<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-44731
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JANUARY 22, 1998
$150,000,000
[APACHE CORPORATION LOGO]
7.625% SENIOR NOTES DUE JULY 1, 2019
Apache will pay interest on the notes on January 1 and July 1 of each year.
The first payment will be made on January 1, 2000. The Notes will be issued only
in denominations of $1,000 and integral multiples of $1,000.
------------------------
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
------------------------
<TABLE>
<CAPTION>
PER NOTE TOTAL
-------- ------------
<S> <C> <C>
Initial Public Offering Price*............................. 99.369% $149,053,500
Underwriting Discounts and Commissions..................... 0.292% $ 438,000
Net Proceeds, before expenses, to Apache................... 99.077% $148,615,500
</TABLE>
------------------------
* The initial public offering price set forth above does not include
accrued interest, if any. Interest on the notes will accrue from June 25, 1999
and must be paid by the purchaser if the notes are delivered to the underwriters
after June 25, 1999.
------------------------
The underwriters expect to deliver the notes in book-entry form only
through the facilities of The Depository Trust Company against payment in New
York, New York on June 25, 1999.
BEAR, STEARNS & CO. INC.
------------------------
WARBURG DILLON READ LLC
------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE 22, 1999
<PAGE> 2
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
About Apache................................................ S-3
Recent Developments......................................... S-3
Use of Proceeds............................................. S-4
Selected Financial Data and Other Data...................... S-5
Ratios of Earnings to Fixed Charges......................... S-7
Description of Notes........................................ S-7
Underwriting................................................ S-8
Legal Matters............................................... S-9
Experts..................................................... S-9
PROSPECTUS
Available Information....................................... 2
Information Incorporated by Reference....................... 2
Safe Harbor Statement Under the Private Securities
Litigation Reform Act of 1995 ("PSLRA")................... 3
The Company................................................. 4
Use of Proceeds............................................. 4
Ratio of Earnings to Fixed Charges.......................... 4
Description of Debt Securities.............................. 5
DTC Book-Entry-Only System.................................. 17
Certain United States Federal Income Tax Considerations..... 20
Plan of Distribution........................................ 26
Legal Matters............................................... 27
Experts..................................................... 27
</TABLE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the documents
incorporated by reference contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical facts,
including, among others, statements regarding our future financial position,
business strategy, budgets, reserve information, projected levels of production,
projected costs and plans and objectives of management for future operations,
are forward-looking statements.
We typically use words such as "expect", "anticipate", "estimate",
"intend", "plan" and "believe" to identify our forward-looking statements.
Although we believe our expectations reflected in forward-looking
statements are based on reasonable assumptions, no assurance can be given that
these expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the expectations reflected in the
forward-looking statements include, among others:
- the market prices of oil and gas;
- economic and competitive conditions;
- inflation rates;
- legislative and regulatory changes;
- financial market conditions;
- political and economic uncertainties of foreign governments; and
- future business decisions.
In light of these risks, uncertainties and assumptions, the events
anticipated by our forward-looking statements might not occur. We undertake no
obligation to update or revise our forward-looking statements, whether as a
result of new information, future events or otherwise.
---------------------
No person is authorized to give any information or to represent anything
not contained in this prospectus supplement or the accompanying prospectus. You
must not rely on any unauthorized information or representations. This
prospectus supplement and the accompanying prospectus are an offer to sell or to
buy only the notes offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus supplement or the accompanying prospectus as well as information
previously filed with the Securities and Exchange Commission and incorporated by
reference is current only as of the date of the information. Our business,
financial condition, results of operations and prospects may have changed since
that date.
S-2
<PAGE> 3
ABOUT APACHE
In this prospectus supplement and the accompanying prospectus, we refer to
Apache Corporation and its subsidiaries as "we", "our" or "Apache" unless the
context clearly indicates otherwise. When describing natural gas: Mcf means
thousand cubic feet; MMcf means million cubic feet; and Bcf means billion cubic
feet. When describing oil: bbl means barrel; Mbbls means thousand barrels; and
MMbbls means million barrels. When comparing natural gas to oil: 6 Mcf of gas
equals 1 bbl of oil equivalent; boe means barrel of oil equivalent; and MMboe
means million barrels of oil equivalent.
Apache Corporation is a Delaware corporation formed in 1954. We are an
independent energy company that explores for, acquires and develops oil and gas
reserves and produces natural gas, crude oil, condensate and natural gas
liquids.
In North America, our exploration and production interests are focused on
the Gulf of Mexico, the Anadarko Basin, the Permian Basin, the Gulf Coast and
the Western Sedimentary Basin of Canada. Outside North America, we have
exploration and production interests offshore Western Australia, in Egypt and
offshore the Ivory Coast, and exploration interests in Poland and offshore The
People's Republic of China.
In 1998, we achieved our 21st consecutive year of production growth and our
11th consecutive year of oil and gas reserves growth. Our 1998 average daily
production was:
- 75.8 Mbbls of crude oil, condensate and natural gas liquids; and
- 590 MMcf of natural gas.
As of December 31, 1998, our worldwide proved reserves totaled 613 MMboe,
including:
- 251 MMbbls of crude oil, condensate and natural gas liquids; and
- 2,172 Bcf of natural gas.
RECENT DEVELOPMENTS
On May 18, 1999, we purchased from Shell Offshore Inc. and affiliated Shell
entities Shell's interest in 22 producing fields, of which we operate 18, and 16
undeveloped blocks in the Gulf of Mexico. We also acquired related production
assets and proprietary 3-D seismic data covering over 1,000 blocks in the Gulf
of Mexico.
The purchase agreement was effective as of March 1, 1999. The purchase
price, subject to reduction for production since March 1, 1999 and other
adjustments, was $715 million in cash and 1 million shares of Apache common
stock.
We estimate that the properties we acquired in the Shell acquisition had
proved reserves as of March 1, 1999 of:
- 69.3 MMbbls of crude oil; and
- 348 Bcf of natural gas.
Using the conventional equivalence of one barrel of oil to six Mcf of gas,
these estimated reserves totaled 127.3 MMboe and were approximately 54% oil and
46% gas. Average daily production from these properties during February 1999
was:
- 24.9 Mbbls of crude oil and natural gas liquids; and
- 125 MMcf of natural gas.
S-3
<PAGE> 4
At March 1, 1999, the reserve life of the Shell properties -- total proved
reserves divided by prior 12 months' production -- was more than 7 years. These
proved reserves were:
- 85% proved developed; and
- 15% proved undeveloped.
In an underwritten offering completed on May 18, 1999, we raised net
proceeds of approximately $655 million through the issuance of approximately 15
million shares of common stock and 7 million depositary shares representing
convertible preferred stock, with the remainder of the Shell acquisition cash
purchase price funded under existing lines of credit.
On June 16, 1999, we purchased from British Borneo Australia Limited an
8.4% interest in the Harriet joint venture and a 10.0% interest in the East Spar
joint venture, which are ventures that produce oil and gas from permits located
off the northwest coast of Australia in the Carnarvon Basin. The purchase price
we paid, as adjusted for production and interest, was approximately $84 million
plus the assignment to British Borneo of undeveloped leasehold interests in the
Gulf of Mexico valued at approximately $3 million. The purchase brings our
current interest in the Harriet joint venture to 68.5%, and in the East Spar
joint venture to 55.0%.
We conduct an ongoing evaluation of our oil and gas properties, and we plan
to maintain an active acquisition and divestiture program for the rest of 1999.
USE OF PROCEEDS
We expect the net proceeds from this offering to be approximately
$148,335,500, after deducting discounts to the underwriters and estimated
expenses of the offering that we will pay. We intend to use the net proceeds to
reduce our outstanding amounts of commercial paper. On June 21, 1999, we had
outstanding $226.4 million of commercial paper bearing interest at a weighted
average discount rate of 4.9%. The commercial paper was issued to finance our
current operations.
S-4
<PAGE> 5
SELECTED FINANCIAL DATA AND OTHER DATA
We have provided in the tables below our selected financial and operating
data. The financial information for each of the years in the five-year period
ended December 31, 1998 has been derived from our audited financial statements.
The financial information for the three-month periods ended March 31, 1998 and
1999 has been derived from our unaudited financial statements. Our previously
reported data for 1994 has been restated to reflect the merger with DEKALB
Energy Company in May 1995 under the pooling of interests method of accounting.
You should read the following financial information in conjunction with our
consolidated financial statements and related notes that we have incorporated by
reference in the accompanying prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995(1) 1996(2) 1997(3) 1998
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues........................ $ 592,626 $ 750,702 $ 977,151 $1,176,273 $ 875,715
Net income (loss)..................... 45,583 20,207 121,427 154,896 (129,387)
Income (loss) attributable to common
stock............................... 45,583 20,207 121,427 154,896 (131,391)
Net income (loss) per common share
Basic............................... .65 .28 1.42 1.71 (1.34)
Diluted............................. .65 .28 1.38 1.65 (1.34)
Cash dividends per common share(4).... .28 .28 .28 .28 .28
Net cash provided by operating
activities.......................... $ 357,769 $ 332,123 $ 490,504 $ 723,808 $ 471,511
BALANCE SHEET DATA (AT YEAR END):
Working capital (deficit)............. $ (3,203) $ (22,013) $ (41,501) $ 4,546 $ (78,804)
Total assets.......................... 2,036,627 2,681,450 3,432,430 4,138,633 3,996,062
Long-term debt........................ 719,033 1,072,076 1,235,706 1,501,380 1,343,258
Shareholders' equity.................. $ 891,087 $1,091,805 $1,518,516 $1,729,177 $1,801,833
Common shares outstanding at end of
year................................ 69,666 77,379 90,059 93,305 97,769
</TABLE>
- ---------------
(1) Includes the results of the acquisitions of certain oil and gas properties
from Texaco Exploration and Production, Inc. and Aquila Energy Resources
Corporation after March 1, 1995 and September 1995, respectively, and the
sale of a substantial portion of Apache's Rocky Mountain properties in
September 1995.
(2) Includes financial data after May 20, 1996 for Apache PHN Company, Inc.,
formerly known as The Phoenix Resource Companies, Inc.
(3) Includes financial data after November 20, 1997 relating to the acquisition
from Mobil Exploration & Producing Australia Pty Ltd of three companies
owning interests in certain oil and gas properties and production facilities
offshore Western Australia.
(4) No cash dividends were paid on outstanding DEKALB common stock in 1994 and
1995.
S-5
<PAGE> 6
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1999
---------- ------------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
INCOME STATEMENT DATA:
Total revenues.............................................. $245,941 $ 187,715
Net income (loss)........................................... 17,356 (2,168)
Income (loss) attributable to common stock.................. 17,356 (3,588)
Net income (loss) per common share
Basic..................................................... .18 (.04)
Diluted................................................... .18 (.04)
Cash dividends per common share............................. $ .07 $ .07
BALANCE SHEET DATA (AT PERIOD END):
Total debt.................................................. $1,547,082
Shareholders' equity........................................ $1,795,581
Common shares outstanding at end of period.................. 97,821
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Proved Reserves at December 31:
Oil (Mbbls)(1)......................... 110,624 170,329 235,294 273,778 251,008
Natural Gas (Bcf)...................... 1,316 1,502 1,625 1,872 2,172
Total Proved Reserves
(Mboe)(2).................... 329,983 420,649 506,178 585,748 613,046
Reserves Outside North America (% of
Total).............................. 3.3% 4.7% 17.8% 27.9% 38.3%
Reserve Replacement Ratio(3)........... 189.7% 267.3% 257.2% 228.0% 142.9%
Reserve Life (years)(4)................ 7.5 7.8 9.3 9.4 9.6
Finding and Development Costs per
boe(2)(5)........................... $ 5.95 $ 5.30 $ 6.09 $ 5.75 $ 4.98
Average Daily Production:
Oil (Mbbls/day)(1)..................... 40 52 55 69 76
Natural Gas (MMcf/day)................. 483 577 561 609 590
Total Production
(Mboe/day)(2)................ 120 148 149 170 174
Average Production Costs per boe(2)...... $ 2.85 $ 3.34 $ 3.43 $ 3.07 $ 2.88
</TABLE>
- ---------------
(1) Includes crude oil, condensate and natural gas liquids.
(2) 6 Mcf of natural gas = 1 boe.
(3) Total reserve additions for the year, including revisions and net of
property sales, divided by annual production.
(4) Total proved reserves at year end divided by annual production.
(5) Total capitalized costs incurred for the year, excluding capitalized
interest and property sales, divided by total reserve additions for the
year, including revisions.
S-6
<PAGE> 7
RATIOS OF EARNINGS TO FIXED CHARGES
Our ratios of earnings to fixed charges are shown in the table below for
each of the periods indicated. Our 1998 earnings and earnings for the three
months ended March 31, 1999 were inadequate to cover fixed charges as described
below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
- -------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
- ---- ---- ---- ---- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
2.34 1.15 2.72 2.93 -- 1.60 --
</TABLE>
Our ratios of earnings to fixed charges were computed based on:
- "earnings," which consist of consolidated income or losses from
continuing operations plus income taxes and fixed charges, except
capitalized interest; and
- "fixed charges," which consist of consolidated interest on indebtedness,
including capitalized interest, amortization of debt discount and
expense, and the estimated portion of rental expense attributable to
interest.
Due to a $243.2 million non-cash write-down of the carrying value of our
U.S. proved oil and gas properties for the year ended December 31, 1998, our
1998 earnings were inadequate to cover fixed charges by $236.8 million. Due to
low oil and gas prices, our earnings for the three months ended March 31, 1999
were inadequate to cover fixed charges by $14.2 million.
On May 17, 1995, Apache acquired DEKALB Energy Company, which is now known
as DEK Energy Company, through a merger which resulted in DEKALB becoming a
wholly-owned subsidiary of Apache. The merger was accounted for as a "pooling of
interests". As a result, our financial information for all preceding periods was
restated.
DESCRIPTION OF NOTES
GENERAL
We will issue the notes as a series of debt securities under the indenture,
dated as of February 15, 1996, as supplemented, between us and The Chase
Manhattan Bank, as trustee. The indenture is more fully described in the
accompanying prospectus.
The Chase Manhattan Bank is the global administrative agent and Australian
syndication agent and Chase Securities Inc. and The Chase Manhattan Bank of
Canada, affiliates of The Chase Manhattan Bank, are the global arranger and
Canadian syndication agent, respectively, of certain portions of Apache's global
credit facility. The Chase Manhattan Bank and The Chase Manhattan Bank of Canada
are also lenders under that facility. The Chase Manhattan Bank is also the
technical bank for, and a lender under, the credit facility entered into by some
of our Egyptian subsidiaries. Chase Manhattan International Limited, an
affiliate of The Chase Manhattan Bank, is the facility agent for the Egyptian
credit facility. Chase Securities Inc. and Chase Manhattan PLC, affiliates of
The Chase Manhattan Bank, acted as arrangers for our Egyptian credit facility.
We may, from time to time, without the consent of the holders of the notes,
issue additional notes or other debt securities under the indenture. The
indenture does not limit the amount of other indebtedness that may be issued by
Apache or any of our subsidiaries.
We will pay interest on the notes at the annual rate of 7.625% on January 1
and July 1 of each year, commencing January 1, 2000. The notes will mature on
July 1, 2019. We are not permitted to redeem the notes prior to maturity, and
the notes will not have the benefit of any sinking fund. Holders of the notes do
not have any right to elect an early payment of the notes.
S-7
<PAGE> 8
The notes are a new issue of securities with no established trading market
and will not be listed on any securities exchange. No assurance can be given as
to the existence or liquidity of a secondary market for the notes.
BOOK-ENTRY
Upon issuance, all notes will be represented by one or more global notes
registered in the name of The Depository Trust Company.
SAME-DAY SETTLEMENT AND PAYMENT
So long as the notes are maintained in book-entry form, transactions in the
notes will settle in immediately available funds and we will make all payments
of principal and interest in immediately available funds.
CHANGE IN CONTROL
Upon a change in control as defined in the indenture, we will be obligated,
at the election of each holder of notes, to purchase such notes at the principal
amount of such notes plus accrued interest to the purchase date.
UNDERWRITING
Apache is selling the notes to the underwriters named below pursuant to an
underwriting agreement dated June 22, 1999. Subject to certain conditions,
Apache has agreed to sell to each of the underwriters, and each of the
underwriters has severally agreed to purchase, the principal amount of notes set
forth in the following table:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
- ----------- ----------------
<S> <C>
Bear, Stearns & Co. Inc..................................... $100,000,000
Warburg Dillon Read LLC..................................... 50,000,000
------------
Total............................................. $150,000,000
============
</TABLE>
Under the terms and conditions of the underwriting agreement, if the
underwriters take any of the notes, then they are obligated to take and pay for
all of the notes.
The notes are a new issue of securities with no established trading market.
Apache has been advised by the underwriters that the underwriters intend to make
a market in the notes but are not obligated to do so and may discontinue market
making at any time without notice. Apache cannot give any assurance as to the
liquidity of any trading market for the notes.
The underwriters initially propose to offer part of the notes directly to
the public at the public offering price set forth on the cover page and part to
certain dealers at a price that represents a concession of 0.20% of the
principal amount of the notes. Any underwriter may allow, and any such dealer
may reallow, a concession of 0.15% of the principal amount of the notes to
certain other dealers. After the initial offering of the notes, the underwriters
may, from time to time, vary the offering price and other selling terms.
Each of the underwriters has agreed that it will not offer, sell or deliver
any of the notes directly or indirectly, or distribute this prospectus
supplement or the accompanying prospectus or any other offering material
relating to the notes, in or from any jurisdiction except under circumstances
that will, to the best knowledge and belief of such underwriter, result in
compliance with the applicable laws and regulations thereof and which will not
impose any obligations on Apache except as set forth in the underwriting
agreement.
S-8
<PAGE> 9
In connection with the offering of the notes, the underwriters may, to the
extent permitted by applicable law, engage in transactions that stabilize,
maintain or otherwise affect the price of the notes. Specifically, the
underwriters may overallot in connection with the offering of the notes,
creating a short position in the notes for their own account. In addition, the
underwriters may bid for, and purchase, notes in the open market to cover short
positions or to stabilize the price of the notes. Finally, the underwriters may
reclaim selling concessions allowed for distributing the notes in the offering,
if the underwriters repurchase previously distributed notes in transactions to
cover short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market prices of the notes above
independent market levels. The underwriters are not required to engage in any of
these activities and may end any of these activities at any time.
Apache has agreed to reimburse the underwriters for certain expenses
incurred by the underwriters in connection with the offering of the notes.
In the ordinary course of their respective businesses certain of the
underwriters and their affiliates have engaged and may in the future engage in
various banking and financial services for and commercial transactions with
Apache and its affiliates.
Apache has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933 or to
contribute payments which the underwriters may be required to make in respect of
such liabilities.
LEGAL MATTERS
The validity of the debt securities we are offering will be passed upon for
Apache by its Vice President and General Counsel, Z. S. Kobiashvili, and for the
underwriters by Brown & Wood LLP, New York, New York. As of the date of this
prospectus supplement, Mr. Kobiashvili owns 2,063 shares of Apache common stock
through Apache's 401(k) savings plan, holds employee stock options to purchase
51,100 shares of Apache common stock, of which options to purchase 25,250 shares
are currently exercisable, and holds a conditional grant under Apache's 1996
Share Price Appreciation Plan relating to 18,900 shares of Apache common stock,
none of which is vested.
Mayor, Day, Caldwell & Keeton, L.L.P., Houston, Texas, our outside legal
counsel, and Mr. Kobiashvili will issue opinions about some legal matters in
connection with the offering. Brown & Wood LLP will issue an opinion about some
legal matters in connection with the offering for the underwriters.
EXPERTS
The audited consolidated financial statements of Apache Corporation
incorporated by reference into the prospectus that accompanies this prospectus
supplement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated by reference therein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
The information incorporated by reference into the prospectus that
accompanies this prospectus supplement regarding the total proved reserves of
Apache was prepared by Apache and reviewed by Ryder Scott Company Petroleum
Engineers, as stated in their letter reports, and is incorporated by reference
in reliance upon the authority of said firm as experts in such matters. The
information incorporated by reference into the prospectus that accompanies this
prospectus supplement regarding the total estimated proved reserves acquired
from Texaco Exploration and Production Inc. was prepared by Apache and reviewed
by Ryder Scott, as stated in their letter reports, and is incorporated by
reference in reliance upon the authority of that firm as experts in these
matters. The information incorporated by reference into the prospectus that
accompanies this prospectus supplement regarding the total proved reserves of
DEKALB Energy Company was prepared by DEKALB and for the four years ended
December 31, 1994 was
S-9
<PAGE> 10
reviewed by Ryder Scott, as stated in their letter reports with respect thereto,
and is incorporated by reference in reliance upon the authority of that firm as
experts in these matters.
A portion of the information incorporated by reference in the prospectus
that accompanies this prospectus supplement regarding the total proved reserves
of Aquila Energy Resources Corporation acquired by Apache was prepared by
Netherland, Sewell & Associates, Inc. as of December 31, 1994, as stated in
their letter report, and is incorporated by reference in reliance upon the
authority of that firm as experts in those matters. Netherland, Sewell did not
review any of the reserves of Aquila acquired during 1995.
S-10
<PAGE> 11
PROSPECTUS
$300,000,000
[APACHE CORPORATION LOGO]
DEBT SECURITIES
------------------------
Apache Corporation (the "Company" or "Apache") intends from time to time to
issue senior unsecured debt securities ("Debt Securities") in one or more
series, at an aggregate initial offering price not to exceed $300,000,000, at
prices and on terms to be determined at or prior to the time of sale. The
specific designation, aggregate principal amount, maturity, interest rate,
method of distribution, and any prepayment, original issue discount or other
variable terms with regard to the Debt Securities in respect of which this
Prospectus is delivered will be, to the extent not set forth herein, set forth
in an accompanying Prospectus Supplement.
Unless otherwise specified herein or in the applicable Prospectus
Supplement, the Debt Securities will be issued in fully registered book-entry
form and will be registered in the name of The Depository Trust Company, as
depository ("DTC"), or its nominee. Interests in the Debt Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. Debt Securities issued in book-entry
form will not be issuable as certificated securities except as specified herein
or in the applicable Prospectus Supplement. See "DTC Book-Entry-Only System."
Payment of the principal of, and premium, if any, and interest on, the Debt
Securities will be made to DTC if and so long as DTC or its nominee is the
registered owner of the Debt Securities. The disbursement of such payments to
beneficial owners of the Debt Securities ("Beneficial Owners") will be the
responsibility of the DTC Participants and the Indirect Participants, all as
defined and more fully described in this Prospectus under the caption "DTC
Book-Entry-Only System."
The applicable Prospectus Supplement will contain information, where
applicable and to the extent not set forth herein, concerning certain United
States federal income tax considerations relating to the Debt Securities covered
by such Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The Debt Securities may be sold (i) through underwriters or dealers, (ii)
directly by the Company to a limited number of institutional purchasers or to a
single purchaser, (iii) through agents designated from time to time, or (iv)
through any combination of the above. If any agents of the Company or any
underwriters are involved in the sale of the Debt Securities, the names of such
agents or underwriters and any applicable commissions or discounts will be set
forth in the applicable Prospectus Supplement. See "Plan of Distribution" for
indemnification arrangements which the Company is prepared to make available to
underwriters and agents for the sale of the Debt Securities.
------------------------
The date of this Prospectus is January 22, 1998.
<PAGE> 12
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE DEBT SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT OR OTHER TRANSACTIONS EFFECTED BY THE
UNDERWRITERS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
---------------------
AVAILABLE INFORMATION
Apache is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "SEC"). Reports, proxy statements and other information filed by
Apache can be inspected and copied at the public reference facilities maintained
by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
Regional Offices at Seven World Trade Center, 13th Floor, New York, New York
10048 and CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained by mail from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Also, the SEC maintains a web site that contains reports,
proxy and information statements regarding issuers that file electronically with
the SEC at <http://www.sec.gov>. In addition, reports, proxy statements and
other information concerning Apache may be inspected at the offices of The New
York Stock Exchange, Inc. ("NYSE"), 20 Broad Street, New York, New York 10005,
and also at the offices of the Chicago Stock Exchange ("CSE"), One Financial
Place, 440 S. LaSalle Street, Chicago, Illinois 60605-1070. The address of the
Company's principal executive offices and its telephone number are 2000 Post Oak
Boulevard, Suite 100, Houston, Texas 77056-4400 and (713) 296-6000.
The Company has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits and schedules thereto,
certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The information so omitted may be obtained from the
SEC's principal office in Washington, D.C. upon payment of the fees prescribed
by the SEC. For further information, reference is hereby made to the
Registration Statement. 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
being qualified in its entirety by such reference.
---------------------
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the SEC
pursuant to the Exchange Act (SEC File No. 1-4300) are incorporated in and made
a part of this Prospectus:
a. Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
b. Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1997.
c. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997.
d. Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997.
e. Current Report on Form 8-K dated June 13, 1997.
f. Current Report on Form 8-K dated August 8, 1997.
g. Current Report on Form 8-K dated October 8, 1997.
h. Current Report on Form 8-K dated December 5, 1997, as amended on
Form 8-K/A.
i. Current Report on Form 8-K dated December 16, 1997.
2
<PAGE> 13
All documents which the Company files pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering described herein shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement contained in a document
incorporated by reference, or deemed to be incorporated by reference, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document or in any accompanying Prospectus Supplement modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company undertakes to provide without charge, upon the written or oral
request of any person to whom a copy of this Prospectus has been delivered, a
copy of any or all of the documents referred to above which are incorporated in
this Prospectus by reference, other than exhibits to such documents. Requests
should be directed to Cheri L. Peper, Corporate Secretary, Apache Corporation,
2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400; (713) 296-6000.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 ("PSLRA")
Certain forward-looking information contained in this Prospectus and
certain material incorporated by reference herein is being provided, and certain
forward-looking information in each Prospectus Supplement will be provided, in
reliance upon the "safe harbor" provisions of the PSLRA as set forth in Section
27A of the Securities Act and Section 21E of the Exchange Act. Such information
includes, without limitation, discussions as to estimates, expectations,
beliefs, plans, strategies and objectives concerning the Company's future
financial and operating performance. Such forward-looking information is subject
to assumptions and beliefs based on current information known to the Company and
factors that could yield actual results differing materially from those
anticipated. Such factors include, without limitation, the prices received for
the Company's oil and natural gas production, the costs of acquiring, finding,
developing and producing reserves, the rates of production of the Company's
hydrocarbon reserves, the Company's success in acquiring or finding additional
reserves, unforeseen operational hazards, significant changes in tax or
regulatory environments, and the political and economic uncertainties of foreign
operations.
---------------------
All defined terms under Rule 4-10(a) of Regulation S-X promulgated under
the Securities Act shall have their statutorily-prescribed meanings when used in
this Prospectus. Quantities of natural gas are expressed in this Prospectus in
terms of thousand cubic feet ("Mcf"), million cubic feet ("MMcf") or billion
cubic feet ("Bcf"). Oil (which includes condensate) is quantified in terms of
barrels ("bbls"), thousands of barrels ("Mbbls") and millions of barrels
("MMbbls"). One barrel of oil is treated as the energy equivalent of six Mcf of
natural gas, expressed as a barrel of oil equivalent. Natural gas is compared to
oil in terms of thousand barrels of oil equivalent ("Mboe") and in million
barrels of oil equivalents ("MMboe"). Oil and natural gas liquids are compared
with natural gas in terms of million cubic feet equivalent ("MMcfe") and billion
cubic feet equivalent ("Bcfe"). Daily oil and gas production is expressed in
terms of barrels of oil per day ("bopd") and thousands of cubic feet of gas per
day ("Mcfd"), respectively. The Company's "net" working interest in wells or
acreage is determined by multiplying gross wells or acreage by the Company's
working interest therein. Unless otherwise specified, all references to wells
and acres are gross.
3
<PAGE> 14
THE COMPANY
Apache Corporation, a Delaware corporation formed in 1954, is an
independent energy company that explores for, develops and produces crude oil
and natural gas. In North America, the Company's exploration and production
interests are focused on the Gulf of Mexico, the Anadarko Basin, the Permian
Basin, the Gulf Coast and the Western Sedimentary Basin of Canada. Outside of
North America, the Company has exploration and production interests offshore
Western Australia and in Egypt, and exploration interests in, among other areas,
Indonesia, Poland, offshore the People's Republic of China and offshore the
Ivory Coast. The Company's common stock, par value $1.25 per share ("Apache
Common Stock"), has been listed on the NYSE since 1969, and on the CSE since
1960.
The Company holds interests in many of its North American and international
properties through operating subsidiaries, such as Apache Canada Ltd., MW
Petroleum Corporation, Apache Energy Limited, Apache International, Inc., Apache
Overseas, Inc., and Apache PHN Company, Inc. The Company treats all operations
as one segment of business.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the net
proceeds from the sale of the Debt Securities will be used to refinance
outstanding indebtedness and for other general corporate purposes. To the extent
proceeds are used to refinance outstanding indebtedness, certain terms of the
indebtedness being refinanced will be set forth in the applicable Prospectus
Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges were as follows for the
respective periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
- -------------- --------------------------------------------
1997 1996 1996 1995 1994 1993 1992
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
2.91 2.33 2.72 1.15 2.34 2.37 .72
</TABLE>
The Company's ratios of earnings to fixed charges were computed based on:
(A) consolidated income or losses from continuing operations before income taxes
and fixed charges (excluding interest capitalized); and (B) consolidated fixed
charges, which consist of interest on indebtedness (including amounts
capitalized), amortization of debt discount and expense and the estimated
portion of rental expense attributable to interest. On May 17, 1995, Apache
acquired DEKALB Energy Company ("DEKALB", now known as DEK Energy Company)
through a merger which resulted in DEKALB becoming a wholly-owned subsidiary of
Apache. The merger was accounted for as a "pooling of interests." As a result,
Apache's financial information for all preceding periods was restated. After
such restatement, earnings were inadequate to cover fixed charges by $14.8
million for 1992, due to write downs of the carrying value of the U.S. and
Canadian oil and gas properties of DEKALB and losses incurred on the divestiture
of certain of DEKALB's U.S. assets.
4
<PAGE> 15
DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities will be issued under an indenture (as supplemented from time to
time, the "Indenture") entered into between the Company and The Chase Manhattan
Bank, as trustee and successor to Chemical Bank (the "Trustee"). References
herein to "Sections" are references to Sections of the Indenture unless
otherwise indicated. The Debt Securities to be offered by this Prospectus are
limited to an aggregate initial offering price not to exceed $300,000,000.
However, the Indenture does not limit the amount of Debt Securities which can be
issued thereunder and provides that additional Debt Securities of any series may
be issued thereunder up to the aggregate principal amount which may be
authorized from time to time by the Company. The payment of principal of, or
premium, if any, or interest on the Debt Securities will rank pari passu with
all other unsecured unsubordinated indebtedness of the Company. Unless otherwise
indicated herein or in the applicable Prospectus Supplement, the Debt Securities
will be issued in denominations of $100,000 and integral multiples of $1,000 in
excess thereof.
The maturity date, interest payment dates, and rate of interest of the Debt
Securities will be as set forth in the Prospectus Supplement applicable thereto.
Subject to certain exceptions therein set forth, the Indenture provides for the
payment of interest on any interest payment date only to persons in whose names
the Debt Securities are registered on the regular record date, which is the last
day of the calendar month preceding the month in which an interest payment is
due (whether or not a business day).
A copy of the Indenture is an exhibit to the Registration Statement of
which this Prospectus is a part. The information herein includes a summary of
certain provisions of the Indenture and does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all provisions of
the Indenture, including the definition therein of certain terms. The following
summaries set forth certain general terms and provisions of the Debt Securities
to which any Prospectus Supplement may relate. The particular terms of the Debt
Securities offered by any Prospectus Supplement and the extent, if any, to which
such general provisions may apply to the Debt Securities so offered will, to the
extent not described herein, be described in the Prospectus Supplement relating
to such Debt Securities.
PROVISIONS APPLICABLE TO ALL DEBT SECURITIES
General
Reference is made to the Prospectus Supplement that accompanies this
Prospectus for the following terms, to the extent permitted by the Indenture,
and other information with respect to the Debt Securities being offered thereby,
to the extent not described herein: (i) the designation, aggregate principal
amount and authorized denominations of such Debt Securities; (ii) the percentage
of the principal amount at which such Debt Securities will be issued; (iii) the
date (or the manner of determining or extending the date or dates) on which the
principal of such Debt Securities will be payable; (iv) whether such Debt
Securities will be issued in fully registered form or in bearer form or any
combination thereof; (v) whether such Debt Securities will be issued in the form
of one or more global securities and whether such global securities are to be
issuable in a temporary global form or permanent global form; (vi) if other than
U.S. dollars, the currency or currencies or currency unit or units in which Debt
Securities may be denominated and purchased and the currency or currencies or
currency units in which principal, premium (if any) and any interest may be
payable; (vii) if the currency or currencies or currency unit or units for which
Debt Securities may be purchased or in which principal, premium (if any) and any
interest may be payable is at the election of the Company or the purchaser, the
manner in which such an election may be made and the terms of such election;
(viii) the rate or rates per annum at which such Debt Securities will bear
interest, if any, or the method or methods of determination of such rate or
rates and the basis upon which interest will be calculated if other than that of
a 360-day year consisting of twelve 30-day months; (ix) the date or dates from
which such interest, if any, on such Debt Securities will accrue or the method
or methods, if any, by which such date or dates are to be determined, the date
or dates on which such interest, if any, will be payable, the date on which
payment of such interest, if any, will commence and the Regular Record Dates for
such Interest Payment Dates, if any; (x) the date or dates, if any, on or after
5
<PAGE> 16
which, or the period or periods, if any, within which, and the price or prices
at which the Debt Securities may, pursuant to any optional redemption
provisions, be redeemed at the option of the Company or of the holder thereof
and the other terms and provisions of such optional redemption; (xi) information
with respect to book-entry procedures relating to global Debt Securities; (xii)
whether and under what circumstances the Company will pay Additional Amounts as
contemplated by Section 1004 of the Indenture (the term "interest," as used in
this Prospectus, shall include such Additional Amounts) on such Debt Securities
to any holder who is a United States Alien (as defined in the Indenture)
(including any modification to the definition of such terms contained in the
Indenture as originally executed) in respect of any tax, assessment or
governmental charge and, if so, whether the Company will have the option to
redeem such Debt Securities rather than pay such Additional Amounts (and the
terms of any such option); (xiii) any deletions from, modifications of or
additions to the Events of Default or covenants of the Company with respect to
any of such Debt Securities; (xiv) if either or both of Section 402(2) relating
to defeasance or Section 402(3) relating to covenant defeasance shall not be
applicable to the Debt Securities of such series, or any covenants in addition
to those specified in Section 402(3) relating to the Debt Securities of such
series shall be subject to covenant defeasance, and any deletions from, or
modifications or additions to, the provisions of Article Four of the Indenture
relating to satisfaction and discharge in respect of the Debt Securities of such
series; (xv) any index or other method used to determine the amount of payments
of principal, premium (if any) and any interest on such Debt Securities; (xvi)
if a trustee other than Chemical Bank is named for such Debt Securities, the
name of such trustee; and (xvii) any other specific terms of the Debt
Securities. All Debt Securities of any one series need not be issued at the same
time and all the Debt Securities of any one series need not bear interest at the
same rate or mature on the same date.(Section 301.)
If any of the Debt Securities are sold for foreign currencies or foreign
currency units or if the principal of, or premium, if any, or interest, if any,
on any series of Debt Securities is payable in foreign currencies or foreign
currency units, the restrictions, elections, tax consequences, specific terms
and other information with respect to such Debt Securities and such foreign
currencies or foreign currency units will be set forth in the applicable
Prospectus Supplement. (Section 302.)
Other than as described below under "Limitation on Liens," "Limitation on
Sale/Leaseback Transactions" and "Company's Obligation to Purchase Debt
Securities on Change in Control," the Indenture does not contain any provision
that would limit the ability of the Company to incur indebtedness or that would
afford holders of Debt Securities protection in the event of a decline in the
credit quality of the Company or a takeover, recapitalization or highly
leveraged or similar transaction involving the Company. Reference is made to the
Prospectus Supplement relating to the particular series of Debt Securities
offered thereby, to the extent not otherwise described herein, for any
information with respect to any deletions from, modifications of or additions to
the Events of Default described below and contained in the Indenture, including
any addition of a covenant or other provision providing event risk or similar
protection.
Interest Rates
The Debt Securities will earn interest at the fixed or floating rate for
the period of time specified in the applicable Prospectus Supplement.
If the Debt Securities earn interest at a floating rate, the applicable
Prospectus Supplement shall state the Interest Rate Basis or Bases (including
the applicable Spread, if any, and the applicable Spread Multiplier, if any),
the Interest Payment Period and Dates, the Index Maturity and the Maximum
Interest Rate and/or Minimum Interest Rate, if any, as such terms are defined
below. If one or more of the applicable Interest Rate Bases is LIBOR, the
Prospectus Supplement must also specify the Index Currency and Designated LIBOR
Page, as such terms are defined below. Unless otherwise specified in the
applicable Prospectus Supplement, the Debt Securities shall bear interest on the
basis of a 360-day year consisting of twelve 30-day months.
6
<PAGE> 17
The "Spread" is the number of basis points to be added to or subtracted
from the related Interest Rate Basis or Bases applicable to each respective Debt
Security. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases by which such Interest Rate Basis or Bases will be multiplied to
determine the applicable interest rate. The "Index Maturity" is the period to
maturity of the instrument or obligation with respect to which the related
Interest Rate Basis or Bases will be calculated.
Unless otherwise specified in the Prospectus Supplement, the Interest Rate
Basis may, as described below, include (i) the Commercial Paper Rate, as such
term is defined below, (ii) LIBOR, as such term is defined below, (iii) the
Treasury Rate, as such term is defined below, or (iv) such other Interest Rate
Basis or interest rate formula as may be specified in the applicable Prospectus
Supplement.
The applicable Prospectus Supplement will specify whether the floating rate
of interest will be reset daily, weekly, monthly, quarterly, semiannually or
annually or on such other specified basis (each, an "Interest Reset Period") and
the dates on which such rate of interest will be reset (each, an "Interest Reset
Date"). Unless otherwise specified in the applicable Prospectus Supplement, the
Interest Reset Dates will be, in the case of a floating interest rate which
resets: (i) daily, each Business Day(as defined in the Indenture); (ii) weekly,
the Wednesday of each week (unless the Treasury Rate is an applicable Interest
Rate Basis, in which case the Tuesday of each week except as described below);
(iii) monthly, the third Wednesday of each month; (iv) quarterly, the third
Wednesday of March, June, September and December of each year; (v) semiannually,
the third Wednesday of the two months specified in the applicable Prospectus
Supplement; and (vi) annually, the third Wednesday of the month specified in the
applicable Prospectus Supplement. If any Interest Reset Date would otherwise be
a day that is not a Business Day, such Interest Reset Date will be postponed to
the next succeeding Business Day, unless LIBOR is an applicable Interest Rate
Basis and such Business Day falls in the next succeeding calendar month, in
which case such Interest Reset Date will be the immediately preceding Business
Day. In addition, if the Treasury Rate is an applicable Interest Rate Basis and
the Interest Determination Date would otherwise fall on an Interest Reset Date,
then such Interest Reset Date will be postponed to the next succeeding Business
Day.
The interest rate applicable to each Interest Reset Period commencing on
the related Interest Reset Date will be the rate determined as of the applicable
Interest Determination Date on or prior to the Calculation Date, as such terms
are defined below. The "Interest Determination Date" (i) with respect to the
Commercial Paper Rate, will be the second Business Day immediately preceding the
applicable Interest Reset Date; (ii) with respect to LIBOR, will be the second
London Business Day immediately preceding the applicable Interest Reset Date,
unless the Index Currency (as hereinafter defined) is British pounds sterling,
in which case the "Interest Determination Date" will be the applicable Interest
Reset Date; and (iii) with respect to the Treasury Rate, will be the day that
Treasury Bills (as hereinafter defined) are auctioned during or for the week in
which the applicable Interest Reset Date falls (Treasury Bills being normally
sold at an auction held on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
except that such auction may be held on the preceding Friday); provided,
however, that if an auction is held on the Friday of the week preceding the
applicable Interest Reset Date, the Interest Determination Date will be such
preceding Friday. The "Interest Determination Date" pertaining to a floating
interest rate which is determined by reference to two or more Interest Rate
Bases will be the most recent Business Day which is at least two Business Days
prior to the applicable Interest Reset Date on which each Interest Rate Basis is
determinable. Each Interest Rate Basis will be determined as of such date, and
the applicable interest rate will take effect on the applicable Interest Reset
Date.
Either or both of the following may also apply to the floating interest
rate on Debt Securities: (i) a Maximum Interest Rate, or ceiling, that may apply
during any Interest Reset Period, and (ii) a Minimum Interest Rate, or floor,
that may apply during any Interest Reset Period. In addition to any Maximum
Interest Rate that may apply, the interest rate on any Debt Securities will in
no event be higher than the maximum rate permitted by New York law, as the same
may be modified by United States laws of general application.
7
<PAGE> 18
Except as provided below or in the applicable Prospectus Supplement,
interest will be payable, in the case of floating interest rates which reset:
(i) daily, weekly or monthly, on the third Wednesday of each month or on the
third Wednesday of March, June, September and December of each year, as
specified in the applicable Prospectus Supplement; (ii) quarterly, on the third
Wednesday of March, June, September and December of each year; (iii)
semiannually, on the third Wednesday of the two months of each year specified in
the applicable Prospectus Supplement; and (iv) annually, on the third Wednesday
of the month of each year specified in the applicable Prospectus Supplement. If
any Interest Payment Date (as defined in the Indenture) for the payment of
interest at a floating rate would otherwise be a day that is not a Business Day,
such Interest Payment Date will be postponed to the next succeeding Business
Day, except that if LIBOR is an applicable Interest Rate Basis and such Business
Day falls in the next succeeding calendar month, such Interest Payment Date will
be the immediately preceding Business Day.
All percentages resulting from any calculation of floating interest rates
will be rounded to the nearest one hundred-thousandth of a percentage point,
with five one-millionths of a percentage point rounded upwards (e.g., 9.876545%
(or .09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used
in or resulting from such calculation will be rounded, in the case of United
States dollars, to the nearest cent or, in the case of a foreign currency or
composite currency, to the nearest unit (with one-half cent or unit being
rounded upwards).
Accrued floating rate interest will be calculated by multiplying the
principal amount of the Debt Securities to which it relates by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factor calculated for each day in the applicable Interest Reset Period.
Unless otherwise specified in the applicable Prospectus Supplement, the interest
factor for each such day will be computed by dividing the interest rate
applicable to such day by 360, if an applicable Interest Rate Basis is the
Commercial Paper Rate or LIBOR, or by the actual number of days in the year if
an applicable Interest Rate Basis is the Treasury Rate. Unless otherwise
specified in the applicable Prospectus Supplement, if the floating interest rate
is calculated with reference to two or more Interest Rate Bases, the interest
factor will be calculated in each period in the same manner as if only one of
the applicable Interest Rate Bases applied as specified in the applicable
Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, The
Chase Manhattan Bank will be the "Calculation Agent." Upon request of the
Beneficial Owner of any Debt Securities, the Calculation Agent will disclose the
interest rate then in effect and, if determined, the interest rate that will
become effective as a result of a determination made for the next succeeding
Interest Reset Date with respect to such Debt Securities. Unless otherwise
specified in the applicable Prospectus Supplement, the "Calculation Date," if
applicable, pertaining to any Interest Determination Date will be the earlier of
(i) the tenth calendar day after such Interest Determination Date or, if such
day is not a Business Day, the next succeeding Business Day or (ii) the Business
Day immediately preceding the applicable Interest Payment Date or the Maturity
Date, as the case may be.
Unless otherwise specified in the applicable Prospectus Supplement, the
Calculation Agent shall determine each Interest Rate Basis in accordance with
the following provisions.
Commercial Paper Rate. Unless otherwise specified in the applicable
Prospectus Supplement, "Commercial Paper Rate" means, with respect to any
Interest Determination Date for which the interest rate is determined with
reference to the Commercial Paper Rate (a "Commercial Paper Rate Interest
Determination Date"), the Money Market Yield (as hereinafter defined) on such
date of the rate for commercial paper having the Index Maturity specified in the
applicable Prospectus Supplement as published in H.15(519) by the Federal
Reserve Bank of New York under the heading "Commercial Paper." In the event that
such rate is not published by 3:00 p.m., New York City time, on the related
Calculation Date, then the Commercial Paper Rate on such Commercial Paper Rate
Interest Determination Date will be the Money Market Yield of the rate for
commercial paper having the Index Maturity specified in the applicable
Prospectus Supplement as published in Composite Quotations under the heading
"Commercial Paper" (with an Index Maturity of one month or three months being
deemed to be equivalent to an Index Maturity of 30 days or 90 days,
respectively). If such rate is not yet published in
8
<PAGE> 19
either H.15(519) or Composite Quotations by 3:00 p.m., New York City time, on
the related Calculation Date, then the Commercial Paper Rate on such Commercial
Paper Rate Interest Determination Date will be calculated by the Calculation
Agent and will be the Money Market Yield of the arithmetic mean of the offered
rates at approximately 11:00, New York City time, on such Commercial Paper Rate
Interest Determination Date of three leading dealers of commercial paper in New
York City, selected by the Calculation Agent, after consultation with the
Company, for commercial paper having the Index Maturity specified in the
applicable Prospectus Supplement placed for an industrial issuer whose bond
rating is "AA," or the equivalent, from a nationally recognized statistical
rating organization; provided, however, that if the dealers so selected by the
Calculation Agent are not quoting as mentioned in this sentence, the Commercial
Paper Rate determined as of such Commercial Paper Rate Interest Determination
Date will be the Commercial Paper Rate as most recently determined prior to such
Commercial Paper Rate Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
<TABLE>
<C> <C> <S>
D X 360
Money Market = --------------- X 100
360 - (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the Interest Period for which interest is being calculated.
LIBOR. Unless otherwise specified in the applicable Prospectus Supplement,
"LIBOR" means the rate determined in accordance with the following provisions:
(i) With respect to any Interest Determination Date for which the
interest rate is determined with reference to LIBOR (a "LIBOR Interest
Determination Date"), LIBOR will be either: (a) if "LIBOR Reuters" is
specified in the applicable Prospectus Supplement, the arithmetic mean of
the offered rates (unless the Designated LIBOR Page by its terms provides
only for a single rate, in which case such single rate shall be used) for
deposits in the Index Currency having the Index Maturity specified in such
Prospectus Supplement, commencing on the applicable Interest Reset Date,
that appear (or, if only a single rate is required as aforesaid, appears)
on the Designated LIBOR Page as of 11:00 a.m., London time, on such LIBOR
Interest Determination Date, or (b) if "LIBOR Telerate" is specified in the
applicable Prospectus Supplement or if neither "LIBOR Reuters" nor "LIBOR
Telerate" is specified in the applicable Prospectus Supplement as the
method for calculating LIBOR, the rate for deposits in the Index Currency
having the Index Maturity specified in such Prospectus Supplement,
commencing on such Interest Reset Date, that appears on the Designated
LIBOR Page as of 11:00 a.m., London time, on such LIBOR Interest
Determination Date. If fewer than two such offered rates appear, or if no
such rate appears, as applicable, LIBOR on such LIBOR Interest
Determination Date will be determined in accordance with the provisions
described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates appear, or no rate appears, as the case may
be, on the Designated LIBOR Page as specified in clause (i) above, the
Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, after consultation with the Company, to provide the
Calculation Agent with its offered quotation for deposits in the Index
Currency for the period of the Index Maturity specified in the applicable
Prospectus Supplement, commencing on the applicable Interest Reset Date, to
prime banks in the London interbank market at approximately 11:00 a.m.,
London time, on such LIBOR Interest Determination Date and in a principal
amount that is representative for a single transaction in such Index
Currency in such market at such time. If at least two such quotations are
so provided, then LIBOR on such LIBOR Interest Determination Date will be
the arithmetic mean of such quotations. If fewer than two such quotations
are so provided, then LIBOR on such LIBOR Interest
9
<PAGE> 20
Determination Date will be the arithmetic mean of the rates quoted at
approximately 11:00 a.m., in the applicable Principal Financial Center, on
such LIBOR Interest Determination Date by three major banks in such
Principal Financial Center selected by the Calculation Agent, after
consultation with the Company, for loans in the Index Currency to leading
European banks, having the Index Maturity specified in the applicable
Prospectus Supplement and in a principal amount that is representative for
a single transaction in such Index Currency in such market at such time;
provided, however, that if the banks so selected by the Calculation Agent
are not quoting as mentioned in this sentence, LIBOR determined as of such
LIBOR Interest Determination Date will be LIBOR as most recently determined
prior to such LIBOR Interest Determination Date.
"Index Currency" means the currency or composite currency specified in the
applicable Prospectus Supplement as to which LIBOR shall be calculated. If no
such currency or composite currency is specified in the applicable Prospectus
Supplement, the Index Currency shall be United States dollars.
"Principal Financial Center" means the capital city of the country issuing
the Index Currency, except that with respect to United States dollars,
Australian dollars, Deutsche marks, Dutch guilders, Italian lire, Swiss francs
and ECUs, the Principal Financial Center shall be New York City, Sydney,
Frankfurt, Amsterdam, Milan, Zurich and Luxembourg, respectively.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Prospectus Supplement, the display on the Reuters Monitor Money Rates
Service (or any successor service) for the purpose of displaying the London
interbank rates of major banks for the applicable Index Currency, or (b) if
"LIBOR Telerate" is specified in the applicable Prospectus Supplement or neither
"LIBOR Reuters" nor "LIBOR Telerate" is specified in the applicable Prospectus
Supplement as the method for calculating LIBOR, the display on the Dow Jones
Telerate Service (or any successor service) for the purpose of displaying the
London interbank rates of major banks for the applicable Index Currency.
Treasury Rate. Unless otherwise specified in the applicable Prospectus
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date for which the interest rate is determined by reference to the Treasury Rate
(a "Treasury Rate Interest Determination Date"), the rate from the auction held
on such Treasury Rate Interest Determination Date (the "Auction") of direct
obligations of the United States ("Treasury Bills") having the Index Maturity
specified in the applicable Prospectus Supplement, as such rate is published in
H.15(519) under the heading "Treasury Bills -- auction average (investment)" or,
if not published by 3:00 p.m., New York City time, on the related Calculation
Date, the auction average rate of such Treasury Bills (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) as otherwise announced by the United States Department of the
Treasury. In the event that the results of the Auction of Treasury Bills having
the Index Maturity specified in the applicable Prospectus Supplement are not
reported as provided by 3:00 p.m., New York City time, on the related
Calculation Date, or if no such Auction is held, then the Treasury Rate will be
calculated by the Calculation Agent, after consultation with the Company, and
will be a yield to maturity (expressed as a bond equivalent on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
p.m., New York City time, on such Treasury Rate Interest Determination Date, of
three leading primary United States government securities dealers selected by
the Calculation Agent, after consultation with the Company, for the issue of
Treasury Bills with a remaining maturity closest to the Index Maturity specified
in the applicable Prospectus Supplement; provided, however, that if the dealers
so selected by the Calculation Agent are not quoting as mentioned in this
sentence, the Treasury Rate determined as of such Treasury Rate Interest
Determination Date will be the Treasury Rate as most recently determined prior
to such Treasury Rate Interest Determination Date.
Discount, Series, Maturities, Registration, and Payment
The Debt Securities may be sold at a substantial discount below their
stated principal amount, bearing no interest or interest at a rate that at the
time of issuance is below market rates. See "Certain United States Federal
Income Tax Considerations" herein. Federal income tax consequences and special
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considerations applicable to any such series may also be described in the
Prospectus Supplement relating thereto.
The Debt Securities may be issued in one or more series with the same or
various maturities. (Section 301.) Debt Securities may be issued solely in fully
registered form without coupons ("Registered Securities"), solely in bearer form
with or without coupons ("Bearer Securities"), or as both Registered Securities
and Bearer Securities. (Section 301.) Registered Securities may be exchangeable
for other Debt Securities of the same series, registered in the same name, for a
like aggregate principal amount in authorized denominations and will be
transferable at any time or from time to time at the aforementioned office. No
service charge will be made to the holder for any such exchange or transfer,
except for any tax or governmental charge incidental thereto. If Debt Securities
of any series are issued as Bearer Securities, the applicable Prospectus
Supplement will contain any restrictions applicable to the offer, sale or
delivery of Bearer Securities and the terms upon which Bearer Securities of the
series may be exchanged for Registered Securities of the series and, if
permitted by applicable laws and regulations, the terms upon which Registered
Securities of the series may be exchanged for Bearer Securities of the series,
whether such Debt Securities are to be issuable in permanent global form with or
without coupons and, if so, whether beneficial owners of interests in any such
permanent global security may exchange such interests for Debt Securities of
such series and the circumstances under which any such exchanges may occur.
Unless otherwise specified in the applicable Prospectus Supplement,
principal and interest, if any, on the Debt Securities offered thereby are to be
payable at the office or agency of the Company maintained for such purposes in
the city where the principal corporate trust office of the Trustee is located,
and will initially be the principal corporate trust office of the Trustee,
provided that payment of interest, if any, may be made (subject to collection)
at the option of the Company by check mailed to the persons in whose names the
Debt Securities are registered at the close of business on the day specified in
the applicable Prospectus Supplement.
Form, Exchange, Registration and Transfer
Debt Securities will be exchangeable for other Debt Securities of the same
series and of like tenor, of any authorized denominations and of a like
aggregate principal amount and Stated Maturity (as defined in the Indenture).
Registered Securities may be presented for registration of transfer (with the
form of transfer endorsed thereon duly executed) at the office of the Trustee or
at the office of any transfer agent designated by the Company for such purpose,
without service charge and upon payment of any taxes and other governmental
charges as described in the Indenture. Such transfer or exchange will be
effected upon the books of the Trustee or such transfer agent contingent upon
such Trustee or transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the request. (Section 305.)
In the event of any redemption of Debt Securities, the Company shall not be
required to: (i) issue, register the transfer of or exchange such Debt
Securities during a period beginning at the opening of business 15 days before
any selection of such Debt Securities to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of redemption; or (ii)
register the transfer of or exchange any such Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any such Debt Security
being redeemed in part. (Section 305.)
Limitation on Liens
Nothing in the Indenture or the Debt Securities will in any way limit the
amount of indebtedness or securities which may be incurred or issued by the
Company or any of its Subsidiaries (as defined in the Indenture). The Indenture
provides that neither the Company nor any Subsidiary will issue, assume or
guarantee any notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed secured by a mortgage, lien, pledge, security
interest or other encumbrance (defined in the Indenture as "Liens") upon any of
its property, subject to certain exceptions set forth in the Indenture, without
making effective provisions whereby any and all Debt Securities then outstanding
shall be secured by a Lien
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equally and ratably with any and all other obligations thereby secured. Such
restrictions will not, however, apply to (a) Liens existing on the date of the
Indenture or provided for under the terms of agreements existing on the date
thereof; (b) Liens securing (i) all or part of the cost of exploring, producing,
gathering, processing, marketing, drilling or developing any properties of the
Company or any of its Subsidiaries, or securing indebtedness incurred to provide
funds therefor or (ii) indebtedness incurred to finance all or part of the cost
of acquiring, constructing, altering, improving or repairing any such property
or assets, or securing indebtedness incurred to provide funds therefor; (c)
Liens which secure only indebtedness owing by a Subsidiary to the Company, or to
one or more Subsidiaries, or the Company and one or more Subsidiaries; (d) Liens
on the property of any corporation or other entity existing at the time such
corporation or entity becomes a Subsidiary; (e) Liens on any property to secure
indebtedness incurred in connection with the construction, installation or
financing of pollution control or abatement facilities or other forms of
industrial revenue bond financing or indebtedness issued or guaranteed by the
United States, any state or any department, agency or instrumentality of either
or indebtedness issued to or guaranteed for the benefit of a foreign government,
any state or any department, agency or instrumentality of either or an
international finance agency or any division or department thereof, including
the World Bank, the International Finance Corp. and the Multilateral Investment
Guarantee Agency; (f) any extension, renewal or replacement (or successive
extensions, renewals or replacements) of any Lien referred to in the foregoing
clauses (a) through (e) existing on the date of the Indenture; (g) certain Liens
incurred in the ordinary course of business or (h) Liens which secure Limited
Recourse Indebtedness (as defined in the Indenture). The following types of
transactions, among others, shall not be deemed to create indebtedness secured
by Liens: (i) the sale or other transfer of crude oil, natural gas or other
petroleum hydrocarbons in place for a period of time until, or in an amount such
that, the transferee will realize therefrom a specified amount (however
determined) of money or such crude oil, natural gas or other petroleum
hydrocarbons, or the sale or other transfer of any other interest in property of
the character commonly referred to as a production payment, overriding royalty,
forward sale or similar interest and (ii) Liens required by any contract or
statute in order to permit the Company or a Subsidiary to perform any contract
or subcontract made by it with or at the request of the United States government
or any foreign government or international finance agency, any state or any
department thereof, or any agency or instrumentality of either, or to secure
partial, progress, advance or other payments to the Company or any Subsidiary by
any such entity pursuant to the provisions of any contract or statute. (Section
1005.)
Limitation on Sale/Leaseback Transactions
The Indenture provides that neither the Company nor any Subsidiary will
enter into any arrangement with any person (other than the Company or a
Subsidiary) providing for the leasing to the Company or a Subsidiary for a
period of more than three years of any property which has been, or is to be,
sold or transferred by the Company or such Subsidiary to such person or to any
person (other than the Company or a Subsidiary) to which funds have been or are
to be advanced by such person on the security of the leased property unless
either (a) the Company or such Subsidiary would be entitled, pursuant to the
provisions described under "Limitation on Liens" above, to incur indebtedness in
a principal amount equal to or exceeding the value of such sale/leaseback
transaction, secured by a Lien on the property to be leased; (b) since the date
of the Indenture and within a period commencing six months prior to the
consummation of such arrangement and ending six months after the consummation
thereof, the Company or such Subsidiary has expended or will expend for any
property (including amounts expended for the acquisition, exploration, drilling
or development thereof, and for additions, alterations, improvements and repairs
thereto) an amount equal to all or a portion of the net proceeds of such
arrangement and the Company elects to designate such amount as a credit against
such arrangement (with any such amount not being so designated to be applied as
set forth in (c) below); or (c) the Company, during or immediately after the
expiration of the 12 months after the effective date of such transaction,
applies to the voluntary defeasance or retirement of the Debt Securities and its
other Senior Indebtedness (as defined in the Indenture) an amount equal to the
greater of the net proceeds of the sale or transfer of the property leased in
such transaction or the fair value, in the opinion of the board of directors of
the
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<PAGE> 23
Company of such property at the time of entering into such transaction (in
either case adjusted to reflect the remaining term of the lease and any amount
utilized by the Company as set forth in (b) above), less an amount equal to the
principal amount of Senior Indebtedness voluntarily retired by the Company
within such 12-month period. (Section 1006.)
Events of Default
Unless otherwise specified in the applicable Prospectus Supplement, any one
of the following events will constitute an "Event of Default" under the
Indenture with respect to the Debt Securities of any series: (a) failure to pay
any interest on any Debt Security of such series when due, continued for 30
days; (b) failure to pay principal of (or premium, if any) on the Debt
Securities of such series when due and payable, either at maturity or, if
applicable, at 12:00 noon on the Business Day following a Change in Control
Purchase Date, as defined below; (c) failure to perform, or breach of, any other
covenant or warranty of the Company in the Indenture or the Debt Securities
(other than a covenant or warranty included in the Indenture solely for the
benefit of a series of securities other than the Debt Securities), continued for
60 days after written notice as provided in the Indenture; (d) the acceleration
of any Indebtedness (as defined in the Indenture) of the Company or any
Subsidiary in excess of an aggregate of $25,000,000 in principal amount under
any event of default as defined in any mortgage, indenture or instrument and
such acceleration has not been rescinded or annulled within 30 days after
written notice as provided in the Indenture specifying such Event of Default and
requiring the Company to cause such acceleration to be rescinded or annulled;
(e) failure to pay, bond or otherwise discharge within 60 days of entry, a
judgment, court order or uninsured monetary damage award against the Company or
any Subsidiary exceeding an aggregate of $25,000,000 in principal amount which
is not stayed on appeal or otherwise being appropriately contested in good
faith; (f) certain events of bankruptcy, insolvency or reorganization involving
the Company or any Subsidiary; and (g) any other Event of Default provided with
respect to the Debt Securities of that series. (Section 501.)
If an Event of Default with respect to the Debt Securities of any series
(other than an Event of Default described in (e) or (f) of the preceding
paragraph) occurs and is continuing, either the Trustee or the holders of at
least 25% in aggregate principal amount of the outstanding Debt Securities of
such series by notice as provided in the Indenture may declare the principal
amount of such Debt Securities to be due and payable immediately. At any time
after a declaration of acceleration has been made, but before a judgment or
decree for payment of money has been obtained by the Trustee, and subject to
applicable law and certain other provisions of the Indenture, the holders of a
majority in aggregate principal amount of the Debt Securities of such series
may, under certain circumstances, rescind and annul such acceleration. An Event
of Default described in (e) or (f) of the preceding paragraph shall cause the
principal amount and accrued interest (or such lesser amount as provided for in
the Debt Securities of such series) to become immediately due and payable
without any declaration or other act by the Trustee or any holder. (Section
502.)
The Indenture provides that, within 90 days after the occurrence of any
Event of Default thereunder with respect to the Debt Securities of any series,
the Trustee shall transmit, in the manner set forth in the Indenture, notice of
such Event of Default to the holders of the Debt Securities of such series
unless such Event of Default has been cured or waived; provided, however, that
except in the case of a default in the payment of principal of, or premium, if
any, or interest, if any, or additional amounts, if any, on any Debt Security of
such series, the Trustee may withhold such notice if and so long as the board of
directors, the executive committee or a trust committee of directors or
Responsible Officers (as defined in the Indenture) of the Trustee has in good
faith determined that the withholding of such notice is in the interest of the
holders of Debt Securities of such series. (Section 602.)
If an Event of Default occurs and is continuing with respect to the Debt
Securities of any series, the Trustee may in its discretion proceed to protect
and enforce its rights and the rights of the holders of Debt Securities of such
series by all appropriate judicial proceedings. (Section 504.)
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The Indenture provides that, subject to the duty of the Trustee during any
default to act with the required standard of care, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the holders of Debt Securities, unless such
holders shall have offered to the Trustee reasonable indemnity. (Section 601.)
Subject to such provisions for the indemnification of the Trustee, and subject
to applicable law and certain other provisions of the Indenture, the holders of
a majority in aggregate principal amount of the outstanding Debt Securities of a
series will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee, with respect to the Debt Securities of such
series. (Section 512.)
Company's Obligation to Purchase Debt Securities on Change in Control
Upon the occurrence of a "Change in Control" as defined in the Indenture,
the Company shall mail within 15 days of the occurrence of such Change in
Control written notice regarding such Change in Control to the Trustee of the
Debt Securities of each series and to every holder thereof, after which the
Company shall be obligated, at the election of each holder thereof, to purchase
such Debt Securities. Under the Indenture, a "Change in Control" is deemed to
occur upon (a) the occurrence of any event requiring the filing of any report
under or in response to Schedule 13D or 14D-1 pursuant to the Exchange Act
disclosing beneficial ownership of either (i) 50% or more of the Company's
Common Stock then outstanding or (ii) 50% or more of the voting power of the
voting stock of the Company then outstanding; (b) the consummation of sale,
transfer, lease, or conveyance of the Company's properties and assets
substantially as an entirety to any Person or Persons who are not Subsidiaries
(as such terms are defined in the Indenture) of the Company; and (c) the
consummation of any consolidation of the Company with or merger of the Company
into any other Person in a transaction in which either (i) the Company is not
the sole surviving corporation or (ii) Common Stock existing prior to such
transaction is converted into cash, securities or other property and those
exchanging the Company's Common Stock do not receive either (x) 75% or more of
the survivor's common stock or (y) 75% or more of the voting power of the
survivor's voting stock, following the consummation of such transaction. The
notice to be sent to every Trustee and holder upon a Change in Control shall, in
addition, be published at least once in an Authorized Newspaper (as defined in
the Indenture) and shall state (a) the event causing the Change in Control and
the date thereof, (b) the date by which notice of such Change in Control is
required by the Indenture to be given, (c) the date (which date shall be 35
business days after the occurrence of the Change in Control) by which the
Company shall purchase Debt Securities to be purchased pursuant to the selling
holder's exercise of rights on Change in Control (the "Change in Control
Purchase Date"), (d) the price specified in such Debt Securities for their
purchase by the Company (the "Change in Control Purchase Price"), (e) the name
and address of the Trustee, (f) the procedure for surrendering Debt Securities
to the Trustee or other designated office or agent for payment, (g) a statement
of the Company's obligation to make prompt payment on proper surrender of such
Debt Securities, (h) the procedure for holders' exercise of rights of sale of
such Debt Securities by delivery of a "Change in Control Purchase Notice," and
(i) the procedures for withdrawing a Change in Control Purchase Notice. No
purchase of any Debt Securities shall be made if there has occurred and is
continuing an Event of Default under the Indenture (other than default in
payment of the Change in Control Purchase Price). In connection with any
purchase of Debt Securities under this paragraph, the Company will comply with
all Federal and state securities laws, including, specifically, Rule 13E-4, if
applicable, of the Exchange Act, and any related Schedule 13E-4 required to be
submitted under such Rule. (Section 1601.)
Discharge, Defeasance and Covenant Defeasance
The Company may discharge certain obligations to holders of any series of
Debt Securities that have not already been delivered to the Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or are scheduled for redemption within one year) by
depositing with the Trustee, in trust, funds in U.S. dollars or in the Foreign
Currency in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities with
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<PAGE> 25
respect to principal (and premium, if any) and interest to the date of such
deposit (if such Debt Securities have become due and payable) or to the Maturity
thereof, as the case may be. (Section 401.)
The Indenture provides that, unless the provisions of Section 402 thereof
are made inapplicable to the Debt Securities of or within any series pursuant to
Section 301 thereof, the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to such Debt Securities
(except for, among other things, the obligation to pay Additional Amounts (as
defined in the Indenture), if any, upon the occurrence of certain events of
taxation, assessment or governmental charge with respect to payments on such
Debt Securities and other obligations to register the transfer or exchange of
such Debt Securities, to replace temporary or mutilated, destroyed, lost or
stolen Debt Securities, to maintain an office or agency with respect to such
Debt Securities and to hold moneys for payment in trust) ("defeasance") or (b)
to be released from its obligations with respect to such Debt Securities under
the covenants described in "Limitation on Liens" and "Limitation on
Sale/Leaseback Transactions" above or, if provided pursuant to Section 301 of
the Indenture, its obligations with respect to any other covenant, and any
omission to comply with such obligations shall not constitute a default or an
Event of Default with respect to such Debt Securities ("covenant defeasance").
Defeasance or covenant defeasance, as the case may be, shall be conditioned upon
the irrevocable deposit by the Company with the Trustee, in trust of an amount,
in U.S. dollars or in the Foreign Currency (as defined below) in which such Debt
Securities are payable at Stated Maturity (as defined in the Indenture), or
Government Obligations (as defined below), or both, applicable to such Debt
Securities which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of (and premium, if any) and interest on such Debt Securities on
the scheduled due dates therefor. (Section 401.)
Such a trust may only be established if, among other things, (i) the
applicable defeasance or covenant defeasance does not result in a breach or
violation of, or constitute a default under, the Indenture or any other material
agreement or instrument to which the Company is a party or by which it is bound,
(ii) no default or Event of Default with respect to the Debt Securities to be
defeased shall have occurred and be continuing on the date of the establishment
of such a trust and (iii) the Company has delivered to the Trustee an Opinion of
Counsel (as specified in the Indenture) to the effect that the holders of such
Debt Securities will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a letter ruling of the Internal
Revenue Service received by the Company, a Revenue Ruling published by the
Internal Revenue Service or a change in applicable U.S. federal income tax law
occurring after the date of the Indenture. (Section 402.)
"Foreign Currency" means any currency, currency unit or composite currency,
including, without limitation, the ECU, issued by the government of one or more
countries other than the United States of America or by any recognized
confederation or association of such governments. (Section 101.)
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government or the governments in the
confederation which issued the Foreign Currency in which the Debt Securities of
a particular series are payable, for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America or
such government or governments which issued the Foreign Currency in which the
Debt Securities of such series are payable, the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America or such other government or governments, which, in the case of
clauses (i) and (ii), are not callable or redeemable at the option of the issuer
or issuers thereof, and shall also include a depository receipt issued by a bank
or trust company as custodian with respect to any such Government Obligation or
a specific payment of interest on or principal of or any other amount with
respect to any such Government Obligation held by such custodian for the account
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
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<PAGE> 26
payable to the holder of such depository receipt from any amount received by the
custodian with respect to the Government Obligation or the specific payment of
interest on or principal of or any other amount with respect to the Government
Obligation evidenced by such depository receipt. (Section 101.)
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of the Indenture or the terms of such Debt Security to
receive payment in a currency other than that in which such deposit has been
made in respect of such Debt Security, or (b) a Conversion Event (as defined
below) occurs in respect of the Foreign Currency in which such deposit has been
made, the indebtedness represented by such Debt Security shall be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest, if any, on such Debt Security
as such Debt Security becomes due out of the proceeds yielded by converting the
amount or other properties so deposited in respect of such Debt Security into
the currency in which such Debt Security becomes payable as a result of such
election or such Conversion Event based on (x) in the case of payments made
pursuant to clause (a) above, the applicable market exchange rate for such
currency in effect on the second business day prior to such payment date, or (y)
with respect to a Conversion Event, the applicable market exchange rate for such
Foreign Currency in effect (as nearly as feasible) at the time of the Conversion
Event. (Section 402.)
"Conversion Event" means the cessation of use of (i) a Foreign Currency
other than the ECU both by the government of the country or the confederation
which issued such Foreign Currency and for the settlement of transactions by a
central bank or other public institutions of or within the international banking
community, (ii) the ECU both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Community or (iii) any currency unit or composite currency other than the ECU
for the purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that are payable in a Foreign Currency
that ceases to be used by the government or confederation of issuance shall be
made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than an Event of Default with
respect to Sections 1005 and 1006 of the Indenture (which Sections would no
longer be applicable to such Debt Securities after such covenant defeasance) or
with respect to any other covenant as to which there has been covenant
defeasance, the amount in such Foreign Currency in which such Debt Securities
are payable, and Government Obligations on deposit with the Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of the Stated
Maturity but may not be sufficient to pay amounts due on such Debt Securities at
the time of the acceleration resulting from such Event of Default. However, the
Company would remain liable to make payment of such amounts due at the time of
acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
Under the Indenture, the Company is required to furnish to the Trustee
annually a statement as to performance by the Company of certain of its
obligations under the Indenture and as to any default in such performance. The
Company is also required to deliver to the Trustee, within five days after
occurrence thereof, written notice of any event which after notice or lapse of
time or both would constitute an Event of Default. (Section 1009.)
Modification and Waiver
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the Debt Securities of each series affected
thereby; provided, however, that no such modification or amendment may, without
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<PAGE> 27
the consent of the holder of each Debt Security affected thereby, (a) change the
Stated Maturity of the principal of, or premium, if any, on, or any installment
of principal, if any, of or interest on, or any Additional Amounts with respect
to, any Debt Security, (b) reduce the principal amount of, or premium or
interest on, or any Additional Amounts with respect to any Debt Security, (c)
change the coin or currency in which any Debt Security or any premium or any
interest thereon or any Additional Amounts with respect thereto is payable, (d)
impair the right to institute suit for the enforcement of any payment on or
after the Stated Maturity of any Debt Securities (or, in the case of redemption,
on or after the Redemption Date or, in the case of repayment at the option of
any holder, on or after the date for repayment or in the case of a change in
control, after the change in control purchase date), (e) reduce the percentage
and principal amount of the outstanding Debt Securities, the consent of whose
holders is required in order to take certain actions, (f) change any obligation
of the Company to maintain an office or agency in the places and for the
purposes required by the Indenture, or (g) modify any of the above provisions.
(Section 902.)
The holders of at least a majority in aggregate principal amount of Debt
Securities of any series may, on behalf of the holders of all Debt Securities of
such series, waive compliance by the Company with certain restrictive provisions
of the Indenture. (Section 1008.) The holders of not less than a majority in
aggregate principal amount of Debt Securities of any series may, on behalf of
all holders of Debt Securities of such series, waive any past default and its
consequences under the Indenture with respect to the Debt Securities of such
series, except a default (a) in the payment of principal of (or premium, if any)
or any interest on or any Additional Amounts with respect to Debt Securities of
such series or (b) in respect of a covenant or provision of the Indenture that
cannot be modified or amended without the consent of the holder of each Debt
Security of any series. (Section 513.)
Consolidation, Merger and Sale of Assets
The Company may, without the consent of the holders of the Debt Securities,
consolidate or merge with or into, or convey, transfer or lease its properties
and assets substantially as an entirety to, any Person that is a corporation,
limited liability company, partnership or trust organized and validly existing
under the laws of any domestic jurisdiction, or may permit any such Person to
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, provided that
any successor Person assumes the Company's obligations on the Debt Securities
and under the Indenture, that after giving effect to the transaction no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing, and that certain
other conditions are met. (Section 801.)
Concerning the Trustee
Unless otherwise specified in the applicable Prospectus Supplement, The
Chase Manhattan Bank, New York, New York, successor to Chemical Bank, will be
the Trustee under the Indenture.
DTC BOOK-ENTRY-ONLY SYSTEM
Unless otherwise indicated in the applicable Prospectus Supplement, the
Debt Securities will be registered under a book-entry-only system maintained by
The Depository Trust Company, New York, New York ("DTC"). The book-entry-only
system will evidence ownership interests in the Debt Securities in
book-entry-only form. Purchasers of ownership interests in the Debt Securities
will not receive certificates representing their interests in the Debt
Securities purchased. Transfers of ownership interests will be effected on the
records of DTC and its participating organizations (the "DTC Participants")
pursuant to rules and procedures established by DTC.
Certain of the following information concerning the procedures and record
keeping with respect to ownership interests in the Debt Securities, payment of
interest and other payments on the Debt Securities to DTC Participants or
Beneficial Owners (as hereafter defined), confirmation and transfer of ownership
interests in the Debt Securities and other related transactions by and between
DTC, the DTC Participants and Beneficial Owners is based solely on information
contained in a published report of DTC.
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DTC, an automated clearinghouse for securities transactions, will act as
securities depository for the Debt Securities. DTC is a limited-purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of New York banking law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of the DTC Participants and to facilitate the clearance and
settlement of securities transactions among DTC Participants in such securities
through electronic book-entry changes in accounts of the DTC Participants,
thereby eliminating the need for physical movement of security certificates.
"DTC Participants" include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations, some of which
(and/or their representatives) own DTC. Access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a DTC Participant,
either directly or indirectly (the "Indirect Participants"). The rules
applicable to DTC and its participants are on file with the SEC.
The ownership of the fully-registered Debt Securities will be registered in
the name of Cede & Co., as nominee for DTC. Ownership interests in the Debt
Securities may be purchased by or through DTC Participants and will be recorded
on the records of the DTC Participants, whose interests in turn will be recorded
on a computerized book-entry-only system operated by DTC. Such DTC Participants
and the person for whom they acquire interests in the Debt Securities as
nominees ("Beneficial Owner") will not receive Debt Security certificates, but
each such DTC Participant will receive a credit balance in the records of DTC in
the amount of such DTC Participant's interest in the Debt Securities, which will
be confirmed in accordance with DTC's standard procedures. Each such Beneficial
Owner for whom a DTC Participant acquires an interest in the Debt Securities, as
nominee, may desire to make arrangements with such DTC Participant to have all
communications of the Company and the Trustee to DTC which may affect such
Beneficial Owner forwarded in writing by such DTC Participant and to have
notifications made of all payments of principal and interest with respect to his
beneficial interest. The Company and the Trustee will treat DTC (or its nominee)
as the sole and exclusive owner of the Debt Securities registered in its name
for the purposes of payment of the principal and interest on the Debt
Securities, giving any notice permitted or required to be given to holders under
the Indenture, registering the transfer of Debt Securities, and for all other
purposes whatsoever, and shall not be affected by any notice to the contrary.
The Company and the Trustee shall not have any responsibility or obligation to
any DTC Participant, any person claiming a beneficial ownership interest in the
Debt Securities under or through DTC or any DTC Participant, or any other person
which is not shown on the registration books of the Trustee as being a holder,
with respect to: (i) the accuracy of any records maintained by DTC or any DTC
Participant; (ii) the payment by DTC or any DTC Participant of any amount in
respect of the principal or interest on the Debt Securities; (iii) any notice
which is permitted or required to be given to holders thereunder or under the
conditions to transfers or exchanges adopted by the Company; or (iv) any other
action taken by DTC as a holder. Principal and interest on the Debt Securities
will be paid by the Trustee. Disbursement of such payments to the DTC
Participants is the responsibility of DTC and disbursement of such payments to
the Beneficial Owners is the responsibility of the DTC Participants or the
Indirect Participants. NEITHER THE COMPANY NOR THE TRUSTEE WILL HAVE ANY
RESPONSIBILITY OR OBLIGATIONS TO SUCH DTC PARTICIPANTS OR THE PERSONS FOR WHOM
THEY ACT AS NOMINEES WITH RESPECT TO THE PAYMENTS TO OR THE PROVIDING OF NOTICE
FOR THE DTC PARTICIPANTS, OR THE INDIRECT PARTICIPANTS, OR THE BENEFICIAL
OWNERS.
SO LONG AS CEDE & CO., AS NOMINEE OF DTC, IS THE REGISTERED OWNER OF THE
DEBT SECURITIES, REFERENCES HEREIN TO THE SECURITY HOLDERS OR REGISTERED OWNERS
OF THE DEBT SECURITIES SHALL MEAN CEDE & CO., AND SHALL NOT MEAN THE BENEFICIAL
OWNERS.
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For every transfer and exchange of beneficial ownership of Debt Securities,
a Beneficial Owner may be charged a sum sufficient to cover any tax, fee or
other governmental charge that may be imposed in relation thereto.
When reference is made to any action which is required or permitted to be
taken by the Beneficial Owners, such reference shall only relate to action by
such Beneficial Owner, or others permitted to act (by statute, regulation or
otherwise) on behalf of such Beneficial Owners for such purposes. When notices
are given, they shall be sent by the Trustee to DTC only. Conveyance of notices
and other communications by DTC to DTC Participants and Indirect Participants
and in turn by DTC Participants and Indirect Participants to Beneficial Owners
will be governed by arrangements among them, subject to any statutory and
regulatory requirements then in effect.
Principal and interest payments on the Debt Securities will be made to DTC
or its nominee, Cede & Co., as registered owner of the Debt Securities. Upon
receipt of any such payments, DTC's current practice is to immediately credit
the accounts of the DTC Participants in accordance with their respective
holdings shown on the records of DTC. Payments by DTC Participants and Indirect
Participants to Beneficial Owners 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 DTC Participant or Indirect Participant.
DTC may determine to discontinue providing its services with respect to the
Debt Securities at any time by giving notice to the Company and discharging its
responsibilities with respect thereto under applicable law. In addition, the
Company may determine that continuation of the system of book-entry-only
transfers through DTC (or a successor securities depository) is not in the best
interests of the Beneficial Owners or is burdensome to the Company. If for
either reason the book-entry-only system is discontinued, certificates for the
Debt Securities will be delivered to the Beneficial Owners thereof.
Certain of the information contained in this sub-section has been extracted
from a report from DTC. No representation is made by the Company as to the
completeness or the accuracy of such information or as to the absence of
material adverse changes in such information subsequent to the date hereof.
Same-Day Settlement and Payment
Unless otherwise indicated in the applicable Prospectus Supplement,
settlement for the Debt Securities will be made by a purchaser in immediately
available funds. While the Debt Securities are in the book-entry-only system
described above, all payments of principal and interest will be made by the
Trustee on behalf of the Company to DTC in immediately available funds.
Secondary trading in long-term debt securities is generally settled in
clearing-house or next-day funds. Unless otherwise set forth in the applicable
Prospectus Supplement, while the Debt Securities are in the book-entry-only
system described above, they will trade in DTC's Same-Day Fund Settlement System
until maturity. During such period, secondary market trading activity in the
Debt Securities will settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
the trading activity in the Debt Securities.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Debt Securities.
It is the opinion of Mayor, Day, Caldwell & Keeton, L.L.P., special tax counsel
to the Company, that the following summary addresses the material Federal income
tax considerations of the acquisition, ownership and disposition of Debt
Securities. This summary is based upon laws, regulations, rulings and decisions
now in effect, all of which are subject to change or possible differing
interpretations. It deals only with Debt Securities held as capital assets and
does not purport to deal with persons in special tax situations, such as
financial institutions, insurance companies, regulated investment companies,
dealers in securities or currencies, persons holding Debt Securities as a hedge
against currency risks or as a position in a "straddle" for tax purposes, or
persons whose functional currency is not the United States dollar. It also does
not deal with holders other than original purchasers (except where otherwise
specifically noted). Persons considering the purchase of the Debt Securities
should consult their tax advisors concerning the application of United States
Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Debt Securities
arising under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Debt
Security that is for United States Federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate or trust the income of which is
subject to United States Federal income taxation regardless of its source or
(iv) any other person whose income or gain in respect of a Debt Security is
effectively connected with the conduct of a United States trade or business. As
used herein, the term "non-U.S. Holder" means a holder of a Debt Security that
is not a U.S. Holder.
U.S. Holders
Payments of Interest. Payments of interest on a Debt Security generally
will be taxable to a U.S. Holder as ordinary interest income at the time such
payments are accrued or are received (in accordance with the U.S. Holder's
regular method of tax accounting).
Original Issue Discount. The following summary is a general discussion of
the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of Debt Securities issued with original
issue discount ("Discount Debt Securities"). The following summary is based upon
final Treasury regulations ("OID Regulations") under the original issue discount
provisions of the Internal Revenue Code of 1986, as amended (the "Code").
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Debt Security over
its issue price, if such excess equals or exceeds a de minimis amount (generally
1/4 of 1% of the Debt Security's stated redemption price at maturity multiplied
by the number of complete years to its maturity from its issue date or, in the
case of a Debt Security providing for the payment of any amount other than
qualified stated interest, as defined below, prior to maturity, multiplied by
the weighted average number of years to maturity of such Debt Security). The
issue price of an issue of Debt Securities equals the first price at which a
substantial amount of such Debt Securities has been sold (ignoring sales to bond
houses, brokers, or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers). The stated redemption price at
maturity of a Debt Security is the sum of all payments provided by the Debt
Security other than "qualified stated interest" payments. The term "qualified
stated interest" generally means stated interest that is unconditionally payable
in cash or property (other than debt instruments of the issuer) at least
annually at a single fixed rate. In addition, under the OID Regulations, if a
Debt Security bears interest for one or more accrual periods at a rate below the
rate applicable for the remaining term of such Debt Security (e.g., Debt
Securities with teaser rates or interest holidays), and if the greater of either
the resulting foregone interest on such Debt Security or any "true" discount on
such Debt Security (i.e., the excess of the Debt Security's stated principal
amount over its issue price) equals or exceeds a specified de minimis
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amount, then the stated interest on the Debt Security would be treated as
original issue discount rather than qualified stated interest.
Payments of qualified stated interest on a Debt Security are taxable to a
U.S. Holder as ordinary interest income at the time such payments are accrued or
are received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of a Discount Debt Security must include original
issue discount in income as ordinary interest for United States Federal income
tax purposes as it accrues over the entire term of the Discount Debt Security
under a "constant yield" method in advance of receipt of the cash payments
attributable to such income, regardless of such U.S. Holder's regular method of
tax accounting. In general, the amount of original issue discount includible in
income by the initial U.S. Holder of a Discount Debt Security is the sum of the
daily portions of original issue discount with respect to such Discount Debt
Security for each day during the taxable year (or portion of the taxable year)
on which such U.S. Holder held such Discount Debt Security. The "daily portion"
of original issue discount on any Discount Debt Security is determined by
allocating to each day in any accrual period a ratable portion of the original
issue discount allocable to that accrual period. An "accrual period" may be of
any length and the accrual period may vary in length over the term of the
Discount Debt Security, provided, however, that each accrual period is no longer
than one year and each scheduled payment of principal or interest occurs either
on the final day of an accrual period or on the first day of an accrual period.
The amount of original issue discount allocable to each accrual period is
generally equal to the difference between (i) the product of the Discount Debt
Security's adjusted issue price at the beginning of such accrual period and its
yield to maturity (determined on the basis of compounding at the close of each
accrual period and appropriately adjusted to take into account the length of the
particular accrual period) and (ii) the amount of any qualified stated interest
payments allocable to such accrual period. The "adjusted issue price" of a
Discount Debt Security at the beginning of any accrual period is the sum of the
issue price of the Discount Debt Security plus the amount of original issue
discount allocable to all prior accrual periods minus the amount of any prior
payments on the Discount Debt Security that were not qualified stated interest
payments. Under these rules, U.S. Holders generally will have to include in
income increasingly greater amounts of original issue discount in successive
accrual periods.
A U.S. Holder who purchases a Discount Debt Security for an amount that is
greater than its adjusted issue price as of the purchase date and less than or
equal to the sum of all amounts payable on the Discount Debt Security after the
purchase date, other than payments of qualified stated interest, will be
considered to have purchased the Discount Debt Security at an "acquisition
premium." Under the acquisition premium rules, the amount of original issue
discount which such U.S. Holder must include in its gross income with respect to
such Discount Debt Security for any taxable year (or portion thereof in which
the U.S. Holder holds the Discount Debt Security) will be reduced (but not below
zero) by the portion of the acquisition premium properly allocable to the
period.
Under the OID Regulations, Debt Securities that provide for stated interest
at one or more variable interest rates ("Floating Rate Debt Securities") are
subject to special rules whereby a Floating Rate Debt Security will qualify as a
"variable rate debt instrument" if (a) its issue price does not exceed the total
noncontingent principal payments due under the Floating Rate Debt Security by
more than a specified de minimis amount; (b) it provides for stated interest,
paid or compounded at least annually, at current values of (i) one or more
qualified floating rates, (ii) a single fixed rate and one or more qualified
floating rates, (iii) a single objective rate, or (iv) a single fixed rate and a
single objective rate that is a qualified inverse floating rate; (c) it provides
that the qualified floating rate or single objective rate in effect at any time
equals a current value of that rate; and (d) it does not provide for any
payments of principal that are contingent.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Floating Rate Debt Security is denominated. Although a multiple of a qualified
floating rate will generally not itself constitute a qualified floating rate, a
variable rate equal to the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35 will constitute a
qualified floating rate. A variable rate equal to the product of a qualified
floating rate and a
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fixed multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Floating Rate Debt Security (e.g., two or more qualified floating
rates with values within 25 basis points of each other as determined on the
Floating Rate Debt Security's issue date) will be treated as a single qualified
floating rate. Notwithstanding the foregoing, a variable rate that would
otherwise constitute a qualified floating rate but which is subject to one or
more restrictions such as a maximum numerical limitation (i.e., a cap) or a
minimum numerical limitation (i.e., a floor) may under certain circumstances,
fail to be treated as a qualified floating rate under the OID Regulations. An
"objective rate" is a rate that is not itself a qualified floating rate but
which is determined using a single fixed formula and which is based upon
objective financial or economic information. A rate unique to the circumstances
of the issuer or a related party, or based on information within the control of
the issuer or related party, would not qualify as an objective rate, but a rate
based on the credit quality of the issuer would not, solely on that basis, be
disqualified as an objective rate. The OID Regulations also provide that other
variable interest rates may be treated as objective rates if so designated by
the IRS in the future. Despite the foregoing, a variable rate of interest on a
Floating Rate Debt Security will not constitute an objective rate if it is
reasonably expected that the average value of such rate during the first half of
the Floating Rate Debt Security's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the Floating Rate Debt Security term.
A "qualified inverse floating rate" is any objective rate where such rate
is equal to a fixed rate minus a qualified floating rate, as long as variations
in the rate can reasonably be expected to inversely reflect contemporaneous
variations in the cost of newly borrowed funds. The OID Regulations also provide
that if a Floating Rate Debt Security provides for stated interest at a fixed
rate for an initial period of less than one year followed by a variable rate
that is either a qualified floating rate or an objective rate and if the
variable rate on the Floating Rate Debt Security's issue date is intended to
approximate the fixed rate (e.g., the value of the variable rate on the issue
date does not differ from the value of the fixed rate by more than 25 basis
points), then the fixed rate and the variable rate together will constitute
either a single qualified floating rate or objective rate, as the case may be.
If a Floating Rate Debt Security that provides for stated interest at
either a single qualified floating rate or a single objective rate throughout
the term thereof qualifies as a "variable rate debt instrument" under the OID
Regulations, then any stated interest on such Debt Security which is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually will constitute qualified stated interest and will be
taxed accordingly. Thus, a Floating Rate Debt Security that provides for stated
interest at either a single qualified floating rate or a single objective rate
throughout the term thereof and that qualifies as a "variable rate debt
instrument" under the OID Regulations will generally not be treated as having
been issued with original issue discount unless the Floating Rate Debt Security
is issued at a "true" discount (i.e., at a price below the Debt Security's
stated principal amount) in excess of a specified de minimis amount. Original
issue discount on such a Floating Rate Debt Security arising from "true"
discount is allocated to an accrual period using the constant yield method
described above by assuming that the variable rate is a fixed rate equal to (i)
in the case of a qualified floating rate or qualified inverse floating rate, the
value, as of the issue date, of the qualified floating rate or qualified inverse
floating rate, or (ii) in the case of an objective rate (other than a qualified
floating rate or qualified inverse floating rate), a fixed rate that reflects
the yield that is reasonably expected for the Floating Rate Debt Security.
Qualified stated interest allocable to an accrual period will be increased (or
decreased) if the interest actually paid during the accrual period exceeds (or
is less than) the interest assumed to be paid during the accrual period,
according to the formula set forth in the preceding sentence.
In general, any other Floating Rate Debt Security that qualifies as a
"variable rate debt instrument" will be converted into an "equivalent" fixed
rate debt instrument for purposes of determining the amount and accrual of
original issue discount and qualified stated interest on the Floating Rate Debt
Security. The OID Regulations generally require that such a Floating Rate Debt
Security be converted into an "equivalent" fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse
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floating rate provided for under the terms of the Floating Rate Debt Security
with a fixed rate equal to the value of the qualified floating rate or qualified
inverse floating rate, as the case may be, as of the Floating Rate Debt
Security's issue date. Any objective rate (other than a qualified inverse
floating rate) provided for under the terms of the Floating Rate Debt Security
is converted into a fixed rate that reflects the yield that is reasonably
expected for the Floating Rate Debt Security. In the case of a Floating Rate
Debt Security that qualifies as a "variable rate debt instrument" and provides
for stated interest at a fixed rate in addition to either one or more qualified
floating rates or a qualified inverse floating rate, the fixed rate is initially
converted into a qualified floating rate (or a qualified inverse floating rate,
if the Floating Rate Debt Security provides for a qualified inverse floating
rate). Under such circumstances, the qualified floating rate or qualified
inverse floating rate that replaces the fixed rate must be such that the fair
market value of the Floating Rate Debt Security as of the Floating Rate Debt
Security's issue date is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for either the qualified
floating rate or qualified inverse floating rate rather than the fixed rate.
Subsequent to converting the fixed rate into either a qualified floating rate or
a qualified inverse floating rate, the Floating Rate Debt Security is then
converted into an "equivalent" fixed rate debt instrument in the manner
described above.
Once the Floating Rate Debt Security is converted into an "equivalent"
fixed rate debt instrument pursuant to the foregoing rules, the amount of
original issue discount and qualified stated interest, if any, are determined
for the "equivalent" fixed rate debt instrument by applying the general original
issue discount rules to the "equivalent" fixed rate debt instrument and a U.S.
Holder of the Floating Rate Debt Security will account for such original issue
discount and qualified stated interest as if the U.S. Holder held the
"equivalent" fixed rate debt instrument. Each accrual period appropriate
adjustments will be made to the amount of qualified stated interest or original
issue discount assumed to have been accrued or paid with respect to the
"equivalent" fixed rate debt instrument in the event that such amounts differ
from the actual amount of interest accrued or paid on the Floating Rate Debt
Security during the accrual period.
If a Floating Rate Debt Security does not qualify as a "variable rate debt
instrument" under the OID Regulations, the Floating Rate Debt Security would be
treated as a contingent payment debt obligation. The proper United States
Federal income tax treatment of Floating Rate Debt Securities that are treated
as contingent payment debt obligations will be more fully described in the
applicable Prospectus Supplement. Furthermore, any other special United States
Federal income tax considerations not otherwise discussed herein, which are
applicable to any particular issue of Floating Rate Debt Securities, will be
discussed in the applicable Prospectus Supplement.
Certain of the Debt Securities (i) may be redeemable at the option of the
Company prior to their stated maturity (a "call option") and/or (ii) may be
repayable at the option of the holder prior to their stated maturity (a "put
option"). Debt Securities containing such features may be subject to rules that
differ from the general rules discussed above. Investors intending to purchase
Debt Securities with such features should consult their own tax advisors, since
the original issue discount consequences will depend, in part, on the particular
terms and features of the purchased Debt Securities. Additionally, upon the
occurrence of a "Change in Control" as defined in the Indenture, each Holder of
Debt Securities of any series then outstanding may elect, by proper execution
and delivery of a Change in Control Purchase Notice, to require the Company to
purchase such Debt Securities prior to their stated maturity. See "Description
of Debt Securities -- Provisions Applicable to All Debt Securities -- Company's
Obligation to Purchase Debt Securities on Change in Control." The original issue
discount consequences of such an election and purchase will depend on the
particular terms and features of the Debt Securities, and Holders should consult
their own tax advisors prior to making such an election. Also, special rules
apply to Debt Securities that constitute "inflation-indexed debt instruments"
(as defined in the OID Regulations). If any such Debt Securities are issued, the
special tax considerations will be discussed in the applicable Prospectus
Supplement.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de
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minimis market discount, and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium) that accrues on a debt instrument by using
the constant yield method applicable to original issue discount, subject to
certain limitations and exceptions. This election is only available for debt
instruments acquired on or after April 4, 1994.
Market Discount. If a U.S. Holder purchases a Debt Security, other than a
Discount Debt Security, for an amount that is less than its issue price (or, in
the case of a purchaser who does not purchase the Debt Security at its original
issue, its stated redemption price at maturity) or, in the case of a Discount
Debt Security, for an amount that is less than its adjusted issue price as of
the purchase date, such U.S. Holder will be treated as having purchased such
Debt Security with "market discount," unless such market discount is less than a
specified de minimis amount.
Under the market discount rules a U.S. Holder will be required to treat any
partial principal payment (or, in the case of a Discount Debt Security, any
payment that does not constitute qualified stated interest) on, or any gain
realized on the sale, exchange, retirement or other disposition of, a Debt
Security as ordinary income to the extent of the lesser of (i) the amount of
such payment or realized gain or (ii) the market discount which has not
previously been included in income and is treated as having accrued on such Debt
Security at the time of such payment or disposition. Market discount will be
considered to accrue ratably during the period from the date of acquisition to
the maturity date of the Debt Security, unless the U.S. Holder elects to accrue
market discount on the basis of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Debt Security with market discount until the maturity of the
Debt Security or its earlier disposition in a taxable transaction, because a
current deduction is only allowed to the extent the interest expense exceeds an
allocable portion of market discount. A U.S. Holder may elect to include market
discount in income currently as it accrues (on either a ratable or semiannual
compounding basis), in which case the rules described above regarding the
treatment as ordinary income of gain upon the disposition of the Debt Security
and upon the receipt of certain cash payments and regarding the deferral of
interest deductions will not apply. Generally, such currently included market
discount is treated as ordinary interest for United States Federal income tax
purposes.
Premium. If a U.S. Holder purchases a Debt Security for an amount that is
greater than the sum of all amounts payable on the Debt Security after the
purchase date other than payments of qualified stated interest, such U.S. Holder
will be considered to have purchased the Debt Security with "amortizable bond
premium" equal in amount to such excess. A U.S. Holder may elect to amortize
such premium using a constant yield method over the remaining term of the Debt
Security and may offset interest otherwise required to be included in respect of
the Debt Security during any taxable year by the amortized amount of such excess
for the taxable year. However, if the Debt Security may be optionally redeemed
after the U.S. Holder acquires it at a price in excess of its stated redemption
price at maturity, special rules would apply which could result in a deferral of
the amortization of some bond premium until later in the term of the Debt
Security.
Disposition of a Debt Security. Except as discussed above, upon the sale,
exchange or retirement of a Debt Security, a U.S. Holder generally will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and such U.S. Holder's adjusted tax
basis in the Debt Security. A U.S. Holder's adjusted tax basis in a Debt
Security generally will equal such U.S. Holder's initial investment in the Debt
Security increased by any original issue discount included in income (and
accrued market discount, if any, if the U.S. Holder has included such market
discount in income) and decreased by the amount of any payments, other than
qualified stated interest payments, received and amortizable bond premium taken
with respect to such Debt Security. Such gain or loss generally will be
long-term capital gain or loss if the Debt Security were held for more than one
year. The Taxpayer Relief Act of 1997 established different rates for long-term
capital gains depending on the taxpayer's holding period.
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Foreign Currency Debt Securities. Any special United States Federal income
tax considerations applicable to Debt Securities that provide for the payment of
principal, premium (if any) or interest in a currency other than U.S. dollars
will be discussed in the applicable Prospectus Supplement.
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a Debt Security, unless such non-U.S. Holder is a direct or
indirect 10% or greater shareholder of the Company, a controlled foreign
corporation related to the Company or a bank receiving interest described in
section 881(c)(3)(A) of the Code. To qualify for the exemption from taxation,
the last United States payor in the chain of payment prior to payment to a
non-U.S. Holder (the "Withholding Agent") must have received in the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (i) is signed by the beneficial owner
of the Debt Security under penalties of perjury, (ii) certifies that such owner
is not a U.S. Holder and (iii) provides the name and address of the beneficial
owner. The statement may be made on an IRS Form W-8 or a substantially similar
form, and the beneficial owner must inform the Withholding Agent of any change
in the information on the statement within 30 days of such change. If a Debt
Security is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide a signed
statement to the Withholding Agent. However, in such case, the signed statement
must be accompanied by a copy of the IRS Form W-8 or the substitute form
provided by the beneficial owner to the organization or institution. The
Treasury Department is considering implementation of further certification
requirements aimed at determining whether the issuer of a debt obligation is
related to holders thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Debt Security, provided the gain is not effectively connected with the conduct
of a trade or business in the United States by the non-U.S. Holder. Certain
other exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The Debt Securities will not be includible in the estate of a deceased
individual who was a non-U.S. Holder unless the individual was a direct or
indirect 10% or greater shareholder of the Company or, at the time of such
individual's death, payments in respect of the Debt Securities would have been
effectively connected with the conduct by such individual of a trade or business
in the United States. Certain exceptions to inclusion in the estate may be
applicable, and the estate of a non-U.S. Holder should consult its tax advisor
in this regard.
Backup Withholding
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Debt Securities to registered owners
who are not "exempt recipients" and who fail to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the required manner. Generally, individuals are not exempt recipients, whereas
corporations and certain other entities generally are exempt recipients.
Payments made in respect of the Debt Securities to a U.S. Holder must be
reported to the IRS, unless the U.S. Holder is an exempt recipient or
establishes an exemption. Compliance with the identification procedures
described in the preceding section would establish an exemption from backup
withholding for those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a Debt Security to (or through) a broker, the
broker must withhold 31% of the entire purchase price, unless either (i) the
broker determines that the seller is a corporation or other exempt recipient or
(ii) the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Holder, certifies that such seller is
a non-U.S. Holder (and certain other conditions are met). Such a sale must also
be reported by the broker to the IRS, unless either (i) the broker determines
that the seller is an exempt recipient or (ii) the seller certifies its non-U.S.
status (and certain
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other conditions are met). Certification of the registered owner's non-U.S.
status would be made normally on an IRS Form W-8 under penalties of perjury,
although in certain cases it may be possible to submit other documentary
evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities (i) through underwriters or
dealers, (ii) directly to a limited number of institutional purchasers or to a
single purchaser, (iii) through agents designated from time to time, or (iv)
through any combination of the above. An accompanying Prospectus Supplement will
set forth the terms of the offering of the Debt Securities offered thereby,
including the name or names of any underwriters, the purchase price of the Debt
Securities and the net proceeds to the Company from such sale, any underwriting
discounts and other items constituting underwriters' compensation, any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers.
If underwriters are used in the sale of Debt Securities, such Debt
Securities will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Unless otherwise set forth in the Prospectus Supplement,
the several obligations of the underwriters to purchase any Debt Securities
offered thereby will be subject to certain conditions precedent and the
underwriters will be obligated to take and pay for all of such Debt Securities,
if any are taken.
Any agent involved in the offer or sale of the Debt Securities will be
named, and any commissions payable by the Company to such agents will be set
forth, in an accompanying Prospectus Supplement. Unless otherwise indicated in
such Prospectus Supplement, any such agent will be acting on a reasonable
efforts basis for the period of its appointment.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters or other persons acting as the Company's agents to solicit offers
by certain institutions to purchase Debt Securities from the Company pursuant to
contracts providing for payment and delivery on a future date. Institutions with
which such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
the Company. The obligations of any purchaser under such contract will be
subject to the condition that the purchase of the offered Debt Securities shall
not at the time of delivery be prohibited under the laws of the jurisdiction to
which such purchaser is subject. The underwriters and such other agents will not
have any responsibility in respect to the validity of performance of such
contracts.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with and perform services for the Company in the
ordinary course of business.
Agents and underwriters may be entitled under agreements entered into with
the Company to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act.
The place and time of delivery for Debt Securities in respect of which this
Prospectus is delivered will be set forth in the accompanying Prospectus
Supplement.
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<PAGE> 37
LEGAL MATTERS
Certain legal matters regarding the Debt Securities offered hereby have
been passed upon for the Company by its Vice President and General Counsel, Z.
S. Kobiashvili. As of the date of this Prospectus, Mr. Kobiashvili owns 1,297
shares of Apache Common Stock through the Company's 401(k) savings plan; holds
employee stock options to purchase 31,900 shares of Apache Common Stock, of
which options to purchase 13,225 shares are currently exercisable, and holds a
conditional grant under the Company's 1996 Share Price Appreciation Plan
relating to 18,900 shares of Apache Common Stock, none of which is vested.
Certain legal matters will also be passed upon for the Company by Mayor, Day,
Caldwell & Keeton, L.L.P., Houston, Texas, and for any of the underwriters or
agents by counsel to be named by such underwriters or agents.
EXPERTS
The audited consolidated financial statements of the Company, incorporated
by reference into this Prospectus, have been audited by Arthur Andersen LLP,
independent public accountants ("Arthur Andersen"), as indicated in their
reports with respect thereto. In Arthur Andersen's report on the consolidated
financial statements of the Company, that firm states that with respect to
DEKALB, for the year ended December 31, 1994, its opinion is based on the report
of other independent public accountants, namely Coopers & Lybrand, Chartered
Accountants. The financial statements referred to above have been incorporated
by reference herein in reliance upon the authority of those firms as experts in
accounting and auditing in giving said reports.
The audited consolidated financial statements of DEKALB incorporated by
reference into this Prospectus have been audited by Coopers & Lybrand, Chartered
Accountants, as indicated in their report with respect thereto, and have been
incorporated by reference herein in reliance upon the authority of that firm as
experts in accounting and auditing in giving said report.
The information incorporated by reference herein regarding the total proved
reserves of the Company was prepared by the Company and reviewed by Ryder Scott
Company Petroleum Engineers ("Ryder Scott"), as stated in their letter reports
with respect thereto, and is so incorporated by reference in reliance upon the
authority of said firm as experts in such matters. The information incorporated
by reference herein regarding the total estimated proved reserves acquired from
Texaco Exploration and Production Inc. was prepared by the Company and reviewed
by Ryder Scott, as stated in their letter reports with respect thereto, and is
so incorporated by reference in reliance upon the authority of said firm as
experts in such matters. The information incorporated by reference herein
regarding the total proved reserves of DEKALB was prepared by DEKALB and for the
four years ended December 31, 1994 was reviewed by Ryder Scott, as stated in
their letter reports with respect thereto, and is so incorporated by reference
in reliance upon the authority of said firm as experts in such matters.
A portion of the information incorporated by reference herein regarding the
total proved reserves of Aquila Energy Resources Corporation ("Aquila") acquired
by the Company was prepared by Netherland, Sewell & Associates, Inc.
("Netherland, Sewell") as of December 31, 1994, as stated in their letter report
with respect thereto, and is so incorporated by reference in reliance upon the
authority of said firm as experts in such matters. Netherland, Sewell did not
review any of the reserves of Aquila acquired during 1995.
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[APACHE CORPORATION LOGO]
$150,000,000
7.625% SENIOR NOTES DUE JULY 1, 2019
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement
About Apache............................ S-3
Recent Developments..................... S-3
Use of Proceeds......................... S-4
Selected Financial Data and Other
Data.................................. S-5
Ratios of Earnings to Fixed Charges..... S-7
Description of Notes.................... S-7
Underwriting............................ S-8
Legal Matters........................... S-9
Experts................................. S-9
Prospectus
Available Information................... 2
Information Incorporated by Reference... 2
Safe Harbor Statement Under the Private
Securities Litigation Reform Act of
1995 ("PSLRA")........................ 3
The Company............................. 4
Use of Proceeds......................... 4
Ratio of Earnings to Fixed Charges...... 4
Description of Debt Securities.......... 5
DTC Book-Entry-Only System.............. 17
Certain United States Federal Income Tax
Considerations........................ 20
Plan of Distribution.................... 26
Legal Matters........................... 27
Experts................................. 27
</TABLE>
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PROSPECTUS SUPPLEMENT
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BEAR, STEARNS & CO. INC.
WARBURG DILLON READ LLC
JUNE 22, 1999
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