(1) The company shall deliver to the Trustee, within 90 days after the end
of each fiscal year of the Company and within 45 days of the end of each of the
first, second and third quarters of each fiscal year of the Company, an
Officers' Certificate stating that a review of the activities of the Company and
its Restricted Subsidiaries during the preceding fiscal quarter or fiscal year,
as applicable, has been made under the supervision of the signing Officers with
a view to determining whether the Company has kept, observed, performed and
fulfilled its obligations under this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of such Officer's
knowledge the Company has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and no Default or Event of Default has
occurred and is continuing (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which such
Officer may have knowledge and what action the Company is taking or proposes to
take with respect thereto). Such Officers' Certificate shall comply with TIA
Section 314(a)(4). For purposes of this Section 10.8(i), such compliance shall
be determined without regard to any period of grace or requirement of notice
under this Indenture.
(2) The Company shall, so long as any of the Securities are outstanding,
deliver to the Trustee forthwith upon any of its Officers becoming aware of any
Default or Event of Default an Officers' Certificate specifying such Default or
Event of Default and what action the Company proposes to take with respect
thereto.
Section X.9 PROVISION OF FINANCIAL INFORMATION.
The Company shall file on a timely basis with the Commission, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act.
The Company will also file with the Trustee (with exhibits), and provide to
each Holder of Securities (without exhibits), without cost to such Holder,
copies of such reports and documents within 30 days after the date on which the
Company files such reports and documents with the
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Commission or the date on which the Company would be required to file such
reports and documents if the Company were so required and, if filing such
reports and documents with the Commission is not accepted by the Commission or
is prohibited under the Exchange Act, the Company shall supply at its cost
copies of such reports and documents (including any exhibits thereto) to any
Holder of Securities, securities analyst or prospective purchaser of any
Securities promptly upon written request given in accordance with Section 15.4
hereof.
Section X.10 LIMITATION ON RESTRICTED PAYMENTS.
(1) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, take the following actions:
(a) declare or pay any dividend or make any distribution on account
of the Company's Capital Stock (other than dividends or distributions
payable solely in shares of Qualified Capital Stock of the Company or in
options, warrants or other rights to purchase Qualified Capital Stock of
the Company);
(b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any Affiliate thereof (other than any
Wholly Owned Restricted Subsidiary) or any options, warrants or other
rights to acquire such Capital Stock;
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, scheduled sinking fund payment or maturity, any Pari Passu
Indebtedness or Subordinated Indebtedness, except (1) pursuant to a Pari
Passu Offer or out of a Net Proceeds Deficiency pursuant to Section 10.17
hereof or (2) upon a Change of Control to the extent (and only to the
extent) required by the indenture or other agreement or instrument
pursuant to which such Pari Passu Indebtedness or Subordinated
Indebtedness was issued, PROVIDED that the Company is then in compliance
with its obligations under Section 10.16 hereof;
(d) declare or pay any dividend on, or make any distribution to the
holders of, any shares of Capital Stock of any Restricted Subsidiary
(other than payments made pro rata to all holders of such Capital Stock)
or purchase, redeem or otherwise acquire or retire for value any Capital
Stock of any Restricted Subsidiary or any options, warrants or other
rights to acquire any such Capital Stock (other than with respect to any
such Capital Stock held by the Company or any Wholly Owned Restricted
Subsidiary or the Company); or
(e) make any Investment (other than any Permitted Investment);
(such payments or other actions described in (but not excluded from) clauses (a)
through (e) are collectively referred to as "Restricted Payments"), unless at
the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash,
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shall be the amount determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a Board Resolution), (1) no
Default or Event of Default shall have occurred and be continuing, (2) the
Company could incur $1.00 of additional Indebtedness (excluding Permitted
Indebtedness) in accordance with Section 10.12(i) hereof and (3) the aggregate
amount of all Restricted Payments declared or made after the date of this
Indenture shall not exceed the sum (without duplication) of the following:
(A) 50% of the aggregate Consolidated Net Income of the Company
accrued on a cumulative basis during the period beginning on the first day
of the month in which this Indenture is signed and ending on the last day
of the Company's last fiscal quarter ending prior to the date of such
proposed Restricted Payment (or, if such aggregate Consolidated Net Income
shall be a loss, minus 100% of such loss), plus
(B) the aggregate net cash proceeds received after the date of this
Indenture by the Company as capital contributions to the Company (other
than from any Restricted Subsidiary), plus
(C) the aggregate net cash proceeds received after the date of this
Indenture by the Company from the issuance or sale (other than to any of
its Restricted Subsidiaries) of shares of Qualified Capital Stock of the
Company or any option, warrants or rights to purchase such shares of
Qualified Capital Stock of the Company, plus
(D) the aggregate net cash proceeds received after the date of this
Indenture by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase shares of Qualified Capital Stock of the Company, plus
(E) the aggregate net cash proceeds received after the date of this
Indenture by the Company from the issuance or sale (other than to any of
its Restricted Subsidiaries) of debt securities or shares of Redeemable
Capital Stock that have been converted into or exchanged for Qualified
Capital Stock of the Company, 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 any
investment made by the Company and its Restricted Subsidiaries subsequent
to the date of the Indenture in any Person resulting from (i) 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, and in an amount not to exceed the
book value of such investment previously made in such Person that was
treated as Restricted Payments, or (ii) the designation of any
Unrestricted Subsidiary as a Restricted Subsidiary, in each case in an
amount not to exceed the lesser of (x) the book value of such investment
previously made in such Unrestricted Subsidiary that was treated as
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Restricted Payments, and (y) the fair market value of such Unrestricted
Subsidiary, plus
(G) $10,000,000.
(2) Notwithstanding paragraph (i) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (in the case of clauses
(b), (c) and (d) below no Default or Event of Default shall have occurred and be
continuing):
(a) the payment of any dividend on any Capital Stock of the Company
or any Restricted Subsidiary within 60 days after the date of declaration
thereof, if at such declaration date such declaration complied with the
provisions of paragraph (i) above (and such payment shall be deemed to
have been paid on such date of declaration for purposes of any calculation
required by the provisions of paragraph (i) above);
(b) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate net cash proceeds of,
a substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company;
(c) the repurchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Pari Passu Indebtedness or
Subordinated Indebtedness (other than Redeemable Capital Stock) in
exchange for or out of the aggregate net cash proceeds of a substantially
concurrent issue and sale (other than to a Restricted Subsidiary) of
shares of Qualified Capital Stock of the Company; and
(d) the purchase, redemption, repayment, 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 to a
Restricted Subsidiary) of, Pari Passu Indebtedness or Subordinated
Indebtedness so long as (1) the principal amount of such new Indebtedness
does not exceed the principal amount (or, if such Pari Passu Indebtedness
or Subordinated Indebtedness being refinanced provides for an amount less
than the principal amount thereof to be due and payable upon a declaration
of acceleration thereof, such lesser amount as of the date of
determination) of the Indebtedness being so purchased, redeemed, repaid,
defeased, acquired or retired, plus the amount of any premium required to
be paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined
by the Company as necessary to accomplish such refinancing, plus the
amount of expenses of the Company incurred in connection with such
refinancing, (2) such new Indebtedness is PARI PASSU with or subordinated
to the Securities at least to the same extent as such Indebtedness so
purchased, redeemed, repaid, defeased, acquired or retired, (3) such new
Indebtedness has an Average Life to Stated Maturity that is longer than
the Average Life to Stated Maturity
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of the Securities and such new Indebtedness has a Stated Maturity for its
final scheduled principal payment that is at least 91 days later than the
Stated Maturity for the final scheduled principal payment of the
Securities.
The actions described in clauses (a) and (c) of this paragraph (ii) shall be
Restricted Payments that shall be permitted to be taken in accordance with this
paragraph (ii) but shall reduce the amount that would otherwise be available for
Restricted Payments under clause (3) of paragraph (i) (PROVIDED that any
dividend paid pursuant to clause (a) of this paragraph (ii) shall reduce the
amount that would otherwise be available under clause (3) of paragraph (i) when
declared, but not also when subsequently paid pursuant to such clause (a)), and
the actions described in clauses (b) and (d) of this paragraph (ii) shall be
Restricted Payments that shall be permitted to be taken in accordance with this
paragraph and shall not reduce the amount that would otherwise be available for
Restricted Payments under clause (3) of paragraph (i). Further, the Company or
any Restricted Subsidiary may make a Restricted Payment, if at the time the
Company or any Restricted Subsidiary first incurred a commitment for such
Restricted Payment such Restricted Payment could have been made in accordance
with this Indenture; PROVIDED that all commitments incurred and outstanding
shall be treated as if such commitments were Restricted Payments expended by the
Company or a Restricted Subsidiary at the time the commitments were incurred,
except that commitments incurred and outstanding which are treated as a
Restricted Payment expended by the Company or a Restricted Subsidiary and which
are terminated shall no longer be treated as a Restricted Payment expended by
the Company or a Restricted Subsidiary upon the termination of such commitment
for such purposes; and PROVIDED, FURTHER, that at the time such Restricted
Payment is made no Default or Event of Default shall have occurred and be
continuing and the Company could incur $1.00 of additional Indebtedness
(excluding Permitted Indebtedness) in accordance with Section 10.12(i) hereof.
(3) In computing Consolidated Net Income of the Company under paragraph
(i) above, (a) the Company shall use audited financial statements for the
portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (b) the Company shall be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment would in the good faith determination of
the Company be permitted under the requirements of this Indenture, such
Restricted Payment shall be deemed to have been made in compliance with this
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.
Section X.11 LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS.
The Company shall not (i) incur (as such term is defined in Section
10.12(i) hereof), or permit to remain outstanding, any Indebtedness (including
Acquired Indebtedness and Permitted
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Indebtedness) other than the Securities, that is subordinated in right of
payment to any Senior Indebtedness, unless such Indebtedness is also PARI PASSU
with, or subordinated in right of payment to, the Securities pursuant to
subordination provisions substantially similar to those contained in this
Indenture, and (ii) permit any Subsidiary Guarantor to incur, or to permit to
remain outstanding, any Indebtedness (including Acquired Indebtedness and
Permitted Indebtedness) other than such Subsidiary Guarantor's Subsidiary
Guaranty, that is subordinated in right of payment to any Guarantor Senior
Indebtedness unless such Indebtedness is also PARI PASSU with, or subordinated
in right of payment to, such Subsidiary Guarantee pursuant to subordination
provisions substantially similar to those contained in this Indenture.
Section X.12 INCURRENCE OF INDEBTEDNESS.
(1) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume, guarantee or otherwise become directly
or indirectly liable for the payment of (collectively, "incur") any Indebtedness
(including any Acquired Indebtedness), other than Permitted Indebtedness, unless
(a) at the time of such event and after giving effect thereto on a PRO FORMA
basis the Company's Consolidated Fixed Charge Coverage Ratio for the four full
fiscal quarters immediately preceding such event, taken as one period, would
have been at least equal to 2.5 to 1.0 and (b) no Default or Event of Default
shall have occurred and be continuing at the time such additional Indebtedness
is incurred or would occur as a consequence of the incurrence of the additional
Indebtedness.
(2) The amount of any guarantees by the Company or any Restricted
Subsidiary of any Indebtedness of the Company or one or more Restricted
Subsidiaries shall not be deemed to be outstanding or incurred for purposes of
this Section 10.12 hereof in addition to the amount of Indebtedness which it
guarantees.
Section X.13 LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED
SUBSIDIARIES.
(1) The Company shall not permit any Restricted Subsidiary that is not a
Subsidiary Guarantor to guarantee the payment of any Indebtedness of the Company
unless (a) (1) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to this Indenture providing for a Subsidiary Guarantee of
the Securities by such Restricted Subsidiary, which Subsidiary Guarantee shall
be subordinated to Guarantor Senior Indebtedness (but no other Indebtedness) to
the same extent that the Securities are subordinated to Senior Indebtedness and
(2) with respect to any guarantee of Subordinated Indebtedness by a Restricted
Subsidiary, any such guarantee shall be subordinated to such Restricted
Subsidiary's Subsidiary Guarantee at least to the same extent as such
Subordinated Indebtedness is subordinated to the Securities; (b) such Restricted
Subsidiary waives and agrees not in any manner whatsoever to claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its Subsidiary
Guarantee until such time as the obligations guaranteed thereby are paid in
full; and (c) such Restricted Subsidiary shall deliver to the Trustee
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an Opinion of Counsel to the effect that such Subsidiary Guarantee has been duly
executed and authorized and constitutes a valid, binding and enforceable
obligation of such Restricted Subsidiary, except insofar as enforcement thereof
may be limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; PROVIDED that
this paragraph (i) shall not be applicable to any guarantee of any Restricted
Subsidiary that (x) existed at the time such Person became a Restricted
Subsidiary of the Company and (y) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company.
(2) Notwithstanding the foregoing and the other provisions of this
Indenture, any Subsidiary Guarantee incurred by a Restricted Subsidiary pursuant
to this Section 10.13 shall provide by its terms that it shall be automatically
and unconditionally released and discharged upon the terms and conditions set
forth in Section 13.3 hereof.
Section X.14 LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK BY
RESTRICTED SUBSIDIARIES.
The Company (i) shall not permit any Restricted Subsidiary to issue any
Capital Stock (other than to the Company or a Restricted Subsidiary) and (ii)
shall not permit any Person (other than the Company or a Restricted Subsidiary)
to own any Capital Stock of any Restricted Subsidiary, except, in each case, for
(a) directors' qualifying shares, (b) Capital Stock of a Restricted Subsidiary
organized in a foreign jurisdiction required to be issued to, or owned by, the
government of 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, (c) a sale of Capital Stock of a
Restricted Subsidiary effected in accordance with Section 10.10 and Section
10.17 hereof, (d) the issuance of Capital Stock by a Restricted Subsidiary to a
Person other than the Company or a Restricted Subsidiary which issuance was
made in accordance with Section 10.10 and Section 10.17 hereof and (e) 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; PROVIDED,
HOWEVER, that any Capital Stock retained by the Company or a Restricted
Subsidiary in the case of clauses (c), (d) or (e) shall be treated as an
Investment for purposes of Section 10.10, if the amount of such Capital Stock
represents less than a majority of the Voting Stock of such Restricted
Subsidiary.
Section X.15 LIMITATION ON LIENS.
The Company shall not and shall not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind, except for Permitted Liens, upon any of their respective Properties,
whether now owned or acquired after the date of this Indenture, or any income or
profits therefrom to secure any Pari Passu Indebtedness or Subordinated
Indebtedness, unless prior to or contemporaneously therewith the Securities are
directly secured equally and ratably, PROVIDED that (i) if such secured
Indebtedness is Pari Passu
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Indebtedness, the Lien securing such Pari Passu Indebtedness shall be
subordinate and junior to, or PARI PASSU with, the Lien securing the Securities
and (ii) if such secured Indebtedness is Subordinated Indebtedness, the Lien
securing such Subordinated Indebtedness shall be subordinate and junior to the
Lien securing the Securities at least to the same extent as such Subordinated
Indebtedness is subordinated to the Securities.
Section X.16 PURCHASE OF SECURITIES UPON CHANGE OF CONTROL.
(1) Upon the occurrence of a Change of Control, each Holder of Securities
shall have the right to require the Company to purchase such Holder's
Securities, in whole or in part, in a principal amount that is an integral
multiple of $1,000, pursuant to the offer described in Section 10.16(ii) hereof
(the "Change of Control Offer") at a purchase price (the "Change of Control
Purchase Price") in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest, if any, thereon to the date of purchase (the
"Change of Control Purchase Date"). The Company will not be required to make a
Change of Control Offer upon a Change of Control if a third party makes the
Change of Control Offer at the same purchase price, at the same times and
otherwise in substantial compliance with the requirements applicable to a Change
of Control Offer made by the Company and purchases all Securities validly
tendered and not withdrawn under such Change of Control Offer.
(2) Within 30 calendar days after the date of any Change of Control, the
Company, or the Trustee at the request and expense of the Company, shall send to
each Holder, in the manner provided in Section 15.5 a notice (the "Change of
Control Notice") prepared by the Company describing the transaction or
transactions that constitute the Change of Control and stating:
(a) that a Change of Control has occurred and a Change of Control
Offer is being made pursuant to this Section 10.16, and that all
Securities that are timely tendered will be accepted for payment;
(b) the Change of Control Purchase Price and the Change of Control
Purchase Date, which date shall be a Business Day no earlier than 30
calendar days nor later than 60 calendar days subsequent to the date such
notice is mailed;
(c) that any Securities or portions thereof not tendered or accepted
for payment will continue to accrue interest;
(d) that, unless the Company defaults in the payment of the Change
of Control Purchase Price with respect thereto, all Securities or portions
thereof accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest from and after the Change of Control Purchase
Date;
(e) that any Holder electing to have any Securities or portions
thereof purchased pursuant to a Change of Control Offer will be required
to surrender such Securities, with the form to elect purchase by the
Company pursuant to this Section 10.16
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completed, to the Paying Agent at the address specified in the notice,
prior to the close of business on the third Business Day preceding the
Change of Control Purchase Date;
(f) that any Holder shall be entitled to withdraw such election if
the Paying Agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Purchase Date, a
facsimile transmission or letter, setting forth the name of the Holder,
the principal amount of Securities delivered for purchase and a statement
that such Holder is withdrawing such Holder's election to have such
Securities or portions thereof purchased pursuant to the Change of Control
Offer;
(g) that any Holder electing to have Securities purchased pursuant
to the Change of Control offer must specify the principal amount that is
being tendered for purchase, which principal amount must be $1,000 or an
integral multiple thereof;
(h) if Physical Securities have been issued pursuant to Section 2.1,
that any Holder of Physical Securities whose Physical Securities are being
purchased only in part will be issued new Physical Securities equal in
principal amount to the unpurchased portion of the Physical Securities
surrendered, which unpurchased portion will be equal in principal amount
to $1,000 or an integral multiple thereof; and
(i) any other information necessary to enable any Holder to tender
Securities and to have such Securities purchased pursuant to this Section
10.16.
(3) On the Change of Control Payment Date, the Company shall, to the
estent lawful, (a) accept for payment all Securities or portions thereof
properly tendered pursuant to the Change of Control Offer, (b) irrevocably
deposit with the Paying Agent, by 11:00 a.m., Eastern time, on such date, in
immediately available funds, an amount equal to the Change of Control Purchase
Price in respect of all Securities or portions thereof so accepted and (c)
deliver or cause to be delivered to the Trustee the Securities so accepted
together with an Officers' Certificate stating the aggregate principal amount of
Securities or portions thereof being purchased by the Company. The Paying Agent
shall promptly send, in the manner provided in Section 15.5, to each Holder of
Securities or portions thereof so accepted for payment the Change of Control
Purchase Price for such Securities or portions thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. For purposes of this
Section 10.16, the Trustee shall act as the Paying Agent.
(4) Upon surrender and cancellation of a Physical Security that is
purchased in part pursuant to the Change of Control Offer, the Company shall
promptly issue and the Trustee shall authenticate and deliver to the
surrendering Holder of such Physical Security a new Physical Security equal in
principal amount to the unpurchased portion of such surrendered Physical
Security; PROVIDED that each such new Physical Security shall be in a principal
amount of $1,000 or an integral multiple thereof.
(5) The Company shall comply with Rule 14e-1 under the Exchange Act and
any
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other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs and the
Company is required to purchase Securities as described in this Section 10.16.
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 under this Section 10.16 by virtue
thereof.
(6) Prior to complying with the provisions of this Section 10.16, but in
any event within 30 days following a Change of Control, the Company shall either
repay all outstanding Senior Indebtedness or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Indebtedness to permit
the repurchase of Securities required by this Section 10.16.
Section X.17 DISPOSITION OF PROCEEDS OF ASSET SALES.
(1) The Company shall not, and shall not permit any Restricted Subsidiary
to, engage in any Asset Sale unless (a) the Company or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value of the Properties sold or otherwise
disposed of pursuant to the Asset Sale, (b) at least 80% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, in
respect of such Asset Sale consists of cash, Cash Equivalents or properties used
in the Oil and Gas Business of the Company and its Restricted Subsidiaries and
(c) the Company delivers to the Trustee an Officers' Certificate (which
Officers' Certificate shall be conclusive) certifying that such Asset Sale
complies with clauses (a) and (b) of this Section 10.17(i). The amount (without
duplication) of any Indebtedness (other than Subordinated Indebtedness or Pari
Passu Indebtedness) of the Company or such Restricted Subsidiary that is
expressly assumed by the transferee in such Asset Sale and with respect to which
the Company or such Restricted Subsidiary, as the case may be, is
unconditionally released by the holder of such Indebtedness, shall be deemed to
be cash or Cash Equivalents for purposes of clause (b) and shall also be deemed
to constitute a repayment of, and a permanent reduction in, the amount of such
Indebtedness for purposes of the next following paragraph.
(2) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company or such Restricted Subsidiary may either, no later than 365 days
after such Asset Sale, (a) apply all or any of the Net Cash Proceeds therefrom
to repay Indebtedness (other than Subordinated Indebtedness or Pari Passu
Indebtedness) of the Company or any Restricted Subsidiary, PROVIDED, in each
case, that the related loan commitment (if any) is thereby permanently reduced
by the amount of such Indebtedness so repaid, or (b) invest all or any part of
the Net Cash Proceeds thereof in properties and assets that will be used in the
Oil and Gas Business of the Company or its Restricted Subsidiaries, as the case
may be. The amount of such Net Cash Proceeds not applied or invested as provided
in this paragraph (after the periods specified in this paragraph) shall
constitute "Excess Proceeds."
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(3) When the aggregate amount of Excess Proceeds equals or exceeds
$10,000,000 (the "Trigger Date"), the Company shall make an offer to purchase,
from all Holders of the Securities and holders of any then outstanding Pari
Passu Indebtedness required to be repurchased or repaid on a permanent basis in
connection with an Asset Sale, an aggregate principal amount of Securities and
any such Pari Passu Indebtedness equal to such Excess Proceeds as follows:
(a) Not later than the 30th day following the Trigger Date, the
Company shall (1) give to the Trustee in the manner provided in Section
15.4 hereof and each Holder of the Securities in the manner provided in
Section 15.5 hereof, a notice (a "Purchase Notice") offering to purchase
(a "Net Proceeds Offer") from all Holders of the Securities the maximum
principal amount (expressed as a multiple of $1,000) of Securities that
may be purchased out of an amount (the "Payment Amount") equal to the
product of such Excess Proceeds multiplied by a fraction, the numerator of
which is the outstanding principal amount of the Securities and the
denominator of which is the sum of the outstanding principal amount of the
Securities and any such Pari Passu Indebtedness (subject to proration in
the event such amount is less than the aggregate Offered Price (as
hereinafter defined) of all Securities tendered), and (2) to the extent
required by any such Pari Passu Indebtedness and provided there is a
permanent reduction in the principal amount of such Pari Passu
Indebtedness, the Company shall make an offer to purchase such Pari Passu
Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu
Indebtedness Amount") equal to the excess of the Excess Proceeds over the
Payment Amount.
(b) The offer price for the Securities shall be payable in cash in
an amount equal to 100% of the aggregate principal amount of the
Securities tendered pursuant to a Net Proceeds Offer, plus accrued and
unpaid interest, if any, to the date such Net Proceeds Offer is
consummated (the "Offered Price"), in accordance with paragraph (iv) of
this Section. To the extent that the aggregate Offered Price of the
Securities tendered pursuant to a Net Proceeds Offer is less than the
Payment Amount relating thereto or the aggregate amount of the Pari Passu
Indebtedness that is purchased or repaid pursuant to the Pari Passu Offer
is less than the Pari Passu Indebtedness Amount (such shortfall
constituting a "Net Proceeds Deficiency"), the Company may use such Net
Proceeds Deficiency, or a portion thereof, for general corporate purposes,
subject to the limitations of Section 10.10 hereof.
(c) If the aggregate Offered Price of Securities validly tendered
and not withdrawn by Holders thereof exceeds the Payment Amount,
Securities to be purchased will be selected on a pro rata basis by the
Trustee based on the aggregate principal amount of Securities so tendered.
Upon completion of a Net Proceeds Offer and a Pari Passu Offer, the amount
of Excess Proceeds shall be reset to zero.
(d) The Purchase Notice shall set forth a purchase date (the "Net
Proceeds
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Payment Date"), which shall be on a Business Day no earlier than 30 days
nor later than 60 days from the Trigger Date. The Purchase Notice shall
also state (1) that a Trigger Date with respect to one or more Asset Sales
has occurred and that such Holder has the right to require the Company to
repurchase such Holder's Securities at the Offered Price subject to the
limitations described in the forgoing paragraph (c), (2) any information
regarding such Net Proceeds Offer required to be furnished pursuant to
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder, (3) that any Security, or portion thereof, not
tendered or accepted for payment will continue to accrue interest, (4)
that, unless the Company defaults in depositing money with the Paying
Agent in accordance with the last paragraph of clause (iv) of this Section
10.17, or payment is otherwise prevented, any Security, or portion
thereof, accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Net Proceeds Payment Date, and (5) the
instructions a Holder must follow in order to have his Securities
repurchased in accordance with paragraph (iv) of this Section.
(4) Holders electing to have Securities purchased will be required to
surrender such Securities to the Paying Agent at the address specified in the
Purchase Notice prior to the close of business on the third Business Days prior
to the Net Proceeds Payment Date. Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the second Business Days prior to the Net Proceeds Payment Date, a facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Securities delivered for purchase by the Holder as to which his
election is to be withdrawn and a statement that such Holder is withdrawing his
election to have such Securities purchased. Holders of Physical Securities whose
Securities are purchased only in part will be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered, which
unpurchased portion will be equal to $1,000 or an integral multiple thereof.
On the Net Proceeds Payment Date, the Company shall (1) accept for payment
Securities or portions thereof validly tendered pursuant to a Net Proceeds Offer
in an aggregate principal amount equal to the Payment Amount or such lesser
amount of Securities as has been tendered, (2) irrevocably deposit with the
Paying Agent by 11:00 a.m., Eastern time, immediately available funds sufficient
to pay the purchase price of all Securities or portions thereof so tendered in
an aggregate principal amount equal to the Payment Amount or such lesser amount
and (3) deliver or cause to be delivered to the Trustee the Securities so
accepted. The Paying Agent shall promptly send, in the manner provided in
Section 15.5, to Holders of the Securities so accepted payment in an amount
equal to the purchase price, and the Company shall execute and the Trustee shall
authenticate and mail or make available for delivery to such Holders a new
Security equal in principal amount to any unpurchased portion of the Security
which any such Holder did not surrender for purchase. Any Securities not so
accepted will be promptly mailed or delivered to the Holder thereof. The Company
shall announce the results of a Net Proceeds Offer on or as soon as practicable
after the Net Proceeds Payment Date. For purposes of this Section 10.17, the
Trustee will act as the Paying Agent.
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(5) The Company shall not and shall not permit any Restricted Subsidiary
to enter into or suffer to exist any agreement that would place any restriction
of any kind (other than pursuant to law or regulation) on the right of the
Company to make a Net Proceeds Offer following any Asset Sale. The Company shall
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder, if applicable, in the event that an Asset Sale occurs
and the Company is required to purchase Securities as described in this Section
10.17. To the extent that the provisions of any securities laws or regulations
conflict with the provisions relating to the Net Proceeds offer, the Company
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this Section 10.17 by virtue
thereof.
Section X.18 LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including. without limitation,
the sale, purchase, exchange or lease of Property or services) with any
Affiliate of the Company (other than the Company or a Restricted Subsidiary)
unless (i) such transaction or series of related transactions is on terms that
are no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than would be available in a comparable transaction in arm's length
dealings with an unrelated third party, (ii) with respect to a transaction or
series of related transactions involving payments in excess of $1,000,000 in the
aggregate, the Company delivers an Officers' Certificate to the Trustee
certifying that such transaction complies with clause (i) above, (iii) with
respect to a transaction or series of transactions involving payments in excess
of $5,000,000 but not less than $15,000,000 in the aggregate, the Company
delivers an Officers' Certificate to the Trustee certifying that (a) such
transaction or series of related transactions complies with clause (i) above and
(b) such transaction or series of related transactions shall have been approved
by a majority of the Disinterested Directors of the Company and (iv) with
respect to a transaction or series of transactions involving payments of
$15,000,000 or more in the aggregate, the Company delivers an Officers'
Certificate to the Trustee certifying that (a) such transaction or series of
related transactions complies with clause (i) above, (b) such transaction or
series of related transactions shall have been approved by a majority of the
Disinterested Directors of the Company and (c) the Company shall have received
the written opinion of a firm of investment bankers nationally recognized in the
United States that such transaction or series of transactions is fair, from a
financial point of view, to the Company or such Restricted Subsidiary; PROVIDED,
HOWEVER, that the foregoing restriction shall not apply to (1) the provision of
services and payments under the Administrative Services Agreement so long as
such agreement (including any modifications thereof or amendments thereto
entered into on or after the date of this Indenture) has been approved by a
majority of the independent directors of the Board of Directors of the Company,
(2) loans or advances to officers, directors and employees of the Company or any
Restricted Subsidiary made in the ordinary course of business and consistent
with past practices of the Company and its Restricted Subsidiaries in an
aggregate amount not to exceed $3,000,000 outstanding at any one time, (3) the
payment of reasonable and customary regular fees to directors of the Company or
any of its
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Restricted Subsidiaries who are not employees of the Company or any Affiliate,
(4) the Company's employee compensation and other benefit arrangements or (5)
indemnities of officers and directors of the Company or any Subsidiary
consistent with such Person's bylaws and applicable statutory provisions.
Section X.19 LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends, in cash or otherwise, or make
any other distributions on or in respect of its Capital Stock to the Company or
any other Restricted Subsidiary, (ii) pay any Indebtedness owed to the Company
or any other Restricted Subsidiary, (iii) make an investment in the Company or
any other Restricted Subsidiary, or (iv) transfer any of its Properties to the
Company or any other Restricted Subsidiary except in each instance for such
encumbrances or restrictions pursuant to (a) this Indenture or the Credit
Facility, (b) any other agreement in effect on the date of this Indenture, (c)
any agreement or other instrument of a Person acquired by the Company or any
Restricted Subsidiary in existence at the time of such acquisition (but not
created in contemplation thereof), which encumbrance or restriction is not
applicable to any other Person, or the Properties of any other Person, other
than the Person or the Properties of the Person, so acquired, (d) customary
restrictions in leases and licenses relating to the Property covered thereby and
entered into in the ordinary course of business or (e) any agreement that
extends, renews, refinances or replaces the agreements containing restrictions
in the foregoing clauses (a) through (d), PROVIDED that in the case of such
agreements referenced in clauses (b) through (d) above, the terms and conditions
of any such restrictions are not materially less favorable to the Holders of the
Securities than those under or pursuant to the agreement evidencing the
Indebtedness so extended, renewed, refinanced or replaced, and except with
respect to clause (iv) only, (1) restrictions in the form of Liens which are not
prohibited under Section 10.15 and which contain customary limitations on the
transfer of collateral and (2) customary restrictions contained in asset sale
agreements limiting the transfer of such assets pending the closing of such
sale.
Section X.20 WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 10.5 through 10.12, Sections 10.14
and 10.15 and Sections 10.18 through 10.19 hereof if, before or after the time
for such compliance, the Holders of at least a majority in aggregate principal
amount of the Outstanding Securities and the Subsidiary Guarantors, by Act of
such Holders and written agreement of the Subsidiary Guarantors, waive such
compliance in such instance with such term, provision or condition, but no such
waiver shall extend to or affect such term, provision or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the
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duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect.
ARTICLE XI
REDEMPTION OF SECURITIES
Section XI.1 RIGHT OF REDEMPTION.
The Securities may be redeemed, at the election of the Company, as a whole
or from time to time in part, at any time on or after __________________, 2002,
upon not less than 30 or more than 60 days' notice to each Holder of Securities
to be redeemed, subject to the conditions and at the Redemption Prices
(expressed as percentages of principal amount) specified in the form of
Security, together with accrued and unpaid interest, if any, to the Redemption
Date.
Section XI.2 APPLICABILITY OF ARTICLE.
Redemption of securities at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
Section XI.3 ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities pursuant to Section
11.1 hereof shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 11.4 hereof. Any election to
redeem Securities shall be revocable until the Company gives a notice of
redemption pursuant to Section 11.5 hereof to the Holders of Securities to be
redeemed.
Section XI.4 SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not less than 30 days nor more than
60 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities not previously called for redemption, pro rata or by any other method
as the Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions of the principal of Securities; PROVIDED,
HOWEVER, that any such partial redemption shall be in integral multiples of
$1,000.
The Trustee shall promptly notify the Company in writing of the Securities
selected for
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redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed.
Section XI.5 NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided for in Section
15.5 hereof not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of a partial redemption, the principal amounts)
of the particular Securities to be redeemed;
(4) that on the Redemption Date the Redemption Price (together with
accrued interest, if any, to the Redemption Date payable as provided in Section
11.7 hereof) will become due and payable upon each such Security, or the portion
thereof, to be redeemed, and that, unless the Company shall default in the
payment of the Redemption Price and any applicable accrued interest, interest
thereon will cease to accrue on and after said date; and
(5) the place or places where such Securities are to be surrendered for
payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. Failure to give such
notice by mailing to any Holder of Securities or any defect therein shall not
affect the validity of any proceedings for the redemption of other securities.
Section XI.6 DEPOSIT OF REDEMPTION PRICE.
On or before 11:00 a.m., Eastern time, on any Redemption Date, the Company
shall deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust as provided in
Section 10.3 hereof) an amount of money
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sufficient to pay the Redemption Price of, and accrued and unpaid interest on,
all the Securities which are to be redeemed on such Redemption Date.
Section XI.7 SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued and unpaid interest,
if any, to the Redemption Date), and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued and
unpaid interest) such Securities shall cease to bear interest. Upon surrender of
any such Security for redemption in accordance with said notice, such Security
shall be paid by the Company at the Redemption Price, together with accrued and
unpaid interest, if any, to the Redemption Date; PROVIDED, HOWEVER, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section 3.8
hereof.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Securities.
Section XI.8 SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be surrendered at
the office or agency of the Company maintained for such purpose pursuant to
Section 10.2 hereof (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal amount of the Security so
surrendered.
ARTICLE XII
DEFEASANCE AND COVENANT DEFEASANCE
Section XII.1 COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE.
The Company may, at its option by Board Resolution, at any time, elect to
have either Section 12.2 or Section 12.3 hereof be applied to all Outstanding
Securities, upon compliance with the conditions set forth below in this Article
XII.
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Section XII.2 DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 12.1 hereof of the option
applicable to this Section 12.2. the Company and the Subsidiary Guarantors shall
be deemed to have been discharged from their respective obligations with respect
to all Outstanding Securities on the date the conditions set forth in Section
12.4 hereof are satisfied (hereinafter, "legal defeasance"). For this purpose,
such legal defeasance means that the Company and the Subsidiary Guarantors shall
be deemed (i) to have paid and discharged their respective obligations under the
Outstanding Securities; PROVIDED, HOWEVER, that the Securities shall continue to
be deemed to be "Outstanding" for purposes of Section 12.5 hereof and the other
Sections of this Indenture referred to in clauses (a) and (b) below, and (ii) to
have satisfied all their other obligations under such Securities and this
Indenture insofar as such Securities are concerned (and the Trustee, at the
expense and direction of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
Outstanding Securities to receive, solely from the trust fund described in
Section 12.4 hereof and as more fully set forth in such Section, payments in
respect of the principal of (and premium if any, on) and interest on such
Securities when such payments are due (or at such time as the Securities would
be subject to redemption at the option of the Company in accordance with this
Indenture), (b) the respective obligations of the Company and the Subsidiary
Guarantors under Sections 3.3, 3.4. 3.5. 3.6, 3.7, 5.8, 5.14, 6.6, 6.9, 6.10,
10.2, 10.3, 13.1 (to the extent it relates to the foregoing Sections and this
Article XII), 13.4 and 13.5 hereof, (c) the rights, powers, trusts, duties and
immunities of the Trustee hereunder, and (d) the obligations of the Company and
the Subsidiary Guarantors under this Article XII. Subject to compliance with
this Article XII, the Company may exercise its option under this Section 12.2
notwithstanding the prior exercise of its option under Section 12.3 hereof with
respect to the Securities.
Section XII.3 COVENANT DEFEASANCE.
Upon the Company's exercise under Section 12.1 hereof of the option
applicable to this Section 12.3, the Company and each Subsidiary Guarantor shall
be released from their respective obligations under any covenant contained in
Article VIII, in Sections 10.5 through 10.20 and in Section 13.2 hereof with
respect to the Outstanding Securities on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant defeasance"), and the
Securities shall thereafter be deemed not to be "Outstanding" for the purposes
of any direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Outstanding
Securities, the Company and each Subsidiary Guarantor may omit to comply with
and shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such
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omission to comply shall not constitute, a Default or an Event of Default under
Section 5.1(iii), 5.1(iv), 5.1(v) or 5.1(vii) hereof, but, except as specified
above, the remainder of this Indenture and such Securities shall be unaffected
thereby.
Section XII.4 CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either Section
12.2 or Section 12.3 hereof to the Outstanding Securities:
(1) The Company or any Subsidiary Guarantor shall irrevocably have
deposited or caused to be deposited with the Trustee (or another trustee
satisfying the requirements of Section 6.7 hereof who shall agree to comply with
the provisions of this Article XII applicable to it) as trust funds in trust for
the purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of such Securities, (a)
cash in U.S. Dollars in an amount, or (b) U.S. Government Obligations which
through the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the due
date of any payment, money in an amount, or (c) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the Trustee (or
other qualifying trustee) to pay and discharge, the principal of (and premium,
if any, on) and interest on the Outstanding Securities on the Stated Maturity
thereof (or Redemption Date, if applicable), PROVIDED that the Trustee shall
have been irrevocably instructed in writing by the Company to apply such money
or the proceeds of such U.S. Government Obligations to said payment with respect
to the Securities. Before such a deposit, the Company may give to the Trustee,
in accordance with Section 11.3 hereof, a notice of its election to redeem all
of the Outstanding Securities at a future date in accordance with Article XI
hereof, which notice shall be irrevocable. Such irrevocable redemption notice,
if given, shall be given effect in applying the foregoing. For this purpose,
"U.S. Government Obligations" means securities that are (1) direct obligations
of the United States of America for the timely payment of which its full faith
and credit is pledged or (2) 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 of 1933, as amended), 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 amount of the
holder of such depository receipt, PROVIDED that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt.
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(2) No Default or Event of Default with respect to the Securities shall
have occurred and be continuing on the date of such deposit or, insofar as
Sections 5.1 (viii) and 5.1(ix) are concerned, at any time during the period
ending on the 91st day after the date of such deposit.
(3) Such legal defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest under this Indenture or the Trust
Indenture Act with respect to any securities of the Company or any Subsidiary
Guarantor.
(4) Such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under any other material
agreement or instrument to which the Company or any Subsidiary Guarantor is a
party or by which it is bound, as evidenced to the Trustee in an Officers'
Certificate delivered to the Trustee concurrently with such deposit.
(5) In the case of an election under Section 12.2 hereof the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (a) the Company
has received from, or there has been published by, the Internal Revenue Service
a ruling, or (b) since the date of this Indenture there has been a change in the
applicable federal income tax laws, in either case providing that the Holders of
the Outstanding Securities will not recognize income, gain or loss for federal
income tax purposes as a result of such legal defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such legal defeasance had not occurred (it being
understood that (1) such Opinion of Counsel shall also state that such ruling or
applicable law is consistent with the conclusions reached in such Opinion of
Counsel and (2) the Trustee shall be under no obligation to investigate the
basis of correctness of such ruling).
(6) In the case of an election under Section 12.3 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders or the Outstanding Securities will not recognize income or loss for
federal income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred.
(7) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, which, taken together, state that all
conditions precedent provided for relating to either the legal defeasance under
Section 12.2 hereof or the covenant defeasance under Section 12.3 (as the case
may be) have been complied with.
Section XII.5 DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 10.3 hereof,
all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee--collectively for
purposes of this Section 12.5, the "Trustee") pursuant to
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Section 12.4 hereof in respect of the Outstanding Securities shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Holders of such Securities of all sums due and to
become due thereon in respect of principal (and premium, if any) and interest,
but such money need not be segregated from other funds except to the extent
required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 12.4 hereof or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the Outstanding Securities.
Anything in this Article XII to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 12.4
hereof which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent legal defeasance or covenant defeasance, as
applicable, in accordance with this Article.
Section XII.6 REINSTATEMENT.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 12.5 hereof by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's and the Subsidiary Guarantors' obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to Section 12.2 or 12.3 hereof, as the
case may be, until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with Section 12.5 hereof; PROVIDED, HOWEVER,
that if the Company or any Subsidiary Guarantor makes any payment of principal
of (or premium if any, on) or interest on any Security following the
reinstatement of its obligations, the Company or such Subsidiary Guarantor shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE XIII
SUBSIDIARY GUARANTEES
Section XIII.1 UNCONDITIONAL GUARANTEE.
Each Subsidiary Guarantor hereby unconditionally, jointly and severally,
guarantees
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(each such guarantee being referred to herein as this "Subsidiary Guarantee,"
with all such guarantees being referred to herein as the "Subsidiary
Guarantees") to each Holder of Securities authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, the full and prompt
performance of the Company's obligations under this Indenture and the Securities
and that:
(1) the principal of (and premium, if any, on) and interest on the
Securities will be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of
and interest on the Securities, if any, to the extent lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or thereunder
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and
(2) in case of any extension of time of payment or renewal of any
Securities or of any such other obligations, the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at Stated Maturity by acceleration or otherwise; subject
however, in the case of clauses (i) and (ii) above, to the limitations set forth
in Section 13.4 hereof.
Failing payment when due of any amount so guaranteed or any performance so
guaranteed for whatever reason, the Subsidiary Guarantors will be jointly and
severally obligated to pay the same immediately. Each Subsidiary Guarantor
hereby agrees that its obligations hereunder shall, to the extent permitted by
law be unconditional, irrespective of the validity, regularity or enforceability
of the Securities or this Indenture, the absence of any action to enforce the
same, any waiver or consent by any Holder of the Securities with respect to any
provisions hereof or thereof, the recovery of any judgment against the Company,
any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. Each
Subsidiary Guarantor hereby waves, to the extent permitted by law, diligence,
presentment, demand of payment, filing of claim with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding first
against the Company, protest, notice and all demands whatsoever and covenants
that its Subsidiary Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities, this Indenture and
in this Subsidiary Guarantee. If any Holder or the Trustee is required by any
court or otherwise to return to the Company, any Subsidiary Guarantor, or any
custodian, trustee, liquidator or other similar official acting in relation to
the Company or any Subsidiary Guarantor, any amount paid by the Company or any
Subsidiary Guarantor to the Trustee or such Holder, this Subsidiary Guarantee,
to the extent theretofore discharged, shall be reinstated in full force and
effect. Each Subsidiary Guarantor agrees it shall not be entitled to enforce any
right of subrogation in relation to the Holders in respect of any obligations
guaranteed, hereby until payment in full of all obligations guaranteed hereby.
Each Subsidiary Guarantor further agrees that, as between each Subsidiary
Guarantor, on the one hand, and the Holders and the Trustee, on the other hand,
(a) the maturity of the obligations guaranteed hereby may be accelerated as
provided in Article V hereof for the purposes of this Subsidiary Guarantee,
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notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (b) in the
event of any acceleration of such obligations as provided in Article V hereof,
such obligations (whether or not due and payable) shall forthwith become due and
payable by each Subsidiary Guarantor for the purpose of this Subsidiary
Guarantee.
Section XIII.2 SUBSIDIARY GUARANTOR MAY CONSOLIDATE, ETC., ON CERTAIN
TERMS.
(1) Except as set forth in Article VIII hereof, nothing contained in this
Indenture or in any of the Securities shall prevent any consolidation or merger
of a Subsidiary Guarantor with or into the Company or another Subsidiary
Guarantor or shall prevent any sale, conveyance or other disposition of all or
substantially all the Properties of a Subsidiary Guarantor to the Company or
another Subsidiary Guarantor.
(2) Except as set forth in Article VIII hereof, nothing contained in this
Indenture or in any of the Securities shall prevent any consolidation or merger
of a Subsidiary Guarantor with or into a Person other than the Company or
another Subsidiary Guarantor (whether or not Affiliated with the Subsidiary
Guarantor), or successive consolidations or mergers in which a Subsidiary
Guarantor or its successor or successors shall be a party or parties, or shall
prevent any sale, conveyance or other disposition of all or substantially all
the Properties of a Subsidiary Guarantor to a Person other than the Company or
another Subsidiary Guarantor (whether or not Affiliated with the Subsidiary
Guarantor) authorized to acquire and operate the same; PROVIDED, HOWEVER, that
(a) immediately after such transaction, and giving effect thereto, no Default or
Event of Default shall have occurred as a result of such transaction and be
continuing, (b) such transaction shall not violate any of the covenants of
Sections 10.1 through 10.19 hereof and (c) each Subsidiary Guarantor hereby
covenants and agrees that, upon any such consolidation, merger, sale, conveyance
or other disposition, such Subsidiary Guarantor's Subsidiary Guarantee set forth
in this Article XIII and in a notation to the Securities, and the due and
punctual performance and observance of all of the covenants and conditions of
this Indenture to be performed by such Subsidiary Guarantor, shall be expressly
assumed (in the event that the Subsidiary Guarantor is not the surviving
corporation in a merger), by supplemental indenture satisfactory in form to the
Trustee, executed and delivered to the Trustee, by such Person formed by such
consolidation, or into which the Subsidiary Guarantor shall have merged, or by
the Person that shall have acquired such Property (except to the extent the
following Section 13.3 would result in the release of such Subsidiary Guarantee,
in which case such surviving Person or transferee of such Property shall not
have to execute any such supplemental indenture and shall not have to assume
such Subsidiary Guarantor's Subsidiary Guarantee). In the case of any such
consolidation, merger, sale, conveyance or other disposition and upon the
assumption by the successor Person, by supplemental indenture executed and
delivered to the Trustee and satisfactory in form, to the Trustee of the due and
punctual performance of all of the covenants and conditions of this Indenture to
be performed by the Subsidiary Guarantor, such successor Person shall succeed to
and be substituted for the Subsidiary Guarantor with the same effect as if it
had been named herein as the initial Subsidiary Guarantor.
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Section XIII.3 RELEASE OF SUBSIDIARY GUARANTORS.
Upon the sale or disposition (by merger or otherwise) of a Subsidiary
Guarantor (or all or substantially all of its Properties) to a Person other than
the Company or another Subsidiary Guarantor and pursuant to a transaction that
is otherwise in compliance with the terms of this Indenture, including but not
limited to the provisions of Section 13.2 hereof or pursuant to Article VIII
hereof, such Subsidiary Guarantor shall be deemed released from its Subsidiary
Guarantee and all related obligations under this Indenture; PROVIDED, HOWEVER,
that any such termination shall occur only to the extent that all obligations of
such Subsidiary Guarantor under all of its Guarantees of, and under all of its
pledges of assets or other security interests which secure, other Indebtedness
of the Company or any other Restricted Subsidiary shall also terminate upon such
sale or other disposition. The Trustee shall deliver an appropriate instrument
evidencing such release upon receipt of a Company Request accompanied by an
Officers' Certificate and an Opinion of Counsel certifying that such sale or
other disposition was made by the Company in accordance with the provisions of
this Indenture.
Each Subsidiary Guarantor that is designated as an Unrestricted Subsidiary
in accordance with the provisions of this Indenture shall be released from its
Subsidiary Guarantee and all related obligations under this Indenture for so
long as it remains an Unrestricted Subsidiary. The Trustee shall deliver an
appropriate instrument evidencing such release upon its receipt of the Board
Resolution designating such Subsidiary Guarantor as an Unrestricted Subsidiary.
Notwithstanding any other provision of this Indenture, each Subsidiary
Guarantor shall be deemed released from its respective Subsidiary Guarantee and
all related obligations under this Indenture in the event that all obligations
of such Subsidiary Guarantor under the guarantee which resulted in the creation
of such Subsidiary Guarantee shall also terminate, except a termination,
discharge or release of such guarantee by or as a result of, payment under such
guarantee. The Trustee shall deliver an appropriate instrument evidencing such
release upon receipt of a Company Request accompanied by an Officer's
Certificate and Opinion of Counsel certifying that all such obligations of such
Subsidiary Guarantee have terminated.
Any Subsidiary Guarantor not released in accordance with this Section 13.3
shall remain liable for the full amount of principal of (and premium, if any,
on) and interest on the Securities as provided in this Article XIII.
Section XIII.4 LIMITATION OF SUBSIDIARY GUARANTORS' LIABILITY.
Each Subsidiary Guarantor, and by its acceptance hereof each Holder,
hereby confirm that it is the intention of all such parties that the guarantee
by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute
a fraudulent transfer or conveyance for purposes of the Federal Bankruptcy Code,
the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or
any similar federal or state law. To effectuate the foregoing intention, the
Holders and each Subsidiary Guarantor hereby irrevocably agree that the
obligations of such
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Subsidiary Guarantor under its Subsidiary Guarantee shall be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities (including, but not limited to, Guarantor Senior Indebtedness) of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to Section 13.5 hereof, result in the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee not constituting such a
fraudulent conveyance or fraudulent transfer. This Section 13.4 is for the
benefit of the creditors of each Subsidiary Guarantor.
Section XIII.5 CONTRIBUTION.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, INTER SE, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under its Subsidiary Guarantee, such Funding Guarantor
shall be entitled to a contribution from each other Subsidiary Guarantor (if
any) in a PRO RATA amount based on the Adjusted Net Assets of each Subsidiary
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Securities or any other Subsidiary Guarantor's
obligations with respect to its Subsidiary Guarantee.
Section XIII.6 EXECUTION AND DELIVERY OF NOTATIONS OF SUBSIDIARY
GUARANTEES.
To evidence its Subsidiary Guarantee set forth in Section 13.1 hereof,
each Subsidiary Guarantor hereby agrees to execute the notations of Subsidiary
Guarantees in substantially the form set forth in Section 2.4 hereof to be
endorsed on all Securities ordered to be authenticated and delivered by the
Trustee and each Subsidiary Guarantor agrees that this Indenture shall be
executed on behalf of such Subsidiary Guarantor by its President or one of its
Vice Presidents. Each Subsidiary Guarantor hereby agrees that its Subsidiary
Guarantee set forth in Section 13.1 hereof shall remain in full force and effect
notwithstanding any failure to endorse on each Security a notation of such
Subsidiary Guarantee. Each such notation of Subsidiary Guarantee shall be signed
on behalf of each Subsidiary Guarantor by its President or one of its Vice
Presidents (each of whom shall, in each case, have been duly authorized by all
requisite corporate action) prior to the authentication of the Security on which
it is endorsed, and the delivery of such Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Indenture on behalf of such Subsidiary
Guarantor. Such signatures upon the notation of Subsidiary Guarantee may be by
manual or facsimile signature of such officers and may be imprinted or otherwise
reproduced on the Subsidiary Guarantee, and in case any such officer who shall
have signed the notation of Subsidiary Guarantee shall cease to be such officer
before the Security on which such notation of Subsidiary Guarantee is endorsed
shall have been authenticated and delivered by the Trustee or disposed of by the
Company, such Security nevertheless may be authenticated and delivered or
disposed of as though the Person who signed the notation of Subsidiary Guarantee
had not ceased to be such officer of the Subsidiary Guarantor.
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Section XIII.7 SEVERABILITY.
In case any provision of this Subsidiary Guarantee shall be invalid,
illegal or unenforceable, that portion of such provision that is not invalid,
illegal or unenforceable shall remain in effect, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section XIII.8 SUBSIDIARY GUARANTEES SUBORDINATED TO GUARANTOR SENIOR
INDEBTEDNESS.
Each Subsidiary Guarantor covenants and agrees, and each Holder of a
Security, by his acceptance of the Subsidiary Guarantees, likewise covenants and
agrees, for the benefit of the holders, from time to time, of Guarantor Senior
Indebtedness, that the payments by such Subsidiary Guarantor in respect of its
Subsidiary Guarantee are subordinated and subject in right of payment, to the
extent and in the manner provided in this Article XIII, to the prior payment in
full of all Guarantor Senior Indebtedness of such Subsidiary Guarantor, whether
outstanding on the date of this Indenture or thereafter created, incurred,
assumed or guaranteed; PROVIDED, HOWEVER, that the Subsidiary Guarantee of such
Subsidiary Guarantor, the Indebtedness represented thereby and the payment of
the principal of (and premium, if any, on) and the interest on the Securities
pursuant to such Subsidiary Guarantee in all respects shall rank PARI PASSU
with, or prior to, all existing and future unsecured indebtedness (including,
without limitation, Indebtedness) of such Subsidiary Guarantor that is
subordinated to its Guarantor Senior Indebtedness.
This Article XIII shall constitute a continuing offer to all Persons who,
in reliance upon such provisions, become holders of, or continue to hold,
Guarantor Senior Indebtedness, and such provisions are made for the benefit of
the holders of Guarantor Senior Indebtedness, and such holders are made obligees
hereunder and any of them may enforce such provisions.
Section XIII.9 SUBSIDIARY GUARANTORS NOT TO MAKE PAYMENTS WITH RESPECT
TO SUBSIDIARY GUARANTEES IN CERTAIN CIRCUMSTANCES.
(1) No payment or distribution of any Property of any Subsidiary Guarantor
of any kind or character (other than Permitted Guarantor Junior Securities) may
be made by such Subsidiary Guarantor in respect of its Subsidiary Guarantee upon
the happening of any default in respect of the payment or required prepayment of
any of its Guarantor Senior Indebtedness when the same becomes due and payable
(a "Subsidiary Guarantor Payment Default"), unless and until such Subsidiary
Guarantor Payment Default shall have been cured or waived in writing or shall
have ceased to exist or such Guarantor Senior Indebtedness shall have been paid
in full or otherwise discharged, after which such Subsidiary Guarantor shall
resume making any and all required payments in respect of its Subsidiary
Guarantee, including any missed payments.
(2) Upon the happening of any event (other than a Subsidiary Guarantor
Payment Default) the occurrence of which entitles one or more Persons to
accelerate the maturity of any
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Specified Guarantor Senior Indebtedness (a "Subsidiary Guarantor Non-payment
Default"), and receipt by the applicable Subsidiary Guarantor and the Trustee of
written notice thereof from one or more of the holders of such Specified
Guarantor Senior Indebtedness or their representative (a "Subsidiary Guarantor
Payment Notice"), then, unless and until such Subsidiary Guarantor Non payment
Default shall have been cured or waived in writing or shall have ceased to exist
or such Specified Guarantor Senior Indebtedness is paid in full or otherwise
discharged or the holders (or a representative of the holders) of such Specified
Guarantor Senior Indebtedness give their written approval, no payment or
distribution shall be made by such Subsidiary Guarantor in respect of its
Subsidiary Guarantee (other than Permitted Guarantor Junior Securities);
PROVIDED, HOWEVER, that these provisions will not prevent the making of any
payment for more than 179 days after a Subsidiary Guarantor Payment Notice shall
have been given after which such Subsidiary Guarantor will resume, (unless
otherwise prohibited pursuant to the immediately preceding paragraph) making any
and all required payments in respect of its Subsidiary Guarantee, including any
missed payments. Notwithstanding the foregoing, not more than one Subsidiary
Guarantor Payment Notice shall be given with respect to any Subsidiary Guarantee
within a period of 360 consecutive days. No Subsidiary Guarantor Non-payment
Default that existed or was continuing on the date of delivery of any Subsidiary
Guarantor Payment Notice with respect to the Specified Guarantor Senior
Indebtedness initiating such Subsidiary Guarantor Payment Notice will be, or can
be, made the basis for the commencement of a subsequent Subsidiary Guarantor
Payment Notice with respect to such Subsidiary Guarantee.
(3) In the event that, notwithstanding the foregoing, a Subsidiary
Guarantor shall make any payment in respect of its Subsidiary Guarantee to the
Trustee or the Holder of any Security prohibited by the foregoing provisions of
this Section 13.9, then and in such event such payment shall be paid over and
delivered forthwith to the Company. In the event that a Subsidiary Guarantor
shall make any payment in respect of its Subsidiary Guarantee to the Trustee,
and the Trustee shall receive written notice of a Subsidiary Guarantor Payment
Default or a Subsidiary Guarantor Non-payment Default from one or more of the
holders of Guarantor Senior Indebtedness (or their representative) prior to
making any payment to Holders in respect of the Subsidiary Guarantee and prior
to 11:00 a.m., Eastern Time, on the date which is two Business Days prior to the
date upon which by the terms hereof any money may become payable for any
purpose, such payments shall be paid over by the Trustee and delivered forthwith
to the Company. Each Subsidiary Guarantor shall give prompt written notice to
the Trustee of any default under any of its Guarantor Senior Indebtedness or
under any agreement pursuant to which its Guarantor Senior Indebtedness may have
been issued.
Section XIII.10 SUBSIDIARY GUARANTEES SUBORDINATED TO PRIOR PAYMENT OF
ALL GUARANTOR SENIOR INDEBTEDNESS UPON DISSOLUTION, ETC.
Upon any distribution of Properties of any Subsidiary Guarantor or payment
on behalf of a Subsidiary Guarantor in the event of any Insolvency or
Liquidation Proceeding with respect to such Subsidiary Guarantor:
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(1) the holders of such Subsidiary Guarantor's Guarantor Senior
Indebtedness shall be entitled to reserve payment in full of such Guarantor
Senior Indebtedness, or provision must be made for such payment, before the
Holders are entitled to receive any direct or indirect payment or distribution
of any kind or character, whether in cash, property or securities (other than
Permitted Guarantor Junior Securities), on account of any payment in respect of
such Subsidiary Guarantor's Subsidiary Guarantee;
(2) any direct or indirect payment or distribution of Properties of such
Subsidiary Guarantor of any kind or character, whether in cash, property or
securities (other than a payment or distribution in the form of Permitted
Guarantor Junior Securities), by set-off or otherwise, to which the Holders or
the Trustee, on behalf of the Holders, would be entitled except for the
provisions of this Article XIII, shall be paid by the Subsidiary Guarantor or by
any liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise, directly to the holders of such Guarantor Senior Indebtedness or
their representative or representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Guarantor
Indebtedness may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of such Senior Guarantor Indebtedness held or
represented by each, to the extent necessary to make payment in full of all such
Guarantor Senior Indebtedness after giving effect to any concurrent payment or
distribution to the holders of such Guarantor Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of this
Section 13.10, any direct or indirect payment or distribution of Properties of
such Subsidiary Guarantor of any kind or character, whether in cash, property or
securities (other than a payment or distribution in the form of Permitted
Guarantor Junior Securities), shall be received by the Trustee or the Holders
before all such Guarantor Senior Indebtedness is paid in full or otherwise
discharged, such Properties shall be received and held in trust for and shall be
paid over to the holders of such Guarantor Senior Indebtedness remaining unpaid
or their representatives, for application to the payment of such Guarantor
Senior Indebtedness until all such Guarantor Senior Indebtedness shall have been
paid or provided for in full, after giving effect to any concurrent payment or
distribution to the holders of such Guarantor Senior Indebtedness.
The Company or a Subsidiary Guarantor shall give prompt written notice to
the Trustee of the occurrence of any Insolvency or Liquidation Proceeding with
respect to such Subsidiary Guarantor.
Section XIII.11 HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF
GUARANTOR SENIOR INDEBTEDNESS.
After the payment in full of all Guarantor Senior Indebtedness of a
Subsidiary Guarantor, the Holders shall be subrogated (equally and ratably with
the holders of all other Indebtedness of such Subsidiary Guarantor which by its
express terms is subordinated to such Guarantor Senior
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Indebtedness to substantially the same extent as each Subsidiary Guarantee is so
subordinated and which is entitled to the rights of subrogation as a result of
payments made to the holders of such Guarantor Senior Indebtedness) to the
rights of the holders of such Guarantor Senior Indebtedness to receive payments
or distributions of cash, property and securities of such Subsidiary Guarantor
applicable to such Guarantor Senior Indebtedness until all amounts owing on the
Securities shall be paid in full, and for the purpose of such subrogation no
payments or distributions to the holders of such Guarantor Senior Indebtedness
by or on behalf of such Subsidiary Guarantor or by or on behalf of the Holders
by virtue of this Article XIII which otherwise would have been made to the
Holders shall, as between such Subsidiary Guarantor, its creditors other than
the holders of Guarantor Senior Indebtedness, and the Holders of the Securities,
be deemed to be a payment or distribution by such Subsidiary Guarantor to or on
amount of such Guarantor Senior Indebtedness, it being understood that the
subordination provisions of this Article XIII are, and are intended solely for,
the purpose of defining the relative rights of the Holders, on the one hand, and
the holders of Guarantor Senior Indebtedness, on the other hand.
Section XIII.12 OBLIGATIONS OF SUBSIDIARY UNCONDITIONAL.
Nothing contained in this Article XIII or elsewhere in this Indenture or
in any Security is intended to or shall impair, as between the Subsidiary
Guarantors and the Holders, the obligation of the Subsidiary Guarantors under
the Subsidiary Guarantees, or is intended to or shall affect the relative rights
of the Holders and creditors of the Subsidiary Guarantors, nor shall anything
herein or therein prevent the Trustee or any Holder from exercising all remedies
otherwise permitted by applicable law upon Default under this Indenture, subject
to the rights, if any, under this Article XIII of the holders of Guarantor
Senior Indebtedness in respect of cash, property or securities of any Subsidiary
Guarantor received upon the exercise of any such remedy. Upon any distribution
of Properties of a Subsidiary Guarantor referred to in this Article XIII, the
Trustee, subject to the provisions of Section 6.2 hereof, and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceedings are pending, or a certificate of a trustee in
bankruptcy, receivers, liquidating trustee, custodian, assignee for the benefit
of creditors, or agent or other Person making any distribution to the Trustee or
to the Holders of the Securities for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the related
Guarantor Senior Indebtedness and other indebtedness of such Subsidiary
Guarantor, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
XIII.
Section XIII.13 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN
ABSENCE OF NOTICE.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts that would prohibit the making of any payment to or by
the Trustee, unless it shall have received at its Corporate Trust Office written
notice thereof from a Subsidiary Guarantor or from one or
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more holders of Guarantor Senior Indebtedness or Specified Guarantor Senior
Indebtedness, in the case of a Subsidiary Guarantor Non-payment Default, or from
any representative thereof, and, prior to the receipt of any such written
notice, the Trustee, subject to TIA Sections 315(a) through 315(d), shall be
entitled to assume conclusively that no such facts exist. The Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Guarantor Senior Indebtedness, or
Specified Guarantor Senior Indebtedness, in the case of a Subsidiary Guarantor
Non-payment Default (or a representative on behalf of such holder), to establish
that such notice has been given by a holder of Guarantor Senior Indebtedness or
Specified Guarantor Senior Indebtedness, in the case of a Subsidiary Guarantor
Non-payment Default, or a representative on behalf of any such holder or
holders.
Section XIII.14 APPLICATION BY TRUSTEE OF MONEY DEPOSITED WITH IT.
Except as provided in Article XIV, any deposit of money by a Subsidiary
Guarantor with the Trustee or any Paying Agent (whether or not in trust) for any
payment in respect of the related Subsidiary Guarantee shall be subject to the
provisions of Sections 13.8, 13.9, 13.10 and 13.11 hereof except that, if prior
to 11:00 a.m., Eastern time, on the date which is two Business Days prior to the
date on which by the terms of this Indenture any such money may become payable
for any purpose, the Trustee or, in the case of any such deposit of money with a
Paying Agent, the Paying Agent shall not have received with respect to such
money the notice provided for in Section 13.13 hereof, then the Trustee or such
Paying Agent, as the case may be, shall have full power and authority to receive
such money and to apply the same to the purpose for which it was received, and
shall not be affected by any notice to the contrary which may be received by it
on or after 11:00 a.m., Eastern time, two Business Days prior to such payment
date. In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article XIII, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article XIII, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payments.
The Trustee, however, shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Indebtedness but shall have only such obligations to
such holders as are expressly set forth in this Article XIII.
Section XIII.15 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS
OF SUBSIDIARY GUARANTORS OR HOLDERS OF GUARANTOR SENIOR
INDEBTEDNESS.
No right of any present or future holders of any Guarantor Senior
Indebtedness of a Subsidiary Guarantor to enforce subordination as provided
herein shall at any time in any way be prejudiced or impaired by any act or any
act or failure to act on the part of such Subsidiary Guarantor or by any act or
failure to act by any such holder, or by any noncompliance by such
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Subsidiary Guarantor with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the preceding paragraph of
this Section, the holders of Guarantor Senior Indebtedness may, at any time and
from time to time, without the consent of or notice to the Trustee or the
Holders of the Securities, without incurring responsibility to the Holders of
the Securities and without impairing or releasing the subordination or other
benefits provided in this Article, or the obligations hereunder of the Holders
of the Securities to the holders of Guarantor Senior Indebtedness, do any one or
more of the following: (i) change the manner, place or terms of payment or
extend the time of payment of, or renew, exchange, amend, increase or alter,
Guarantor Senior Indebtedness or the term of any instrument evidencing the same
or any agreement under which Guarantor Senior Indebtedness is outstanding or any
liability of any obligor thereon (unless such change, extension or alteration
results in such Indebtedness no longer being Guarantor Senior Indebtedness as
defined in this Indenture); (ii) sell, exchange, release or otherwise deal with
any Property pledged, mortgaged or otherwise securing Guarantor Senior
Indebtedness; (iii) settle or compromise any Guarantor Senior Indebtedness or
any liability of any Obligor thereon or release any Person liable in any manner
for the collection of Guarantor Senior Indebtedness; and (iv) exercise or
refrain from exercising any rights against the Company and any other Person.
Section XIII.16 HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF
SUBSIDIARY GUARANTEES.
Each Holder, by his acceptance thereof, authorizes and expressly directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article XIII and appoints the
Trustee as his attorney-in-fact for such purpose, including, in the event of any
Insolvency or Liquidation Proceeding with respect to any Subsidiary Guarantor,
the immediate filing of a claim for the unpaid balance of his Securities
pursuant to the related Subsidiary Guarantee in the form required in said
proceedings and the causing of said claim to be approved.
Section XIII.17 RIGHT OF TRUSTEE TO HOLD GUARANTOR SENIOR INDEBTEDNESS.
The Trustee shall be entitled to all of the rights set forth in this
Article XIII in respect of any Guarantor Senior Indebtedness at any time held by
it to the same extent as any other holder of Guarantor Senior Indebtedness, and
nothing in this Indenture shall be construed to deprive the Trustee of any of
its rights as such holder.
Section XIII.18 ARTICLE XIII NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of the Subsidiary Guarantees by
reason of any provision in this Article XIII shall not be construed as
preventing the occurrence of an Event of Default under this Indenture.
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Section XIII.19 PAYMENT.
For purposes of this Article XIII, a payment with respect to any
Subsidiary Guarantor or with respect to principal of or interest on the Security
or any Subsidiary Guarantee shall include, without limitation, payment of
principal of and interest on any Security, any depositing of funds under Article
IV hereof, any payment on account of any repurchase or redemption of any
Security and any payment or recovery on any claim (whether for rescission or
damages and whether based on contract, tort, duty imposed by law, or any other
theory of liability) relating to or arising out of the offer, sale or purchase
of any Security.
ARTICLE XIV
SUBORDINATION OF SECURITIES
Section XIV.1 SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, for the benefit of the
holders, from time to time, of Senior Indebtedness, that, to the extent and in
the manner hereinafter set forth in this Article, the Indebtedness represented
by the Securities and the payment of the principal of (and premium, if any, on)
and interest on each and all of the Securities are hereby expressly made
subordinate and subject in right of payment as provided in this Article to the
prior payment in full of all Senior Indebtedness, whether outstanding on the
date of this Indenture or thereafter created, incurred, assumed or guaranteed;
PROVIDED, HOWEVER, that the Securities, the Indebtedness represented thereby and
the payment of the principal of (and premium, if any, on) and interest on the
Securities in all respects shall rank equally with, or prior to, all existing
and future unsecured Indebtedness (including, without limitation, Indebtedness)
of the Company that is subordinated to Senior Indebtedness.
This Article XIV shall constitute a continuing offer to all Persons who,
in reliance upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and such holders are made obligees hereunder and any one or
more of them may enforce such provisions.
Section XIV.2 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
Upon any distribution of Properties of the Company or payment on behalf of
the Company with respect to the Securities in the event of any Insolvency or
Liquidation Proceeding with respect to the Company:
(1) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash or cash equivalents of such Senior Indebtedness before
the Holders of the Securities are
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entitled to receive any direct or indirect payment or distribution of any kind
or character, whether in cash, property or securities (other than Permitted
Junior Securities or from any defeasance trust created pursuant to Section 12.1
hereof) on account of principal of (or premium, if any, on) or interest on the
Securities or on account of the purchase or redemption or other acquisition of
the Securities (including pursuant to an optional redemption, a Change of
Control Offer or a Net Proceeds Offer); and
(2) any direct or indirect payment or distribution of Properties of the
Company of any kind or character, whether in cash, property or securities (other
than a payment or distribution in the form of Permitted Junior Securities or
from any defeasance trust created pursuant to Section 12.1 hereof), by set-off
or otherwise, to which the Holders or the Trustee, on behalf of the Holders,
would be entitled but for the provisions of this Article shall be paid by the
Company or by any liquidating trustee or agent or other Person making such
payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior Indebtedness
or their representative or representatives or to the trustee or trustees under
any indenture under which any instruments evidencing any of such Senior
Indebtedness may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness held or represented by
each, to the extent necessary to make payment in full in cash or cash
equivalents of all Senior Indebtedness after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of Properties of the Company of any kind or character,
whether in cash, property or securities, by set-off or otherwise, in respect of
principal of (and premiums, if any, on) or interest on the Securities before all
Senior Indebtedness is paid in full in cash or cash equivalents, then and in
such event such payment or distribution (other than a payment or distribution in
the form of Permitted Junior Securities or from any defeasance trust created
pursuant to Section 12.1 hereof) shall be paid over or delivered forthwith to
the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other Person making payment or distribution of assets of the Company
for application to the payment of all Senior Indebtedness remaining unpaid, to
the extent necessary to pay all Senior Indebtedness in full in cash or cash
equivalents, after giving effect to any concurrent payment or distribution to or
for the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all its Properties to another Person or group of Affiliated
Persons pursuant to, and in compliance with, the terms and conditions set forth
in Article VIII hereof shall not be deemed an Insolvency or Liquidation
Proceeding (requiring the repayment of all Senior Indebtedness in full as a
prerequisite to any payments being made to the Holders) for the purposes of this
Section.
Section XIV.3 SUSPENSION OF PAYMENT WHEN SENIOR INDEBTEDNESS IN
DEFAULT.
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(1) Unless Section 14.2 hereof shall be applicable, upon (a) the
occurrence of a Payment Event of Default and (b) receipt by the Trustee of
written notice of such occurrence, then no payment or distribution of any
Properties of the Company of any kind or character (other than Permitted Junior
Securities or from any defeasance trust created pursuant to Section 12.1 hereof)
shall be made by the Company on account of principal of (or premium, if any, on)
or interest on the Securities or on account of the purchase or redemption or
other acquisition of Securities unless and until such Payment Event of Default
shall have been cured or waived in writing or shall have ceased to exist or such
Senior Indebtedness shall have been paid in full in cash or cash equivalents or
otherwise discharged, after which the Company shall resume making any and all
required payments in respect of the Securities, including any missed payments.
(2) Unless Section 14.2 hereof shall be applicable, upon (a) the
occurrence of a Non payment Event of Default and (b) receipt by the Trustee and
the Company of written notice of such occurrence from one or more of the holders
of Specified Senior Indebtedness (or their representative), then no payment or
distribution of any Properties of the Company of any kind or character (other
than Permitted Junior Securities or from any defeasance trust created pursuant
to Section 12.1 hereof) shall be made by the Company on account of any principal
of (or premium, if any, on) or interest on the Securities or on account of the
purchase or redemption or other acquisition of Securities for the period
specified below (the "Payment Blockage Period"). The Payment Blockage Period
will commence upon the earlier of the dates of receipt by the Trustee or the
Company of such notice (the "Payment Blockage Notice") from one or more of the
holders of Specified Senior Indebtedness (or their representative) and shall end
on the earliest of (a) 179 days thereafter, (b) the date, as set forth in a
written notice from the holders of the Specified Senior Indebtedness (or their
representative) to the Company or the Trustee, on which such Nonpayment Event of
Default is cured, waived in writing or ceases to exist or such Specified Senior
Indebtedness is discharged or (c) the date on which such Payment Blockage Period
shall have been terminated by written notice to the Company or the Trustee from
one or more of the holders (or their representative) initiating such Payment
Blockage Period, after which the Company will resume (unless otherwise
prohibited pursuant to the immediately preceding paragraph) making any and all
required payments in respect of the Securities, including any missed payments.
In any event, not more than one Payment Blockage Period may be commenced during
any period of 360 consecutive days. No Non-payment Event of Default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee will be, or can be, made the basis for the commencement of a subsequent
Payment Blockage Period.
(3) In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section 14.3, then and in such event such payment
shall be paid over and delivered forthwith to the Company. In the event that the
Company shall make any payment in respect of the Securities to the Trustee and
the Trustee shall receive written notice of a Payment Event of Default or a
Non-payment Event of Default from one or more of the holders of Specified Senior
Indebtedness (or their representative) prior to making any payment to Holders in
respect of the
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Securities and prior to 11:00 a.m., Eastern time, on the date which is two
Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose, such payments shall be paid over by the Trustee
and delivered forthwith to the Company.
Section XIV.4 PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article or elsewhere in this Indenture or in any
of the Securities shall prevent the Company, at any time except during the
pendency of any Insolvency or Liquidation Proceeding referred to in Section 14.2
hereof or under the conditions described in Section 14.3 hereof, from making
payments at any time of principal of (and premium, if any, on) or interest on
the Securities.
Section XIV.5 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.
After the payment in full of all Senior Indebtedness, the Holders of the
Securities shall be subrogated (equally and ratably with the holders of all
indebtedness of the Company which by its express terms is subordinated to Senior
Indebtedness to substantially the same extent as the Securities are so
subordinated and which is entitled to like rights of subrogation as a result of
the payments made to the holders of Senior Indebtedness) to the rights of the
holders of Senior Indebtedness to receive payments and distributions of cash,
property and securities applicable to Senior Indebtedness until all amounts
owing on the Securities shall be paid in full in cash or cash equivalents. For
purposes of such subrogation, no payment or distributions to the holders of
Senior Indebtedness by or on behalf of the Company or by or on behalf of the
Holders by virtue of this Article which otherwise would have been made to the
Holders shall, as between the Company, its creditors other than holders of
Senior Indebtedness, and the Holders of the Securities, be decreed to be a
payment or distribution by the Company to or on account of the Senior
Indebtedness.
Section XIV.6 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article are, and are intended solely, for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall (i) impair, as between the Company and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of (and premium, if any,
on) and interest on the Securities as and when the same shall become due and
payable in accordance with their terms; or (ii) affect the relative rights
against the Company of the Holders of the Securities and creditors of the
Company other than the holders of Senior Indebtedness; or (iii) prevent the
Trustee or the Holder of any Security from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article of the holders of Senior Indebtedness.
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Section XIV.7 TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of a Security by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee as his attorney-in-fact for any and all such purposes, including, in the
event of any Insolvency or Liquidation Proceeding with respect to the Company,
the immediate filing of a claim for the unpaid balance of his Securities
pursuant to this Indenture in the form required in said proceedings and the
causing of said claim to be approved.
Section XIV.8 NO WAIVER OF SUBORDINATION PROVISION.
(1) No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
(2) Without in any way limiting the generally of paragraph (i) of this
Section, the holders of any Senior Indebtedness, in accordance with the terms of
the instrument or agreement evidencing their Senior Indebtedness, may, at any
time and from time to time, without the consent of or notice to the Trustee or
the Holders of the Securities, without incurring responsibility to the Holders
of the Securities and without impairing or releasing the subordination or other
benefits provided in this Article, or the obligations hereunder of the Holders
of the Securities to the holders of Senior Indebtedness, do any one or more of
the following: (a) change the manner, place or terms of payment or extend the
time of payment of, or renew, exchange, amend, increase or alter, Senior
Indebtedness or the terms of any instrument evidencing the same or any agreement
under which Senior Indebtedness is outstanding or any liability of any obligor
thereon (unless such change, extension, amendment, increase or other alteration
results in such Indebtedness no longer being Senior Indebtedness as defined in
this Indenture); (b) sell, exchange, release or otherwise deal with any Property
pledged, mortgaged or otherwise securing Senior Indebtedness; (c) settle or
compromise any Senior Indebtedness or any liability of any obligor thereon or
release any Person liable in any manner for the collection of Senior
Indebtedness; and (d) exercise or refrain from exercising any rights against the
Company and any other Person.
Section XIV.9 NOTICE TO TRUSTEE.
(1) The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities,
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unless and until the Trustee shall have received written notice thereof from the
Company or one or more of the holders of Senior Indebtedness (or their
representative), with respect to a Payment Default, or one or more of the
holders of Specified Senior Indebtedness (or their representatives), with
respect to a Non-payment Event of Default, or from any trustee, fiduciary or
agent therefor; and, prior to the receipt of any such written notice, the
Trustee, subject to TIA Sections 315(a) through 315(d), shall be entitled in all
respects to assume that no such facts exist; PROVIDED, HOWEVER, that, if the
Trustee shall not have received the notice provided for in this Section prior to
11:00 a.m., Eastern time, on the date which is two Business Days prior to the
date upon which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of (and premium, if
any, on) or interest on any Security), then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it on or after 11:00 a.m., Eastern time, two Business Days prior to
such payment date.
(2) Subject to TIA Sections 315(a) through 315(d), the Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor). In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee or the Holders of Securities, for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.
Section XIV.10 RELIANCE OF JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT BANK.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to TIA Sections 315(a) through 315(d), and
the Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Insolvency or
Liquidation Proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.
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Section XIV.11 RIGHTS OF TRUSTEE AS A HOLDER OF SENIOR INDEBTEDNESS;
PRESERVATION OF TRUSTEE'S RIGHTS.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness, which may at
any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.6 hereof.
Section XIV.12 ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time a Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee; PROVIDED, HOWEVER, that
Section 14.11 hereof shall not apply to the Company or any Affiliate of the
Company if it or such Affiliate acts as Paying Agent.
Section XIV.13 NO SUSPENSION OF REMEDIES.
Nothing contained in this Article shall limit the right of the Trustee or
the Holders of Securities to take any action to accelerate the maturity of the
Securities pursuant to Article V hereof or to pursue any rights or remedies
hereunder or under applicable law, except as provided in Article V hereof.
Section XIV.14 TRUST MONEY NOT SUBORDINATED.
Notwithstanding anything contained herein to the contrary, payments from
cash or the proceeds of U.S. Government Obligations held in trust under Article
XII hereof by the Trustee (or other qualifying trustee) and which were deposited
in accordance with the terms of Article XII hereof and not in violation of
Section 14.3 hereof for the payment of principal of (and premium, if any, on)
and interest on the Securities shall not be subordinated to the prior payment of
any Senior Indebtedness or subject to the restrictions set forth in this Article
XIV, and none of the Holders shall be obligated to pay over any such amount to
the Company or any holder of Senior Indebtedness or any other creditor of the
Company.
ARTICLE XV
MISCELLANEOUS
Section XV.1 COMPLIANCE CERTIFICATES AND OPINIONS.
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Upon any application or request by the Company or any Subsidiary Guarantor
to the Trustee to take any action under any provision of this Indenture, the
Company or such Subsidiary Guarantor. as the case may be, shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act or this Indenture. Each such certificate and each such opinion
shall be in the form of an Officers' Certificate or an Opinion of Counsel, as
applicable, and shall comply with the requirements of this Indenture.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions, contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
The certificates and opinions provided pursuant to this Section 15.1 and
the statements required by this Section 15.1 shall comply in all respects with
TIA Sections 314(c) and (e).
Section XV.2 FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless such officer knows, or in the exercise of reasonable care
should know, that the certificate, or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous. Any
such Opinion of Counsel may be based, insofar as it relates to factual matters,
upon an officers' certificate, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate with respect to such matters
is erroneous.
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Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section XV.3 ACTS OF HOLDERS.
(1) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agents duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
(2) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(3) The ownership, principal amount and serial numbers of Securities held
by any Person, and the date of holding the same, shall be proved by the Security
Register.
(4) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice,
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consent, waiver or other Act, and for that purpose the Outstanding Securities
shall be computed as of such record date, PROVIDED that no such authorization,
agreement or consent by the Holders on such record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than eleven months after the record date.
(5) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
Section XV.4 NOTICES, ETC. TO TRUSTEE, COMPANY AND SUBSIDIARY
GUARANTORS.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to or filed with
(1) the Trustee by any Holder or by the Company or any Subsidiary
Guarantor shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing (in the English language) and delivered in
person or mailed by certified or registered mail (return receipt
requested) to the Trustee at its Corporate Trust Office; or
(2) the Company or any Subsidiary Guarantor by the Trustee or by any
Holder shall be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if in writing (in the English language) and
delivered in person or mailed by certified or registered mail (return
receipt requested) to the Company or such Subsidiary Guarantor, as
applicable, addressed to it at the Company's principal office located at
1331 Lamar Street, Suite 1455, Houston, Texas 77010, or at any other
address otherwise furnished in writing to the Trustee by the Company.
Section XV.5 NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice of any event to Holders by the
Company, the Trustee or any Paying Agent, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing (in the English
language) and mailed, first-class postage prepaid, to each Holder affected by
such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Any notice mailed to a Holder in the manner herein
prescribed shall be conclusively deemed to have been received by such Holder,
whether or not such Holder actually receives such notice. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive
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such notice, either herein or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular mail
service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
Section XV.6 EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section XV.7 SUCCESSORS AND ASSIGNS.
All caveats and agreements in this Indenture by the Company and the
Subsidiary Guarantors shall bind their respective successors and assigns,
whether so expressed or not. All agreements of the Trustee in this Indenture
shall bind its successor.
Section XV.8 SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities or the
Subsidiary Guarantees shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim therefor against
any party hereto.
Section XV.9 BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person (other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder, the Holders and, to the
extent set forth in Section 13.4 hereof, creditors of Subsidiary Guarantors, the
holders of Senior Indebtedness and the holders of Guarantor Senior Indebtedness)
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
Section XV.10 GOVERNING LAW; TRUST INDENTURE ACT CONTROLS.
(1) THIS INDENTURE, THE SUBSIDIARY GUARANTEES AND THE SECURITIES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. THE COMPANY AND EACH
SUBSIDIARY GUARANTOR IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION
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OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE BOROUGH OF
MANHATTAN, THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS INDENTURE, THE SECURITIES OR THE SUBSIDIARY GUARANTEES, AND THE
COMPANY AND EACH SUBSIDIARY GUARANTOR IRREVOCABLY AGREE THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED BY ANY SUCH
COURT.
(2) This Indenture is subject to the provisions of the Trust Indenture Act
that are required to be part of this Indenture and shall, to the extent
applicable, be governed by such provisions. If and to the extent that any
provision of this Indenture limits, qualifies or conflicts with the duties
imposed by operation of Section 313(c) of the Trust Indenture Act, or conflicts
with any provision (an "incorporated provision") required by or deemed to be
included in this Indenture by operation of such Trust Indenture Act section,
such imposed duties or incorporated provision shall control.
Section XV.11 LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date, or Stated
Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities or
the Subsidiary Guarantee) payment of interest or principal (and premium, if any)
need not be made on such date, but may be made on the next succeeding Business
Day with the same force and effect as if made on the Interest Payment Date,
Redemption Date or at the Stated Maturity or Maturity; PROVIDED, HOWEVER, that
no interest shall accrue for the period from and after such Interest Payment
Date, Redemption Date, Stated Maturity or Maturity, as the case may be.
Section XV.12 NO RECOURSE AGAINST OTHERS.
A director, officer, employee, stockholder, incorporator or Affiliate, as
such, past, present or future, of the Company or any Subsidiary Guarantor shall
not have any personal liability under the Securities or this Indenture by reason
of his or its status as a director, officer, employee, stockholder, incorporator
or Affiliate or any liability for any obligations of the Company or any
Subsidiary Guarantor under the Securities or this Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. Each
Holder, by accepting any of the Securities, waives and releases all such
liability to the extent permitted by applicable law.
Section XV.13 DUPLICATE ORIGINALS.
The parties may sign any number of copies or counterparts of this
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
Section XV.14 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
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This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed, all as of the day and year first above written.
ISSUER
BELLWETHER EXPLORATION COMPANY,
By: __________________________
Name:_____________________
Title:____________________
SUBSIDIARY GUARANTORS:
ODYSSEY PETROLEUM COMPANY,
By: __________________________
Name:_____________________
Title:____________________
TRUSTEE:
______________________________
By: __________________________
Name:_____________________
Title:____________________
112
[Letterhead of Butler & Binion, L.L.P.]
April 2, 1997
Bellwether Exploration Company
1331 Lamar, Suite 1455
Houston, Texas 77010
Re: Registration and sale of 5,606,250 shares of Common Stock and
$100,000,000 of % Senior Subordinated Notes due 2007 of Bellwether
Exploration Company
Gentlemen:
We have acted as counsel for Bellwether Exploration Company, a Delaware
corporation (the "Company"), in connection with (i) the registration and sale of
4,411,986 shares (the "Company Shares") and 1,194,264 shares (the "Selling
Stockholder Shares") of common stock, $.01 par value per share ("Common Stock),
of the Company to be sold by the Company and certain selling stockholders (the
"Selling Stockholders"), respectively, in a public offering, (ii) the
registration and sale of $100,000,000 in % Senior Subordinated Notes due 2007
("Notes") of the Company to be sold by the Company in a public offering, and
(iii) the guarantee ("Guarantee") by Odyssey Petroleum Company, a Delaware
corporation ("Odyssey"), of the obligations of the Company with respect to the
Notes.
We have made such inquiries and examined such documents as we have
considered necessary or appropriate for the purposes of giving the opinion
hereinafter set forth, including the examination of executed or conformed
counterparts, or copies certified or otherwise proved to our satisfaction of the
following:
(i) the Certificate of Incorporation of the Company as filed with the
Secretary of State of Delaware on March 7, 1994;
(ii) the Bylaws of the Company as of the date of this opinion;
(iii) the Registration Statement on Form S-1 (Registration No.
333-21813) of the Company, including the related prospectuses,
filed with the Securities and Exchange Commission on February 14,
1997, as amended (the "Registration Statement");
(iv) the Indenture ("Indenture") between the Company, Odyssey and the
Bank of Montreal Trust Company, as Trustee ("Trustee"), pursuant to
which the Notes will be issued and Odyssey will guarantee the
Company's obligations with respect to the Notes; and
(v) such other documents, corporate records, certificates and other
instruments as we have deemed necessary or appropriate for the
purpose of this opinion.
We have assumed the genuineness and authenticity of all signatures on all
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies and the due authorization, execution, delivery or recordation of
<PAGE>
Bellwether Exploration Company
April 2, 1997
Page 2
all documents where due authorization, execution, delivery or recordation are
prerequisites to the effectiveness thereof. Capitalized terms used herein and
not otherwise defined are used as defined in the Registration Statement.
Based upon the foregoing, and having regard for such legal considerations
as we deem relevant, we are of the opinion that:
(i) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware pursuant to
the Delaware General Corporation Law;
(ii) The Company Shares to be sold by the Company pursuant to the
Registration Statement will, upon issuance and delivery against
payment therefor, be duly and validly authorized and legally issued,
fully paid and nonassessable;
(iii) The Selling Stockholder Shares to be sold by the Selling
Stockholders pursuant to the Registration Statement are or will,
upon issuance and delivery against payment therefor, be duly and
validly authorized and legally issued, fully paid and nonassessable;
(iv) The Notes to be sold by the Company pursuant to the Registration
Statement have been duly authorized for issuance, and when
executed by the Company, authenticated by the Trustee and
delivered and sold in accordance with the provisions of the
Registration Statement, will be legally issued and binding
obligations of the Company enforceable in accordance with their
terms and entitled to the benefits of the Indenture (except as
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws now or hereafter in effect affecting
the rights of creditors generally); and
(v) Upon execution and delivery of the Indenture by Odyssey in
accordance with the provisions of the Registration Statement, the
Guarantee will be a binding obligation of Odyssey enforceable in
accordance its terms (except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws now or
hereafter in effect affecting the rights of creditors generally).
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the references to us under the caption "Legal
Matters" in each prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Butler & Binion, L.L.P.
BUTLER & BINION, L.L.P.
EXHIBIT 10.21
SENIOR REDUCING REVOLVING
CREDIT FACILITY
dated as of
April __, 1997
among
Bellwether Exploration Company,
The Guarantors Party Hereto,
The Banks Party Hereto,
The LC Issuing Banks Referred to Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS.......................................1
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS..............22
SECTION 1.03. OTHER DEFINITIONAL PROVISIONS....................23
ARTICLE 2
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND..............................23
SECTION 2.02. METHOD OF BORROWING..............................23
SECTION 2.03. MATURITY OF LOANS................................25
SECTION 2.04. INTEREST RATES...................................25
SECTION 2.05. METHOD OF ELECTING INTEREST RATES................26
SECTION 2.06. FEES.............................................28
SECTION 2.07. TERMINATION OR REDUCTION OF COMMITMENTS..........29
SECTION 2.08. OPTIONAL PREPAYMENTS.............................29
SECTION 2.09. MANDATORY PREPAYMENTS............................30
SECTION 2.10. GENERAL PROVISIONS AS TO PAYMENTS................30
SECTION 2.11. FUNDING LOSSES...................................31
SECTION 2.12. COMPUTATION OF INTEREST AND FEES.................32
SECTION 2.13. NOTES............................................32
SECTION 2.14. REGULATION D COMPENSATION........................32
SECTION 2.15. BORROWING BASE...................................33
SECTION 2.16. LETTERS OF CREDIT................................34
ARTICLE 3
CONDITIONS
SECTION 3.01. CLOSING..........................................40
SECTION 3.02. BORROWINGS AND ISSUANCES OF LETTERS OF CREDIT....43
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. CORPORATE EXISTENCE AND POWER....................43
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION....................................43
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PAGE
SECTION 4.03. BINDING EFFECT...................................44
SECTION 4.04. FINANCIAL INFORMATION............................44
SECTION 4.05. LITIGATION.......................................44
SECTION 4.06. COMPLIANCE WITH ERISA............................45
SECTION 4.07. ENVIRONMENTAL COMPLIANCE.........................45
SECTION 4.08. TAXES............................................46
SECTION 4.09. SUBSIDIARIES.....................................47
SECTION 4.10. NO REGULATORY RESTRICTIONS ON BORROWING..........47
SECTION 4.11. FULL DISCLOSURE..................................47
SECTION 4.12. REPRESENTATIONS OF GUARANTORS....................48
SECTION 4.13. OWNERSHIP OF PROPERTY, LIENS.....................48
SECTION 4.14. REPRESENTATIONS IN PURCHASE AND SALE AGREEMENT
TRUE AND CORRECT.................................49
SECTION 4.15. RESERVE DATA AND PROJECTIONS.....................49
ARTICLE 5
COVENANTS
SECTION 5.01. INFORMATION......................................49
SECTION 5.02. RESERVE REPORTS..................................52
SECTION 5.03. PAYMENT OF OBLIGATIONS...........................52
SECTION 5.04. MAINTENANCE OF PROPERTY INSURANCE................52
SECTION 5.05. CONDUCT OF BUSINESS AND MAINTENANCE OF
EXISTENCE........................................53
SECTION 5.06. COMPLIANCE WITH LAWS.............................54
SECTION 5.07. INSPECTION OF PROPERTY, BOOKS AND RECORDS........54
SECTION 5.08. MERGERS AND SALES OF ASSETS......................54
SECTION 5.09. USE OF PROCEEDS..................................54
SECTION 5.10. NEGATIVE PLEDGE..................................55
SECTION 5.11. LIMITATION ON DEBT...............................56
SECTION 5.12. DEBT OF SUBSIDIARIES.............................57
SECTION 5.13. CASH INTEREST COVERAGE RATIO.....................57
SECTION 5.14. MINIMUM CONSOLIDATED TANGIBLE NET WORTH..........57
SECTION 5.15. RESTRICTED PAYMENTS..............................58
SECTION 5.16. INVESTMENTS......................................58
SECTION 5.17. TRANSACTIONS WITH AFFILIATES.....................59
SECTION 5.18. ADDITIONAL GUARANTORS............................59
SECTION 5.19. PRICE HEDGE......................................59
SECTION 5.20. AMENDMENTS OF THE ACQUISITION DOCUMENTS..........59
SECTION 5.21. EXTRAORDINARY BORROWING BASE REDETERMINATIONS....59
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PAGE
ARTICLE 6
DEFAULTS
SECTION 6.01. EVENTS OF DEFAULT................................62
SECTION 6.02. NOTICE OF DEFAULT................................65
SECTION 6.03. CASH COVER.......................................65
ARTICLE 7
THE AGENT
SECTION 7.01. APPOINTMENT AND AUTHORIZATION....................65
SECTION 7.02. AGENTS AND AFFILIATES............................65
SECTION 7.03. ACTION BY AGENT..................................66
SECTION 7.04. CONSULTATION WITH EXPERTS........................66
SECTION 7.05. LIABILITY OF AGENT...............................66
SECTION 7.06. INDEMNIFICATION..................................66
SECTION 7.07. CREDIT DECISION..................................67
SECTION 7.08. SUCCESSOR AGENT..................................67
SECTION 7.09. AGENT'S FEE......................................67
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR
UNFAIR...........................................67
SECTION 8.02. ILLEGALITY.......................................68
SECTION 8.03. INCREASED COST AND REDUCED RETURN................69
SECTION 8.04. TAXES............................................70
SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED EURO-
DOLLAR LOANS.....................................72
SECTION 8.06. SUBSTITUTION OF BANK.............................72
ARTICLE 9
GUARANTY
SECTION 9.01. THE GUARANTY.....................................73
SECTION 9.02. GUARANTY UNCONDITIONAL...........................73
SECTION 9.03. DISCHARGE ONLY UPON PAYMENT IN FULL;
REINSTATEMENT IN CERTAIN CIRCUMSTANCES...........74
SECTION 9.04. WAIVER BY EACH GUARANTOR.........................74
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SECTION 9.05. SUBROGATION AND CONTRIBUTION.....................74
SECTION 9.06. STAY OF ACCELERATION.............................74
SECTION 9.07. LIMIT OF LIABILITY...............................75
SECTION 9.08. RELEASE UPON SALE................................75
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. NOTICES.........................................75
SECTION 10.02. NO WAIVERS......................................75
SECTION 10.03. EXPENSES; INDEMNIFICATION.......................76
SECTION 10.04. SHARING OF SET-OFFS.............................76
SECTION 10.05. AMENDMENTS AND WAIVERS..........................77
SECTION 10.06. SUCCESSORS; PARTICIPATIONS AND ASSIGNMENTS......77
SECTION 10.07. NO RELIANCE ON MARGIN STOCK.....................79
SECTION 10.08. GOVERNING LAW; SUBMISSION TO JURISDICTION.......79
SECTION 10.09. COUNTERPARTS; INTEGRATION; EFFECTIVENESS........79
SECTION 10.10. WAIVER OF JURY TRIAL............................80
SECTION 10.11. APPOINTMENT OF AGENT FOR SERVICES OF PROCESS....80
SECTION 10.12. JUDGMENT CURRENCY...............................80
SECTION 10.13. MAXIMUM INTEREST RATE...........................81
EXHIBITS AND SCHEDULES
Exhibit A - Note
Exhibit B - Opinion of Counsel for the Borrower
Exhibit C - Opinion of Special Counsel for the Agent
Exhibit D - Assignment and Assumption Agreement
Commitment Schedule
Schedule 4.05 - Litigation
Schedule 4.07 - Environmental Liabilities
Schedule 4.09 - Subsidiaries
Schedule 5.04 - Insurance
Schedule 5.12 - Debt
Schedule 5.17 - Investments
<PAGE>
AGREEMENT dated as of April __, 1997 among BELLWETHER EXPLORATION COMPANY,
the GUARANTORS party hereto, the BANKS party hereto, the LC ISSUING BANKS
referred to herein and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent.
WHEREAS, the Borrower and Acquisition Corp., a wholly-owned Subsidiary of
the Borrower, are acquiring the Torch Acquired Properties from the Sellers
pursuant to the Acquisition Documents (in each case as defined below) on and as
of the date hereof;
WHEREAS, the Borrower intends to fund the cash obligations with respect to
the Acquisition by using the proceeds of (i) one or more Borrowings under this
Agreement and (ii) a Qualifying Junior Financing (in each case as defined
below), and lending a portion of the proceeds of the foregoing to Acquisition
Corp.; and
WHEREAS, on the Closing Date, following the acquisition of the Torch
Acquired Properties, Acquisition Corp. will be merged with and into the
Borrower;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"ACQUISITION" means the acquisition by the Borrower and Acquisition
Corp. of the Torch Acquired Properties on and as of the Closing Date pursuant to
the Acquisition Documents.
"ACQUISITION CORP." means Program Acquisition Company, a Delaware
corporation and wholly-owned Subsidiary of the Borrower.
"ACQUISITION DOCUMENTS" means the Purchase and Sale Agreement and the
assignments and conveyances entered into in connection therewith.
"ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Agent, completed by
such Bank and returned to the Agent (with a copy to the Borrower).
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"AFFILIATE" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls the Borrower (a "CONTROLLING PERSON") or (ii)
any Person (other than the Borrower or a Subsidiary) which is controlled by or
is under common control with a Controlling Person. As used herein, the term
"CONTROL" means possession, directly or indirectly, of the power to vote 10% or
more of any class of voting securities of a Person or to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"AGENT" means Morgan Guaranty Trust Company of New York in its capacity as
agent for the Banks hereunder, and its successors in such capacity.
"AGGREGATE LC EXPOSURE" means, at any time, the sum, without duplication,
of (i) the aggregate amount that is (or may thereafter become) available for
drawing under all Letters of Credit outstanding at such time and (ii) the
aggregate unpaid amount of all LC Reimbursement Obligations at such time.
"APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the
case of its Base Rate Loans and its participations in Letters of Credit, its
Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its
Euro-Dollar Lending Office.
"APPROVED PETROLEUM ENGINEERS" means (i) H. J. Gruy & Associates, (ii)
Miller & Lents, Ltd., (iii) Netherland, Sewell, & Associates, Inc., (iv) Ryder
Scott Company, (v) Williamson Petroleum Consultants, Inc. or (vi) any other
independent petroleum engineers that, prior to the submission of any relevant
Reserve Report hereunder, has been selected by the Borrower by notice to the
Agent and approved in writing by the Required Banks. In addition, if the
Borrower furnishes a Reserve Report in the form of multiple reports covering
different Borrowing Base Properties and if one or more of such multiple reports
is prepared by other independent petroleum engineering firms or by the
Borrower's or Torch's internal reserve engineers, such other firms or internal
reserve engineers shall also be considered to be "APPROVED PETROLEUM ENGINEERS"
for the purposes of such report; PROVIDED that the Borrowing Base Properties
which are covered by the reports prepared by any of such Persons do not, in the
aggregate, have present values as shown in such reports which exceed ten percent
of the aggregate present values of all Borrowing Base Properties covered by such
Reserve Report taken as a whole.
"ASSET SALE" means any sale, lease or other disposition (including any
such transaction effected by way of merger or consolidation and any condemnation
of property (or any transfer or disposition of property in lieu of condemnation
for which the Borrower or any of its Subsidiaries receives a condemnation award
or
2
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other compensation)) by the Borrower or any of its Subsidiaries of any asset,
including without limitation any sale-leaseback transaction, whether or not
involving a Capitalized Lease, but excluding (i) dispositions of oil, gas and
other Hydrocarbons after severance, other inventory, cash, Temporary Cash
Investments and obsolete, unused or unnecessary equipment and undeveloped real
estate, in each case in the ordinary course of business, (ii) dispositions of
any Property to the Borrower or a Guarantor and (iii) mineral leases by the
Borrower and its Subsidiaries entered into in the ordinary course of their
respective businesses.
"ASSIGNEE" has the meaning set forth in Section 10.06(c).
"BANK" means (i) each bank listed on the Commitment Schedule and (ii) each
Assignee which becomes a Bank pursuant to Section 10.06(c) and (iii) their
respective successors.
"BANK PARTIES" means the Banks, the LC Issuing Banks and the Agent.
"BASE RATE" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% PLUS the Federal
Funds Rate for such day.
"BASE RATE LOAN" means a Loan which bears interest at the Base Rate, as
provided in Section 2.04 and pursuant to the applicable Notice of Borrowing or
Notice of Interest Rate Election or the provisions of Section 2.05(a) or Article
8.
"BORROWER" means Bellwether Exploration Company, a Delaware corporation,
and its successors.
"BORROWER'S 1996 FORM 10-K" means the Borrower's annual report on Form
10-K for the Fiscal Year ended June 30, 1996, as filed with the SEC pursuant to
the Exchange Act.
"BORROWER'S LATEST FORM 10-Q" means the Borrower's quarterly report on
Form 10-Q for the Fiscal Quarter ended December 31, 1996, as filed with the SEC
pursuant to the Exchange Act.
"BORROWING" means a borrowing hereunder consisting of Loans made to the
Borrower on the same day pursuant to Article 2, all of which Loans are of the
same type (subject to Article 8) and, except in the case of Base Rate Loans,
have the same initial Interest Period; PROVIDED that neither the continuation of
any Euro-Dollar Loan nor the conversion of any Loan shall be deemed to be a
Borrowing. A Borrowing is a Base Rate Borrowing if such Loans are Base Rate
Loans or a Euro-Dollar Borrowing if such Loans are Euro-Dollar Loans.
3
<PAGE>
"BORROWING BASE" means, on any date, the lesser of (i) the aggregate
amount of the Commitments at such time and (ii) the amount that is determined in
accordance with Section 2.15 or Section 5.21 and that is specified in the most
recent Borrowing Base Notice received by the Borrower, as reduced by the
Borrower pursuant to Section 2.15(e).
"BORROWING BASE CERTIFICATE" means a certificate from the President,
Treasurer, Controller or Chief Financial Officer of the Borrower that, to the
best of his or her knowledge and in all material respects, (i) the information
contained in the most recent Reserve Report is true and correct (subject to the
qualifications set forth in Section 4.11(a) with respect to the information
contained in such Reserve Report), (ii) except as set forth on an exhibit to the
certificate, either of the Borrower or a Subsidiary owns good and marketable
title to the Properties evaluated in such Reserve Report free and clear of all
Liens except for Liens permitted under Section 5.11, and (iii) except as set
forth on an exhibit to the certificate, on a net basis there are no gas
imbalances, take or pay or other prepayments in excess of $__________ at any one
time outstanding with respect to the Borrower's or any Subsidiary's Oil and Gas
Properties which would require the Borrower or any Subsidiary to deliver
Hydrocarbons produced from the Borrower's or any Subsidiary's Oil and Gas
Properties in the future without receiving full payment therefor substantially
contemporaneously with such delivery.
A "BORROWING BASE EXCESSION" exists at any date if and to the extent that
the Total Outstanding Amount exceeds the Borrowing Base at such date.
"BORROWING BASE NOTICE" means a written notice sent to the Borrower by the
Agent pursuant to Section 2.15 or 5.21, notifying the Borrower of the Borrowing
Base.
"BORROWING BASE PROPERTIES" means at any time the Properties of the
Borrower or any Subsidiary evaluated by the Banks and to which the Banks gave
loan value in determining the most recent Borrowing Base.
"CAPITAL COSTS" means, with respect to any Oil and Gas Property, all
Consolidated Capital Expenditures incurred in connection with (i) the conversion
or attempted conversion of such Property from Proved Undeveloped Reserves to
Proved Developed Reserves and (ii) the maintenance of such Property as Proved
Developed Reserves.
"CAPITALIZED LEASE" means, as applied to any Person, any lease (including,
without limitation, any financial lease) of any property (whether real, personal
or mixed) of which the discounted present value of the rental obligations of
such
4
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Person as lessee would be required to be capitalized on the balance sheet of
such Person if such balance sheet were prepared in accordance with GAAP; and
"CAPITALIZED LEASE OBLIGATIONS" means, for any Capitalized Lease, the discounted
present value of the rental obligations under such lease.
"CASH INTEREST COVERAGE RATIO" means at any date the ratio of (i)
Consolidated EBITDA for the four consecutive fiscal quarters of the Borrower and
its Consolidated Subsidiaries ending on such date to (ii) the sum of (x)
Consolidated Cash Interest Expense for such period, PLUS (y) any dividends or
other distributions for such period (1) on any shares of preferred stock of the
Borrower and (2) on account of the purchase, redemption, retirement or
acquisition of any shares of the preferred stock of the Borrower or any option,
warrant or other right to acquire shares of the preferred stock of the Borrower.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time, and
regulations promulgated thereunder.
"CLOSING DATE" means the date on or after the Effective Date on which the
Agent shall have received all the documents specified in or pursuant to Section
3.01.
"COMMITMENT" means (i) with respect to each Bank listed on the Commitment
Schedule, the amount set forth opposite such Bank's name on the Commitment
Schedule, and (ii) with respect to any Assignee which becomes a Bank pursuant to
Section 10.06(c), the amount of the transferor Bank's Commitment assigned to it
pursuant to Section 10.06(c), in each case as such amount may be changed from
time to time pursuant to Article 2 or 10.06(c).
"COMMITMENT FEE RATE" means for any day a rate per annum equal to the
amount set forth in the column opposite the pricing level that applies on such
day:
PERIOD RATE
- ------ ----
For any day on which Level I Pricing applies 0.250%
For any day on which Level II Pricing applies 0.375%
For any day on which Level III Pricing applies 0.375%
"COMMITMENT PERCENTAGE" means, with respect to any Bank at any time, the
percentage which the amount of its Commitment at such time represents of the
aggregate amount of all the Commitments at such time. At any time after the
Commitments shall have terminated, the term "COMMITMENT PERCENTAGE" shall refer
to a Bank's Commitment Percentage immediately before such termination, adjusted
to reflect any subsequent assignments pursuant to Section 10.06(c).
5
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"COMMITMENT REDUCTION DATE" means each date on which the Commitments are
to be reduced pursuant to Section 2.07, including without limitation the
Maturity Date.
"COMMITMENT SCHEDULE" means the Commitment Schedule attached hereto.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the additions
to property, plant and equipment and other capital expenditures of the Borrower
and its Consolidated Subsidiaries for such period, as the same are or would be
set forth in a consolidated statement of cash flows of the Borrower and its
Consolidated Subsidiaries for such period.
"CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, the
Consolidated Interest Expense paid in cash during such period.
"CONSOLIDATED DEBT" means, at any date, the Debt of the Borrower and its
Consolidated Subsidiaries, determined on a consolidated basis as of such date.
"CONSOLIDATED EBIT" means, for any period, the sum of (i) Consolidated Net
Income for such period PLUS (ii) to the extent deducted in determining
Consolidated Net Income for such period, the aggregate amount of (A)
Consolidated Interest Expense and (B) income tax expense.
"CONSOLIDATED EBITDA" means, for any period, the sum of (i) Consolidated
EBIT for such period PLUS (ii) to the extent deducted in determining
Consolidated Net Income for such period, the aggregate amount of depreciation,
amortization and other similar non-cash charges.
"CONSOLIDATED FUNDED DEBT" means, at any date, Consolidated Debt of the
types referred to in items (i), (ii), (iv), (vi) and (vii) of the definition of
Debt, that has a scheduled maturity date of more than a year from the date of
the original issuance thereof, including without limitation the short term
portion of any obligations with respect to such Consolidated Debt.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the interest
expense of the Borrower and its Consolidated Subsidiaries (including
amortization of debt discounts, net cost under interest rate contracts and all
of the interest but not the principal component of rentals in respect of
Capitalized Lease Obligations) determined on a consolidated basis for such
period.
"CONSOLIDATED NET INCOME" means, for any period, the net income of the
Borrower and its Consolidated Subsidiaries, determined on a consolidated basis
for
6
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such period, adjusted to exclude the effect of any extraordinary or other
non-recurring gain (but not loss).
"CONSOLIDATED RENTAL EXPENSE" means, for any period, the aggregate rental
expense of the Borrower and its Consolidated Subsidiaries, determined on a
consolidated basis for such period.
"CONSOLIDATED SUBSIDIARY" means, at any date, any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements if such statements were prepared as of
such date.
"CONSOLIDATED TANGIBLE NET WORTH" means, at any date, the consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries MINUS
their consolidated Intangible Assets, all determined as of such date, PLUS to
the extent deducted in determining such consolidated stockholders' equity at
such date, the aggregate amount of non-cash write-downs of the book value of
[SPECIFY CERTAIN LONG-TERM ASSETS WITH RESPECT TO WHICH WRITE-DOWNS WILL BE
ADDED BACK] taken after [January 1, 1996]. As used herein, "INTANGIBLE ASSETS"
means the amount (to the extent reflected in determining such consolidated
stockholders' equity) of (i) all write-ups (except write-ups resulting from
foreign currency translations and write-ups of assets of a going concern
business made within twelve months after the acquisition of such business, but
in such case net of any write-downs with respect to such business added back in
the immediately preceding sentence in determining Consolidated Tangible Net
Worth) in the book value of any asset owned by the Borrower or a Consolidated
Subsidiary, (ii) all Investments in unconsolidated Subsidiaries and all equity
Investments in Persons which are not Subsidiaries and (iii) all unamortized debt
discount and expense, unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, anticipated future benefit of tax loss
carry-forwards, copyrights, organization or developmental expenses and other
intangible assets.
"CREDIT EVENT" has the meaning set forth in Section 3.02.
"CREDIT EXPOSURE" means, with respect to any Bank at any time, (i) the
amount of its Commitment (whether used or unused) at such time or (ii) if the
Commitments have terminated in their entirety, such Bank's Outstanding Amount.
"DEBT" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business,
7
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(iv) all obligations of such Person under Capitalized Leases, (v) all
non-contingent obligations (and, for purposes of Section 5.10 and the
definitions of Material Debt and Material Financial Obligations, all contingent
obligations) of such Person to reimburse any bank or other Person in respect of
amounts paid under a letter of credit (including a Letter of Credit) or similar
instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether
or not such Debt is otherwise an obligation of such Person and (vii) all
Guarantees by such Person of Debt of another Person (each such Guarantee to
constitute Debt in an amount equal to the amount of such other Person's Debt
Guaranteed thereby); PROVIDED, HOWEVER, that the Debt of any Person shall not
include (i) any liability for gas balancing that was incurred by such Person in
the ordinary course of business, or (ii) any Production Payments and Reserve
Sales.
"DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DERIVATIVES OBLIGATIONS" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"DETERMINATION DATE" means (i) each date that is five Domestic Business
Days after the date on which the Agent shall present a Borrowing Base Notice to
the Borrower (as set forth in Section 2.15(d)) and (ii) the date that is five
Domestic Business Days after the date of the consummation of the sale of any
Permitted Subordinated Debt (other than Debt issued in the Senior Subordinated
Securities Sale).
"DISCOUNTED PRESENT VALUE OF FUTURE NET REVENUE" means, with respect to
all Borrowing Base Properties and as of any specified date, an amount equal to
the present value of Future Net Revenue from such Borrowing Base Properties
(determined before tax, general and administrative and interest expense),
determined by discounting the stated amount of such Future Net Revenue (LESS the
adjustments noted in the immediately preceding parenthetical) from the date on
which such amount is expected to be realized to such specified date at the
applicable discount rate used for the purposes of the computations contained in
the most recent Reserve Report covering such Borrowing Base Properties, computed
8
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on a simple interest basis for years of 365 days (or 366 days in a leap year)
and otherwise in accordance with customary and prudent oil and gas lending
practices.
"DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to close.
"DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent.
"EFFECTIVE DATE" means the date this Agreement becomes effective in
accordance with Section 10.09.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, licenses and other governmental restrictions relating to the
environment or the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment, including (without limitation) ambient air, surface
water, ground water or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"ENVIRONMENTAL LIABILITIES" means all liabilities in connection with or
relating to the business, assets, presently or previously owned, leased or
operated property, activities (including, without limitation, off-site disposal)
or operations of the Borrower and each Subsidiary, whether vested or unvested,
contingent or fixed, actual or potential, known or unknown, which arise under or
relate to matters covered by Environmental Laws (including without limitation
any matter disclosed or required to be disclosed in Schedule 4.07 hereto).
"EQUITY SALE" means any public or private sale(s) of Non-Redeemable Stock
of the Borrower by the Borrower that occurs prior to, or as part of, the
consummation by the Borrower of a Qualifying Junior Financing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA GROUP" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
9
<PAGE>
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch or
affiliate located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Euro-Dollar Lending
Office) or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower
and the Agent.
"EURO-DOLLAR LOAN" means a Loan which bears interest at a Euro-Dollar Rate
pursuant to the applicable Notice of Borrowing or Notice of Interest Rate
Election.
"EURO-DOLLAR MARGIN" has the meaning set forth in Section 2.04(b).
"EURO-DOLLAR RATE" means a rate of interest determined pursuant to Section
2.04(b) on the basis of a London Interbank Offered Rate.
"EURO-DOLLAR RESERVE PERCENTAGE" means, for any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "EUROCURRENCY LIABILITIES" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
"EVENTS OF DEFAULT" has the meaning set forth in Section 6.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time.
"EXISTING CREDIT FACILITY" means the Credit Agreement dated as of October
15, 1996 among the Borrower, the guarantors party thereto, the banks party
thereto and The Chase Manhattan Bank, as agent for such banks.
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"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Domestic Business Day next
succeeding such day, PROVIDED that (i) if such day is not a Domestic Business
Day, the Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Domestic Business Day as so published on the next
succeeding Domestic Business Day and (ii) if no such rate is so published on
such next succeeding Domestic Business Day, the Federal Funds Rate for such day
shall be the average rate quoted to Morgan Guaranty Trust Company of New York on
such day on such transactions as determined by the Agent.
"FINANCING DOCUMENTS" means this Agreement and the Notes.
"FISCAL QUARTER" means a fiscal quarter of the Borrower.
"FISCAL YEAR" means a fiscal year of the Borrower.
"FUTURE NET REVENUE" means, with respect to any Hydrocarbon Interests and
for any period, the future gross revenue from such Hydrocarbon Interest for such
period as estimated in the then most recent Reserve Report LESS the sum of (in
each case, without duplication) (i) any royalties payable in connection with
such Property during such period, (ii) any overriding royalties, net profits
interests and production payments payable in connection with such Property
during such period, (iii) all production, ad valorem and severance taxes
relating to such Property and payable during such period and (iv) Capital Costs
and Production Expenses relating to such Property during such period necessary
to provide such future gross revenue.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied on a basis consistent (except for changes concurred in by
the Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks, subject to Section 1.02.
"GROUP OF LOANS" means, at any time, a group of Loans consisting of (i)
all Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans
having the same Interest Period at such time, PROVIDED that, if a Euro-Dollar
Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant
to Article 8, such Loan shall be included in the same Group or Groups of Loans
from time to time as it would have been in if it had not been so converted or
made.
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"GUARANTEE" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise), (ii)
to reimburse a bank for amounts drawn under a letter of credit for the purpose
of paying such Debt or (iii) entered into for the purpose of assuring in any
other manner the holder of such Debt or other obligation of the payment thereof
or to protect such holder against loss in respect thereof (in whole or in part),
PROVIDED that the term "GUARANTEE" shall not include obligations under gas
balancing arrangements or endorsements for collection or deposit, in each case
in the ordinary course of business. The term "GUARANTEE" used as a verb has a
corresponding meaning.
"GUARANTOR" means, subject to Sections 5.18 and 9.08, each Person who has
executed this Agreement as a guarantor.
"HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
Hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics.
"HYDROCARBON INTERESTS" of any Person means all rights, titles, interests
and estates of such Person in and to oil and gas leases, oil, gas and mineral
leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests,
overriding royalty and royalty interests, net profit interests and production
payment interests, including any reserved or residual interest of whatever
nature.
"HYDROCARBONS" mean oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons, all
products refined from the foregoing and all other minerals.
"INDEMNITEE" has the meaning set forth in Section 10.03(b).
"INFORMATION MEMORANDUM" means the confidential Information Package dated
March 19, 1997 furnished to the Banks in connection with the transactions
contemplated hereby.
"INITIAL RESERVE REPORTS" means the reserve reports as of June 30, 1996
referred to in the Registration Statement of the Borrower on Form S-3 with
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respect to the Equity Sale and/or the Senior Subordinated Securities Sale or, in
lieu of, or in addition to, such reserve reports, such other reserve reports as
may be agreed between the Borrower and the Sellers, in form and substance
satisfactory to the Agent in its sole good faith discretion and in accordance
with the standards set forth in Section 2.15(c).
"INTEREST PERIOD" means, with respect to each Euro-Dollar Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in an applicable Notice of Interest Rate
Election and ending one, two, three or six months thereafter, as the Borrower
may elect in such notice, PROVIDED that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on
the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) if any Interest Period includes a Commitment Reduction Date
(determined on the first day of such Interest Period) but does not end on
such date, then (i) the principal amount (if any) of each Euro-Dollar Loan
required to be repaid on such date shall have an Interest Period ending on
such Commitment Reduction Date and (ii) the remainder (if any) of each
such Euro-Dollar Loan shall have an Interest Period determined as set
forth above.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"INVESTMENT" means any investment in any Person, whether by means of share
purchase, capital contribution, loan, Guarantee, time deposit or otherwise (but
not including any demand deposit).
"LC EXPOSURE" means, with respect to any Bank at any time, an amount equal
to its Commitment Percentage of the Aggregate LC Exposure at such time.
"LC INDEMNITEES" has the meaning set forth in Section 2.16.
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"LC ISSUING BANK" means Morgan Guaranty Trust Company of New York, in its
capacity as an issuer of Letters of Credit (and any other Bank which, at the
Borrower's request, shall have agreed to issue Letters of Credit hereunder and
confirmed such agreement in a notice to the Agent), each in its capacity as an
LC Issuing Bank under the Letter of Credit facility described in Section 2.16.
"LC OFFICE" means, with respect to any LC Issuing Bank, the office at
which it books any Letter of Credit issued by it.
"LC PAYMENT DATE" has the meaning set forth in Section 2.16.
"LC REIMBURSEMENT DUE DATE" has the meaning set forth in Section 2.16.
"LC REIMBURSEMENT OBLIGATIONS" means, at any time, all obligations of the
Borrower to reimburse the LC Issuing Banks for amounts paid by the LC Issuing
Banks in respect of drawing under Letters of Credit, including any portion of
any such obligations to which a Bank has become subrogated pursuant to Section
2.16(i)(i).
"LETTER OF CREDIT" means a letter of credit issued hereunder by an LC
Issuing Bank.
"LETTER OF CREDIT FEE RATE" means for any date a rate equal to the
Euro-Dollar Margin for such date.
"LEVEL I PRICING" applies on any date on which the Total Outstanding
Amount is less than 50% of the Borrowing Base then in effect.
"LEVEL II PRICING" applies on any date on which the Total Outstanding
Amount is greater than or equal to 50% but less than or equal to 75% of the
Borrowing Base then in effect.
"LEVEL III PRICING" applies on at any date on which the Total Outstanding
Amount exceeds 75% of the Borrowing Base then in effect.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has substantially the same practical effect as a
security interest, in respect of such asset (including any production payment,
any obligation to deliver Hydrocarbons in the future in satisfaction of an
advance payment previously received or any similar arrangement which gives a
creditor preferential access to minerals in place). For purposes hereof, the
Borrower or any
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Subsidiary shall be deemed to own subject to a Lien (i) any asset which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement or other title retention agreement relating to such
asset (other than a Hydrocarbon Interest consisting of a royalty interest) or
any Capital Lease or (ii) any account receivable transferred by it with recourse
for collectibility (including any such transfer subject to a holdback or similar
arrangement which effectively imposes the risk of collectibility upon the
transferor).
"LOAN" means a loan made by a Bank pursuant to Section 2.01; PROVIDED that
if any such loan or loans (or portions thereof) are combined or subdivided
pursuant to a Notice of Interest Rate Election, the term "LOAN" shall refer to
the combined principal amount resulting from such combination or to each of the
separate principal amounts resulting from such subdivision, as the case may be.
"LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section
2.04(b).
"LONG TERM JUNIOR FINANCING" means (i) the Senior Subordinated Securities
Sale (if any) together with (ii) the Equity Sale (if any).
"MATERIAL ADVERSE EFFECT" means (i) any material adverse effect upon the
financial condition, results of operations, properties, assets or business of
the Borrower and its Subsidiaries, taken as a whole; (ii) a material adverse
effect on the ability of the Borrower or any other Person to consummate the
transactions contemplated hereby to occur on the Closing Date; (iii) a material
adverse effect on the ability of the Borrower to perform under the Financing
Documents or (iv) a material adverse effect on the rights and remedies of the
Agent and the Banks under the Financing Documents.
"MATERIAL DEBT" means Debt (other than the Loans and LC Reimbursement
Obligations) of the Borrower and/or one or more of its Subsidiaries, arising in
one or more related or unrelated transactions, in an aggregate principal or face
amount exceeding $5,000,000.
"MATERIAL FINANCIAL OBLIGATIONS" means a principal or face amount of Debt
(other than the Loans and LC Reimbursement Obligations) and/or payment or
collateralization obligations in respect of Derivatives Obligations of the
Borrower and/or one or more of its Subsidiaries, arising in one or more related
or unrelated transactions, exceeding in the aggregate $5,000,000.
"MATERIAL PLAN" means, at any time, a Plan or Plans having aggregate
Unfunded Liabilities in excess of $5,000,000.
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"MATERIAL SUBSIDIARY" means, at any time, any Subsidiary that, together
with its Subsidiaries, (a) accounted for more than 5% of the revenue of the
Borrower and its Subsidiaries determined on a consolidated basis for the then
most recently completed Fiscal Year, or (b) was the owner of more than 5% of the
assets of the Borrower and its Subsidiaries determined on a consolidated basis
at the end of such Fiscal Year, all as shown in the case of (a) and (b) on the
consolidated financial statements of the Borrower and its Subsidiaries for such
Fiscal Year. [DOES THIS INCLUDE ALL OF THE TORCH ACQUIRED PROPERTIES?]
"MATURITY DATE" means March 31, 2002.
"MULTIEMPLOYER PLAN" means, at any time, an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"NET CASH PROCEEDS" means, with respect to any transaction or event, an
amount equal to the cash proceeds received by the Borrower or any or its
Subsidiaries from or in respect of such transaction or event (including any cash
proceeds received as income or other proceeds of any noncash proceeds of any
Asset Sale), LESS (x) any expenses reasonably incurred by such Person in respect
of such transaction or event and (y) if such transaction or event is an Asset
Sale, (i) the amount of any Debt secured by a Lien on any asset disposed of in
such Asset Sale and discharged from the proceeds thereof and (ii) any taxes
actually paid or to be payable by such Person (as estimated by a senior
financial or accounting officer of the Borrower, giving effect to the overall
tax position of the Borrower) in respect of such Asset Sale.
["NGL-TORCH GAS PLANT VENTURE" means NGL-Torch Gas Plant Venture, a
general partnership organized under the laws of the State of Texas.]
"NON-REDEEMABLE STOCK" means capital stock issued by the Borrower,
PROVIDED that neither the Borrower nor any of its Subsidiaries has any
obligation to redeem or purchase such stock or to exchange such stock for, or
convert such stock to, any other security (other than Non-Redeemable Common
Stock), whether such obligation arises pursuant to the terms of such stock or of
any agreement relating thereto or otherwise and whether or not such obligation
exists in all circumstances or only upon the occurrence of a particular event or
condition or upon the passage of time or otherwise. "NON-REDEEMABLE COMMON
STOCK" means Non-Redeemable Stock that is common stock issued by Borrower.
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"NOTES" means promissory notes of the Borrower, substantially in the form
of Exhibit A hereto, evidencing the Borrower's obligation to repay the Loans,
and "NOTE" means any one of such promissory notes issued hereunder.
"NOTICE OF BORROWING" has the meaning set forth in Section 2.02.
"NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section
2.05.
"OBLIGOR" means the Borrower and each Guarantor.
"OIL AND GAS PROPERTIES" means all of a Person's interest in and to
Hydrocarbon Interests; the Properties now or hereafter pooled or unitized with
Hydrocarbon Interests; all presently existing or future unitization, pooling
agreements and declarations of pooled units and the units created thereby
(including without limitation all units created under orders, regulations and
rules of any governmental body or agency having jurisdiction) which may affect
all or any portion of the Hydrocarbon Interests; all operating agreements,
contracts and other agreements which relate to any of the Hydrocarbon Interests
or the production, sale, purchase, exchange or processing of Hydrocarbons from
or attributable [and saved] to such Hydrocarbon Interests; all Hydrocarbons in
and under and which may be produced and saved or attributable [and saved] to the
Hydrocarbon Interests, the lands covered thereby and all oil in tanks and all
rents, issues, profits, proceeds, products, revenues and other income from or
attributable to the Hydrocarbon Interests; all tenements, hereditaments,
appurtenances and Properties in any way appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests, Properties, rights, titles, interests
and estates described or referred to above, including any and all Property, real
or personal, now owned or hereafter acquired and situated upon, used, held for
use or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment or other personal property which may be on such premises for the
purpose of drilling a well or for other similar temporary uses) and including
any and all oil wells, gas wells, injection wells or other wells, building,
structures, fuel separators, liquid extraction plants, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries, fixtures,
valves, fittings, machinery and parts, engines, boilers, meters, apparatus,
equipment, appliances, tools, implements, cables, wires, towers, casing, tubing
and rods, surface leases, rights-of-way, easements and servitude together with
all additions, substitutions, replacements, accessions and attachments to any
and all of the foregoing.
"OUTSTANDING AMOUNT" means, with respect to any Bank at any time, the sum
of (i) the aggregate outstanding principal amount of its Loans and (ii) its LC
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Exposure, all determined at such time after giving effect to any prior
assignments by or to such Bank pursuant to Section 10.06(c).
"PARENT" means, with respect to any Bank, any Person controlling such
Bank.
"PARTICIPANT" has the meaning set forth in Section 10.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED SUBORDINATED DEBT" means Debt issued in the Senior Subordinated
Securities Sale and any other subordinated debt issued by the Borrower or its
Subsidiaries which in each case contains terms and conditions, including
subordination provisions, approved by the Required Banks in accordance with
Section 5.21(c).
"PERSON" means an individual, a corporation, a limited liability company,
a partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"PLAN" means, at any time, an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"PRICE HEDGE" has the meaning set forth in Section 5.19.
"PRIME RATE" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"PRODUCTION EXPENSES" means, with respect to any Oil and Gas Property, all
cash costs and expenses incurred for or payable in connection with the lifting,
producing, gathering, separating, treating, compressing, storing, processing,
marketing, transporting or otherwise handling Hydrocarbons from such Property,
or developing, reworking, equipping, operating, maintaining and plugging and
abandoning such Property.
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"PRODUCTION PAYMENTS AND RESERVE SALES" means the grant or transfer to any
Person of a royalty, overriding royalty, net profits interest, production
payment (whether volumetric or dollar dominated), master limited partnership
interest 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 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 any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"PROVED DEVELOPED RESERVES" means "proved developed oil and gas reserves"
as specified under Rule 4-10(a)(3) of Regulation S-X of the Exchange Act.
"PROVED RESERVES" means Proved Developed Reserves and Proved
Undeveloped Reserves.
"PROVED UNDEVELOPED RESERVES" means "proved undeveloped oil and gas
reserves" as specified under Rule 4-10(a)(4) of Regulation S-X of the Exchange
Act.
"PURCHASE AND SALE AGREEMENT" means the Acquisition and Consolidation
Agreement dated as of March 31, 1997 by and among the Borrower, Acquisition
Corp. and the Sellers for the purchase and sale of the Torch Acquired
Properties.
"QUALIFYING JUNIOR FINANCING" means a Long Term Junior Financing, if the
gross proceeds from any Senior Subordinated Securities Sale and Equity Sale
included therewith are in an aggregate amount such that, the sum of (i) the
Borrowing Base PLUS (ii) the gross proceeds of such Long Term Junior Financing,
is not less than $180,000,000.
"QUARTERLY PAYMENT DATES" means each March 31, June 30, September 30 and
December 31.
"REFERENCE BANKS" means the principal London offices of _______________,
_______________ and Morgan Guaranty Trust Company of New York, and "REFERENCE
BANK" means any one of such Reference Banks.
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"REGULATED ACTIVITY" means any generation, treatment, storage, recycling,
transportation or disposal of any Hazardous Substance.
"REGULATION U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"RELEASE" means any discharge, emission or release, including a Release as
defined in CERCLA at 42 U.S.C. Section 9601(22). The term "RELEASED" has a
corresponding meaning.
"REQUIRED BANKS" means, at any time, Banks having at least 66-2/3% of the
aggregate amount of the Credit Exposures at such time.
"RESERVE REPORT" means a report prepared and delivered in accordance with
Section 5.02.
"RESPONSIBLE OFFICER" means, as to any Person, its Chairman, Vice
Chairman, President, or any Vice President duly authorized to act on behalf of
such Person.
"RESTRICTED PAYMENT" means (i) any dividend or other distribution on any
shares of the Borrower's capital stock (except dividends payable solely in
shares of Non-Redeemable Stock), (ii) any payment on account of (A) the
purchase, redemption, retirement or acquisition of (1) any shares of the
Borrower's capital stock or (2) any option, warrant or other right to acquire
shares of the Borrower's capital stock (but not including payments of principal,
premium (if any) or interest made pursuant to the terms of convertible debt
securities prior to conversion) or (B) the settlement of any Derivative
Obligation the terms of which were tied to or based upon the movement in the
trading price of the capital stock of the Borrower on the NASDAQ during any
period, or (iii) any payment of principal on, or on account of, the purchase,
redemption, retirement or other acquisition, in each case prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment of, any
Permitted Subordinated Debt.
"REVOLVING CREDIT PERIOD" means the period from and including the
Effective Date to but excluding the last Commitment Reduction Date.
"SEC" means the Securities and Exchange Commission.
"SELLERS" means each of the entities described as a Seller pursuant to the
Purchase and Sale Agreement.
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"SENIOR SUBORDINATED SECURITIES SALE" means any public or private sale by
the Borrower of subordinated debt securities of the Borrower containing terms
and conditions, including subordination provisions, approved by the Required
Banks, that occurs as part of a Qualifying Junior Financing.
["SYNDER GAS PLANT VENTURE" means Synder Gas Plant Venture, a general
partnership organized under the laws of the State of Texas.]
"SUBSIDIARY" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person. Unless
otherwise specified, "SUBSIDIARY" means a Subsidiary of the Borrower [; PROVIDED
that associations, joint ventures or other relationships (a) which are
established pursuant to a standard form operating agreement or similar agreement
or which are partnerships for purposes of income taxation only, (b) which are
not corporations or partnerships (or subject to the Uniform Partnership Act)
under applicable state law, and (c) whose businesses are limited to the
exploration, development and operation of Oil and Gas Properties and interests
owned directly by the parties in such associations, joint ventures or
relationships, shall not be deemed to be "SUBSIDIARIES" of such Person.] [PLEASE
EXPLAIN NEED FOR CARVEOUT.]
[NOTE: although Snyder Gas Plant Venture and NGL-Torch Gas Plant Venture are
Subsidiaries of the Borrower, they are not permitted to be Guarantors] [PLEASE
EXPLAIN NEED FOR CARVEOUT.]
"TEMPORARY CASH INVESTMENT" means any Investment in (i) direct obligations
of the United States or any agency thereof or obligations guaranteed by the
United States or any agency thereof, (ii) commercial paper rated at least A-1 by
Standard & Poor's Ratings Services and P-1 by Moody's Investors Service, Inc.,
(iii) time deposits with, including certificates of deposit issued by, any
office located in the United States of any bank or trust company which is
organized or licensed under the laws of the United States or any State thereof
and, either itself or its holding company, has capital, surplus and undivided
profits aggregating at least $400,000,000 or (iv) repurchase agreements with
respect to securities described in clause (i) above entered into with an office
of a bank or trust company meeting the criteria specified in clause (iii) above,
PROVIDED in each case that such Investment matures within one year after it is
acquired by the Borrower or a Subsidiary.
"TORCH" means Torch Energy Advisors Incorporated, a Delaware corporation.
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"TORCH ACQUIRED PROPERTIES" means the following Properties included in the
Torch Consolidated Programs and acquired by the Borrower and/or Acquisition
Corp., as applicable, on the Closing Date pursuant to the Acquisition Documents:
the outstanding capital stock of Black Hawk Oil Company, a Delaware corporation,
and TEAI Oil & Gas Company, a Delaware corporation, and the partnership
interests of TEAI VIII-A Limited Partnership, a Texas limited partnership, and
1989-I TEAI Limited Partnership, a Texas limited partnership.
"TORCH CONSOLIDATED PROGRAMS" means [certain Oil and Gas Properties owned
by the Sellers and managed or sponsored by Torch] [NEED A BETTER DESCRIPTION].
"TOTAL OUTSTANDING AMOUNT" means, at any time, the sum of (i) the
aggregate outstanding principal amount of the Loans and (ii) the Aggregate LC
Exposure.
"UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"UNITED STATES" means the United States of America.
"VALUE" means, with respect to any Oil and Gas Property, the Discounted
Present Value of Future Net Revenue from such Oil and Gas Property as set forth
in the then most recent Reserve Report.
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP;
PROVIDED that, if the Borrower notifies the Agent that the Borrower wishes to
amend any provision hereof to eliminate the effect of any change in GAAP (or if
the Agent notifies the Borrower that the Required Banks wish to amend any
provision hereof for such purpose), then such provision shall be applied on the
basis of GAAP in effect immediately before the relevant change in GAAP became
effective, until either such notice is withdrawn or such provision is amended in
a manner satisfactory to the Borrower and the Required Banks.
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SECTION 1.03. OTHER DEFINITIONAL PROVISIONS. References in this Agreement
to "Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles,
Sections, Schedules or Exhibits of or to this Agreement unless otherwise
specifically provided. Any of the terms defined in Section 1.01 may, unless the
context otherwise requires, be used in the singular or plural depending on the
reference. "Include", "includes" and "including" shall be deemed to be followed
by "without limitation" whether or not they are in fact followed by such words
or words of like import. "Writing", "written" and comparable terms refer to
printing, typing and other means of reproducing words in a visible form.
References to any agreement or contract are to such agreement or contract as
amended, modified or supplemented from time to time in accordance with the terms
hereof and thereof.
ARTICLE 2
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND. Each Bank severally agrees, on the
terms and conditions set forth in this Agreement, to make loans to the Borrower
from time to time during the Revolving Credit Period; PROVIDED that immediately
after each such Loan is made, (i) the aggregate outstanding principal amount of
such Bank's Loans shall not exceed its Commitment and (ii) the Total Outstanding
Amount shall not exceed the Borrowing Base at such time. Each Borrowing under
this Section shall be in an aggregate principal amount of $1,000,000 or any
larger multiple of $500,000 (except that any such Borrowing may be in the
aggregate amount of the unused Commitments) and shall be made from the several
Banks ratably in proportion to their respective Commitments. Within the
foregoing limits, the Borrower may borrow under this Section, prepay Loans to
the extent permitted by Section 2.08 and reborrow at any time during the
Revolving Credit Period under this Section.
SECTION 2.02. METHOD OF BORROWING. (a) The Borrower shall give the Agent
notice (a "NOTICE OF BORROWING") not later than 11:00 A.M. (New York City time)
on (x) the date of each Base Rate Borrowing and (y) the third Euro-Dollar
Business Day before each Euro-Dollar Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing;
(ii) the aggregate amount of such Borrowing;
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(iii) whether the Loans comprising such Borrowing are to bear
interest initially at the Base Rate or a Euro-Dollar Rate; and
(iv) in the case of a Euro-Dollar Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period.
(b) Promptly after receiving a Notice of Borrowing, the Agent shall notify
each Bank of the contents thereof and of such Bank's ratable share of such
Borrowing and such Notice of Borrowing shall not thereafter be revocable by the
Borrower. The Borrower shall not give a Notice of Borrowing at any time if,
after giving effect thereto, more than [8] Groups of Loans would be outstanding.
(c) Not later than 12:00 Noon (New York City time) on the date of each
Borrowing, each Bank shall make available its ratable share of such Borrowing,
in Federal or other funds immediately available in New York City, to the Agent
at its address specified in or pursuant to Section 10.01. Unless the Agent
determines that any applicable condition specified in Article 3 has not been
satisfied, the Agent will make the funds so received from the Banks available to
the Borrower at the Agent's aforesaid address.
(d) Unless the Agent shall have received notice from a Bank before the date
of any Borrowing that such Bank will not make available to the Agent such Bank's
share of such Borrowing, the Agent may assume that such Bank has made such share
available to the Agent on the date of such Borrowing in accordance with
subsection (b) of this Section and the Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that such Bank shall not have so made such share available
to the Agent, such Bank and the Borrower severally agree to repay to the Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Borrower until
the date such amount is repaid to the Agent, at (i) if such amount is repaid by
the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and
the interest rate applicable thereto pursuant to Section 2.04 and (ii) if such
amount is repaid by such Bank, the Federal Funds Rate. If such Bank shall repay
to the Agent such corresponding amount, the Borrower shall not be required to
repay such amount and the amount so repaid by such Bank shall constitute such
Bank's Loan included in such Borrowing for purposes of this Agreement.
SECTION 2.03. MATURITY OF LOANS. Each Loan shall mature, and the principal
amount thereof shall be due and payable (together with interest accrued
thereon), on the Maturity Date.
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SECTION 2.04. INTEREST RATES. (a) Each Base Rate Loan shall bear interest
on the outstanding principal amount thereof, from the date such Loan is made
until it becomes due for each day at a rate per annum equal to the Base Rate.
Such interest shall be payable quarterly in arrears on each Quarterly Payment
Date. Any overdue principal of or interest on any Base Rate Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the sum of 2% PLUS the interest rate otherwise applicable to such Base Rate
Loan for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the Euro-Dollar Margin for such day PLUS
the London Interbank Offered Rate applicable to such Interest Period. Such
interest shall be payable for each Interest Period on the last day thereof and,
if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
"EURO-DOLLAR MARGIN" means for any day the amount set forth below in the
column opposite the pricing level that applies on such day:
DATE MARGIN
- ----- --------
For any day on which Level I Pricing applies 0.875%
For any day on which Level II Pricing applies 1.00%
For any day on which Level III Pricing applies 1.25%
The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period
means the arithmetic mean (rounded upwards, if necessary, to the next higher
1/16 of 1%) of the offered rates for deposits in Dollars quoted as of 11:00 A.M.
(London time) two Euro-Dollar Business Days before the first day of such
Interest Period on Telerate Page 3750 in an amount approximately equal to the
principal amount of the Euro-Dollar Loans to which such Interest Period is to
apply and for the approximate duration of such Interest Period; PROVIDED that if
there are more than six of such rates quoted then the highest and lowest rates
shall be eliminated for these purposes; and PROVIDED FURTHER that if no, or only
one, such offered quotation appears, the relevant arithmetic mean (calculated as
mentioned above) shall be determined (i) on the basis of the offered rates for
deposits in Dollars on the Reuters Screen LIBO Page and (ii) if such rate or
rates do not appear on either Telerate Page 3750 or the Reuters Screen LIBO
Page, on the basis of the respective rates per annum at which deposits in
Dollars are offered to each Reference Bank in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Reference Bank to which such
Interest Period is to apply and for a period of time comparable to such Interest
Period.
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(c) Any overdue principal of or interest on any Euro-Dollar Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the higher of (i) the sum of 2% PLUS the Euro-Dollar Margin for such day PLUS
the London Interbank Offered Rate applicable to such Loan on the day before such
payment was due and (ii) the sum of 2% PLUS the Euro-Dollar Margin for such day
PLUS a rate per annum equal to the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by DIVIDING (x) the average (rounded
upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per
annum at which one day (or, if such amount due remains unpaid more than three
Euro-Dollar Business Days, then for such other period of time not longer than
three months as the Agent may select) deposits in dollars in an amount
approximately equal to such overdue payment due to each of the Reference Banks
are offered to such Reference Bank in the London interbank market for the
applicable period determined as provided above by (y) 1.00 MINUS the Euro-Dollar
Reserve Percentage (or, if the circumstances described in clause (a) or (b) of
Section 8.01 shall exist, at a rate per annum equal to the sum of 2% PLUS the
Base Rate for such day).
(d) The Agent shall determine each interest rate applicable to the Loans
hereunder. The Agent shall promptly notify the Borrower and the participating
Banks of each rate of interest so determined, and its determination thereof
shall be conclusive in the absence of manifest error.
(e) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Agent as contemplated by this Section. If any Reference Bank
does not furnish a timely quotation, the Agent shall determine the relevant
interest rate on the basis of the quotation or quotations furnished by the
remaining Reference Bank or Banks or, if none of such quotations is available on
a timely basis for the reasons set forth in clause (a) or (b) of Section 8.01,
the provisions of Section 8.01 shall apply.
SECTION 2.05. METHOD OF ELECTING INTEREST RATES. (a) The Loans included in
each Borrowing shall bear interest initially at the type of rate specified by
the Borrower in the applicable Notice of Borrowing. Thereafter, the Borrower may
from time to time elect to change or continue the type of interest rate borne by
each Group of Loans (subject to subsection (d) of this Section and the
provisions of Article 8), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day
and
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(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
convert such Loans to Base Rate Loans as of any Domestic Business Day or
elect to continue such Loans as Euro-Dollar Loans for an additional
Interest Period, subject to Section 2.11 if any such conversion is
effective on any day other than the last day of an Interest Period
applicable to such Loans.
Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST
RATE ELECTION") to the Agent not later than 11:00 A.M. (New York City time) on
the third Euro-Dollar Business Day before the conversion or continuation
selected in such notice is to be effective. A Notice of Interest Rate Election
may, if it so specifies, apply to only a portion of the aggregate principal
amount of the relevant Group of Loans; PROVIDED that (A) such portion is
allocated ratably among the Loans comprising such Group, (B) the portion to
which such Notice applies, and the remaining portion to which it does not apply,
are each at least $1,000,000 (unless such portion is comprised of Base Rate
Loans) and (C) immediately after giving effect to such Notice, there shall be
not more than 8 Groups of Loans outstanding. If no such notice is timely
received before the end of an Interest Period for any Group of Euro-Dollar
Loans, the Borrower shall be deemed to have elected that such Group of Loans be
converted to Base Rate Loans at the end of such Interest Period.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of subsection (a) above;
(iii) if the Loans comprising such Group are to be converted, the
new type of Loans and, if the Loans resulting from such conversion are to
be Euro-Dollar Loans, the duration of the next succeeding Interest Period
applicable thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
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(c) Promptly after receiving a Notice of Interest Rate Election from the
Borrower pursuant to subsection (a) above, the Agent shall notify each Bank of
the contents thereof and such notice shall not thereafter be revocable by the
Borrower.
(d) The Borrower shall not be entitled to elect to convert any Loans to, or
continue any Loans for an additional Interest Period as, Euro-Dollar Loans if
(i) the aggregate principal amount of any Group of Euro-Dollar Loans created or
continued as a result of such election would be less than $1,000,000.00 or (ii)
a Default shall have occurred and be continuing when the Borrower delivers
notice of such election to the Agent.
(e) If any Loan is converted to a different type of Loan, the Borrower
shall pay, on the date of such conversion, the interest accrued to such date on
the principal amount being converted.
SECTION 2.06. FEES. (a) The Borrower shall pay to the Agent, for the
account of the Banks ratably in proportion to their respective Commitment
Percentages, a commitment fee at the Commitment Fee Rate on the daily average
amount by which the aggregate amount of the Commitments exceeds the Total
Outstanding Amount. Such commitment fee shall accrue from and including the
Effective Date to but excluding the date on which the Commitments terminate in
their entirety.
(b) The Borrower shall pay to the Agent, for the account of the Banks
ratably in proportion to their Commitment Percentages, a letter of credit fee
calculated for each day at the Letter of Credit Fee Rate for such day on the
aggregate amount available for drawing under all Letters of Credit at the close
of business on such day.
(c) The Borrower shall pay to each LC Issuing Bank fronting fees and other
charges in the amounts and at the times agreed between the Borrower and such LC
Issuing Bank.
(d) Fees accrued for the account of the Banks under subsections (a) and (b)
of this Section shall be payable quarterly in arrears on each Quarterly Payment
Date and on the day on which the Commitments terminate in their entirety and, in
the case of clause (b), on the first date thereafter on which there is no
Aggregate LC Exposure.
(e) The Borrower shall pay to the Agent such other fees in amounts, and at
the time and in the manner, previously agreed upon between the Borrower and the
Agent in the letter dated February [12], 1997 from Morgan Guaranty Trust
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Company of New York and J.P. Morgan Securities, Inc. and agreed to by
Bellwether Exploration Company.
SECTION 2.07. TERMINATION OR REDUCTION OF COMMITMENTS. (a) VOLUNTARY
REDUCTION. The Borrower may, upon at least three Domestic Business Days' notice
to the Agent, (i) terminate the Commitments at any time, if there are no
Outstanding Amounts at such time, or (ii) ratably reduce from time to time by an
aggregate amount of $5,000,000 or a larger multiple of $1,000,000, the aggregate
amount of the Commitments on such date in excess of the Total Outstanding
Amount. Promptly after receiving a notice pursuant to this subsection, the Agent
shall notify each Bank of the contents thereof.
(b) MANDATORY SCHEDULED REDUCTION. The aggregate amount of the Commitments
shall be reduced (x) on December 31, 1998, by the aggregate amount by which the
Commitments on such date are greater than the Borrowing Base in effect on such
date and (y) on each Quarterly Date thereafter until the Maturity Date, by an
aggregate amount equal to the product of 1/12 TIMES the aggregate amount of the
Commitments on December 31, 1998 after giving effect to the reduction on such
date pursuant to clause (x) above.
(c) APPLICATION OF REDUCTIONS. Each reduction of Commitments under this
Section 2.07 shall be applied to reduce the Commitments of the Banks pro rata in
accordance with the respective amounts thereof.
(d) TERMINATION. Unless previously terminated, the Commitments shall
terminate in their entirety on the Maturity Date.
SECTION 2.08. OPTIONAL PREPAYMENTS. (a) Subject in the case of Euro-Dollar
Loans to Section 2.11, the Borrower may, upon at least one Domestic Business
Day's notice to the Agent, prepay any Group of Base Rate Loans or, upon at least
three Euro-Dollar Business Days' notice to the Agent, prepay any Group of
Euro-Dollar Loans, in each case in whole at any time, or from time to time in
part in amounts aggregating $1,000,000 or any larger multiple of $500,000, by
paying the principal amount to be prepaid together with interest accrued thereon
to the date of prepayment. Each such optional prepayment shall be applied to
prepay ratably the Loans of the several Banks included in such Group of Loans.
(b) Promptly after receiving a notice of prepayment pursuant to this
Section, the Agent shall notify each Bank of the contents thereof and of such
Bank's ratable share of such prepayment, and such notice shall not thereafter be
revocable by the Borrower.
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SECTION 2.09. MANDATORY PREPAYMENTS. (a) Upon the date of any reduction of
Commitments pursuant to Section 2.07, the Borrower shall prepay an amount of
Loans and provide cash cover for outstanding Letters of Credit in accordance
with Section 6.03 in such amounts as may be necessary so that immediately after
giving effect to such payment and/or collateralization, (i) the Total
Outstanding Amount LESS the amount of collateral so deposited with respect to
Aggregate LC Exposure is not greater than (ii) the aggregate amount of the
Commitments as so reduced.
(b) Without limitation of clause (a) above, if at any time the Agent shall
determine that a Borrowing Base Excession exists, the Agent shall forthwith
notify the Banks and the Borrower. On or before the date falling 6 months after
the inception of a Borrowing Base Excession, the Borrower shall remedy such
Borrowing Base Excession by (i) prepaying such principal amount of the Loans as
may be necessary to reduce the outstanding principal amount thereof to the
Borrowing Base at the date of prepayment, (ii) providing cash cover for
Aggregate LC Exposure in accordance with Section 6.03, (iii) increasing the
Borrowing Base through the addition of Borrowing Base Properties in accordance
with Sections 2.15, 5.02 and 5.21; PROVIDED that, the value of any such
Borrowing Base Properties and whether such value is sufficient to remedy such
Borrowing Base Excession shall be determined by the Required Banks, in their
good faith discretion and in a manner that is consistent with the standards set
forth in Section 2.15(c), or (iv) a combination of (i), (ii) and/or (iii).
(c) Each repayment or prepayment of Loans pursuant to this Section 2.09
shall be made together with accrued interest to the date of payment, and shall
be applied ratably to payment of the Loans of the several Banks in proportion to
their Commitments (or, if the Commitments have been terminated, to the aggregate
outstanding principal amounts of their Loans). Within the foregoing limits of
this Section 2.09, each required payment or prepayment shall be made with
respect to such outstanding Group or Groups of Loans as the Borrower may
designate to the Agent not less than three Euro-Dollar Business Days prior to
the date required for such payment or prepayment or, failing such designation by
the Borrower, as the Agent may specify by notice to the Borrower and the Banks.
SECTION 2.10. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and LC
Reimbursement Obligations and each payment of fees hereunder (other than fees
payable directly to the LC Issuing Banks) not later than 1:00 P.M. (New York
City time) on the date when due, in Federal or other funds immediately available
in New York City, to the Agent at its address specified in or pursuant to
Section 10.01. The Agent will promptly distribute to each Bank its ratable share
of each such payment received by the Agent for the account of the Banks.
Whenever any
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payment of principal of, or interest on, the Base Rate Loans or LC Reimbursement
Obligations or any payment of fees shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day. If the date for any
payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Borrower notifies the Agent before the date on which any
payment is due to the Banks hereunder that the Borrower will not make such
payment in full, the Agent may assume that the Borrower has made such payment in
full to the Agent on such date and the Agent may, in reliance on such
assumption, cause to be distributed to each Bank on such due date an amount
equal to the amount then due such Bank. If and to the extent that the Borrower
shall not have so made such payment, each Bank shall repay to the Agent
forthwith on demand such amount distributed to such Bank together with interest
thereon, for each day from the date such amount is distributed to such Bank
until the date such Bank repays such amount to the Agent, at the Federal Funds
Rate.
SECTION 2.11. FUNDING LOSSES. If the Borrower makes any payment of
principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is
converted to a Base Rate Loan (whether such payment or conversion is pursuant to
Article 2, 6 or 8 or otherwise) on any day other than the last day of an
Interest Period applicable thereto, or the last day of an applicable period
fixed pursuant to Section 2.05(b), or if the Borrower fails to borrow, prepay,
convert or continue any Euro-Dollar Loans after notice has been given to any
Bank in accordance with Section 2.02(b), 2.05(c) or 2.08(b), the Borrower shall
reimburse each Bank within 15 days after demand for any resulting loss or
expense incurred by it (or by an existing or prospective Participant in the
related Loan), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after such payment or conversion or failure to borrow,
prepay, convert or continue; PROVIDED that such Bank shall promptly have
delivered to the Borrower a certificate as to the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest error.
SECTION 2.12. COMPUTATION OF INTEREST AND FEES. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the
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first day but excluding the last day). All other interest and fees shall be
computed on the basis of a year of 360 days and paid for the actual number of
days elapsed (including the first day but excluding the last day).
SECTION 2.13. NOTES. (a) The Borrower's obligation to repay the Loans
of each Bank shall be evidenced by a single Note payable to the order of such
Bank for the account of its Applicable Lending Office.
(b) Each Bank may, by notice to the Borrower and the Agent, request that
the Borrower's obligation to repay such Bank's Loans of a particular type be
evidenced by a separate Note. Each such Note shall be in substantially the form
of Exhibit A hereto with appropriate modifications to reflect the fact that it
relates solely to Loans of the relevant type. Each reference in this Agreement
to the "Note" of such Bank shall be deemed to refer to and include any or all of
such Notes, as the context may require.
(c) Promptly after it receives each Bank's Note pursuant to Section
3.01(a), the Agent shall forward such Note to such Bank. Each Bank shall record
the date, amount and type of each Loan made by it and the date and amount of
each payment of principal made by the Borrower with respect thereto, and may, if
such Bank so elects in connection with any transfer or enforcement of its Note,
endorse on the schedule forming a part thereof appropriate notations to evidence
the foregoing information with respect to each such Loan then outstanding;
PROVIDED that a Bank's failure to make (or any error in making) any such
recordation or endorsement shall not affect the Borrower's obligations hereunder
or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower
so to endorse its Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
SECTION 2.14. REGULATION D COMPENSATION. Each Bank may require the
Borrower to pay, contemporaneously with each payment of interest on the
Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such
Bank at a rate per annum determined by such Bank up to but not exceeding the
excess of (i) (A) the applicable London Interbank Offered Rate divided by (B)
one MINUS the Euro-Dollar Reserve Percentage over (ii) the applicable London
Interbank Offered Rate. Any Bank wishing to require payment of such additional
interest (x) shall so notify the Borrower and the Agent, in which case such
additional interest on the Euro-Dollar Loans of such Bank shall be payable to
such Bank at the place indicated in such notice with respect to each Interest
Period commencing at least three Euro-Dollar Business Days after such Bank gives
such notice and (y) shall notify the Borrower at least five Euro-Dollar Business
Days before each date on which interest is payable on the Euro-Dollar Loans of
the amount then due it under this Section.
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SECTION 2.15. BORROWING BASE. (a) INITIAL BORROWING BASE. During the
period from the Closing Date until the next Determination Date, the Borrowing
Base shall (subject to redetermination on or prior to the Closing Date, as
applicable, in accordance with Section 3.01(m)) be [(i)] $90,000,000, [in the
event that the principal amount of the debt securities sold in the Senior
Subordinated Securities Sale prior thereto or simultaneously therewith is in an
aggregate amount equal to $100,000,000 or (ii) in an amount determined by the
Required Banks in a manner that is consistent with the standards set forth in
Section 2.15(c), in the event that the principal amount of the debt securities
sold in the Senior Subordinated Securities Sale is in an aggregate amount other
than $100,000,000.]
(b) BORROWING BASE REDETERMINATIONS PURSUANT TO SECTION 5.02. Within 30
days after the receipt of (i) any reports delivered pursuant to Section 5.02,
(such reports together with the Initial Reserve Report, the "RESERVE REPORTS"),
together with (ii) the Borrowing Base Certificate, the Agent shall notify the
Company and the Banks of a proposed Borrowing Base (such date, the "BB PROPOSAL
DATE"). Within 30 days after the BB Proposal Date, if any Bank disapproves of
the proposed Borrowing Base, such Bank shall submit to the Agent in writing, its
disapproval of the proposed Borrowing Base which disapproval shall state the
maximum Borrowing Base acceptable to such Bank. The Borrowing Base proposed by
the Agent shall become the new Borrowing Base after the close of business on the
thirtieth day following the BB Proposal Date (or the next succeeding Domestic
Business Day if such date is not a Domestic Business Day) unless, on or prior to
such time, (i) the Agent shall have received the written consent of the Required
Banks to such proposed Borrowing Base, in which case the Agent shall notify the
Borrower of the determination of the Borrowing Base by the Banks or (ii) Banks
having more than 33 1/3% of the Credit Exposure at such time shall have
expressed their disapproval to the Agent in the manner set forth in the previous
sentence, in which case, until the next Determination Date, the Borrowing Base
shall be the lowest determination agreed to by the Required Banks and the Agent
shall notify the Borrower of such determination.
(c) BORROWING BASE REDETERMINATION STANDARDS. Each redetermination of the
Borrowing Base pursuant to this Section 2.15, Section 3.01(m) and Section 5.21
below shall be made in good faith by all of the Banks and the Agent, in the
exercise of their sole reasonable discretion and in accordance with their
respective customary and prudent standards for oil and gas lending and credit
transactions as they exist at such time; PROVIDED that each of the Borrower, the
Banks and the Agent agree that the Banks will only give loan value to any
Property that is subject to a Lien or Production Payments and Reserve Sales if,
and to the extent that, the value of such Property exceeds the value of such
Lien or such Production Payments and Reserve Sales.
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(d) BORROWING BASE ELECTION. Within five Domestic Business Days after
receipt of a Borrowing Base Notice from the Agent, the Borrower shall by notice
to the Agent either accept such amount as the new Borrowing Base or reduce the
Borrowing Base from the amount proposed by the Agent to any lesser amount.
Failure by the Borrower to take either such action within such five Domestic
Business Day period shall be deemed acceptance of such amount. Upon any such
acceptance or deemed acceptance by the Borrower, a new Borrowing Base in the
amount accepted shall take effect on such date (herein called a "DETERMINATION
DATE") and shall remain in effect until but not including the next Determination
Date. Upon any such reduction by the Borrower, a new Borrowing Base in the
reduced amount specified by the Borrower shall take effect on such date (herein
also called a "DETERMINATION DATE") and shall remain in effect until but not
including the next Determination Date.
(e) OTHER BORROWING BASE REDETERMINATIONS. The Borrowing Base shall
also be adjusted as provided in Section 5.21.
SECTION 2.16. LETTERS OF CREDIT. (a) ISSUANCE. Each LC Issuing Bank
agrees, on the terms and conditions set forth in this Agreement, to issue
standby or financial (but not trade or documentary) letters of credit hereunder,
with a minimum stated amount for each such letter of credit of $1,000,000, at
the request of the Borrower from time to time prior to the date that is 30 days
before the Maturity Date; PROVIDED that, immediately after each such Letter of
Credit is issued and participations therein are sold to the Banks as provided in
this subsection:
(i) the Aggregate LC Exposure shall not exceed 15,000,000;
(ii) in the case of each Bank, its Outstanding Amount shall not
exceed its Commitment; and
(iii) the Total Outstanding Amount shall not exceed the amount of
the Borrowing Base at such time.
Whenever an LC Issuing Bank issues a Letter of Credit hereunder, such LC Issuing
Bank shall be deemed, without further action by any party hereto, to have sold
to each Bank, and each Bank shall be deemed, without further action by any party
hereto, to have purchased from such LC Issuing Bank, a participation in such
Letter of Credit, on the terms specified in this Section, equal to such Bank's
Commitment Percentage thereof
(b) NOTICE OF PROPOSED ISSUANCE. With respect to each Letter of Credit,
the Borrower shall give the relevant LC Issuing Bank and the Agent at least
three
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Domestic Business Days' (or such shorter time as the LC Issuing Bank may agree
in a particular instance) prior notice (i) specifying the date such Letter of
Credit is to be issued and (ii) describing the proposed terms of such Letter of
Credit and the nature of the transactions to be supported thereby. Promptly
after it receives such notice, the Agent shall notify each Bank of the contents
thereof.
(c) CONDITIONS TO ISSUANCE. No LC Issuing Bank shall issue any letter of
credit under this Section unless:
(i) such proposed Letter of Credit is a standby or financial letter
of credit, and not a documentary or trade letter of credit, and shall have
a stated amount not less than $1,000,000,
(ii) such proposed Letter of Credit is otherwise satisfactory in
form and substance to such LC Issuing Bank,
(iii) the Borrower shall have executed and delivered such other
instruments and agreements relating to such proposed Letter of Credit as
such LC Issuing Bank shall have reasonably requested,
(iv) such LC Issuing Bank shall have confirmed with the Agent on the
date of such issuance that the limitations specified in subsection (a) of
this Section will not be exceeded immediately after such proposed Letter
of Credit is issued, and
(v) such LC Issuing Bank shall not have been notified in writing by
the Borrower or the Agent expressly to the effect that any condition
specified in Section 3.02(c) or Section 3.02(d) is not satisfied at the
time such proposed Letter of Credit is to be issued.
(d) NOTICE OF ACTUAL ISSUANCE. Promptly after it issues any Letter of
Credit, the relevant LC Issuing Bank shall notify the Agent of the date, face
amount, beneficiary or beneficiaries and expiry date of such Letter of Credit.
Promptly after it receives such notice, the Agent shall notify each Bank of the
contents thereof and the amount of such Bank's participation in such Letter of
Credit. Promptly after it issues any Letter of Credit, the relevant LC Issuing
Bank shall send a copy of such Letter of Credit to the Agent.
(e) EXPIRY DATES. No Letter of Credit shall have an expiry date later than
the fifth Domestic Business Day before the Maturity Date. Subject to the
preceding sentence, each Letter of Credit issued hereunder shall expire on or
before the first anniversary of the date of such issuance; PROVIDED that,
subject to the first sentence of this clause (e), the expiry date of any Letter
of Credit may be
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extended from time to time at the Borrower's request, so long as such extension
is for a period not exceeding one year and is granted (or the last day on which
notice can be given to prevent such extension occurs) no earlier than three
months before the then existing expiry date thereof.
(f) NOTICE OF PROPOSED EXTENSIONS OF EXPIRY DATES. The relevant LC Issuing
Bank shall give the Agent at least three Domestic Business Days' notice before
such LC Issuing Bank extends (or allows an automatic extension of) the expiry
date of any Letter of Credit issued by it. Such notice shall identify such
Letter of Credit, the date on which it is to be extended (or the last day on
which notice can be given to prevent such extension) and the date to which it is
to be extended. Promptly after it receives such notice, the Agent shall notify
each Bank of the contents thereof. No LC Issuing Bank shall extend (or allow the
extension of) the expiry date of any Letter of Credit if:
(i) such extension does not comply with subsection (e) of this
Section, or
(ii) such LC Issuing Bank shall have been notified by the Borrower
or the Agent expressly to the effect that any condition specified in
Section 3.02(c) or Section 3.02(d) is not satisfied at the time of such
proposed extension.
If any Letter of Credit is not extended after notice of a proposed extension
thereof has been given to the Banks, the relevant LC Issuing Bank shall promptly
notify the Agent of such failure to extend. Promptly after it receives such
notice, the Agent shall notify each Bank thereof.
(g) DRAWINGS. If an LC Issuing Bank receives a demand for payment under any
Letter of Credit issued by it and determines that such demand should be honored,
such LC Issuing Bank shall (i) promptly notify the Borrower and the Agent as to
the amount to be paid by such LC Issuing Bank as a result of such demand and the
date of such payment (an "LC PAYMENT DATE") and (ii) make such payment in
accordance with the terms of such Letter of Credit.
(h) REIMBURSEMENT BY THE BORROWER.
(i) If any amount is drawn under any Letter of Credit, the Borrower
irrevocably and unconditionally agrees to reimburse the relevant LC
Issuing Bank for such amount, together with any and all reasonable charges
and expenses which such LC Issuing Bank may pay or incur relative to such
drawing. Such reimbursement shall be due and payable on the relevant LC
Payment Date or the date on which such LC Issuing Bank
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notifies the Borrower of such drawing, whichever is later; PROVIDED that,
if such notice is given after 12:00 noon (New York City time) on the later
of such dates, such reimbursement shall be due and payable on the next
following Domestic Business Day (the date on which it is due and payable
being an "LC REIMBURSEMENT DUE DATE").
(ii) In addition, the Borrower agrees to pay, on the applicable LC
Reimbursement Due Date, interest on each amount drawn under a Letter of
Credit, for each day from and including the date such amount is drawn to
but excluding such LC Reimbursement Due Date, at the Base Rate for such
day. The Borrower also agrees to pay, on demand, interest on any overdue
amount (including any overdue interest) payable under this subsection (h),
for each day from and including the day such amount becomes due to but
excluding the day such amount is paid in full, at a rate per annum equal
to the sum of 2% PLUS the Base Rate for such day.
(iii) Each payment by the Borrower pursuant to this subsection (h)
shall be made to the relevant LC Issuing Bank in Federal or other funds
immediately available to it at its address specified in or pursuant to
Section 10.01.
(i) PAYMENTS BY BANKS.
(i) If the Borrower fails to pay any LC Reimbursement Obligation in
full when due, the relevant LC Issuing Bank may notify the Agent of the
unreimbursed amount and request that the Banks reimburse such LC Issuing
Bank for their respective Commitment Percentages thereof. Promptly after
it receives any such notice, the Agent shall notify each Bank of the
unreimbursed amount and such Bank's Commitment Percentage thereof. Upon
receiving such notice from the Agent, each Bank shall make available to
such LC Issuing Bank, at its address specified in or pursuant to Section
10.01, an amount equal to such Bank's Commitment Percentage of such
unreimbursed amount, in Federal or other funds immediately available to
such LC Issuing Bank, by 3:00 P.M. (New York City time) (A) on the day
such Bank receives such notice if it is received at or before 12:00 Noon
(New York City time) on such day or (B) on the next Domestic Business Day
if such notice is received after 12:00 Noon (New York City time) on the
date of receipt, in each case together with interest on such amount for
each day from and including the relevant LC Payment Date to but excluding
the day such payment is due from such Bank at the Federal Funds Rate for
such day. Upon payment in full thereof, such Bank shall be subrogated to
the rights of such LC Issuing Bank against the Borrower to the extent of
such Bank's Commitment
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Percentage of the related LC Reimbursement Obligation (including interest
accrued thereon).
(ii) If any Bank fails to pay when due any amount to be paid by it
pursuant to clause (i) of this subsection, interest shall accrue on such
Bank's obligation to make such payment, for each day from and including
the date such payment became due to but excluding the date such Bank makes
such payment, at a rate per annum equal to (x) for each day from the day
such payment is due to the third succeeding Domestic Business Day,
inclusive, the Federal Funds Rate for such day and (y) for each day
thereafter the sum of 2% PLUS the Base Rate for such day.
(iii) If the Borrower shall reimburse any LC Issuing Bank for any
drawing with respect to which any Bank shall have made funds available to
such LC Issuing Bank in accordance with clause (i) of this subsection,
such LC Issuing Bank shall promptly upon receipt of such reimbursement
distribute to such Bank its Commitment Percentage thereof, including
interest, to the extent received by such LC Issuing Bank.
(j) EXCULPATORY PROVISIONS. The obligations of the Borrower and the Banks
under this Section shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which the Borrower or any Bank may have or have had against any LC Issuing Bank,
any Bank, any beneficiary of any Letter of Credit or any other Person. The
Borrower assumes all risks of the acts or omissions of any beneficiary of any
Letter of Credit with respect to the use of such Letter of Credit by such
beneficiary. None of the LC Issuing Banks, the Banks and their respective
officers, directors, employees and agents shall be responsible for, and the
obligations of each Bank to make payments to each LC Issuing Bank and of the
Borrower to reimburse each LC Issuing Bank for drawings pursuant to this Section
shall not be excused or affected by, among other things, (i) the use which may
be made of any Letter of Credit or any acts or omissions of any beneficiary or
transferee in connection therewith; (ii) the validity, sufficiency or
genuineness of documents presented under any Letter of Credit or of any
endorsements thereon, even if such documents should in fact prove to be in any
or all respects invalid, insufficient, fraudulent or forged; (iii) payment by
any LC Issuing Bank against presentation of documents to it which do not comply
with the terms of the relevant Letter of Credit or (iv) any dispute between or
among the Borrower, any beneficiary of any Letter of Credit or any other Person
or any claims or defenses whatsoever of the Borrower or any other Person against
any beneficiary of any Letter of Credit. No LC Issuing Bank shall be liable for
any error, omission, interruption or delay in transmission, dispatch or delivery
of any message or advice, however transmitted, in connection with any Letter of
Credit. Any action taken or omitted by any LC Issuing Bank in
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connection with any Letter of Credit and the related drafts and documents shall
be binding upon the Borrower and shall not place any LC Issuing Bank or any Bank
under any liability to the Borrower. Notwithstanding the foregoing, the
provisions of this subsection (j) shall not relieve any LC Issuing Bank from
responsibility for its own gross negligence or willful misconduct.
(k) INDEMNIFICATION BY BORROWER. The Borrower agrees to indemnify and hold
harmless each Bank, each LC Issuing Bank and the Agent (collectively, the "LC
INDEMNITEES") from and against any and all claims and damages, losses,
liabilities, costs or expenses (including, without limitation, the reasonable
fees and disbursements of counsel) which such LC Indemnitee may reasonably incur
(or which may be claimed against such LC Indemnitee by any Person whatsoever) by
reason of or in connection with any execution and delivery or transfer of or
payment or failure to pay under any Letter of Credit or any actual or proposed
use of any Letter of Credit; PROVIDED that the Borrower shall not be required to
indemnify any LC Indemnitee for any such claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by (i) its own
willful misconduct or gross negligence or (ii) its failure to pay under any
Letter of Credit issued by it after the presentation to it of a request strictly
complying with the terms and conditions of such Letter of Credit. Nothing in
this subsection is intended to limit the obligations of the Borrower under any
other provision of this Section.
(l) INDEMNIFICATION BY BANKS. The Banks shall, ratably in proportion to
their Commitment Percentages, indemnify each LC Issuing Bank (to the extent not
reimbursed by the Borrower) against any claims, damages, losses, liabilities,
reasonable costs and reasonable expenses (including, without limitation,
reasonable fees and disbursements of counsel) that any such Indemnitee may
suffer or incur in connection with this Section or any action taken or omitted
by such indemnitee under this Section; PROVIDED that the Banks shall not be
required to indemnify any LC Issuing Bank for any such claims, damages, losses,
liabilities, costs or expenses to the extent, but only to the extent, caused by
(i) its own gross negligence or willful misconduct, (ii) its failure to pay
under any Letter of Credit issued by it after the presentation to it of a
request strictly complying with the terms and conditions of such Letter of
Credit, (iii) its failure to comply with subsection (e) of this Section, (iv)
its liabilities under any Letter of Credit issued by it in contravention of
clause (iii) (to the extent that the limitations referred to therein were in
fact exceeded) or clause (iv) of subsection (c) of this Section or (v) its
liabilities under any Letter of Credit extended (or allowed to be automatically
extended) by it in contravention of clause (ii) of subsection (f) of this
Section.
(m) LIABILITY FOR DAMAGES. Nothing in this Section shall preclude the
Borrower or any Bank from asserting against any LC Issuing Bank any claim for
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damages suffered by the Borrower or such Bank to the extent, but only to the
extent, caused by (i) the willful misconduct or gross negligence of such LC
Issuing Bank or (ii) such LC Issuing Bank's failure to pay under any Letter of
Credit issued by it after the presentation to it of a request strictly complying
with the terms and conditions thereof.
(n) DUAL CAPACITIES. In its capacity as a Bank, each LC Issuing Bank
shall have the same rights and obligations under this Section as any other Bank.
(o) INFORMATION TO BE PROVIDED TO AGENT. Each LC Issuing Bank shall furnish
to the Agent upon request such information as the Agent shall reasonably request
in order to calculate (i) the Aggregate LC Exposure existing from time to time
and (ii) the amount of any fee payable for the account of the Banks under
Section 2.06(b).
ARTICLE 3
CONDITIONS
SECTION 3.01. CLOSING. The closing hereunder shall occur when all the
following conditions have been satisfied:
(a) receipt by the Agent of counterparts hereof signed by each of the
parties hereto (or, in the case of any party as to which an executed counterpart
shall not have been received, receipt by the Agent in form satisfactory to it of
facsimile, telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such party) and the Schedules hereto;
(b) receipt by the Agent of a duly executed Note for the account of each
Bank dated on or before the Closing Date and complying with the provisions of
Section 2.13;
(c) receipt by the Agent of (i) the Acquisition Documents duly executed by
each of the parties thereto, (ii) evidence satisfactory to the Agent in its
reasonable discretion (A) of the satisfaction (without waiver) of all of the
terms and conditions to the closing of the Acquisition on the Closing Date and
(B) that all transactions contemplated to take place by the Acquisition
Documents will take place prior to or simultaneously with the Borrowing(s) to be
made on the Closing Date and (iii) each opinion, report and other document
required to be delivered pursuant to the Acquisition Documents in connection
with the Acquisition, [with a letter from each Person delivering any such
opinion, report and other document
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authorizing reliance thereon by the Agent and the Banks, in each case all in
form and substance reasonably satisfactory to the Required Banks];
(d) receipt by the Agent, for its own account and that of the Banks, of
all fees and any other amounts due and payable hereunder on the Closing Date;
(e) receipt by the Agent of an opinion of Butler & Binion, L.L.P., counsel
for the Obligors, substantially in the form of Exhibit B hereto, dated the
Closing Date and covering such additional matters relating to the transactions
contemplated hereby as the Agent may reasonably request;
(f) receipt by the Agent of an opinion of Davis Polk & Wardwell, special
counsel for the Agent, substantially in the form of Exhibit C hereto, dated the
Closing Date and covering such additional matters relating to the transactions
contemplated hereby as the Agent may reasonably request;
(g) receipt by the Agent of an environmental audit by a third party
environmental consultant acceptable to the Agent, such audit to be in form and
substance acceptable to the Agent;
(h) the Agent shall have received evidence satisfactory to it of the prior
or contemporaneous closing of a Long Term Junior Financing, in form and
substance and with terms (including without limitation the terms of
subordination of all obligations thereunder to all obligations of the Borrower
and the Guarantors under the Financing Documents) satisfactory to the Required
Banks, with the contemporaneous receipt by the Borrower of the gross proceeds
thereunder, in an amount necessary such that it is a Qualifying Junior
Financing;
(i) receipt by the Agent of an Amended and Restated Administrative Services
Agreement between Torch and the Borrower, in form and substance satisfactory to
the Agent;
(j) receipt by the Agent of (i) (A) the financial statements referred to in
Section 4.04 and (B) the statements of assets acquired and liabilities for the
Torch Consolidated Programs for the fiscal years ended on December 31, 1995 and
1996, and the statements of revenues and direct operating expenses for the Torch
Consolidated Programs for the fiscal years ended on December 31, 1994, 1995 and
1996 and (ii) payment instructions with respect to each wire transfer to be made
by the Agent or the Borrower on the Closing Date setting forth the amount of
such transfer, the purpose of such transfer, the name and number of the account
to which such transfer is to be made, the name and ABA number of the bank or
other financial institution where such account is located and the name and
telephone number of an individual that can be contacted to confirm receipt of
such transfer;
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(k) receipt by the Agent of evidence satisfactory to it in its sole good
faith discretion that all outstanding obligations of the Borrower under, or with
respect to, the Existing Credit Agreement have been paid in full, all
commitments thereunder have been terminated and all Liens securing such
obligations and all Guarantees thereof have been released;
(l) the Agent shall not have received notice from Banks holding at least
331/3% of the Commitments (which notices so received shall not have been
rescinded) to the effect that (i) such Banks have not completed, or are not
satisfied in their sole good faith discretion with the scope and results of,
their due diligence review of financial, legal, tax, litigation, insurance,
ERISA, Environmental Liabilities, other contingent liabilities and other matters
concerning the Borrower and its Subsidiaries or (ii) such Banks have determined
in their sole good faith discretion that, since December 31, 1996, there has
been a material adverse change in the business, financial position, results of
operations or prospects of the Borrower and its Consolidated Subsidiaries,
considered as a whole, or in the Torch Acquired Properties, considered as a
whole;
(m) the Borrower shall have delivered (i) to the Agent and each Bank, the
Initial Reserve Reports and (ii) evidence satisfactory to the Agent and the
Required Banks that the Future Net Revenues of proved reserves attributable to
the Hydrocarbon Interests included in the Torch Acquired Properties represent
not less than 95% of the Value of all Proved Reserves attributable to all
Properties in the Torch Consolidated Programs, excluding the interests therein
owned by the IBM Retirement Plan Trust; PROVIDED that if such amount is greater
than or equal to 95% but less than 100%, the Agent, with the consent of the
Required Banks, may redetermine the Borrowing Base in accordance with Section
2.15; and
(n) receipt by the Agent of all documents the Agent may reasonably request
relating to the existence of the Obligors, the corporate authority for and the
validity of this Agreement and the Notes, and any other matters relevant hereto
and thereto, all in form and substance satisfactory to the Agent.
Promptly after the Closing Date occurs, the Agent shall notify the Borrower and
the Banks thereof, and such notice shall be conclusive and binding on all
parties hereto.
SECTION 3.02. BORROWINGS AND ISSUANCES OF LETTERS OF CREDIT. The
obligation of any Bank to make a Loan on the occasion of any Borrowing, and the
obligation of any LC Issuing Bank to issue (or extend or allow an extension of
the expiry date of) any Letter of Credit (any such event, a "CREDIT EVENT"), is
subject to the satisfaction of the following conditions:
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(a) receipt by the Agent of a Notice of Borrowing as required by Section
2.02, or receipt by the relevant LC Issuing Bank of a notice of proposed
issuance or extension as required by Section 2.16(b) or 2.16(f), as the case may
be;
(b) the fact that, immediately before and after such Credit Event, no
Default shall have occurred and be continuing;
(c) the fact that, immediately after such Credit Event, the Total
Outstanding Amount will not exceed the Borrowing Base at such time; and
(d) the fact that the representations and warranties of the Obligors
contained in the Financing Documents shall be true on and as of the date of such
Credit Event.
Each Credit Event Borrowing and each issuance or extension of a Letter of Credit
hereunder shall be deemed to be a representation and warranty by the Borrower on
the date of such Credit Event as to the facts specified in clauses (c) and (d)
of this Section.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants, and, as to the matters set forth in
Section 4.12, each Guarantor represents and warrants, with respect to itself
only, that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Borrower is a corporation
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all corporate powers and all material
governmental licenses, consents, authorizations and approvals required to carry
on its business as now conducted.
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Borrower of the Financing
Documents are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, require no action by or in respect of, or
filing with, any governmental body, agency or official and do not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the Borrower's certificate of incorporation or by-laws or of any agreement or
other instrument evidencing Debt for borrowed money or of any other material
agreement, judgment, injunction, order, decree or other material instrument
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binding upon the Borrower or any Subsidiary or result in the creation or
imposition of any Lien on any asset of the Borrower or any Subsidiary.
SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding obligation
of the Borrower, in each case enforceable in accordance with its terms, subject
to applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity.
SECTION 4.04. FINANCIAL INFORMATION. (a) The consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries as of June 30, 1996 and the
related consolidated statements of income, cash flows and changes in
stockholders' equity for the Fiscal Year then ended, reported on by Deloitte &
Touche LLP and set forth in the Borrower's 1996 Form 10-K, a copy of which has
been delivered to each of the Banks, fairly present, in conformity with GAAP,
the consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations and
cash flows for such Fiscal Year.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of December 31, 1996 and the related unaudited
consolidated statements of income, cash flows and changes in stockholders'
equity for the six months then ended, set forth in the Borrower's Latest Form
10-Q, a copy of which has been delivered to each of the Banks, fairly present,
on a basis consistent with the financial statements referred to in subsection
(a) of this Section, the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such six-month period (subject to normal year-end
adjustments).
(c) Since December 31, 1996, there has been no material adverse change in
the business, financial position or results of operations of the Borrower and
its Consolidated Subsidiaries, considered as a whole, or in the Torch Acquired
Properties, considered as a whole.
SECTION 4.05. LITIGATION. Except as disclosed on Schedule 4.05, there is
no action, suit or proceeding pending against, or to the Borrower's knowledge
threatened against or affecting, the Borrower or any Subsidiary before any court
or arbitrator or any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could have a Material
Adverse Effect.
SECTION 4.06. COMPLIANCE WITH ERISA. Each member of the ERISA
Group has fulfilled its obligations under the minimum funding standards of ERISA
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and the Internal Revenue Code with respect to each Plan and is in compliance in
all material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan, or made any amendment
to any Plan, which has resulted or could result in the imposition of a Lien or
the posting of a bond or other security under ERISA or the Internal Revenue Code
or (iii) incurred any material liability under Title IV of ERISA other than a
liability to the PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. ENVIRONMENTAL COMPLIANCE. (a) Except (x) as disclosed on
Schedule 4.07 or (z) to the extent that the Environmental Liabilities of the
Borrower and its Subsidiaries, taken as a whole, that relate to or could result
from the matters referred to in clauses (i) through (vi), inclusive, would not
exceed $500,000 for any one occurrence or $1,000,000 in the aggregate:
(i) no notice, notification, demand, request for information,
citation, summons, complaint or order has been issued, no complaint has
been filed, no penalty has been assessed and no investigation or review is
pending, or to the Borrower's knowledge, threatened by any governmental or
other entity with respect to any (A) alleged violation by the Borrower or
any Subsidiary of any Environmental Law, (B) alleged failure by the
Borrower or any Subsidiary to have any environmental permit, certificate,
license, approval, registration or authorization required in connection
with the conduct of its business, (C) Regulated Activity or (D) Release of
Hazardous Substances;
(ii) other than generation in material compliance with all
applicable Environmental Laws, (A) neither the Borrower nor any Subsidiary
has engaged in any Regulated Activity and (B) no Regulated Activity has
occurred at or on any property now or previously owned, leased or operated
by the Borrower or any Subsidiary;
(iii) other than in material compliance with all applicable
Environmental Laws and in a manner which would not reasonably be expected
to result in any Environmental Liabilities, no polychlorinated biphenyls,
radioactive material, urea formaldehyde, lead, asbestos,
asbestos-containing material or underground storage tank (active or
abandoned) is or has been present at any property now or previously owned,
leased or operated by the Borrower or any Subsidiary;
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(iv) no Hazardous Substance has been Released (and no written
notification of such Release has been received or filed by the Borrower)
or is present at, on or under any property now or previously owned, leased
or operated by the Borrower or any Subsidiary;
(v) no property now or previously owned, leased or operated by the
Borrower or any Subsidiary or any property to which the Borrower or any
Subsidiary has, directly or indirectly, transported or arranged for the
transportation of any Hazardous Substances, is listed or, to the
Borrower's knowledge, proposed for listing, on the National Priorities
List promulgated pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or
on any similar federal, state or foreign list of sites requiring
investigation or clean-up; and
(vi) there are no liens under Environmental Laws on any of the real
property owned or leased by the Borrower or any Subsidiary, no government
actions have been taken or are in process which could subject any of such
properties or assets to such liens and neither the Borrower nor any
Subsidiary would be required to place any notice or restriction relating
to Hazardous Substances at any property owned by it in any deed to such
property.
(b) There has been no environmental investigation, study, audit, test,
review or other analysis conducted of which the Borrower has knowledge in
relation to the current or prior business of the Borrower or any property or
facility now or previously owned, leased or operated by the Borrower or any
Subsidiary, which has not been made available for review to the Banks at least
five days prior to the Effective Date.
(c) For purposes of this Section, the terms "Borrower" and "Subsidiary"
shall include any business or business entity (including a corporation) which is
a predecessor, in whole or in part, of the Borrower or any Subsidiary.
SECTION 4.08. TAXES. The Borrower and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Borrower or any
Subsidiary except those which are diligently contested in good faith by
appropriate proceedings. The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries in respect of taxes or other governmental charges
are, in the Borrower's opinion, adequate.
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SECTION 4.09. SUBSIDIARIES. Part I of 4.09 lists all of the Subsidiaries
on the Closing Date and Part II of Schedule 4.09 lists all Material Subsidiaries
on the Closing Date. Each of the Borrower's corporate Subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted.
SECTION 4.10. NO REGULATORY RESTRICTIONS ON BORROWING. The Borrower is not
(i) an "investment company" within the meaning of the Investment Company Act of
1940, as amended or (ii) a "holding company" or a "subsidiary company" of a
holding company within the meaning of the Public Utility Holding Company Act of
1935, as amended.
SECTION 4.11. FULL DISCLOSURE. (a) All information, including, without
limitation, the Information Memorandum, other than the Projections (as defined
below), which has been or is hereafter prepared or made available by the
Borrower or by any of the Borrower's respective representatives (including
Torch) to any Bank or the Agent, in connection with this Agreement and the
transactions contemplated hereby (including without limitation all information
given at information meetings for potential syndicate members and supplied or
approved by the Borrower) (such information collectively, the "INFORMATION") is,
or in the case of Information made available after the date hereof will be,
true, complete and correct in all material respects, and does not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained therein, in the light of the
circumstances under which such statements were or are made, not misleading. It
is understood and agreed, however, that (i) each Reserve Reports is necessarily
based upon economic assumptions and professional opinions, estimates and
projections, (ii) any financial projections (the "PROJECTIONS") which the
Borrower or any of the Borrower's representatives (including Torch) has provided
or may provide in connection with the transactions contemplated hereby
(including the Reserve Reports) and the Information Memorandum are similarly
based on economic assumptions, opinions and estimates, (iii) the Borrower is not
making any representation or warranty that such assumptions, opinions, estimates
and Projections will ultimately prove to have been accurate, (iv) the Borrower
is not making any representation or warranty with respect to any price or cost
Projections furnished by the Agent or any Bank for use in preparing any Reserve
Report, and (v) the Borrower's only representation or warranty with respect to
any Projections that have been or will be provided by the Borrower or any of its
representatives or Subsidiaries is that such Projections have been or will be,
as the case may be, prepared in good faith based upon assumptions that
Borrower's management reasonably believed or believes, as the case may be, to be
reasonable at the time such Projections were or
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are prepared. The Borrower has disclosed to the Banks in writing any and all
facts which may have a Material Adverse Effect.
(b) Since the respective dates as of which information is stated in the
Information Memorandum, no event has occurred and no condition has come into
existence which has had, or is reasonably likely to have, a Material Adverse
Effect or which would have caused the Projections therein to be materially
misleading.
SECTION 4.12. REPRESENTATIONS OF GUARANTORS. Each Guarantor is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted. The execution, delivery and
performance by each Guarantor of each Financing Document to which such Guarantor
is a party are within such Guarantor's corporate powers, have been duly
authorized by all necessary corporate action, require no action by or in respect
of, or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the certificate of incorporation or by-laws of such Guarantor
or of any agreement or instrument evidencing Debt for borrowed money or of any
other material agreement, judgment, injunction, order, decree or other
instrument binding upon such Guarantor or result in the creation or imposition
of any Lien on any asset of such Guarantor. This Agreement constitutes a valid
and binding agreement of each Guarantor, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and general principles of equity.
SECTION 4.13. OWNERSHIP OF PROPERTY, LIENS. Except to an extent which
could not reasonably be expected to have a Material Adverse Effect: the Borrower
and its Subsidiaries have good and marketable title to and are in lawful
possession of, or have valid leasehold interests in, all material Properties
purported to be owned by the Borrower and its Subsidiaries or to be leased by
the Borrower and its Subsidiaries (as the case may be), and none of such
material Properties is subject to any Liens, except Liens permitted under
Section 5.10, all of such material Properties are in good working order and
condition, ordinary wear and tear excepted, and the Borrower and its
Subsidiaries have received all deeds, assignments, bills of sale and other
documents and duly effected all recordings, filings and other actions necessary
or appropriate to establish, protect and perfect its right, title and interest
in and to all such material Properties.
SECTION 4.14. REPRESENTATIONS IN PURCHASE AND SALE AGREEMENT TRUE AND
CORRECT. Each of the representations and warranties of the Borrower contained in
the Purchase and Sale Agreement was true and correct in all material respects on
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the date when made, and, if this representation and warranty is being made (or
deemed made) on the date that the relevant Acquisition thereunder is being
consummated, is true and correct in all material respects on such date. The
Purchase and Sale Agreement has not been modified or amended in any respect and
no provision or condition contained therein has been waived, except as permitted
by Section 5.20.
SECTION 4.15. RESERVE DATA AND PROJECTIONS. The statements and conclusions
as to the Borrowing Base Properties and forecast results included in the Initial
Reserve Reports are, and all such information included in any future Reserve
Report will be, based upon the best information available to the Borrower at the
time such statements were or are made and take or will take into consideration
all information which, in the reasonable judgment of the Borrower, was or is
believed to be material at the time (determined in a manner consistent with
standards customarily applicable to professionals in the oil and gas industry),
it being understood that such statements and conclusions are necessarily based
upon professional opinions, estimates and Projections, and the Borrower does not
warrant that such opinions, estimates and Projections will ultimately prove to
have been accurate.
ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Credit Exposure
hereunder or any interest or fees accrued hereunder remain unpaid:
SECTION 5.01. INFORMATION. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 90 days after the end of
each Fiscal Year, a consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such Fiscal Year and the related
consolidated statements of income, cash flows and changes in stockholders'
equity for such Fiscal Year, setting forth in each case in comparative form the
figures for the previous Fiscal Year, all reported on in a manner acceptable to
the SEC by Deloitte & Touche LLP or other independent public accountants of
nationally recognized standing;
(b) as soon as available and in any event within 45 days after the end of
each of the first three Fiscal Quarters of each Fiscal Year, a consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of
such
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Fiscal Quarter, the related consolidated statement of income, cash flows and
changes in stockholders' equity for such Fiscal Quarter and the related
consolidated statements of income, cash flows and changes in stockholders'
equity for the portion of the Fiscal Year ended at the end of such Fiscal
Quarter, setting forth in the case of each such statement of income, cash flows
and changes in stockholders' equity in comparative form the figures for the
corresponding period in the previous Fiscal Year, all certified (subject to
normal year-end adjustments) as to fairness of presentation and consistency with
GAAP by the Borrower's chief financial officer or chief accounting officer;
(c) simultaneously with the delivery of each set of financial statements
referred to in clauses (a) and (b) above, a certificate of the Borrower's chief
financial officer or chief accounting officer (i) setting forth in reasonable
detail the calculations required to establish whether the Borrower was in
compliance with the requirements of Sections 5.10 to 5.16, on the date of such
financial statements and (ii) stating whether any Default exists on the date of
such certificate and, if any Default then exists, setting forth the details
thereof and the action which the Borrower is taking or proposes to take with
respect thereto;
(d) simultaneously with the delivery of each set of financial statements
referred to in clause (a) above, a statement of the firm of independent public
accountants which reported on such statements (i) stating whether anything has
come to their attention to cause them to believe that any Default existed on the
date of such statements and (ii) confirming the calculations set forth in the
officer's certificate delivered simultaneously therewith pursuant to clause (c)
above;
(e) within five Domestic Business Days after any Responsible Officer of the
Borrower obtains knowledge of any Default, if such Default is then continuing, a
certificate of a Responsible Officer of the Borrower setting forth the details
thereof and the action which the Borrower is taking or proposes to take with
respect thereto;
(f) promptly after the mailing thereof to the Borrower's shareholders
generally, copies of all financial statements, reports and proxy statements so
mailed;
(g) promptly after the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) filed by the Borrower with the SEC;
(h) promptly after any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
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Section 4043 of ERISA) with respect to any Plan which might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC (unless, in each instance, the 30-day notice
requirement under Section 4043(a) of the Internal Revenue Code has been waived);
(ii) receives notice of complete or partial withdrawal liability under Title IV
of ERISA or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (iii) receives notice
from the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies
for a waiver of the minimum funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and
other information filed with the PBGC; (vi) gives notice of withdrawal from any
Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to
make any payment or contribution to any Plan or Multiemployer Plan or makes any
amendment to any Plan which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security, a certificate of the Borrower's
chief financial officer or chief accounting officer setting forth details as to
such occurrence and the action, if any, which the Borrower or applicable member
of the ERISA Group is required or proposes to take;
(i) promptly, upon receipt of any complaint, order, citation, notice or
other written communication from any Person with respect to, or upon the
Borrower's obtaining knowledge of, (i) the existence or alleged existence of a
violation of any applicable Environmental Law or any Environmental Liability in
connection with any property now or previously owned, leased or operated by the
Borrower or any of its Subsidiaries, (ii) any Release on such property or any
part thereof in a quantity that is reportable under any applicable Environmental
Law, and (iii) any pending or threatened proceeding for the termination,
suspension or non-renewal of any permit required under any applicable
Environmental Law, in each case, with respect to clauses (i), (ii) and (iii)
above, (x) which could result in liability or expenses in excess of $1,000,000
or (y) which individually or in the aggregate could have a Material Adverse
Effect, notice thereof; and
(j) from time to time such additional information regarding the financial
position or business of the Borrower and its Subsidiaries as the Agent, at the
request of any Bank, may reasonably request.
SECTION 5.02. RESERVE REPORTS. (a) Not later than September 1 of each
year, the Borrower will furnish to the Banks reports in form and substance
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satisfactory to the Agent, each prepared by an Approved Petroleum Engineer,
which reports shall evaluate the Borrowing Base Properties of the Borrower and
the Subsidiaries as of the immediately preceding June 30 and which shall,
together with any other information reasonably requested by the Banks, set forth
the Proved Reserves attributable to such Property, together with a projection of
the rate of production and future net income with respect thereto as of such
date.
(b) From time to time, the Borrower (x) may, at its election, or, (y) will,
if so requested in writing by the Required Banks, (but not more frequently than
once each year, in the case of either (x) or (y)), furnish to the Banks within
45 days of such election or request reports in form and substance satisfactory
to the Agent, each of which shall be prepared by an Approved Petroleum Engineer,
which shall further evaluate the Borrowing Base Properties evaluated in the
immediately preceding Reserve Report, and which shall, together with any other
information reasonably requested by the Banks, set forth the Proved Reserves
attributable to such Property as of the date of such election or request,
together with a projection of the rate of production and net income with respect
thereto as of such date.
(c) Each of the reports to be furnished by the Borrower to the Banks
pursuant to this Section 5.02 shall be prepared on the basis of price and other
economic assumptions specified by the Agent to the Borrower in accordance with
the standards set forth in Section 2.15(c). Each such report shall separately
cover Proved Developed Reserves which are currently producing to market, other
Proved Developed Reserves and Proved Undeveloped Reserves, and shall identify
any material gas imbalances and any Liens on, and Production Payments and
Reserve Sales with respect to, any Oil and Gas Properties (including the amount
secured thereby).
SECTION 5.03. PAYMENT OF OBLIGATIONS. The Borrower will pay and discharge,
and will cause each Subsidiary to pay and discharge, at or before maturity, all
their respective material obligations and liabilities (including, without
limitation, tax liabilities and claims of materialmen, warehousemen and the like
which if unpaid might by law give rise to a Lien), except where the same are
contested in good faith by appropriate proceedings, and will maintain, and will
cause each Subsidiary to maintain, in accordance with GAAP, appropriate reserves
for the accrual thereof.
SECTION 5.04. MAINTENANCE OF PROPERTY INSURANCE. (a) The Borrower will
keep, and will cause each Subsidiary to keep, all Property useful and necessary
in its business in good working order and condition, ordinary wear and tear
excepted.
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(b) The Borrower will maintain, and will cause each of its Subsidiaries to
maintain, insurance in responsible companies in such amounts and against such
risks as is usually carried by owners of similar businesses and properties in
the same general areas in which the Borrower and its Subsidiaries operate,
PROVIDED that in any event the Borrower will maintain, and will cause each of
its Subsidiaries to maintain, (i) property and casualty insurance on all real
and personal property on an all risks basis (including the perils of flood and
quake), covering the repair and replacement cost of all such property, for such
amounts not less than those, and with deductible amounts not greater than those,
set forth in Part I of Schedule 5.04, (ii) public liability insurance (including
products liability coverage) covering such risks, for such amounts not less than
those, and with deductible amounts not greater than those, set forth in Part II
of Schedule 5.04 and (iii) such other insurance coverage in such amounts and
with respect to such risks as the Required Banks may reasonably request. All
such insurance shall be provided by (A) insurers that are rated B+, Class X or
better by A.M. Best Company, Inc. (or accorded a similar rating by another
nationally or internationally recognized insurance rating agency of similar
standing, as determined in good faith by the Borrower), PROVIDED that, if the
Borrower or any of its Subsidiaries have insurance with any insurer that (1) is
not rated by A.M. Best Company, Inc. and (2) is a Lloyd's syndicate, such
insurer must have had, as of the last day of its most recently completed fiscal
year, capital and surplus of at least $250,000,000 and a ratio of liabilities
(including all potential claims under insurance policies written by them,
regardless of the amount of the reserves therefor) to capital and surplus of no
greater than 6:1, or (B) such other insurers as the Required Banks may approve
in writing. The Borrower will deliver to the Banks (i) upon request of any Bank
through the Agent from time to time full information as to the insurance
carried, (ii) within five days of receipt of notice from any insurer a copy of
any notice of cancellation, nonrenewal or material change in coverage from that
existing on the date of this Agreement and (iii) forthwith, notice of any
cancellation or nonrenewal of coverage by the Borrower or any Subsidiary.
SECTION 5.05. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Borrower and its Subsidiaries will continue to engage in business of the
acquisition, exploration for, development, production, transportation,
gathering, storing, processing and marketing of Hydrocarbons and accompanying
elements, and will preserve, renew and keep in full force and effect their
respective corporate existences and their respective rights, privileges and
franchises necessary or desirable in the normal conduct of business, other than
those the failure of which to maintain would not reasonably be expected to have
a Material Adverse Effect; PROVIDED that nothing in this Section shall prohibit:
(i) mergers permitted under Section 5.08; or
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(ii) the termination of the corporate existence of a Subsidiary if
the Borrower in good faith determines that such termination is in the best
interest of the Borrower and is not disadvantageous to the Banks.
SECTION 5.06. COMPLIANCE WITH LAWS. The Borrower will comply, and will
cause each Subsidiary to comply, in all material respects with all applicable
laws, ordinances, rules, regulations and requirements of governmental
authorities (including, without limitation, Environmental Laws and ERISA and the
rules and regulations thereunder), except where the necessity of compliance
therewith is contested in good faith by appropriate proceedings or the failure
to so comply would not reasonably be expected to have a Material Adverse Effect.
SECTION 5.07. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Borrower will
keep, and will cause each Subsidiary to keep, proper books of record and account
in which full and correct entries shall be made of all dealings and transactions
in relation to its business and activities; and will permit, and will cause each
Subsidiary to permit, representatives of any Bank at such Bank's expense to
visit and inspect any of their respective properties, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants, all at such reasonable times
during normal business hours and as often as may reasonably be requested.
SECTION 5.08. MERGERS AND SALES OF ASSETS. The Borrower will not, and will
not permit any Guarantor to, consolidate or merge with or into any other Person;
PROVIDED that (x) any Guarantor may merge with the Borrower, any other Guarantor
or with any other Person if the Guarantor is the corporation surviving such
merger with any other Person (other than the Borrower or another Guarantor), and
(y) the Borrower may merge with or into another Person if the Borrower is the
corporation surviving such merger, if after giving effect to any such merger, no
Default shall have occurred and be continuing. The Borrower and its Subsidiaries
will not sell, lease or otherwise transfer, directly or indirectly, all or any
substantial part of the assets of the Borrower and its Subsidiaries, taken as a
whole, to any other Person.
SECTION 5.09. USE OF PROCEEDS. The proceeds of the Loans will be used by
the Borrower (and Acquisition Corp. in the case of (i)) (i) to finance the
Acquisition, (ii) to refinance Debt of the Borrower under the Existing Credit
Facility and (iii) for general corporate purposes. The Letters of Credit will be
used by the Borrower for general corporate purposes. Neither any proceeds of the
Loans nor any Letter of Credit will be used, directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of buying or carrying any
"margin stock" within the meaning of Regulation U.
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SECTION 5.10. NEGATIVE PLEDGE. Neither the Borrower nor any Subsidiary will
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except:
(a) Liens existing on the date of this Agreement securing Debt outstanding
on the date of this Agreement in an aggregate principal or face amount not
exceeding $___________;
(b) any Lien existing on any asset of any Person at the time such Person
becomes a Subsidiary and not created in contemplation of such event;
(c) any Lien on any asset securing Debt incurred or assumed for the purpose
of financing all or any part of the cost of acquiring such asset, PROVIDED that
such Lien attaches to such asset concurrently with or within 90 days after the
acquisition thereof;
(d) any Lien on any asset of any Person existing at the time such Person is
merged or consolidated with or into the Borrower or a Subsidiary and not created
in contemplation of such event;
(e) any Lien existing on any asset prior to the acquisition thereof by the
Borrower or a Subsidiary and not created in contemplation of such acquisition;
(f) Liens arising in the ordinary course of its business which (i) do not
secure Debt or Derivatives Obligations and (ii) do not secure any single
obligation (or class of obligations having a common cause) in an amount
exceeding $[----------];
(g) Liens on cash and Temporary Cash Equivalents securing Derivatives
Obligations, PROVIDED that the aggregate amount of cash and cash equivalents
subject to such Liens may at no time exceed $[ _______ ];
(h) any Lien arising under the Acquisition Documents with respect to
Property in the Escrow Account; and
[(i) Liens which (i) arise in the ordinary course of business under
operating agreements, joint venture agreements, oil and gas partnership
agreements, oil and gas leases, farm-out agreements, division orders, contracts
for the sale, transportation or exchange of oil and natural gas, unitization and
pooling declarations and agreements, area of mutual interest agreements,
overriding royalty agreements, marketing agreements, processing agreements, net
profits agreement, production payment agreements, royalty trust agreements,
development agreements, production sales contracts, gas balancing or deferred
production
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agreements, injection, repressuring and recycling agreements, salt water or
other disposal agreements, seismic or other geophysical permits or agreements,
and other agreements which are customary in the oil and gas business, and (ii)
are for claims which are either not delinquent or are being contested in good
faith by appropriate proceedings and as to which the Borrower or its applicable
Subsidiaries shall have set aside on its books such reserves as may be required
pursuant to GAAP;] [Subject to discussion with MGT]
[(j) Liens reserved in oil and gas mineral leases, or created by statute, to
secure royalty, net profits interests, bonus payments, rental payments or other
payments out of or with respect to the production, transportation or processing
of Hydrocarbons, and compliance with the terms of such leases;] [Subject to
discussion with MGT.]
(k) Production Payments and Reserve Sales, and Liens on properties
subject thereto to secure performance obligations in connection therewith;
(l) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, PROVIDED that any such Debt is not increased beyond the
amount thereof outstanding on the Closing Date (PLUS the reasonable costs of
renewals and extensions) and is not secured by any additional assets; and
(m) Liens not otherwise permitted by the foregoing clauses of this Section
securing Debt in an aggregate principal or face amount not at any time exceeding
[$---------].
SECTION 5.11. LIMITATION ON DEBT. The Borrower will not, and will not
permit any of its Subsidiaries to, incur or at any time be liable with respect
to any Debt except:
(i) Debt under the Financing Documents;
(ii) Debt outstanding on the date hereof identified on Schedule 5.12 and
refinancings thereof; PROVIDED that the principal amount thereof is not
increased beyond the amount outstanding thereunder on the date hereof (PLUS
reasonable costs and expenses associated with such refinancings);
(iii) Debt secured by Liens permitted by Section 5.10;
(iv) Permitted Subordinated Debt of the Borrower and its Subsidiaries;
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(v) Debt owed by the Borrower to any of its Subsidiaries or by any
Subsidiary to the Borrower or any other Subsidiary;
(vi) Endorsements of negotiable instruments for collection in the ordinary
course of business;
(vii) [Debt consisting of the Borrower's obligations to purchase the
natural gas pursuant to the terms of that certain Gas Purchase Contract dated
February 7, 1979, as amended, between the Borrower, successor to Texas Gas
Transmission Corporation, as buyer, and West Monroe Gas Gathering Corporation,
et al., successor to Reliance Trust, et al., as sellers, covering the sale and
purchase of natural gas from the West Monroe Field, Union Parish, Louisiana, as
in effect on the Closing Date;] and [To discuss nature of transaction, amounts
and whether it is Debt or a forward purchase;] and
(viii) Additional Debt not permitted by clauses (i) through (vii) above,
PROVIDED, HOWEVER, that the aggregate amount of all Debt incurred by the
Borrower and its Subsidiaries pursuant to this clause (viii) shall not exceed
$_______ at any one time outstanding.
SECTION 5.12. DEBT OF SUBSIDIARIES. Total Debt of all Subsidiaries
(excluding Debt of a Subsidiary to the Borrower or to a Guarantor) will at no
time exceed [10.00]% of Consolidated Tangible Net Worth.
SECTION 5.13. CASH INTEREST COVERAGE RATIO. As of the last day of each
Fiscal Quarter, the Cash Interest Coverage Ratio will not be less than 3.0 to 1.
SECTION 5.14. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Consolidated
Tangible Net Worth will at no time during any Fiscal Quarter set forth below be
less than an amount equal to the sum of (i) $40,000,000 PLUS (ii) an amount
equal to 50% of Consolidated Net Income for each Fiscal Quarter ending after
December 31, 1996, in each case, for which Consolidated Net Income is positive
(but with no deduction on account of negative Consolidated Net Income for any
Fiscal Quarter) PLUS (iii) upon the consummation of any issuance of
Non-Redeemable Stock after September 30, 1996 (or, on the date hereof, in the
case of any issuance consummated prior to the date hereof), 100% of the first
$30,000,000, and 75% of all amounts in excess thereof, of the amount of Net Cash
Proceeds received by the Borrower from all such issuances.
SECTION 5.15. RESTRICTED PAYMENTS. Neither the Borrower nor any Subsidiary
will declare or make any Restricted Payment other than Restricted Payments of
the type referred to in clauses (i) and (ii) of the definition thereof
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unless (x) both before and after giving effect thereto, no Default shall have
occurred and be continuing and (y) the aggregate amount of all such Restricted
Payments declared or made in any Fiscal Quarter does not exceed the sum of (i)
$________ PLUS (ii) ___% of Consolidated Net Income (or MINUS 100% of
consolidated net loss) for the Fiscal Quarter most recently ended PLUS (iii) the
aggregate amount of any Net Cash Proceeds received by the Borrower in any
sale(s) by the Borrower of Non-Redeemable Stock during any such period.
SECTION 5.16. INVESTMENTS. Neither the Borrower nor any Subsidiary will
hold, make or acquire any Investment in any Person other than:
(a) Investments in any Guarantor or the Borrower;
(b) Temporary Cash Investments;
(c) Investments existing on the date hereof and disclosed on Schedule
5.17;
(d) Accounts receivable from customers in the ordinary course of business;
(e) Investments pursuant to farm-out, farm-in, joint operating, joint
venture or area of mutual interest agreements, gathering systems, pipelines or
other similar or customary arrangements, and the performance of the Borrower's
or any Subsidiary's obligations thereunder in accordance with prudent operating
standards and in the ordinary course of business;
(f) Investments in Borrower permitted by Section 5.11(vi);
(g) Investments in any Person which is a Subsidiary or which thereby
becomes a Subsidiary, PROVIDED that no Event of Default exists immediately after
such Investment is made and, PROVIDED FURTHER that the sum of all Investments in
Subsidiaries that are not Guarantors shall not exceed $1,000,000 (in each case,
the amount thereof determined at the time such Investment is made);
(h) Investments in stock, obligations or securities received in settlement
of debts owing to the Borrower or any Subsidiary as a result of bankruptcy or
insolvency proceedings or upon the foreclosure, perfection or enforcement of any
Lien in favor of the Borrower or any Subsidiary; and
(i) any Investment not otherwise permitted by the foregoing clauses of
this Section if, immediately after such Investment is made or acquired, the
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aggregate net book value of all Investments permitted by this clause (i) does
not exceed $10,000,000.
SECTION 5.17. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and
will not permit any Subsidiary to, directly or indirectly, pay any funds to or
for the account of, make any Investment (whether by acquisition of stock or
indebtedness, by loan, advance, transfer of property, guarantee or other
agreement to pay, purchase or service, directly or indirectly, any Debt, or
otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
tangible or intangible, to, or participate in, or effect, any transaction with,
any Affiliate except on an arms-length basis on terms at least as favorable to
the Borrower or such Subsidiary as could have been obtained from a third party
that was not an Affiliate; PROVIDED that the foregoing provisions of this
Section shall not prohibit any such Person from declaring or paying any lawful
dividend or other payment ratably in respect of all its capital stock of the
relevant class so long as, after giving effect thereto, no Default shall have
occurred and be continuing.
SECTION 5.18. ADDITIONAL GUARANTORS. At any time after the Closing Date,
if any Person becomes a Material Subsidiary of the Borrower that is not listed
on Part II of Schedule 4.09 hereto, then the Borrower will cause each such new
Material Subsidiary to become a party hereto as Guarantor by executing a
supplement hereto in form and substance satisfactory to the Agent, such
supplement to be executed within 20 Domestic Business Days of the creation of
such Material Subsidiary.
SECTION 5.19. PRICE HEDGE. On the Closing Date, pursuant to the Purchase
and Sale Agreement, the Borrower will place $9,011,853 into escrow to secure
payment of the portion of the consideration paid (or to be paid), pursuant to
the Purchase and Sale Agreement, by the Borrower to the Sellers for the Touch
Acquired Properties, the payment of which is based upon a fixed volume of gas
and a formula, as set forth in the Purchase and Sale Agreement..
SECTION 5.20. AMENDMENTS OF THE ACQUISITION DOCUMENTS. The Company will
not amend, modify or terminate (or consent to amend, modify or terminate), or
permit any of its Subsidiaries to amend, modify, or terminate (or consent to
amend, modify or terminate), any of the Acquisition Documents in any manner
which would have a Material Adverse Effect.
SECTION 5.21. EXTRAORDINARY BORROWING BASE REDETERMINATIONS. (a) TITLE
INFORMATION.
(i) If applicable, as soon as practicable after the provision of any
Reserve Report to the Banks pursuant to Section 5.02, the Borrower will
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deliver acquisition summaries, title opinions and due diligence reports
(if any), in respect of any new Borrowing Base Properties being added to
the Borrowing Base for any period, prepared in connection with the
acquisition and the financing of the acquisition of such Property prepared
for the Borrower or the Person financing such acquisition and such
additional title information in form and substance reasonably acceptable
to the Agent as is requested so that the Agent shall have received,
together with the title information previously received by it,
satisfactory title information covering Oil and Gas Property representing
80% of the value of the new Borrowing Base Properties as set forth in such
Reserve Report, as such value is set forth therein.
(ii) The Borrower shall commence to cure any material title defects
or exceptions, which are not Liens permitted by Section 5.11, raised by
any title information, within 90 days after a reasonable request by the
Agent to cure such material defects or exceptions.
(iii) If the Borrower is unable to cure any material title defects
reasonably requested by the Agent to be cured within such 90-day period or
the Borrower does not comply with the requirements to provide acceptable
title information covering 80% of the value of such new Borrowing Base
Properties evaluated in the most recent Reserve Report, such default shall
not be a Default, but instead the Required Banks shall have the right to
exercise the following remedy in their sole discretion from time to time,
and any failure to so exercise this remedy at any time is not a waiver as
to future exercise of the remedy by the Banks. To the extent that the
Banks are not satisfied with a title to any Property after the time period
in Section 5.21(a)(ii) has elapsed, the Agent shall, if so requested by
the Required Banks, send a Borrowing Base Notice to the Company that the
then outstanding Borrowing Base shall be reduced by an amount equal to the
loan value attributed to such unacceptable Property by the Banks in the
latest Borrowing Base. This new Borrowing Base shall become effective upon
receipt of such notice.
(b) BORROWING BASE PROPERTY SALES. Whenever the Borrower or any of its
Subsidiaries, in one or more transactions after the Determination Date
immediately preceding the time in question (or, prior to the first Determination
Date, after the date hereof) sells, transfers or otherwise disposes of Borrowing
Base Properties of $5,000,000 or more in the aggregate, the Borrower will
promptly give notice of such event to the Agent and each Bank and, upon receipt
of such notice, the Agent may, with the consent of the Required Banks, either
(i) request a Reserve Report as contemplated in Section 5.02(b) and the Required
Banks may make the determinations, contemplated in Section 2.15(b), or (ii)
request any supplemental
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information which the Required Banks reasonably desire from the Borrower without
requiring all such reports and other information, and then designate a new
Borrowing Base as the Required Banks deem appropriate in light of such event and
such supplemental information. The determination of any new Borrowing Base
pursuant to this Section 5.21(b) shall take effect as provided in Section
2.15(d).
(c) SUBORDINATED DEBT SALES; APPROVAL OF SUBORDINATED DEBT. Not less than
30 days prior to any proposed issuance and sale by the Borrower of any
subordinated debt securities, the Borrower will deliver to the Banks notice of
such proposed transaction containing (A) the type and amount of the subordinated
debt securities to be sold, (B) the principal amount of the subordinated debt
securities that the Borrower expects to issue and sell in such proposed
transaction and (C) the material terms and conditions of the proposed
subordinated debt securities. Within 15 days after the receipt of such notice,
the Agent will notify the Banks (1) whether it approves of the terms and
conditions of the proposed subordinated debt securities and (2) of a proposed
new Borrowing Base (such notice, the "SECTION 5.21(C) NOTICE"). Within 15 days
after the provision of the Section 5.21(c) Notice, if any Bank disapproves of
(i) the terms and conditions of the proposed subordinated debt securities,
and/or (ii) the proposed new Borrowing Base, such Bank shall submit to the Agent
in writing such disapproval, which disapproval shall, as applicable, state (A)
the reasons and basis for its disapproval of the terms and conditions of the
proposed subordinated debt securities and/or (B) the maximum Borrowing Base
acceptable to such Bank (taking into account the effect of the issuance of such
proposed subordinated debt securities). On the close of business on the
fifteenth day after the provisions of the Section 5.21(c) Notice (or the next
succeeding Domestic Business Day if such day is not a Domestic Business Day),
(i) the terms and conditions of the proposed subordinated debt securities shall
be deemed to have been approved by the Required Banks (and the Agent shall
notify the Borrower of such approval) unless, on or prior to such fifteenth day
(or such next succeeding Domestic Business Day, as applicable), Banks having
more than 331/3 of the Credit Exposure at such time shall have expressed their
disapproval of such terms and conditions in the manner set forth in the previous
sentence, in which case the Borrower will not issue any subordinated debt
securities until it repeats the foregoing procedures of this Section 5.21(c) and
(ii) such proposed Borrowing Base shall become the basis for determining the new
Borrowing Base, pursuant to the final sentence of this Section 5.21(c), unless
on or prior to such fifteenth day, (A) the Agent shall have received the written
consent of the Required Banks to such proposed Borrowing Base, or (B) Banks
having more than 331/3 of the Credit Exposure at such time shall have expressed
their disapproval to the Agent in the manner set forth in the previous sentence,
in which case the Agent shall notify the Borrower of the lowest determination
agreed to by the Required Banks. Upon the consummation of the sale of any
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subordinated debt securities, (i) the Borrower shall notify the Agent of the
principal amount of the subordinated debt securities sold in such transaction
and (ii) the Borrowing Base will on and as of such date be redetermined in an
amount equal to (A) the maximum Borrowing Base agreed to by the Required Banks
PLUS (B) the difference of (1) the principal amount of the subordinated debt
securities sold in such transaction MINUS (2) the principal amount that the
Borrower had expected to issue in the proposed subordinated debt securities
sale, as specified in its notice to the Banks pursuant to the first sentence of
this Section 5.21(c).
ARTICLE 6
DEFAULTS
SECTION 6.01. EVENTS OF DEFAULT. If one or more of the following events
("EVENTS OF DEFAULT") shall have occurred and be continuing:
(a) the Borrower shall fail to pay (i) any principal of any Loan or any LC
Reimbursement Obligation payable by it hereunder when due or (ii) any interest,
fee or other amount payable by it hereunder within 3 days of the date due
hereunder;
(b) the Borrower shall fail to observe or perform any covenant contained in
the Financing Documents, other than Sections 5.01 through 5.07 hereof,
inclusive;
(c) any Obligor shall fail to observe or perform any covenant or agreement
(other than those covered by clause (a) or (b) above) contained in this
Agreement or any amendment hereof for 30 days after the Agent gives notice
thereof to the Borrower at the request of any Bank;
(d) any representation, warranty, certification or statement made by any
Obligor in this Agreement or any amendment hereof or in any certificate,
financial statement or other document delivered pursuant to this Agreement shall
prove to have been incorrect in any material respect when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make one or more payments
in respect of Material Financial Obligations when due or within any applicable
grace period;
(f) any event or condition shall occur which results in the acceleration of
the maturity of any Material Debt or enables (or, with the giving of notice or
lapse
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of time or both, would enable) the holder of such Debt or any Person acting on
such holder's behalf to accelerate the maturity thereof;
(g) the Borrower or any Material Subsidiary shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced against the
Borrower or any Material Subsidiary seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an amount or
amounts aggregating in excess of $5,000,000 which it shall have become liable to
pay under Title IV of ERISA; or notice of intent to terminate a Material Plan
shall be filed under Title IV of ERISA by any member of the ERISA Group, any
plan administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate, to impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or to cause
a trustee to be appointed to administer, any Material Plan; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there shall occur a
complete or partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the ERISA Group to incur a current payment
obligation in excess of $5,000,000;
(j) judgments or orders for the payment of money exceeding $5,000,000 in
aggregate amount shall be rendered against the Borrower or any Subsidiary and
such judgments or orders shall continue unsatisfied and unstayed for a period of
10 days;
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(k) the Borrower and/or any Subsidiary of the Borrower has incurred or
incurs Environmental Liabilities in excess of $5,000,000 in the aggregate, which
Environmental Liabilities would, under GAAP, be reflected in the financial
statements (or the footnotes thereto) of the Borrower;
(l) any person or group of persons (within the meaning of Section 13 or 14
of the Exchange Act) shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 promulgated by the SEC under said Act) of 331/3% or more
of the outstanding shares of common stock of the Borrower; or, during any period
of [12] consecutive calendar months, individuals who were directors of the
Borrower on the first day of such period shall cease to constitute a majority of
the Borrower's board of directors; or, any "Change of Control" (as defined in
the indenture with respect to subordinated debt included in a Long Term Junior
Financing) shall have occurred; or
(m) at any time, any Guarantee hereunder by any Guarantor shall fail to
constitute a valid and binding obligation of such Guarantor, enforceable in
accordance with its terms;
then, and in every such event, the Agent shall:
(i) if requested by Banks having more than 662/3% in aggregate
amount of the Commitments, by notice to the Borrower terminate the
Commitments and they shall thereupon terminate;
(ii) if requested by Banks having more than 662/3% of the Aggregate
LC Exposure, by notice to each LC Issuing Bank instruct such LC Issuing
Bank not to extend the expiry date of any outstanding Letter of Credit,
whereupon such LC Issuing Bank shall deliver notice to that effect
promptly to the beneficiary of each such Letter of Credit and the
Borrower; and
(iii) if requested by Banks holding Notes evidencing more than
662/3% in aggregate outstanding principal amount of the Loans, by notice
to the Borrower declare the Loans (together with accrued interest thereon)
to be, and the Loans (together with accrued interest thereon) shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower;
PROVIDED that, if any Event of Default specified in Section 6.01(h) or 6.01(i)
occurs with respect to the Borrower, then without any notice to the Borrower or
any
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other act by the Agent or the Banks, the Commitments shall thereupon terminate
and the Loans (together with accrued interest thereon) shall become immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
SECTION 6.02. NOTICE OF DEFAULT. The Agent shall give notice to the
Borrower under Section 6.01(c) promptly upon being requested to do so by any
Bank and shall thereupon notify all the Banks thereof.
SECTION 6.03. CASH COVER. The Borrower agrees that, if an Event of Default
shall have occurred and be continuing and Banks having more than 662/3% of the
Aggregate LC Exposure instruct the Agent to request cash collateral pursuant to
this Section, the Borrower will, promptly after it receives such request from
the Agent, pay to the Agent an amount in immediately available funds equal to
the then aggregate amount available for subsequent drawings under all
outstanding Letters of Credit, to be held by the Agent, under arrangements
satisfactory to it, to secure the payment of all LC Reimbursement Obligations
arising from subsequent drawings under such Letters of Credit (which collateral
shall be released by the Agent to the Borrower upon the cure of any such Event
of Default); PROVIDED that, if any Event of Default specified in Section 6.01(h)
or 6.01(i) occurs with respect to the Borrower, the Borrower shall pay such
amount to the Agent forthwith without any notice or demand or any other act by
the Agent or the Banks.
ARTICLE 7
THE AGENT
SECTION 7.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement as are delegated to the Agent by
the terms hereof or thereof, together with all such powers as are reasonably
incidental thereto.
SECTION 7.02. AGENTS AND AFFILIATES. Morgan Guaranty Trust Company of New
York shall have the same rights and powers under this Agreement as any other
Bank and may exercise or refrain from exercising the same as though it were not
the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may
accept deposits from, lend money to and generally engage in any kind of business
with the Borrower or any Subsidiary or affiliate of the Borrower as if it were
not the Agent.
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SECTION 7.03. ACTION BY AGENT. The obligations of the Agent hereunder are
only those expressly set forth herein. Without limiting the generality of the
foregoing, the Agent shall not be required to take any action with respect to
any Default, except as expressly provided in Article 6.
SECTION 7.04. CONSULTATION WITH EXPERTS. The Agent may consult with legal
counsel (who may be counsel for the Borrower), independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with the advice of such
counsel, accountants or experts.
SECTION 7.05. LIABILITY OF AGENT. None of the Agent or any of its
affiliates or any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection herewith
(i) with the consent or at the request of the Required Banks (or such different
number of Banks as any provision hereof expressly requires for such consent or
request) or (ii) in the absence of its own gross negligence or willful
misconduct. Neither the Agent nor any of its affiliates nor any of their
respective directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into or verify (i) any statement, warranty
or representation made in connection with this Agreement or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Borrower; (iii) the satisfaction of any condition specified in
Article 3, except receipt of items required to be delivered to the Agent; or
(iv) the validity, effectiveness or genuineness of this Agreement, the Notes or
any other instrument or writing furnished in connection herewith. The Agent
shall not incur any liability by acting in reliance upon any notice, consent,
certificate, statement or other writing (which may be a bank wire, telex,
facsimile or similar writing) believed by it to be genuine or to be signed by
the proper party or parties. Without limiting the generality of the foregoing,
the use of the term "agent" in this Agreement with reference to the Agent is not
intended to connote any fiduciary or other implied (or express) obligations
arising under agency doctrine of any applicable law. Instead, such term is used
merely as a matter of market custom and is intended to create or reflect only an
administrative relationship between independent contracting parties.
SECTION 7.06. INDEMNIFICATION. The Banks shall, ratably in proportion to
their Credit Exposures, indemnify the Agent, its affiliates and their respective
directors, officers, agents and employees (to the extent not reimbursed by the
Borrower) against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from such
indemnitees' gross negligence or willful misconduct) that such indemnitees may
suffer or incur in connection with this Agreement or any action taken or omitted
by such indemnitees hereunder.
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SECTION 7.07. CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance on the Agent or any other Bank, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it will, independently and without reliance on the Agent or any other Bank,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking any
action under this Agreement.
SECTION 7.08. SUCCESSOR AGENT. The Agent may resign at any time by giving
notice thereof to the Banks and the Borrower. Upon any such resignation, the
Required Banks shall have the right to appoint a successor Agent with the
consent of the Borrower (which shall not be unreasonably withheld). If no
successor Agent shall have been so appointed by the Required Banks, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States or of any State thereof and having
a combined capital and surplus of at least $100,000,000. Upon the acceptance of
its appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent resigns as Agent hereunder,
the provisions of this Article 7 shall inure to its benefit as to actions taken
or omitted to be taken by it while it was Agent.
SECTION 7.09. AGENT'S FEE. The Borrower shall pay to the Agent for its own
account fees in the amounts and at the times previously agreed upon by the
Borrower and the Agent.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR.
If on or before the first day of any Interest Period for any Euro-Dollar Loan:
(a) the Agent is advised by the Reference Banks that deposits in dollars
(in the applicable amounts) are not being offered to the Reference Banks in the
London interbank market for such Interest Period, or
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(b) Banks holding 50% or more of the aggregate principal amount of the
affected Loans advise the Agent that the London Interbank Offered Rate as
determined by the Agent will not adequately and fairly reflect the cost to such
Banks of funding their Euro-Dollar Loans for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Banks to
make Euro-Dollar Loans or to continue or convert outstanding Loans as or into
Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan
shall be converted into a Base Rate Loan on the last day of the then current
Interest Period applicable thereto. Unless the Borrower notifies the Agent at
least two Domestic Business Days before the date of any affected Borrowing for
which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, such Borrowing shall instead be made as a Base Rate
Borrowing.
SECTION 8.02. ILLEGALITY. If, on or after the date hereof, the adoption of
any applicable law, rule or regulation, or any change in any applicable law,
rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank (or
its Euro-Dollar Lending Office) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency, shall make it unlawful or impossible for any Bank (or its Euro-Dollar
Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank
shall so notify the Agent, the Agent shall forthwith give notice thereof to the
other Banks and the Borrower, whereupon until such Bank notifies the Borrower
and the Agent that the circumstances giving rise to such suspension no longer
exist, the obligation of such Bank to make Euro-Dollar Loans, or to convert
outstanding Loans into Euro-Dollar Loans or continue outstanding Loans as
Euro-Dollar Loans, shall be suspended. Before giving any notice to the Agent
pursuant to this Section, such Bank shall designate a different Euro-Dollar
Lending Office if such designation will avoid the need for giving such notice
and will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. If such notice is given, each Euro-Dollar Loan of such Bank then
outstanding shall be converted to a Base Rate Loan either (a) on the last day of
the then current Interest Period applicable to such Euro-Dollar Loan if such
Bank may lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan
to such day or (b) immediately if such Bank shall determine that it may not
lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such
day.
SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If on or after the
date hereof, the adoption of any applicable law, rule or regulation, or any
change
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in any applicable law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Applicable Lending Office) or any LC Issuing Bank
with any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency, shall impose, modify or deem
applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
any such requirement with respect to which such Bank is entitled to compensation
during the relevant Interest Period under Section 2.13), special deposit,
insurance assessment or similar requirement against assets of, deposits with or
for the account of, or credit (including letters of credit and participations
therein) extended by, any Bank (or its Applicable Lending Office) or any LC
Issuing Bank or shall impose on any Bank (or its Applicable Lending Office) or
any LC Issuing Bank or the London interbank market any other condition affecting
its Euro-Dollar Loans, its Notes or its obligation to make Euro-Dollar Loans or
its obligations hereunder in respect of Letters of Credit and the result of any
of the foregoing is to increase the cost to such Bank (or its Applicable Lending
Office) or such LC Issuing Bank of making or maintaining any Euro-Dollar Loan or
issuing or participating in any Letter of Credit, or to reduce the amount of any
sum received or receivable by such Bank (or its Applicable Lending Office) or
such LC Issuing Bank under this Agreement or under its Note with respect
thereto, by an amount deemed by such Bank or LC Issuing Bank to be material,
then, within 15 days after demand by such Bank (with a copy to the Agent), the
Borrower shall pay to such Bank or LC Issuing Bank such additional amount or
amounts as will compensate such Bank or LC Issuing Bank for such increased cost
or reduction.
(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any such law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on capital
of such Bank (or its Parent) as a consequence of such Bank's obligations
hereunder to a level below that which such Bank (or its Parent) could have
achieved but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an amount deemed
by such Bank to be material, then from time to time, within 15 days after demand
by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank
such additional amount or amounts as will compensate such Bank (or its Parent)
for such reduction.
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(c) Each Bank and LC Issuing Bank will promptly notify the Borrower and the
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank or LC Issuing Bank to compensation pursuant to this
Section and will designate a different Applicable Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the judgment of such Bank or LC Issuing Bank, be otherwise
disadvantageous to it. A certificate of any Bank or LC Issuing Bank claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, such Bank or LC Issuing Bank may use
any reasonable averaging and attribution methods.
SECTION 8.04. TAXES. (a) For the purposes of this Section, the following
terms have the following meanings:
"TAXES" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings of any nature with respect to any
payment by the Borrower or any Guarantor, as the case may be, pursuant to this
Agreement or under any Note, and all liabilities with respect thereto, EXCLUDING
(i) in the case of each Bank Party, taxes imposed on its net income, and
franchise or similar taxes imposed on it, by a jurisdiction under the laws of
which it is organized or in which its principal executive office is located or,
in the case of each Bank, in which its Applicable Lending Office is located and
(ii) in the case of each Bank, any United States withholding tax imposed on such
payment, but not excluding any portion of such tax that exceeds the United
States withholding tax which would have been imposed on such a payment to such
Bank under the laws and treaties in effect when such Bank first becomes a party
to this Agreement.
"OTHER TAXES" means any present or future stamp or documentary taxes and
any other excise or property taxes, or similar charges or levies, which arise
from any payment made pursuant to this Agreement or under any Note or from the
execution, delivery, registration or enforcement of, or otherwise with respect
to, this Agreement or any Note.
(b) All payments by the Borrower or any Guarantor to or for the account of
any Bank Party hereunder or under any Note shall be made without deduction for
any Taxes or Other Taxes; PROVIDED that, if the Borrower or any Guarantor shall
be required by law to deduct any Taxes or Other Taxes from any such payment, (i)
the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) such Bank Party receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower or any
Guarantor, as the case may be, shall make such deductions, (iii) the Borrower or
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such Guarantor, as the case may be, shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable law
and (iv) the Borrower shall promptly furnish to the Agent, at its address
specified in or pursuant to Section 10.01, the original or a certified copy of a
receipt evidencing payment thereof.
(c) The Borrower agrees to indemnify each Bank Party for the full amount of
Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed or asserted by any jurisdiction on amounts payable under this Section),
whether or not correctly or legally imposed, paid by such Bank Party and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be paid within 15 days after such
Bank Party makes demand therefor.
(d) Each Bank Party organized under the laws of a jurisdiction outside the
United States, on or before it signs and delivers this Agreement in the case of
each Bank listed on the signature pages hereof and on or before it becomes a
Bank in the case of each other Bank, and from time to time thereafter if
requested in writing by the Borrower (but only so long as such Bank remains
lawfully able to do so), shall provide each of the Borrower and the Agent with
Internal Revenue Service form 1001 or 4224, as appropriate, or any successor
form prescribed by the Internal Revenue Service, certifying that such Bank is
entitled to benefits under an income tax treaty to which the United States is a
party which exempts such Bank from United States withholding tax or reduces the
rate of withholding tax on payments of interest for the account of such Bank or
certifying that the income receivable by it pursuant to this Agreement is
effectively connected with the conduct of its trade or business in the United
States.
(e) For any period with respect to which a Bank has failed to provide the
Borrower or the Agent with the appropriate form referred to in Section 8.04(d)
(unless such failure is due to a change in treaty, law or regulation occurring
after the date on which such form originally was required to be provided), such
Bank shall not be entitled to indemnification under Section 8.04(b) or 8.04(c)
with respect to Taxes imposed by the United States; PROVIDED that if a Bank,
that is otherwise exempt from or subject to a reduced rate of withholding tax,
becomes subject to Taxes because of its failure to deliver a form required
hereunder, the Borrower shall take such steps as such Bank shall reasonably
request to assist such Bank to recover such Taxes.
(f) If the Borrower or any Guarantor is required to pay additional amounts
to or for the account of any Bank pursuant to this Section as a result of a
change in law or treaty occurring after such Bank first became a party to this
Agreement, then such Bank will, at the Borrower's request, change the
jurisdiction
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of its Applicable Lending Office if, in the sole judgment of such Bank, such
change (i) will eliminate or reduce any such additional payment which may
thereafter accrue and (ii) is not otherwise disadvantageous to such Bank.
SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED EURO-DOLLAR LOANS.
If (i) the obligation of any Bank to make, or to continue or convert outstanding
Loans as or to, Euro-Dollar Loans has been suspended pursuant to Section 8.02 or
(ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect
to its Euro-Dollar Loans, and in any such case the Borrower shall, by at least
five Euro-Dollar Business Days' prior notice to such Bank through the Agent,
have elected that the provisions of this Section shall apply to such Bank, then,
unless and until such Bank notifies the Borrower that the circumstances giving
rise to such suspension or demand for compensation no longer exist, all Loans
which would otherwise be made by such Bank as (or continued as or converted to)
Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and
principal shall be payable contemporaneously with the related CD Loans or
Euro-Dollar Loans of the other Banks). If such Bank notifies the Borrower that
the circumstances giving rise to such suspension or demand for compensation no
longer exist, the principal amount of each such Base Rate Loan shall be
converted into a Euro-Dollar Loan on the first day of the next succeeding
Interest Period applicable to the related Euro-Dollar Loans of the other Banks.
SECTION 8.06. SUBSTITUTION OF BANK. If (i) the obligation of any Bank to
make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any
Bank has demanded compensation under Section 8.03 or 8.04, the Borrower shall
have the right (a) with the assistance of the Agent, to seek a mutually
satisfactory substitute bank or banks (which may be one or more of the Banks) to
purchase the Note and assume the rights and obligations of such Bank hereunder,
or (b) to elect to terminate this Agreement as to such Bank, and in connection
therewith not to borrow or convert to any Base Rate Loan provided for in Section
8.02 or to prepay any Base Rate Loan made pursuant to Section 8.02 or 8.05,
PROVIDED that the Borrower (x) notifies such Bank through the Agent of such
election at least three Euro-Dollar Business Days before any date fixed for such
a borrowing, prepayment or conversion, as the case may be, and (y) prepays all
of such Bank's outstanding Loans at the end of the respective Interest Periods
applicable thereto or, if required by clause (b) of the last sentence of Section
8.02, immediately. Upon receipt by the Agent of such notice the Commitment of
such Lender, if outstanding, shall terminate.
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ARTICLE 9
GUARANTY
SECTION 9.01. THE GUARANTY. Each Guarantor hereby unconditionally
guarantees the full and punctual payment (whether at stated maturity, upon
acceleration or otherwise) of the principal of and interest on each Note issued
by the Borrower pursuant to this Agreement, and the full and punctual payment of
all other amounts payable by the Borrower under this Agreement. Upon failure by
the Borrower to pay punctually any such amount, each Guarantor shall forthwith
on demand pay the amount not so paid at the place and in the manner specified in
this Agreement.
SECTION 9.02. GUARANTY UNCONDITIONAL. The obligations of each Guarantor
hereunder shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of the Borrower or any other
Guarantor under this Agreement or any Note, by operation of law or
otherwise;
(ii) any modification or amendment of or supplement to this
Agreement or any Note;
(iii) any release, impairment, non-perfection or invalidity of any
direct or indirect security for any obligation of the Borrower or any
other Guarantor under this Agreement or any Note;
(iv) any change in the corporate existence, structure or ownership
of the Borrower or any other Guarantor, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting the Borrower, any
other Guarantor or their respective assets or any resulting release or
discharge of any obligation of the Borrower or any other Guarantor
contained in this Agreement or any Note;
(v) the existence of any claim, set-off or other rights which the
Guarantor may have at any time against the Borrower, any other Guarantor,
the Agent, any Bank or any other Person, whether in connection herewith or
any unrelated transactions, PROVIDED that nothing herein shall prevent the
assertion of any such claim by separate suit or compulsory counterclaim;
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(vi) any invalidity or unenforceability relating to or against the
Borrower or any other Guarantor for any reason of this Agreement or any
Note, or any provision of applicable law or regulation purporting to
prohibit the payment by the Borrower or any other Guarantor of the
principal of or interest on any Note or any other amount payable by the
Borrower or any other Guarantor under this Agreement; or
(vii) any other act or omission to act or delay of any kind by the
Borrower, any other Guarantor, the Agent, any Bank or any other Person or
any other circumstance whatsoever which might, but for the provisions of
this paragraph, constitute a legal or equitable discharge of the
Guarantor's obligations hereunder.
SECTION 9.03. DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN
CERTAIN CIRCUMSTANCES. Each Guarantor's obligations hereunder shall remain in
full force and effect until the Commitments shall have terminated and the
principal of and interest on the Notes and all other amounts payable by the
Borrower under this Agreement shall have been paid in full. If at any time any
payment of the principal of or interest on any Note or any other amount payable
by the Borrower under this Agreement is rescinded or must be otherwise restored
or returned upon the insolvency, bankruptcy or reorganization of the Borrower or
any other Guarantor or otherwise, each Guarantor's obligations hereunder with
respect to such payment shall be reinstated at such time as though such payment
had been due but not made at such time.
SECTION 9.04. WAIVER BY EACH GUARANTOR. Each Guarantor irrevocably waives
acceptance hereof, presentment, demand, protest and any notice not provided for
herein, as well as any requirement that at any time any action be taken by any
Person against the Borrower or any other Guarantor or any other Person.
SECTION 9.05. SUBROGATION AND CONTRIBUTION. Upon making any payment with
respect to any Borrower hereunder, the relevant Guarantor shall be subrogated to
the rights of the payee against the Borrower with respect to such payment;
PROVIDED that no Guarantor shall enforce any payment by way of subrogation or
contribution against any other Obligor until all amounts of principal of and
interest on the Notes and all other amounts payable by the Borrower under this
Agreement have been paid in full.
SECTION 9.06. STAY OF ACCELERATION. If acceleration of the time for
payment of any amount payable by the Borrower under this Agreement or any Note
is stayed upon insolvency, bankruptcy or reorganization of the Borrower, all
such amounts otherwise subject to acceleration under the terms of this Agreement
shall nonetheless be payable by each Guarantor hereunder forthwith on demand by
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the Agent made at the request of the requisite proportion of the Banks specified
in Article 6 of the Agreement.
SECTION 9.07. LIMIT OF LIABILITY. The obligations of each Guarantor
hereunder shall be limited to an aggregate amount equal to the largest amount
that would not render its obligations hereunder subject to avoidance under
Section 548 of the United States Bankruptcy Code or any comparable provisions of
any applicable state law.
SECTION 9.08. RELEASE UPON SALE. Upon any sale by the Borrower of a
Subsidiary permitted by and in compliance with this Agreement, such Subsidiary
shall automatically and without further action by any Bank or the Agent be
released from its obligations, if any, as a Guarantor hereunder.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
or similar writing) and shall be given to such party (a) in the case of the
Borrower or the Agent, at its address, facsimile number or telex number set
forth on the signature pages hereof, (b) in the case of any Guarantor, in care
of the Borrower (c) in the case of any Bank, at its address, facsimile number or
telex number set forth in its Administrative Questionnaire or (d) in the case of
any party, at such other address, facsimile number or telex number as such party
may hereafter specify for the purpose by notice to the Agent and the Borrower.
Each such notice, request or other communication shall be effective (i) if given
by telex, when transmitted to the telex number referred to in this Section and
the appropriate answerback is received, (ii) if given by facsimile, when
transmitted to the facsimile number referred to in this Section and confirmation
of receipt is received, (iii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iv) if given by any other means, when delivered at
the address referred to in this Section; PROVIDED that notices to the Agent or
any LC Issuing Bank under Article 2 or Article 8 shall not be effective until
received.
SECTION 10.02. NO WAIVERS. No failure or delay by any Bank Party
exercising any right, power or privilege hereunder or under any Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or
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privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 10.03. EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay (i)
all reasonable out-of-pocket expenses of the Agent, including reasonable fees
and disbursements of special counsel for the Agent, in connection with the
preparation and administration of this Agreement, any waiver or consent
hereunder or any amendment hereof or any Default or alleged Default hereunder
and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses
incurred by each Bank Party, including (without duplication) the reasonable fees
and disbursements of outside counsel and the allocated cost of inside counsel,
in connection with such Event of Default and collection, bankruptcy, insolvency
and other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify each Bank Party, their respective
affiliates and the respective directors, officers, agents and employees of the
foregoing (each an "INDEMNITEE") and hold each Indemnitee harmless from and
against any and all liabilities, losses, damages, costs and expenses of any
kind, including, without limitation, the reasonable fees and disbursements of
counsel, which may be incurred by such Indemnitee in connection with any
investigative, administrative or judicial proceeding (whether or not such
Indemnitee shall be designated a party thereto) brought or threatened relating
to or arising out of this Agreement or any actual or proposed use of any Letter
of Credit or any proceeds of Loans hereunder; PROVIDED that no Indemnitee shall
have the right to be indemnified hereunder for such Indemnitee's own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
(c) The Borrower hereby indemnifies each Bank from and against and agrees
to hold each of them harmless from any and all liabilities, losses, damages,
costs and expenses of any kind (including without limitation reasonable expenses
of investigation by engineers, environmental consultants and similar technical
personnel and reasonable fees and disbursements of counsel) of any Bank arising
out of, in respect of or in connection with any and all Environmental
Liabilities. Without limiting the generality of the foregoing, the Borrower
hereby waives all rights for contribution or any other rights of recovery with
respect to liabilities, losses, damages, costs and expenses arising under or
related to Environmental Laws that it might have by statute or otherwise against
any Bank.
SECTION 10.04. SHARING OF SET-OFFS. Each Bank agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment of
a proportion of the aggregate amount of principal and interest then due with
respect to the Loans and participations in LC Reimbursement Obligations held by
it which is greater than the proportion received by any other Bank in respect of
the
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aggregate amount of principal and interest then due with respect to the Loans
and participations in LC Reimbursement Obligations held by such other Bank, the
Bank receiving such proportionately greater payment shall purchase such
participations in the Loans and participations in LC Reimbursement Obligations
held by the other Banks, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to the
Loans and participations in LC Reimbursement Obligations held by the Banks shall
be shared by the Banks pro rata; PROVIDED that nothing in this Section shall
impair the right of any Bank to exercise any right of set-off or counterclaim it
may have and to apply the amount subject to such exercise to the payment of
indebtedness of any Obligor other than its indebtedness in respect of the Loans
and LC Reimbursement Obligations. Each Obligor agrees, to the fullest extent it
may effectively do so under applicable law, that any holder of a participation
in a Loan or LC Reimbursement Obligation, whether or not acquired pursuant to
the foregoing arrangements, may exercise rights of set-off or counterclaim and
other rights with respect to such participation as fully as if such holder of a
participation were a direct creditor of such Obligor in the amount of such
participation.
SECTION 10.05. AMENDMENTS AND WAIVERS. Any provision of this Agreement or
the Notes may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of the Agent or any LC Issuing Bank are affected thereby, by
the Agent or such LC Issuing Banks, as the case may be); PROVIDED that no such
amendment or waiver shall, unless signed by all the Banks, (i) increase or
decrease the Commitment of any Bank (except for a ratable decrease in the
Commitments of all Banks) or subject any Bank to any additional obligation, (ii)
reduce the principal of or rate of interest on any Loan or the amount of any LC
Reimbursement Obligation or any interest thereon or any fees hereunder, (iii)
postpone the date fixed for any payment of principal of or interest on any Loan
or of any LC Reimbursement Obligation or any interest thereon or any fees
hereunder or for the termination of any Commitment or (except as expressly
provided in Section 2.14) extend the expiry date of any Letter of Credit, (iv)
change the aggregate amount by which or to which the Commitments are required to
be reduced on or prior to any Commitment Reduction Date, (v) release any
Guarantor from its obligations hereunder, or (vi) change the Commitments
Percentage or the percentage of the Aggregate LC Exposure or of the aggregate
unpaid principal amount of the Loans, or the number of Banks, which shall be
required for the Banks or any of them to take any action under this Section or
any other provision of this Agreement.
SECTION 10.06. SUCCESSORS; PARTICIPATIONS AND ASSIGNMENTS. (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, except that the
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Borrower may not assign or otherwise transfer any of its rights under this
Agreement without the prior written consent of all the Bank Parties.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "PARTICIPANT") participating interests in its Commitment or
any or all of its Loans and participations in Letters of Credit. If a Bank
grants any such participating interest to a Participant, whether or not upon
notice to the Borrower and the Agent, such Bank shall remain responsible for the
performance of its obligations hereunder, and the Borrower, the LC Issuing Banks
and the Agent shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower and the LC Issuing Banks hereunder
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement; PROVIDED that such participation
agreement may provide that such Bank will not agree to any modification,
amendment or waiver of this Agreement described in clause (i), (ii), (iii) or
(iv) of Section 10.05 without the consent of the Participant. The Borrower
agrees that each Participant shall, to the extent provided in its participation
agreement, be entitled to the benefits of Section 2.13 and Article 8 with
respect to its participating interest. An assignment or other transfer which is
not permitted by subsection (c) or (d) below shall be given effect for purposes
of this Agreement only to the extent of a participating interest granted in
accordance with this subsection.
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "ASSIGNEE") all, or a proportionate part of all, of its
rights and obligations under this Agreement and its Note, and such Assignee
shall assume such rights and obligations, pursuant to an Assignment and
Assumption Agreement substantially in the form of Exhibit D hereto signed by
such Assignee and such transferor Bank, with (and subject to) the subscribed
consent of the Borrower (which shall not be unreasonably withheld), the Agent
and the LC Issuing Banks; PROVIDED that if an Assignee is an affiliate of such
transferor Bank or was a Bank immediately before such assignment, or, if at the
time of such assignment, an Event of Default shall have occurred and be
continuing, no such consent of the Borrower shall be required. Each such
assignment shall be in such an amount that, after such assignment is made, each
of the assignor Bank and the Assignee will have an Outstanding Amount, together
with their respective unused Commitments, of at least $5,000,000. When such
instrument has been signed and delivered by the parties thereto and such
Assignee has paid to such transferor Bank the purchase price agreed between
them, such Assignee shall be a Bank party to this Agreement and shall have all
the rights and obligations of a Bank with a Commitment as set forth in such
instrument of assumption, and the transferor
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Bank shall be released from its obligations hereunder to a corresponding extent,
and no further consent or action by any party shall be required. Upon the
consummation of any assignment pursuant to this subsection, the transferor Bank,
the Agent and the Borrower shall make appropriate arrangements so that, if
required, a new Note is issued to the Assignee. In connection with any such
assignment, the transferor Bank shall pay to the Agent an administrative fee for
processing such assignment in the amount of $2,500. If the Assignee is not
incorporated under the laws of the United States or a political subdivision
thereof, it shall deliver to the Borrower and the Agent certification as to its
exemption from deduction or withholding of, or its entitlement to a reduced
withholding rate for, United States federal income taxes in accordance with
Section 8.04.
(d) Any Bank may at any time assign all or any portion of its rights under
this Agreement and its Note to a Federal Reserve Bank. No such assignment shall
release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights shall
be entitled to receive any greater payment under Section 8.03 or 8.04 than such
Bank would have been entitled to receive with respect to the rights transferred,
unless such transfer is made with the Borrower's prior written consent or by
reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to
designate a different Applicable Lending Office under certain circumstances or
at a time when the circumstances giving rise to such greater payment did not
exist.
SECTION 10.07. NO RELIANCE ON MARGIN STOCK. Each of the Banks represents
to the Agent and each of the other Banks that it in good faith is not relying
upon any "margin stock" (as defined in Regulation U) as collateral in the
extension or maintenance of the credit provided for in this Agreement.
SECTION 10.08. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
and each Note shall be governed by and construed in accordance with the laws of
the State of New York. Each Obligor hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York State court sitting in New York City for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. Each Obligor irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
SECTION 10.09. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This
Agreement may be signed in any number of counterparts, each of which shall be an
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original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective when the Agent has received from
each of the parties hereto a counterpart hereof signed by such party or
facsimile or other written confirmation satisfactory to the Agent confirming
that such party has signed a counterpart hereof.
SECTION 10.10. WAIVER OF JURY TRIAL. THE BORROWER AND EACH BANK PARTY
HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
SECTION 10.11. APPOINTMENT OF AGENT FOR SERVICES OF PROCESS. (a) The
Borrower hereby irrevocably designates, appoints, authorizes and empowers as its
agent for service of process, CT Corporation System at its offices currently
located at 1633 Broadway, New York, New York 10019 to accept and acknowledge for
and on behalf of the Borrower service of any and all process, notices or other
documents that may be served in any suit, action or proceeding relating hereto
in any New York State or Federal court sitting in The State of New York.
(b) In lieu of service upon its agent, the Borrower consents to process
being served in any suit, action or proceeding relating hereto by mailing a copy
thereof by registered or certified air mail, postage prepaid, return receipt
requested, to its address designated pursuant to Section 10.01. The Borrower
agrees that such service (1) shall be deemed in every respect effective service
of process upon it in any such suit, action or proceeding and (2) shall, to the
fullest extent permitted by law, be taken and held to be valid personal service
upon and personal delivery to it.
(c) Nothing in this Section shall affect the right of any party hereto to
serve process in any manner permitted by law, or limit any right that any party
hereto may have to bring proceedings against any other party hereto in the
courts of any jurisdiction or to enforce in any lawful manner a judgment
obtained in one jurisdiction in any other jurisdiction.
SECTION 10.12. JUDGMENT CURRENCY. If for the purposes of enforcing the
obligations of the Borrower any hereunder it is necessary to convert a sum due
from such Person in U.S. dollars ("DOLLARS") into another currency, the parties
hereto agree, to the fullest extent that they may effectively do so, that the
rate of exchange used shall be that at which in accordance with normal banking
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procedures the Agent and the Banks could purchase dollars with such currency at
or about 11:00 A.M. (New York City time) on the Domestic Business Day preceding
that on which final judgment is given. The obligations in respect of any sum due
to the Agent and the Banks hereunder shall, notwithstanding any adjudication
expressed in a currency other than dollars, be discharged only to the extent
that on the Domestic Business Day following receipt by the Agent and the Banks
of any sum adjudged to be so due in such other currency the Agent and the Banks
may in accordance with normal banking procedures purchase dollars with such
other currency; if the amount of dollars so purchased is less than the sum
originally due to the Agent and the Banks in dollars, the Borrower and each
Guarantor agrees, to the fullest extent that it may effectively do so, as a
separate obligation and notwithstanding any such adjudication, to indemnify the
Agent and the Banks against such loss, and if the amount of dollars so purchased
exceeds the sum originally due to the Agent and the Banks, it shall remit such
excess to the Borrower.
SECTION 10.13. MAXIMUM INTEREST RATE. (a) Nothing contained in this
Agreement or the Notes shall require the Borrower to pay interest at a rate
exceeding the maximum rate permitted by applicable law
(b) If the amount of interest payable for the account of any Bank on any
interest payment date in respect of the immediately preceding interest
computation period, computed pursuant to Section 2.04, would exceed the maximum
amount permitted by applicable law to be charged by such Bank, the amount of
interest payable for its account on such interest payment date shall be
automatically reduced to such maximum permissible amount.
(c) If the amount of interest payable for the account of any Bank in
respect of any interest computation period is reduced pursuant to clause (b) of
this Section and the amount of interest payable for its account in respect of
any subsequent interest computation period, computed pursuant to Section 2.04,
would be less than the maximum amount permitted by applicable law to be charged
by such Bank, then the amount of interest payable for its account in respect of
such subsequent interest computation period shall be automatically increased to
such maximum permissible amount; PROVIDED that at no time shall the aggregate
amount by which interest paid for the account of any Bank has been increased
pursuant to this clause (c) exceed the aggregate amount by which interest paid
for its account has theretofore been reduced pursuant to clause (b) of this
Section.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
BELLWETHER EXPLORATION
COMPANY
By:
Name:
Title:
Address:
Facsimile:
` [SIGNATURE BLOCKS FOR EACH
MATERIAL SUBSIDIARY OF THE
BORROWER AS GUARANTORS]
By:
Name:
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent
By:
Name:
Title:
Address: 60 Wall Street
New York, NY 10260
Facsimile:
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MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Bank
By:
Name:
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as LC
Issuing Bank
By:
Name:
Title:
83
EXHIBIT 23.4
[RYDER SCOTT COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our summary reserve report dated February
7, 1997 relating to the oil and gas reserves of Bellwether Exploration Company
at July 1, 1996. We also consent to the references to us under the headings
"Risk Factors", "Business and Properties", "Transactions with Related Parties"
and "Experts" and under the heading "Supplemental Information" in the Notes to
the Consolidated Financial Statements of Bellwether Exploration Company in such
Prospectus.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
[SEAL]
Houston, Texas
April 3, 1997
EXHIBIT 23.6
[PRINCIPAL FINANCIAL SECURITIES, INC. LETTERHEAD]
April 2, 1997
We hereby consent to the references to our firm and to the references to our
opinion delivered to the Special Committee of the Board of Directors of
Bellwether Exploration Company (the "Company") contained in the prospectuses
constituting a part of the Company's Registration Statement on Form S-1
(Commission File No. 333-21813) to be filed with the Securities and Exchange
Commission.
Principal Financial Securities, Inc.
By: /s/ LEE P. MONCRIEF
Lee P. Moncrief
Managing Director
Corporate Finance
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility of a trustee
Pursuant to Section 305(b) ____
BANK OF MONTREAL TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 13-4941093
(JURISDICTION OF INCORPORATION OR ORGANIZATION (I.R.S. EMPLOYER
IF NOT A US NATIONAL BANK) IDENTIFICATION NO.)
77 Water Street
New York, New York 10005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Mark F. McLaughlin
Bank of Montreal Trust Company
77 Water Street, New York, NY 10005
(212) 701-7602
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------------------
Bellwether Exploration Company
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
Delaware 76-0437769
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1331 Lamar Street - Suite 1455
Houston, TX 77010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
--------------------------------------
SENIOR SUBORDINATED NOTES DUE 2007
(TITLE OF THE INDENTURE SECURITIES)
================================================================================
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Reserve Bank of New York
33 Liberty Street, New York NY 10045
State of New York Banking Department
2 Rector Street, New York, NY 10006
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of eligibility.
1. Copy of Organization Certificate of Bank of Montreal Trust Company
to transact business and exercise corporate trust powers;
incorporated herein by reference as Exhibit "A" filed with Form T-1
Statement, Registration No. 33-46118.
2. Copy of the existing By-Laws of Bank of Montreal Trust Company;
incorporated herein by reference as Exhibit "B" filed with Form T-1
Statement, Registration No. 33-80928.
3. The consent of the Trustee required by Section 321(b) of the Act;
incorporated herein by reference as Exhibit "C" with Form T-1
Statement, Registration No. 33-46118.
4. A copy of the latest report of condition of Bank of Montreal Trust
Company published pursuant to law or the requirements of its
supervising or examining authority, attached hereto as Exhibit "D".
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, Bank of Montreal Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New
York, on the 31st day of March, 1997.
BANK OF MONTREAL TRUST COMPANY
By_________________________
Amy Roberts
Assistant Vice President
<PAGE>
EXHIBIT "D"
STATEMENT OF CONDITION
BANK OF MONTREAL TRUST COMPANY
NEW YORK
---------------------------------
ASSETS
Due From Banks .............................................. $ 740,801
-----------
Investment Securities:
State & Municipal ...................................... 16,888,571
Other .................................................. 100
-----------
TOTAL SECURITIES .................................. 17,629,572
-----------
Loans and Advances
Federal Funds Sold ..................................... 4,300,000
Overdrafts ............................................. 3,591
-----------
TOTAL LOANS AND ADVANCES .......................... 4,303,591
-----------
Investment in Harris Trust, NY .............................. 7,516,776
Premises and Equipment ...................................... 173,475
Other Assets ................................................ 2,304,743
-----------
TOTAL ASSETS ...................................... $31,928,057
===========
LIABILITIES
Trust Deposits .............................................. $ 8,602,958
Other Liabilities ........................................... 784,769
-----------
TOTAL LIABILITIES ................................. 9,387,727
-----------
CAPITAL ACCOUNTS
Capital Stock, Authorized, Issued and
Fully Paid - 10,000 Shares of $100 Each ................ 1,000,000
Surplus ..................................................... 4,222,188
Retained Earnings ........................................... 17,289,810
Equity - Municipal Gain/Loss ................................ 28,332
-----------
TOTAL CAPITAL ACCOUNTS ............................ 22,540,330
TOTAL LIABILITIES
AND CAPITAL ACCOUNTS .............................. $31,928,057
===========
I, Mark F. McLaughlin, Vice President, of the above-named bank do
hereby declare that this Report of Condition is true and correct to the best of
my knowledge and belief.
Mark F. McLaughlin
December 31, 1996
We, the undersigned directors, attest to the correctness of this
statement of resources and liabilities. We declared that it has been examined by
us, and to the best of our knowledge and belief has been prepared in conformance
with the instructions and is true and correct.
Sanjiv Tandon
Kevin O. Healey
Steven R. Rothbloom
