<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 1-10578
VINTAGE PETROLEUM, INC.
(Exact name of registrant as specified in its charter
DELAWARE 73-1182669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 592-0101
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -----------------------
Common Stock, $.005 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
As of March 17, 1997, 25,714,443 shares of the Registrant's Common Stock
were outstanding, and the aggregate market value of the Common Stock held by
non-affiliates was approximately $471,734,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1996, are incorporated by reference into Parts I and II
of this Form 10-K.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 13, 1997, are incorporated by reference into Part
III of this Form 10-K.
================================================================================
<PAGE>
VINTAGE PETROLEUM, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
Page
----
PART I
Items 1
and 2. Business and Properties....................................... 1
Item 3. Legal Proceedings............................................. 27
Item 4. Submission of Matters to a Vote of
Security-Holders.............................................. 28
Item 4A. Executive Officers of the Registrant.......................... 28
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................... 31
Item 6. Selected Financial Data....................................... 31
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 31
Item 8. Financial Statements and Supplementary Data................... 31
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................ 31
PART III
Item 10. Directors and Executive Officers of the Registrant............ 31
Item 11. Executive Compensation........................................ 31
Item 12. Security Ownership of Certain Beneficial
Owners and Management......................................... 31
Item 13. Certain Relationships and Related Transactions................ 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................... 32
Signatures .............................................................. 36
-i-
<PAGE>
CERTAIN DEFINITIONS
AS USED IN THIS FORM 10-K:
Unless the context requires otherwise, all references to the "Company"
include Vintage Petroleum, Inc., its consolidated subsidiaries and its
proportionately consolidated general partner interests in various limited
partnerships and joint ventures.
"Mcf" means thousand cubic feet, "MMcf" means million cubic feet, "Bcf"
means billion cubic feet, "Bbl" means barrel, "MBbls" means thousand barrels,
"MMBbls" means million barrels, "BOE" means equivalent barrels of oil, "MBOE"
means thousand equivalent barrels of oil and "MMBOE" means million equivalent
barrels of oil. Unless otherwise indicated in this Form 10-K, gas volumes are
stated at the legal pressure base of the state or area in which the reserves
are located and at 60 degrees Fahrenheit. Equivalent barrels of oil are
determined using the ratio of six Mcf of gas to one Bbl of oil. The term
"gross" refers to the total acres or wells in which the Company has a working
interest, and "net" refers to gross acres or wells multiplied by the
percentage working interest owned by the Company. "Net production" means
production that is owned by the Company less royalties and production due
others. The terms "net" and "net production" include 100 percent of the
Company's subsidiary Cadipsa S.A. and do not reflect reductions for minority
interest ownership. The term "oil" includes crude oil, condensate and natural
gas liquids.
"Proved reserves" are estimated quantities of oil and gas which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. "Proved developed reserves" are those reserves which are expected
to be recovered through existing wells with existing equipment and operating
methods. "Proved undeveloped reserves" are those reserves which are expected to
be recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required.
FORWARD-LOOKING STATEMENTS
THIS FORM 10-K INCLUDES CERTAIN STATEMENTS THAT MAY BE DEEMED TO BE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. ALL STATEMENTS IN THIS FORM 10-K, OTHER THAN
STATEMENTS OF HISTORICAL FACTS, THAT ADDRESS ACTIVITIES, EVENTS OR DEVELOPMENTS
THAT THE COMPANY EXPECTS, BELIEVES OR ANTICIPATES WILL OR MAY OCCUR IN THE
FUTURE, INCLUDING THE DRILLING OF WELLS, RESERVE ESTIMATES, FUTURE PRODUCTION OF
OIL AND GAS, FUTURE CASH FLOWS, FUTURE RESERVE ACTIVITY AND OTHER SUCH MATTERS
ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THE EXPECTATIONS
EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS
WITHIN THE BOUNDS OF ITS KNOWLEDGE OF ITS BUSINESS, SUCH STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND ACTUAL RESULTS OR DEVELOPMENTS MAY DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN
FORWARD-LOOKING STATEMENTS INCLUDE: OIL AND GAS PRICES; EXPLOITATION AND
EXPLORATION SUCCESSES; CONTINUED AVAILABILITY OF CAPITAL AND FINANCING; GENERAL
ECONOMIC, MARKET OR BUSINESS CONDITIONS; ACQUISITION OPPORTUNITIES (OR LACK
THEREOF); CHANGES IN LAWS OR REGULATIONS; RISK FACTORS LISTED FROM TIME TO TIME
IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION; AND
OTHER FACTORS. THE COMPANY ASSUMES NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
-ii-
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
GENERAL
Vintage Petroleum, Inc. (the "Company") is an independent oil and gas
company focused on the acquisition of producing oil and gas properties which
contain the potential for increased value through exploitation and development.
The Company, through its experienced management and engineering staff, has been
successful in realizing such potential on prior acquisitions through workovers,
recompletions, secondary recovery operations, operating cost reductions, and the
drilling of development or infill wells. The Company believes that its primary
strengths are its ability to add reserves at attractive prices through property
acquisitions and subsequent exploitation, and its low cost operating structure.
These strengths have allowed the Company to substantially increase reserves,
production and cash flow during the last five years. As the Company has grown
its cash flow and added to its technical staff, exploration has become a larger
focus for its future growth. Planned exploration expenditures for 1997 of
approximately $43 million represent 37 percent of the Company's capital budget,
excluding acquisitions.
At December 31, 1996, the Company owned and operated producing properties in
11 states, with its domestic proved reserves located primarily in four core
areas: the West Coast, Gulf Coast, East Texas and Mid-Continent areas of the
United States. During 1996, the Company expanded its Gulf Coast area through the
acquisitions of certain oil and gas properties from Exxon Company, U.S.A. and
Conoco Inc. In addition, the Company established a new core area in 1995 by
acquiring 12 oil concessions, 11 of which are producing and operated by the
Company, in the south flank of the San Jorge Basin in southern Argentina. The
Company recently expanded its South American operations into Bolivia through the
acquisition of Shamrock Ventures (Boliviana) Ltd. which owns and operates three
blocks covering approximately 570,000 gross acres in the Chaco Plains area of
southern Bolivia.
The Company owned interests in 3,032 gross (2,004 net) producing wells in
the United States as of December 31, 1996, of which approximately 81 percent are
operated by the Company. The Company owned interests in 642 gross (629 net)
producing wells in Argentina as of December 31, 1996, of which approximately 97
percent are operated by the Company. As of December 31, 1996, the Company's
properties had proved reserves of 242.1 MMBOE, comprised of 178.3 MMBbls of oil
and 382.8 Bcf of gas, with a present value of estimated future net revenues
before income taxes (utilizing a 10 percent discount rate) of $1.8 billion and a
standardized measure of discounted future net cash flows of $1.4 billion.
The Company has consistently achieved growth in proved reserves, production
and revenues and has been profitable every full year since its founding in 1983.
From the first quarter of 1994 through the fourth quarter of 1996, the Company
increased its average net daily production from 18,000 Bbls of oil to 35,800
Bbls of oil and from 78,500 Mcf of gas to 85,100 Mcf of gas. For the year ended
December 31, 1996, the Company generated revenues of $311.7 million and net
income of $41.2 million.
Financial information relating to the Company's industry segments is set
forth in "Note 8 to Consolidated Financial Statements - Segment Information"
which is incorporated by reference from pages 42 and 43 of the Company's 1996
Annual Report to Stockholders.
The Company was incorporated in Delaware on May 31, 1983. The Company's
principal office is located at 4200 One Williams Center, Tulsa, Oklahoma 74172,
and its telephone number is (918) 592-0101.
-1-
<PAGE>
RECENT DEVELOPMENTS
On February 5, 1997, the Company completed a public offering of 1,500,000
shares of its Common Stock, all of which were sold by the Company. The net
proceeds to the Company of approximately $47.1 million were used to repay a
portion of the existing indebtedness under the Company's revolving credit
facility.
Also on February 5, 1997, the Company issued $100 million of its 8 5/8%
Senior Subordinated Notes Due 2009 (the "8 5/8% Notes"). The 8 5/8% Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after February 1, 2002. Upon a change in control (as defined) of the Company,
holders of the 8 5/8% Notes may require the Company to repurchase all or a
portion of the 8 5/8% Notes at a purchase price equal to 101 percent of the
principal amount thereof; plus accrued and unpaid interest. The 8 5/8% Notes
mature on February 1, 2009, with interest payable semiannually on February 1 and
August 1 of each year.
The 8 5/8% Notes are unsecured senior subordinated obligations of the
Company, rank subordinate in right of payment to all senior indebtedness (as
defined) and rank pari passu with the Company's 9% Senior Subordinated Notes Due
2005 (the "9% Notes"). The indenture for the 8 5/8% Notes contains limitations
similar to those contained in the indenture for the 9% Notes. The net proceeds
to the Company of approximately $96.4 million from the sale of the 8 5/8% Notes
were used to repay a portion of the existing indebtedness under the Company's
revolving credit facility.
In February 1997, the Company reached an agreement with subsidiaries of
Burlington Resources Inc. to purchase certain producing oil and gas properties
and facilities located in the Gulf Coast of Texas and Louisiana for $114.1
million in cash, subject to closing adjustments. The effective date of the
transaction is January 1, 1997, with closing scheduled for April 1, 1997,
subject to board approvals by the Company and Burlington Resources Inc. and
satisfaction of other normal conditions to closing.
The properties to be acquired consist of several onshore fields, 5 offshore
fields and a number of smaller fields covering over 74,000 net acres, about 46
percent of which are associated with offshore fields. The Company will operate
the properties which have current net daily production averaging approximately
5,200 Bbls of oil and 17,000 Mcf of gas. Key producing areas are the West
Ranch, Luling/Darst Creek and Terryville fields. West Ranch, located along the
Texas Gulf Coast, produces primarily oil from the Greta sandstone formation at
depths of 5,000 feet to 6,000 feet. Oil is also produced in the Luling/Darst
Creek fields in south central Texas from the Edwards limestone formation at
depths of less than 3,000 feet. Terryville, in north Louisiana, produces
principally gas from the Cotton Valley and Gray formations between 9,000 feet
and 13,000 feet.
BUSINESS STRATEGY
The Company's overall goal is to maximize its value through profitable
growth in its oil and gas reserves and production. The Company has been
successful at achieving this goal through its ongoing strategy of (a) acquiring
producing oil and gas properties, at favorable prices, with significant
exploitation potential, (b) focusing on low risk exploitation and development
activities to maximize production and ultimate reserve recovery, (c) exploring
non-producing properties, (d) maintaining a low cost operating structure, and
(e) maintaining financial flexibility. Key elements of the Company's strategy
include:
. Acquisitions of Producing Properties. The Company has an experienced
management and engineering team which focuses on acquisitions of
operated producing properties that meet its selection criteria which
include (a) significant potential for increasing reserves and production
through low risk exploitation and development, (b) attractive purchase
price,
-2-
<PAGE>
and (c) opportunities for improved operating efficiency. The Company's
emphasis on property acquisitions reflects its belief that continuing
consolidation and restructuring activities on the part of major
integrated and large independent oil companies has afforded in recent
years, and should afford in the future, attractive opportunities to
purchase domestic and international producing properties. This
acquisition strategy has allowed the Company to rapidly grow its
reserves at favorable acquisition prices. From January 1, 1994, through
December 31, 1996, the Company acquired 120.7 MMBOE of proved oil and
gas reserves at an average acquisition cost of $2.78 per BOE, which is
significantly below the industry average. The Company replaced through
acquisitions approximately 2.9 times its production of 41.5 MMBOE during
the same period.
. Exploitation and Development. The Company pursues workovers,
recompletions, secondary recovery operations and other production
optimization techniques on its properties, as well as development and
infill drilling, to offset normal production declines and replace the
Company's annual production. From January 1, 1994, through December 31,
1996, the Company spent approximately $154.8 million on exploitation and
development activities. During this period, the Company's recompletion
and workover activities resulted in improved production or operating
efficiencies in approximately 77 percent of these operations, and the
result of all of its exploitation activities, including development and
infill drilling, succeeded in replacing more than 125 percent of
production during this period. The Company has an extensive inventory of
exploitation and development opportunities including identified projects
which represent approximately a ten year inventory at current activity
levels. The Company anticipates spending approximately $33 million in
the United States and approximately $40 million in Argentina during 1997
on exploitation and development projects.
. Exploration. The Company's overall exploration strategy balances high
potential international prospects with lower risk drilling in known
formations in the United States and Argentina. This prospect mix and the
Company's practice of risk-sharing with industry partners is intended to
lower the incidence and costs of dry holes. The Company makes extensive
use of geophysical studies, including 3-D seismic, which further reduce
the cost and increase the success of its exploration program. From
January 1, 1994, through December 31, 1996, the Company spent
approximately $38.6 million on exploration activities including the
drilling of 52 gross (29.51 net) exploration wells, of which
approximately 63 percent gross (60 percent net) were productive. The
Company has increased its 1997 exploration budget by 79 percent over
1996 to approximately $43 million with spending planned in its core
areas in the United States and Argentina as well as in Block 19 of
Ecuador and the Chaco Block in Bolivia.
. Low Cost Structure. The Company is an efficient operator and capitalizes
on its low cost structure in evaluating acquisition opportunities. The
Company generally achieves substantial reductions in labor and other
field level costs from those experienced by the previous operators. In
addition, the Company targets acquisition candidates which are located
in its core areas and provide opportunities for cost efficiencies
through consolidation with other Company operations. The lower cost
structure has generally allowed the Company to substantially improve the
cash flow of newly acquired properties.
. Financial Flexibility. The Company is committed to maintaining
substantial financial flexibility, which management believes is
important for the successful execution of its acquisition, exploitation
and exploration strategy. In conjunction with the purchase of
substantial oil and gas assets in 1990, 1992 and 1995, the Company
completed three public equity offerings, as well as a public debt
offering in 1995, which provided the Company with aggregate net proceeds
of approximately $272 million. Additionally, the
-3-
<PAGE>
Company closed February 5, 1997, on its fourth public equity offering
and its second public debt offering. Net proceeds from these offerings
totaled approximately $143.5 million and were used to repay a portion of
existing indebtedness under the Company's revolving credit facility
thereby providing increased financial flexibility for future
acquisitions.
ACQUISITION ACTIVITIES
Historically, the Company has allocated a substantial portion of its capital
expenditures to the acquisition of producing oil and gas properties. The
Company's emphasis on property acquisitions reflects its belief that continuing
consolidation and restructuring activities on the part of major integrated and
large independent oil companies has in recent years and should in the future
afford attractive opportunities to purchase domestic and international producing
properties. The Company's ability to quickly evaluate and complete acquisitions
as well as its financial flexibility allow it to take advantage of these
opportunities as they materialize.
Since the Company's incorporation in May 1983, it has been actively engaged
in the acquisition of producing oil and gas properties primarily in the Gulf
Coast, East Texas and Mid-Continent areas of the United States, and in
California since April 1992. In 1995, a series of acquisitions made by the
Company established a new core area in the San Jorge Basin in southern
Argentina.
From January 1, 1994, through December 31, 1996, the Company made oil and
gas property acquisitions involving total costs of approximately $335.5 million.
As a result of these acquisitions, the Company acquired approximately 120.7
MMBOE of proved oil and gas reserves. The following table summarizes the
Company's acquisition experience during the periods indicated:
<TABLE>
<CAPTION>
PROVED RESERVES WHEN ACQUIRED ACQUISITION
----------------------------- COST PER
ACQUISITION OIL GAS BOE WHEN
COSTS (MBbls) (MMcf) MBOE ACQUIRED
----------- ------- ------- ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
U.S. Acquisitions
1994............................................. $ 36,544 5,645 29,655 10,588 $3.45
1995............................................. 38,896 8,840 39,486 15,421 2.52
1996............................................. 50,480 8,095 20,787 11,560 4.37
-------- ------ ------- ------- -----
Total U.S. Acquisitions....... 125,920 22,580 89,928 37,569 3.35
-------- ------ ------- ------- -----
Argentina Acquisitions
1995............................................. 168,762 65,653 - 65,653 2.57
1996............................................. 3,754 2,849 - 2,849 1.32
-------- ------ ------- ------- -----
Total Argentina Acquisitions.. 172,516 68,502 - 68,502 2.52
-------- ------ ------- ------- -----
Bolivia Acquisition
1996............................................. 37,048 4,953 57,758 14,579 2.54
-------- ------ ------- ------- -----
Total U.S. and International Acquisitions..... $335,484 96,035 147,686 120,650 $2.78
======== ====== ======= ======= =====
</TABLE>
The following is a brief discussion of significant acquisitions in recent
years:
1994 Acquisitions. The Company acquired approximately 5.6 MMBbls of oil
and 29.7 Bcf of gas through a series of small transactions in 1994 for a total
of approximately $36.5 million. The oil reserves are located primarily in the
Colgrade field in Louisiana and the Rincon field in Southern
-4-
<PAGE>
California. The gas reserves are located primarily in California's Sacramento
Basin, Louisiana's Gulf Coast area and the Mid-Continent area in Oklahoma. The
Company has identified numerous exploitation opportunities in these properties,
including infill development drilling, adding productive intervals in existing
producing wells and recompleting inactive wells.
1995 Acquisitions. In May 1995, the Company purchased all of Texaco
Exploration and Production, Inc.'s interests in nine oil fields and seven gas
fields in California located primarily in Kern, Ventura, Los Angeles, Orange and
Santa Barbara Counties and the Sacramento Basin area for $26.7 million in cash
(the "Texaco Properties"). Netherland, Sewell & Associates, Inc. ("Netherland,
Sewell") estimated that proved reserves attributable to these properties at the
date of acquisition were approximately 7.5 MMBbls of oil and 16.4 Bcf of gas.
The Company has identified numerous exploitation opportunities in these
properties including development drilling, recompletions, steam flood expansions
as well as lease operating expense efficiencies.
In the third quarter of 1995, the Company closed two acquisitions of related
properties located in the south flank of the San Jorge Basin in southern
Argentina, establishing a new core area for the Company. On July 5, 1995, the
Company purchased approximately 51.8 percent of the outstanding common stock of
Cadipsa S.A. ("Cadipsa") for 302,808 shares of the Company's Common Stock (then
valued at $5.7 million) and $7.4 million in cash. Cadipsa's major assets include
a 100 percent working interest in two concessions and a 50 percent working
interest in three additional concessions, all five of which are mature,
producing and operated by Cadipsa, covering approximately 322,000 gross acres.
Cadipsa's net daily production at the date of acquisition was approximately
3,700 Bbls of mid-gravity oil from multiple zones at depths between 2,500 feet
and 5,500 feet. The Company has subsequently purchased an additional 45.0
percent of Cadipsa which increases its total ownership to approximately 96.8
percent.
On September 29, 1995, the Company purchased 100 percent of the outstanding
common stock of Vintage Oil Argentina, Inc., formerly BG Argentina, S.A.
("Vintage Argentina") from British Gas plc, for $37.0 million in cash. Vintage
Argentina's major assets consist of a 50 percent working interest in three of
the producing concessions operated by Cadipsa.
In November 1995, the Company entered into separate agreements with Astra
Compania Argentina de Petroleo S.A. ("Astra") and Shell Compania Argentina de
Petroleo S.A. ("Shell") to acquire certain producing oil and gas properties in
Argentina (the "Astra/Shell Properties"). On November 30, 1995, the Company
completed the purchase of the Astra portion of the Astra/Shell Properties by
paying $17.9 million in cash for Astra's 35 percent working interest in the
Astra/Shell Properties. On December 27, 1995, the Company completed the purchase
of the remaining 65 percent working interest from Shell for $32.8 million cash
and deferred payments valued at $5.1 million.
The acquisition of the Astra/Shell Properties resulted in the Company
acquiring 100 percent working interests in seven concessions, six of which are
currently producing and all of which are located on the south flank of the San
Jorge Basin in southern Argentina. The concessions cover approximately 450,000
acres and are located in close proximity to the Company's other Argentina
properties.
1996 Acquisitions. On January 31, 1996, the Company purchased interests in
two fields located in south-central Louisiana from Conoco Inc. for $13.9 million
(the "Conoco Properties"). Funds were provided by advances under the Company's
revolving credit facility. The Conoco Properties included 26 gross (21 net)
productive wells with net daily production of approximately 1,000 Bbls of oil
and 550 Mcf of gas. All of the wells are now operated by the Company. The
primary producing sands include the Ortego A, Haas, Tate, Wilcox 1 through 6 and
the Middle and Basal Cockfield at depths ranging from 7,500 feet to 12,000 feet.
Planned exploitation activities include workovers, recompletions and
developmental drilling.
-5-
<PAGE>
On November 20, 1996, the Company purchased certain producing oil and gas
properties and facilities from Exxon Company, U.S.A. located in south Alabama
for approximately $28.5 million in cash, subject to post-closing adjustments
(the "Exxon Properties"). Funds were provided by advances under the Company's
revolving credit facility. The Exxon Properties include an interest in two
fields totaling approximately 5,000 net acres with a total of 17 gross (9.9 net)
productive wells with current net daily production of approximately 1,450 Bbls
of oil and liquids and 2,800 Mcf of gas. All of the wells are now operated by
the Company. The primary producing sands are the Smackover and Norphlet at
depths of approximately 15,000 feet. Future exploitation activities will include
operating cost reductions, treating plant efficiencies, workovers and infill
drilling.
In November 1996, the Company agreed to purchase 100 percent of the
outstanding common stock of Shamrock Ventures (Boliviana) Ltd. ("Shamrock") from
affiliates of Ultramar Diamond Shamrock Corporation for approximately $29.0
million in cash. In addition, at closing on January 7, 1997, the Company repaid
all of Shamrock's existing bank debt (approximately $9.2 million). Funds for the
purchase of the stock and the repayment of debt were provided by advances under
the Company's revolving credit facility. Shamrock's assets include (a) oil and
gas properties valued at $37.0 million (including the effect of approximately
$7.0 million of deferred income taxes recorded under the purchase method of
accounting), and (b) inventory, receivables, cash and other assets net of
liabilities (other than bank debt repaid at closing) of approximately $8.2
million. This transaction is subject to government approvals. The acquisition of
Shamrock represents an extension of the Company's South American operating area
that was initially established through a series of acquisitions in Argentina
during 1995.
The oil and gas properties of Shamrock consist of three blocks, totaling
approximately 570,000 gross acres, in the Chaco Plains area of southern Bolivia.
This region has experienced the greatest amount of exploration and currently
accounts for the majority of the country's production. The properties consist of
a 100 percent interest in the Chaco and Porvenir blocks, and a 50 percent
interest in the Nupuco block.
Proved reserves at the time of acquisition, as estimated by Netherland,
Sewell, were 57.8 Bcf of gas and 5.0 MMBbls of oil. Current net daily production
is approximately 14,500 Mcf of gas and 230 Bbls of condensate. The recent
realized price on the properties for natural gas was approximately $1.39 per
Mcf. The purchase also included a 29 mile gas pipeline and an interest in a gas
processing plant with a capacity of 110 MMcf per day. Liquids are transferred
through the pipeline to the processing plant. The current market for the gas is
Argentina.
The Company believes that the Shamrock properties contain substantial upside
potential which may be realized through exploitation and future exploration.
There can be no assurance, however, that such potential will be realized.
Bolivia occupies the strategic pivotal position in the area known as the
"Southern Cone" of South America. The Company expects that gas will be the key
energy source for the developing regional economies. The development of the
sizable gas reserves in southern Bolivia will play an important role as a source
of energy for the net importing countries of this region, the most significant
of which is Brazil. Third party plans call for construction of a gas pipeline
from Santa Cruz, Bolivia to Sao Paulo, Brazil which is anticipated to be
completed by 1999. The Company plans to begin work during 1997 to evaluate the
exploration prospects on the Bolivian properties in order to be ready to take
advantage of the increased market for Bolivian gas that should occur if the
pipeline to Brazil is completed. There can be no assurance, however, that this
Brazilian market will be developed.
The Company intends to continue its growth strategy emphasizing reserve
additions through its acquisition efforts. The Company may utilize any one or a
combination of its line of credit with banks, institutional financing, issuance
of debt securities or additional equity securities and internally generated cash
flow to finance its acquisition efforts. No assurance can be given that
sufficient external funds
-6-
<PAGE>
will be available to fund the Company's desired acquisitions. For additional
discussion of the Company's liquidity, see pages 29 and 30 of the Company's 1996
Annual Report to Stockholders.
The Company does not have a specific acquisition budget since the timing and
size of acquisitions are difficult to forecast. The Company is constantly
reviewing acquisition possibilities. The Company may expand into new domestic
core areas. The Company is also evaluating additional acquisition opportunities
in other countries which the Company believes are politically stable. At the
present time the Company has no binding agreements with respect to any
significant acquisitions other than the agreement with Burlington Resources Inc.
(see "--Recent Developments").
EXPLOITATION AND DEVELOPMENT ACTIVITIES
The Company concentrates its acquisition efforts on proved producing
properties which demonstrate a potential for significant additional development
through workovers, behind-pipe recompletions, secondary recovery operations, the
drilling of development or infill wells, and other exploitation techniques. The
Company has pursued an active workover and recompletion program on the
properties it has acquired and intends to continue its workover and recompletion
program in the future.
The Company's exploitation staff focuses on maximizing the value of the
properties within its reserve base. The Company's exploitation engineers, who
strive to offset normal production declines and replace the Company's annual
production, have replaced more than 125 percent of its production during the
last three years. The results of their efforts are reflected in revisions to
reserves. Net revisions to reserves for 1996 totaled 29.5 MMBOE, or 171 percent
of the Company's production of 17.3 MMBOE.
From January 1, 1994, through December 31, 1996, the Company spent
approximately $65.8 million on recompletion and workover operations. A measure
of the overall success of the Company's recompletion and workover operations
during this period (excluding minor equipment repair and replacement) has been
that improved production or operating efficiencies have been achieved from
approximately 77 percent of such operations. However, there can be no assurance
that such results will continue. The Company anticipates spending in excess of
$29 million on workover and recompletion operations during 1997. The
expenditures required for this program have historically been, and are expected
to continue to be, financed by internally generated funds.
Development drilling activity is generated both through the Company's
exploration efforts and as a result of the Company's obtaining undeveloped
acreage in connection with producing property acquisitions. In addition, there
are many opportunities for infill drilling on Company leases currently producing
oil and gas. The Company intends to continue to pursue development drilling
opportunities which offer potentially significant returns to the Company.
From January 1, 1994, through December 31, 1996, the Company participated in
the drilling of 142 gross (99.15 net) development wells, of which approximately
90 percent gross (90 percent net) were productive. However, there can be no
assurance that this past rate of drilling success will continue in the future.
The Company is pursuing development drilling in the West Coast, Gulf Coast, Mid-
Continent and East Texas areas as well as its Argentina concessions and
anticipates continued growth in its drilling activities. Additionally, the
Company has numerous infill drilling locations in several East Texas area
fields, specifically South Gilmer (Cotton Valley formation), Southern Pine
(Travis Peak formation), Bethany Longstreet (Hosston formation) and Rosewood
(Cotton Valley formation) fields.
During 1996, the Company participated in the drilling of 68 gross (56.61
net) development wells. At December 31, 1996, the Company's proved reserves
included approximately 88 development or infill drilling locations on its U.S.
acreage and 160 locations on its Argentine acreage. In addition, the
-7-
<PAGE>
Company has an extensive inventory of development and infill drilling locations
on its existing properties which are not included in proved reserves. The
Company spent approximately $43.3 million on development/infill drilling during
1996 and expects to spend approximately $45 million on its development/infill
drilling activities during 1997.
In connection with its exploitation focus, the Company actively pursues
operating cost reductions on the properties it acquires. The Company believes
that its cost structure and operating practices generally result in improved
operating economics. Although each situation is unique, the Company generally
has achieved reductions in labor and other field level costs from those
experienced by the previous operators, particularly in its acquisitions from
major oil companies.
The following is a brief discussion of significant developments in the
Company's recent exploitation and development activities:
West Coast Area. The San Miguelito/Rincon field area, acquired from
Conoco, Santa Fe Energy and Mobil, continues to be the primary focus of the
Company's West Coast exploitation efforts. Consolidation of the three
acquisition areas into a single operating unit has significantly reduced
operating costs. At the time of the initial acquisition in July 1993, the
Company identified 18 exploitation projects; however, since that time, the
Company has completed 90 projects. Exploitation efforts including artificial
lift enhancements, waterflood optimization, recompletions and sidetracking
junked producers have resulted in sustaining the average field production at
levels comparable to that of three years prior. As a result, the Company has
been able to increase proved reserves each year since the properties were
acquired. Also during 1996, the Company initiated pilot waterflooding operations
on the Fourth Grubb producing interval. Based on this successful pilot injection
test, full scale waterflooding operations will be initiated during 1997. Ongoing
reservoir studies continue to identify significant upside to the Company's
existing inventory of exploitation projects.
Gulf Coast Area. In the Galveston Bay area of Texas, the Company performed
12 workovers in the Red Fish Reef, Trinity Bay and Fishers Reef fields which are
100 percent owned by the Company and which historically have had good
exploitation potential. This work consisted of recompletions and repair jobs in
the multi-pay Frio zones productive in the area which resulted in a total gross
production increase of 250 Bbls of oil per day and 4,200 Mcf of gas per day.
During 1996, the Company also performed recompletions and workovers on seven
wells in the Tepetate field, a 100 percent owned field acquired from Conoco in
January 1996, which resulted in gross production increases of 850 Bbls of oil
per day and 400 Mcf of gas per day. The Company also experienced a successful
1996 exploitation program in the South Pass 24 field where three recompletions
and one development well resulted in increased gross daily production from the
field of 140 Bbls of oil and 4,370 Mcf of gas.
Mid-Continent Area. Water injection began in October 1993 in the Shawnee
Townsite Unit waterflood project and oil response began in November 1994. Gross
unit production has increased from a low of 250 Bbls of oil per day to a current
rate of approximately 2,750 Bbls of oil per day. Oil rates are forecasted to
peak at approximately 3,500 Bbls of oil per day in 1997. An engineering and
geological study performed in 1996 has refined the reservoir characterization
and established the viability of drilling several infill development wells
within the unit boundary to recover oil that would otherwise be undrained. In
addition to the Shawnee waterflood, the Company is actively pursuing four other
secondary recovery projects located in the Texas Panhandle. Each of these
waterflood projects is targeting the Upper Morrow sand at depths of
approximately 8,000 feet. Three of these units have been approved and water
injection has been initiated. Installation of the final unit is expected to
commence in the first quarter of 1997. Two analogous Upper Morrow fields
producing in the immediate area have already responded favorably to waterflood
operations. The Company owns working interests ranging from 82 percent to 100
percent in each of the four projects. The Company anticipates additional proved
reserves will be added based on the level of success of these secondary recovery
projects.
-8-
<PAGE>
East Texas Area. Gas development projects remain the focus of the
Company's exploitation efforts in East Texas. In the South Gilmer field, Upshur
County, Texas, a Company engineering study performed in 1993 established the
potential viability of 10 infill drilling locations along with workover
opportunities in eight existing wells. This exploitation work was initiated in
1994 and successful workovers were conducted on five wells. Seven of the infill
locations have now been drilled and completed. As a result of this work, gross
field production has increased to over 9,000 Mcf per day. The Company's working
interests in these wells range from 73 percent to 99 percent.
Argentina Concessions. Development and extensional drilling along with
development of secondary recovery projects have been the focus of the Company's
exploitation efforts in its Argentina properties. During 1996, the Company
continued the expansion of the Canadon Minerales Block 123A waterflood by adding
additional sands to the flood and completing additional patterns. Water
injection began in February 1992 and first oil response was seen approximately
12 months later. Since the initiation of this project, gross production has
increased from 150 Bbls of oil per day to 1,300 Bbls of oil per day. During
1996, the Company installed two new waterflood projects in areas immediately
adjacent to the Block 123A waterflood. There are two additional areas in Canadon
Minerales for which new waterflood projects are planned for 1997. Numerous other
areas within the other concessions are being evaluated as future waterflood
candidates. Drilling activity commenced during February 1996 and reached its
peak with three rigs running during the fourth quarter of 1996. Forty-one wells
were drilled in 1996 and an additional 10 were in process at year end 1996. The
two main areas where this activity was concentrated were Canadon Minerales with
25 wells drilled and Canadon Seco with 12 wells drilled. Largely due to the
results of this drilling activity, gross production during 1996 increased from
3,500 Bbls of oil per day to 6,900 Bbls of oil per day in Canadon Minerales and
from 1,300 Bbls of oil per day to 3,200 Bbls of oil per day in Canadon Seco.
During 1996, the Company acquired 124 square kilometers (48 square miles) of 3-D
seismic to aid in the optimum placement of future drilling locations. This data
was acquired in an attempt to aid in the evaluation of the extremely complex
stratigraphy that has historically caused problems in geologic interpretation in
this basin. The first three wells that were drilled from the evaluation of the
3-D seismic data have proven successful. If future wells verify these initial
results, the Company believes that substantial upside potential that has
historically been overlooked can be economically exploited.
EXPLORATION
The Company's exploration program is designed to contribute significantly to
its growth. Management divides the strategic objectives of its exploration
program into two parts. First, in the U.S. and in Argentina, the Company's
exploration focus is in its core areas where its geological and engineering
expertise and experience are greatest. State-of-the-art technology, including 3-
D seismic, is employed to identify prospects. Exploration in the U.S. and
Argentina is designed to generate reserve growth in the Company's core areas in
combination with its exploitation activities. The Company's longer-term plans
are to increase the magnitude of this program with a goal of achieving
production replacement through core area exploration. Such exploration is
characterized by numerous individual projects with medium to low risk. Secondly,
international exploration targets significant long-term reserve growth and value
creation. International exploration projects in Ecuador and Bolivia are
characterized by higher potential and higher risk. From January 1, 1994, through
December 31, 1996, the Company spent $38.6 million on exploration activities.
The Company plans to spend approximately $43 million on exploration activities
during 1997, approximately $31 million in the U.S. and Argentina and
approximately $12 million in other international areas.
The following is a brief discussion of the primary areas of exploration
activity for the Company:
-9-
<PAGE>
United States.
Gulf Coast Area. In the Galveston Bay area of Texas, the Company
---------------
has acquired over 180 square miles of new 3-D seismic data and controls over
30,000 net acres in shallow state waters. The Company uses 3-D seismic data to
identify new exploration and extensional opportunities in new reservoirs as well
as in existing fields. The Company has identified several new prospects in
Galveston Bay. The Texas State Tract-75, an exploratory well which utilized 3-D
seismic data, was drilled in the Umbrella Point area and was successfully
completed as a producer. One or more offset wells are planned to be drilled at
Umbrella Point in 1997. The Texas State Tract No. 2-3A well in the area of
Fishers Reef West is scheduled to spud during the second quarter of 1997. A
third exploratory prospect, White Heron, is also scheduled to spud during the
second quarter of 1997. The Galveston Bay prospects, if successful, may require
multiple development wells to drain target reservoirs. Working interests net to
the Company range between 33 percent and 100 percent in Galveston Bay. At the
Company's Deweyville prospect, a new 10 square mile 3-D seismic survey is being
used to aid in the identification of an expanded Yegua Trend on the Texas and
Louisiana border. The Company has a 90 percent working interest in this prospect
and is in the process of acquiring additional acreage.
Mid-Continent Area. The focus of the Company's Mid-Continent
------------------
drilling program continues to be the Anadarko and Ardmore Basins. In the Fort-X
prospect, four exploratory wells were drilled in 1996 utilizing 3-D seismic. All
four wells found sands targeted to be developed. Two were completed as producers
and are producing at 1,250 to 2,500 Mcf of gas per day. A fifth well is
currently drilling. With the information obtained from these four wells, the
Company has entered into two large 3-D seismic joint ventures in the Anadarko
Basin aimed at increasing its inventory of exploratory prospects, drilling
activity and reserves in selected multi-pay areas over the next several years.
The Wheeler project, in which the Company has a 25 percent working interest, is
a 150 square mile 3-D seismic survey in the Texas Panhandle targeting the
productive Granite Wash, Morrow, Hunton and Arbuckle formations which are known
to exist regionally. An exploratory well is planned for the first half of 1997.
The second project is a 500 square mile 3-D seismic joint venture in which the
Company has a 31.25 percent working interest. Eight areas of interest have been
selected for geologic imaging, targeting the Granite Wash, Red Fork, Morrow,
Springer, Hunton and Arbuckle formations. In the Stagecoach evaluation area of
southern Oklahoma, the Company has initiated an extensional drilling program
utilizing a new frac technology aimed at developing a large 6,000 net acre lease
block. Drilling of the first well has begun with evaluation expected in early
1997. If successful, the play could open up additional extensional projects in
this gas rich sub-basin. The Company's working interests in these prospects
range between 70 percent and 100 percent.
West Coast Area. Based on a discovery made by the Company in 1995,
---------------
3-D seismic data is being used to generate additional prospects in the Buttes
Slough area of Northern California. Three to five wells are planned in the
Grimes area during 1997. In the Zaca field located in Santa Barbara County, an
exploratory horizontal well is targeted to be drilled in 1997 to access
potential reserves in new fault blocks. The Company owns a 100 percent working
interest in this field and has eight additional exploratory prospects.
International.
South America. The Company is currently pursuing several
-------------
international exploratory projects which, if successful, have the potential to
increase the growth of the Company. The Company believes that its existing
projects in Ecuador and Bolivia have the potential to significantly increase
reserves. The exploration play with the largest potential for reserve additions,
as estimated by the Company, is Block 19 in the Oriente Basin in Ecuador. The
Company has a 30 percent working interest in a project to explore Block 19.
Numerous commercially productive fields have been discovered in this basin.
Primary targets are the Hollin, Napo "U" and "T" sands which are productive in
other significant fields in this basin. Two wells are planned for 1997. In
Bolivia, geological studies are underway to
-10-
<PAGE>
confirm a prospect which has been identified on the Company's recently acquired
acreage. Pending the results of these studies, the Company plans to drill a well
during 1997 that would test independent oil and gas concepts in this area.
Additionally, the Company has identified several exploratory leads on the
570,000 acres it controls which, if successfully developed into prospects, could
require several years to test. The Company's working interest in the area is 100
percent. In Argentina, in the Cerro Wenceslao concession in the western portion
of the San Jorge Basin, an exploratory project is currently underway to test an
area structurally high on an anticline feature to a prior well with oil shows. A
similar structural feature located in the northeast portion of the same
concession produces from numerous sands in the Bajo Barreal formation. This
field is currently producing at a rate of 1,520 Bbls of oil per day with a
cumulative recovery to date of 17 MMBbls of oil. The Company has a 100 percent
working interest in the Cerro Wenceslao concession.
OIL AND GAS PROPERTIES
At December 31, 1996, the Company owned and operated producing properties in
11 states, with its U.S. proved reserves located primarily in four core areas:
the West Coast, Gulf Coast, East Texas and Mid-Continent areas. In addition,
during 1995 the Company established a new core area in the San Jorge Basin of
Argentina. As of December 31, 1996, the Company operated approximately 3,101
productive wells and also owned non-operating interests in 579 productive wells.
Oil and gas sales from the Company's producing properties accounted for
approximately 83 percent, 82 percent and 76 percent of the Company's revenues
for the years ended December 31, 1996, 1995 and 1994, respectively. The Company
continuously evaluates the profitability of its oil, gas and related activities
and has a policy of divesting itself of unprofitable leases or areas of
operations that are not consistent with its operating philosophy.
The following table summarizes the Company's proved reserves in its 30
largest fields in the U.S., its five largest concessions in Argentina and its
largest concession in Bolivia at December 31, 1996, as estimated by Netherland,
Sewell. These fields and concessions represent approximately 76 percent of the
Company's proved reserves on such date.
-11-
<PAGE>
<TABLE>
<CAPTION>
LOCATION NET OIL NET GAS
AREA FIELD/CONCESSION NAME (COUNTY, STATE OR PROVINCE) (MBBLS) (MMCF) MBOE
- -------------------------- ----------------------------- --------------------------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
West Coast San Miguelito Ventura, CA 17,753 4,580 18,516
South Mountain Ventura, CA 6,130 6,308 7,182
Rincon Ventura, CA 4,734 3,823 5,372
Ojai-Silverthread Ventura, CA 2,915 13,567 5,176
Santa Maria Valley/Cat Canyon Santa Barbara, CA 4,089 - 4,089
Buena Vista Hills Kern, CA 2,522 5,264 3,399
Pleito Ranch Kern, CA 2,993 1,212 3,195
North Tejon Kern, CA 1,701 8,440 3,108
Sespe Ventura, CA 2,690 2,433 3,096
Canfield Ranch Kern, CA 2,552 443 2,626
Zaca Santa Barbara, CA 2,101 - 2,101
Lathrop San Joaquin, CA - 11,475 1,913
Wheeler Ridge Kern, CA 1,352 2,029 1,690
North Antelope Hills Kern, CA 1,661 - 1,661
Tejon Kern, CA 1,532 143 1,556
Gulf Coast South Pass 24 Plaquemines, LA 2,500 10,009 4,168
Flomaton Escambia, AL 2,002 7,574 3,264
Tepetate Acadia, LA 2,305 1,017 2,475
Waveland Hancock, MS 249 10,827 2,053
Ville Platte Evangeline, LA 1,147 4,043 1,821
Pachuta Creek Clarke, MS 1,607 317 1,660
Fanny Church Escambia, AL 1,126 2,185 1,490
Trinity Bay Chambers, TX 1,310 1,022 1,481
East Texas South Gilmer Upshur, TX 762 26,147 5,120
Colgrade Winn, LA 3,960 - 3,960
Southern Pine Cherokee, TX - 22,132 3,689
Fruitvale Van Zandt, TX 21 20,308 3,405
Mid-Continent Shawnee Pottawatomie, OK 2,209 61 2,220
Booker Ochiltree, TX 1,775 92 1,791
Strong City Roger Mills, OK 53 10,149 1,745
San Jorge Basin, Argentina Canadon Minerales Santa Cruz Province 25,816 - 25,816
Las Heras/Piedra Clavada Santa Cruz Province 15,489 - 15,489
Canadon Seco Santa Cruz Province 11,547 - 11,547
Cerro Wenceslao Santa Cruz Province 9,205 - 9,205
Meseta Espinosa Santa Cruz Province 8,043 - 8,043
Chaco Plains, Bolivia Nupuco Tarija Department 860 45,236 8,399
</TABLE>
West Coast Area. The Company expanded its operations to the West Coast in
1992 through two separate acquisitions of properties located in Kern, Ventura,
and Santa Barbara Counties in California. Since 1992, the Company has continued
to expand its operations in the West Coast area through additional property
acquisitions. As of December 31, 1996, the area comprised 32 percent of the
Company's total proved reserves and 53 percent of the Company's U.S. proved
reserves. The Company currently operates 1,171 productive wells with current
daily gross production of approximately 12,300 Bbls of mid-gravity oil, 2,050
Bbls of heavy oil and 27,100 Mcf of gas. In addition, the Company owns an
interest in 71 productive wells operated by others.
San Miguelito. The San Miguelito field is located in the west
-------------
central portion of the greater Ventura Avenue field just north of the City of
Ventura, California. Production is from multiple pay intervals in Pliocene-age
sands which span 7,000 vertical feet. Well depths generally range from 7,000
feet to just over 16,000 feet in the deepest wells. Currently, active waterflood
operations are
-12-
<PAGE>
underway in three of the producing zones. With the field still producing in
excess of 3,300 gross Bbls of oil per day, the Company believes additional
waterflood potential exists in lower sands currently producing on primary
depletion. The Company operates this single lease property with a 100 percent
working and 87.5 percent net revenue interest. For additional information
regarding this field, see "--Exploitation and Development Activities--West Coast
Area."
South Mountain. The South Mountain field, located just south of
--------------
Santa Paula, California, has become one of the Company's major producing areas.
As a result of the acquisition of the Texaco Properties, which included certain
properties in this field, the Company now operates 226 active wells in the South
Mountain field. Current gross daily production of 1,100 Bbls of oil and 2,175
Mcf of gas comes from Eocene and Pliocene sand intervals at depths of 3,000 feet
to 10,000 feet. The solution gas and gravity drainage producing mechanisms are
responsible for low decline rates which result in long-life reserves. In
addition to the producing wells, the Company also operates the South Mountain
Gas Gathering System which transports approximately 3,500 Mcf per day of Company
and third party gas. The Company's working interests in the South Mountain field
range from 50 percent to 100 percent with net revenue interests from 42 percent
to 100 percent; however, the properties are predominantly owned 100 percent.
Rincon. The Rincon field is located on the western updip end of
------
the greater Ventura Avenue field just north of the City of Ventura, California,
and adjacent to the Company's San Miguelito field properties. Like the San
Miguelito field, production is from multiple pay intervals of Pliocene-age
sands. These intervals span several thousand feet with three waterfloods
currently in operation. Producing intervals range in depth from approximately
3,500 feet to 14,000 feet. The Company operates this field with a 100 percent
working and 80 percent net revenue interest. Current daily gross production from
this field is approximately 1,000 Bbls of oil and 900 Mcf of gas. During 1996,
the Company was able to increase total field production through development of
uphole producing intervals and re-vitalization of existing waterfloods. The
Company believes that significant upside reserve potential remains in the
development of these shallow producing horizons as well as workover and
stimulation activity in the presently producing intervals. For additional
information regarding this field, see "--Exploitation and Development
Activities--West Coast Area."
Ojai-Silverthread and Timber Canyon. The Ojai field, which extends
-----------------------------------
to the Silverthread and Timber Canyon areas, is located in the western central
portion of Ventura County, California. All production in this area is from the
fractured Monterey Shale formation which is encountered at depths ranging from
2,000 feet to 6,000 feet. The Company operates 118 productive wells in this
field with a 100 percent working interest and net revenue interests ranging from
83 percent to 100 percent. The properties are mature, characterized by pressure
depletion and gravity drainage, with highly predictable production decline
rates. Combined current daily gross production exceeds 750 Bbls of oil and 3,200
Mcf of gas.
Santa Maria Valley/Cat Canyon. The Company operates these two
-----------------------------
heavy (low gravity) oil fields near Santa Maria, California. At the end of 1992,
the Company built and commenced operation of two non-conventional fuel
facilities. Those facilities are located in the Santa Maria Valley and Cat
Canyon fields and now produce oil from tar sands. Since December 1992, the
Company has produced over 800 MBbls of tar sand oil through these facilities. In
addition, the Company operates one waterflood. Total produced volume from the
fields currently is in excess of 1,500 gross Bbls of oil per day. The Company's
working interests in the fields are 100 percent with net revenue interests
ranging from 74.5 percent to 100 percent.
Buena Vista Hills. The Buena Vista Hills field is located
-----------------
approximately 25 miles east of Bakersfield, California. Production is from the
Upper Channel, Main Massive and Interbed zones at a depth of 5,000 feet to 5,500
feet. The Company operates 24 productive wells in the field with a 100 percent
working interest. Daily gross production is 650 Bbls of oil and 400 Mcf of gas.
The Company
-13-
<PAGE>
has an ongoing annual workover program in the field. Future projects include
continued recompletions, infill drilling and potential waterflooding.
Pleito Ranch. The Pleito Ranch field is located on the southern
------------
end of the San Joaquin Basin. Production is from Miocene-age Chanac and Santa
Margarita sands below the Wheeler Ridge thrust fault. Well depths range from
11,000 feet to 14,000 feet. All productive wells are operated by the Company
with a 100 percent working and net revenue interest. The recovery mechanism is
predominantly gravity drainage and is characterized by low decline, long-life
reserves with current gross production of approximately 600 Bbls of oil per day.
North Tejon. The North Tejon field is located near the southern
-----------
end of the San Joaquin Basin. This field is divided into a series of fault
blocks with productive reservoirs in the lower Miocene, Oligocene, Zemorrian and
Eocene sands. These producing zones range in depth from 5,400 feet to 11,300
feet. All productive wells are operated by the Company with a 100 percent
working and net revenue interest. Current gross production rates average in
excess of 200 Bbls of oil per day and 2,200 Mcf of gas per day. The Company
believes that future projects in this field may increase production and
reserves.
Gulf Coast Area. The Gulf Coast Area comprised approximately 14 percent
of the Company's December 31, 1996, total proved reserves. Production in this
area is predominantly from structural accumulations in reservoirs of Miocene
Age. The depths of the producing reservoirs in this area range from 1,200 feet
to 14,500 feet. The Company currently operates 288 productive wells and owns
interests in an additional 166 productive wells in this area. Daily gross
production from the operated wells currently averages 7,000 Bbls of oil and
49,800 Mcf of gas. Additional development potential exists in this area from
recompletions in existing wellbores particularly in the South Pass 24 (70
percent working interest), Red Fish Reef (100 percent working interest), and
Panther Reef (96 percent average working interest) fields.
South Pass 24. The South Pass 24 field is located in state waters
-------------
of Plaquemines Parish, Louisiana, at shallow water depths averaging 10 feet to
20 feet. The 33 productive oil wells and seven productive gas wells in this
field are operated by the Company and one other operator. The South Pass 24
field produces hydrocarbons from various members of the Miocene sand series at
an average depth of approximately 7,000 feet. Future value enhancements in this
field are expected to come from exploitation opportunities.
Flomaton. This field, purchased from Exxon in 1996, is located in
--------
Escambia County, Alabama, and produces from the Norphlet sand at 15,000 feet.
Company operated gross daily production is 600 Bbls of oil and 10,000 Mcf of gas
from nine wells. The Company anticipates significant reduction in operating
costs due to planned treating plant efficiency improvements. The Company is
also examining the feasibility of accelerating recovery through infill drilling.
Tepetate. The Tepetate field is located in Acadia Parish, Louisiana.
--------
The major producing sand is the Ortega A. The Company is the operator and owns a
100 percent working interest in the field. Over 20 productive sands are found in
the field, primarily in the Frio and Anahuac formations. The depths of the
producing sands range from 7,500 feet to 10,000 feet. The field currently
produces 1,000 Bbls of oil per day and 12,500 Bbls of water per day from 11
producing wells. The water is reinjected through four injection wells and one
disposal well. Several workovers and equipment changes have increased the
production from 500 Bbls of oil per day to the current level since acquisition
in February 1996.
Waveland. The Waveland field is located in Hancock County,
--------
Mississippi, and produces from the Washita-Fredricksburg, Paluxy and
Mooringsport formations at depths ranging from 11,800 feet to 13,340 feet. The
Company currently operates gross daily production of 3,500 Mcf of gas. This
-14-
<PAGE>
field contains a significant amount of reserves that are behind-pipe in existing
well bores. The Company intends to further develop this field through a series
of workovers and recompletions with two to four such projects scheduled for
1997.
Ville Platte. The Ville Platte field is located in east-central
------------
Evangeline Parish, Louisiana. The field has 26 productive sands with six sands
currently producing. The Company acquired operating interest in the field in
February 1996. The Haas, Tate, and Wilcox 1 through 6 were unitized in 1951
into the Ville Platte Unit. The Company operates the Ville Platte Unit with a
77.8 percent working interest. Other current producing sands are the Middle and
Basal Cockfield reservoirs. The Company owns a 100 percent working interest in
most of the wells completed in the non-unitized sands. The depths of the
producing sands range from 8,000 feet to 12,000 feet. The field currently
produces 225 Bbls of oil per day from 15 wells.
East Texas Area. The East Texas Area comprised approximately eight percent
of the Company's December 31, 1996, total proved reserves. The Cotton Valley,
Smackover and Travis Peak formations are the dominant producing reservoirs on
the Company's acreage in this area. The Company currently operates daily gross
production of 1,250 Bbls of oil and 27,600 Mcf of gas from 673 operated
productive wells in this area. The Company owns an interest in an additional 71
productive wells in this area. Significant infill drilling potential exists on
the Company's acreage in the South Gilmer, Colgrade, Southern Pine, Rosewood,
Bethany Longstreet and Bear Grass fields. The Company plans to continue infill
drilling programs in Southern Pine, Colgrade and South Gilmer fields. During
1996, these infill drilling programs have resulted in the addition of five
wells, all of which were successful. For additional information regarding these
producing operations, see "--Exploitation and Development Activities--East Texas
Area."
South Gilmer. The South Gilmer field, the Company's largest field
------------
in the East Texas area, is located in Upshur County and produces from the Cotton
Valley Lime formation at average depths of 11,300 feet to 11,800 feet. The
Company currently operates 18 productive wells and owns interests in three
additional productive wells in this field. A workover program implemented in
1994 increased production substantially in five wells. The Company began the
drilling of an infill well in December 1994, with two additional wells drilled
in 1995 and four wells in 1996. All seven wells resulted in successful
completions. Significant behind-pipe reserves are booked for the Company's 6,727
gross acres in the Cotton Valley sand formation.
Colgrade. The Colgrade field is located in Winn Parish, Louisiana
--------
and currently produces 750 Bbls of oil per day from the Wilcox formation at a
depth of 1,400 feet. The Company operates 437 active wells in this field. During
1996, a pilot project was initiated to increase fluid withdrawal rates from
these wells using submersible pumps. To date, 38 wells tested using such pumps
have indicated increased cumulative oil production of 144 Bbls per day.
Projecting this success to an additional 257 candidate wells should result in a
peak field rate in 1998 of 1,650 Bbls of oil per day, or an increase in excess
of 100 percent over the current rate. These submersible pumps are low cost and
replace conventional rod pump installations. Surface facilities are being
modified to handle the increased rates. The Company generally has a 100 percent
working interest and an 88 percent net revenue interest in this field.
Southern Pine. The Southern Pine field is located in Cherokee
-------------
County, Texas, and produces from the Travis Peak formation. The Company
currently operates 26 productive wells in this field. The Company completed the
drilling of eight development wells in 1995. These wells, combined with the ten
wells acquired from Herd Producing Company in March 1995, increased gross daily
production from 1,200 Mcf of gas to a peak rate of 10,000 Mcf of gas. The
installations of plunger lift and central compression during 1996 have helped
maintain the current gross daily production of 6,700 Mcf of gas.
-15-
<PAGE>
Mid-Continent Area. The Mid-Continent Area extends from the Arkoma Basin
of Eastern Oklahoma to the Texas Panhandle and north to include Kansas. This
area comprises six percent of the Company's total proved reserves as of December
31, 1996. The Company currently operates daily gross production of 4,200 Bbls of
oil and 28,400 Mcf of gas from 328 operated productive wells in this area. The
Company owns an interest in an additional 249 productive wells in this area.
The Company's largest field in the Mid-Continent Area is the Shawnee
Townsite field, which the Company operates. On March 1, 1993, a unit was formed
for secondary recovery operations with water injection initiated in October
1993. For additional information regarding this field, see "--Exploitation and
Development Activities--Mid-Continent Area."
Argentina Concessions. The Argentina properties consist primarily of 12
mature producing concessions located on the south flank of the San Jorge Basin.
These concessions comprised approximately 33 percent of the Company's December
31, 1996, total proved reserves. The Company currently operates 625 productive
wells (100 percent working interest) with daily gross production of 16,450 Bbls
of oil. In addition, the Company owns an interest in 17 productive wells
operated by others. At December 31, 1996, the Company's proved reserves included
approximately 160 development or infill drilling locations and 281 workovers on
its Argentina acreage. In addition, the Company has an extensive inventory of
workovers and development or infill drilling locations on its Argentina
properties which are not included in proved reserves.
Canadon Minerales. The primary oil producing reservoirs of the
-----------------
Canadon Minerales oil concession are the Mina del Carmen and Canadon Seco
formations which are both fluvial channel sand bodies at depths ranging from
3,000 feet to 6,000 feet. This concession currently has 184 producing wells and
32 water injection wells with daily gross production of approximately 7,050 Bbls
of oil. Approximately 20 percent of the concession's daily production is
produced from the Block 123A waterflood, which contains 22 producing wells and
17 water injection wells. The Block 123A waterflood was expanded during 1996 to
include additional sands. Also during 1996, two additional waterflood projects
were initiated in areas adjacent to Block 123A. At this time there are two
additional waterflood projects scheduled for development.
Future evelopment plans at Canadon Minerales include numerous workovers and
development drilling locations. Many of the workovers are expected to return
idle wells back to production by perforating zones not produced by the former
owner. Log cross sections reveal many zones which do not appear to have been
previously tested.
The proved undeveloped locations are generally infill development locations
in areas offsetting existing production. Well depths vary from 3,000 feet to
6,000 feet. The first well was drilled in the first quarter of 1996 and 25 wells
were drilled on this concession during 1996. See "--Exploitation and Development
Activities--Argentina Concessions."
Las Heras/Piedra Clavada. The primary oil producing reservoirs of
------------------------
the Las Heras/Piedra Clavada oil concession are the Castillo and Bajo Barreal
formations which are both fluvial channel sand bodies with good to moderate sand
quality at depths ranging from 3,500 feet to 7,000 feet. Currently, there are 88
producing wells and five water injection wells with daily gross production of
approximately 1,200 Bbls of oil. There is one active waterflood in Block 24,
which contains 13 producing wells and five water injection wells. In addition to
the activities in Block 24, there are three other waterflood projects scheduled
for development at Las Heras/Piedra Clavada.
Future development plans at Las Heras/Piedra Clavada include numerous
workovers and development drilling locations. Many of these workovers are
expected to return idle wells back to production by perforating additional
zones. Cross sections reveal many zones which do not appear to
-16-
<PAGE>
have been tested. The proved undeveloped locations are generally infill
development locations in areas offsetting existing production.
Canadon Seco. The primary oil producing reservoirs of the Canadon
------------
Seco oil concession are the Canadon Seco and Mina del Carmen which are fluvial
channel sand bodies at depths ranging from 4,000 feet to 7,000 feet. This field
currently has 79 producing wells and eight water injection wells with a daily
gross production of approximately 3,300 Bbls of oil.
There are three active waterfloods at Canadon Seco which contain a total of
10 producing wells and eight water injection wells. The Block VIIIAo waterflood
has additional drilling and water injection conversions scheduled for additional
development of the concession.
Additional development plans at Canadon Seco include numerous workovers and
development drilling locations. Many of the workovers are expected to return
idle wells back to production by perforating additional zones. See "--
Exploitation and Development Activities--Argentina Concessions."
Cerro Wenceslao. The primary oil producing reservoir of the Cerro
---------------
Wenceslao oil concession is the Bajo Barreal which contains sands at depths
ranging from 1,000 feet to 3,000 feet. Currently, there are 122 producing oil
wells and 9 water injection wells with daily gross production of approximately
1,550 Bbls of oil.
Future development plans at Cerro Wenceslao include workovers, fracture
stimulations, and development drilling on several drilling locations. In
addition, the Company plans to further develop the significant waterflood
potential in Block 2, Block 5 and the East Flank Block.
Meseta Espinosa. The primary oil producing reservoirs of the
---------------
Meseta Espinosa oil concession are the Canadon Seco and Mina del Carmen which
are fluvial channel sand bodies with good to moderate sand quality at depths
ranging from 4,000 feet to 7,000 feet. This concession currently has 103
producing wells and 10 water injection wells with a daily gross production of
approximately 2,550 Bbls of oil.
There are seven active waterfloods at Meseta Espinosa which contain a total
of 17 producing wells and 10 water injection wells. One new proven waterflood
project was installed during 1996. It will be followed by the implementation of
a second new proven waterflood project. Additional development plans at Meseta
Espinosa include several workovers and the drilling of development wells.
Bolivia Concessions. The Bolivia properties consist of two producing
concessions and one exploration concession located in the Chaco Plains area of
southern Bolivia. The Company has a 100 percent working interest in the Chaco
exploration concession and the Porvenir producing concession. In the other
concession, Nupuco, the Company has a 50 percent working interest. The Company
operates all three concessions. These concessions comprise approximately six
percent of the Company's total proved reserves and include 6 gross (5.00 net)
active producing wells, all of which are operated by the Company. The current
daily gross production is approximately 35,000 Mcf of gas and 685 Bbls of
condensate.
Nupuco. The Nupuco field is located in the southern part of Bolivia
------
approximately 230 miles south of the city of Santa Cruz and approximately 60
miles north of the border with Argentina. The primary gas producing reservoirs
are the Triassic age Cangapi and the Carboniferious age San Telmo and
Escarpment. This field currently has 2 gross (1.00 net) active producing wells
with daily gross production of approximately 30 MMcf of gas and 600 Bbls of
condensate.
-17-
<PAGE>
MARKETING
The Company's gas production and gathered gas are sold primarily on the spot
market or under market-sensitive, long-term agreements with a variety of
purchasers, including intrastate and interstate pipelines, their marketing
affiliates, independent marketing companies and other purchasers who have the
ability to move the gas under firm transportation agreements. Because an
insignificant amount of the Company's gas is committed to long-term fixed-price
contracts, the Company is positioned to take advantage of rising prices for gas
but it is also subject to gas price declines.
In order to more efficiently handle spot market transactions, the Company's
gas marketing activities are handled by Vintage Gas, Inc., its wholly-owned gas
marketing affiliate, which commenced operation on May 1, 1991. This marketing
affiliate purchases gas on the spot market from the Company and third parties.
Generally, the marketing affiliate purchases this gas on a month-to-month basis
at a percentage of resale prices. Gas marketing accounted for approximately 10
percent, 11 percent and 15 percent of the Company's revenues for the years ended
December 31, 1996, 1995 and 1994, respectively.
Generally, the Company's domestic oil production is sold under short-term
contracts at posted prices plus a premium in some cases. The Company's Argentina
oil production is currently sold at port to ESSO SAPA and Petrobras at West
Texas Intermediate spot prices less a specified differential.
The most significant purchaser of the Company's oil during 1996 was Texaco
Trading and Transportation, Inc. Such oil purchases amounted to approximately 15
percent of the Company's total revenues for 1996. No other purchaser of the
Company's oil or gas during 1996 exceeded 10 percent of the Company's total
revenues.
The Company has previously engaged in oil and gas hedging activities and
intends to continue to consider various hedging arrangements to realize
commodity prices which it considers favorable. Three hedges (swap agreements)
are currently in place for a total of 7,500 Bbls of oil per day at a weighted
average price of $19.26 per Bbl (NYMEX reference price) for the period January
1997 through December 1997.
GATHERING SYSTEMS
The Company owns 100 percent interests in two oil and gas gathering systems
located in Pottawatomie County, Oklahoma and Harris and Chambers Counties,
Texas. In addition, the Company owns 100 percent interests in 22 gas gathering
systems located in active producing areas of California, Kansas, Texas and
Oklahoma. All of these gathering systems are operated by the Company. Together,
these systems comprise approximately 300 miles of varying diameter pipe with a
combined capacity in excess of 175 MMcf of gas per day. At December 31, 1996,
there were 432 wells (most of which are operated by the Company) connected to
these systems. Generally, the gathering systems buy gas at the wellhead on the
basis of a percentage of the resale price under contracts containing terms of
one to 10 years. Oil and gas gathering accounted for approximately 7 percent, 6
percent and 8 percent of the Company's revenues for the years ended December 31,
1996, 1995 and 1994, respectively.
-18-
<PAGE>
RESERVES
At December 31, 1996, the Company had proved reserves, as estimated by
Netherland, Sewell, of 242.1 MMBOE, comprised of 178.3 MMBbls of oil and 382.8
Bcf of gas. The following table sets forth, at December 31, 1996, the present
value of future net revenues (revenues less production and development costs)
before income taxes attributable to the Company's proved reserves at such date
(in thousands):
<TABLE>
<CAPTION>
Proved Reserves:
<S> <C>
Future net revenues........................................ $3,140,212
Present value of future net revenues before income taxes,
discounted at 10 percent.................................. 1,807,137
Standardized measure of discounted future net cash flows... 1,392,841
Proved Developed Reserves:
Future net revenues........................................ 2,309,759
Present value of future net revenues before income taxes,
discounted at 10 percent.................................. 1,386,361
</TABLE>
In computing this data, assumptions and estimates have been utilized, and
the Company cautions against viewing this information as a forecast of future
economic conditions. The historical future net revenues are determined by using
estimated quantities of proved reserves and the periods in which they are
expected to be developed and produced based on December 31, 1996, economic
conditions. The estimated future production is priced at prices prevailing at
December 31, 1996, except where fixed and determinable price escalations are
provided by contract. The resulting estimated future gross revenues are reduced
by estimated future costs to develop and produce the proved reserves, based on
December 31, 1996, cost levels, but such costs do not include debt service,
general and administrative expenses and income taxes. For additional information
concerning the historical discounted future net revenues to be derived from
these reserves and the disclosure of the Standardized Measure information in
accordance with the provisions of Statement of Financial Accounting Standards
No. 69, "Disclosures about Oil and Gas Producing Activities," see "Note 10 to
Consolidated Financial Statements -Supplementary Financial Information for Oil
and Gas Producing Activities" which is incorporated by reference from pages 44
through 48 of the Company's 1996 Annual Report to Stockholders.
The following table sets forth estimates of the proved oil and gas reserves
of the Company at December 31, 1996, as evaluated by Netherland, Sewell:
<TABLE>
<CAPTION>
OIL (MBbls) GAS(MMcf)
------------------------------- --------------------------------- MBOE
DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL TOTAL
--------- ----------- ------- --------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
West Coast (a).... 51,240 11,081 62,321 87,952 6,149 94,101 78,005
Gulf Coast........ 16,434 2,022 18,456 86,074 12,833 98,907 34,941
East Texas........ 5,382 424 5,806 72,438 15,743 88,181 20,502
Mid-Continent..... 5,880 1,281 7,161 42,974 899 43,873 14,473
Other U.S......... 314 280 594 26 - 26 598
--------- ---------- ------- -------- --------- -------- -------
Total U.S...... 79,250 15,088 94,338 289,464 35,624 325,088 148,519
Argentina......... 46,582 32,423 79,005 - - - 79,005
Bolivia........... 1,007 3,946 4,953 51,276 6,482 57,758 14,580
--------- ---------- ------- -------- --------- -------- -------
Total Company.. 126,839 51,457 178,296 340,740 42,106 382,846 242,104
========= ========== ======= ======== ========= ======== =======
</TABLE>
- --------------
(a) Total proved oil reserves include 6.8 MMBbls of heavy oil located in the
Company's Santa Maria Valley/Cat Canyon, North Antelope Hills and Zaca
fields in California.
-19-
<PAGE>
Estimates of the Company's 1996 proved reserves set forth above have not
been filed with, or included in reports to, any Federal authority or agency,
other than the Securities and Exchange Commission.
The Company's non-producing proved reserves are largely behind-pipe in
fields which it operates. Undeveloped proved reserves are predominantly infill
drilling locations and secondary recovery projects. Approximately 74 percent of
the U.S. proved reserves associated with infill drilling locations are located
in the Company's 30 largest U.S. fields.
The reserve data set forth in this Form 10-K represent only estimates.
Reserve engineering is a subjective process of estimating underground
accumulations of oil and gas that cannot be measured in an exact manner. The
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. As a result,
estimates of different engineers often vary. In addition, results of drilling,
testing and production subsequent to the date of an estimate may justify
revision of such estimate. Accordingly, reserve estimates often differ from the
quantities of oil and gas that are ultimately recovered. The meaningfulness of
such estimates is highly dependent upon the accuracy of the assumptions upon
which they were based.
For further information on reserves, costs relating to oil and gas
activities and results of operations from producing activities, see "Note 10 to
Consolidated Financial Statements -Supplementary Financial Information for Oil
and Gas Producing Activities" which is incorporated by reference from pages 44
through 48 of the Company's 1996 Annual Report to Stockholders.
PRODUCTIVE WELLS; DEVELOPED ACREAGE
The following table sets forth the Company's domestic and international
productive wells and developed acreage assignable to such wells at December 31,
1996:
<TABLE>
<CAPTION>
PRODUCTIVE WELLS
--------------------------------------
DEVELOPED ACREAGE OIL GAS TOTAL
-------------------- ------------ ---------- ------------
GROSS NET GROSS NET GROSS NET GROSS NET
--------- --------- ----- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S........ 574,163 317,674 2,107 1,631 925 373 3,032 2,004
Argentina.. 1,008,339 844,372 642 629 - - 642 629
Bolivia.... 84,014 72,895 - - 6 5 6 5
--------- --------- ----- ----- ----- ---- ----- -----
Total..... 1,666,516 1,234,941 2,749 2,260 931 378 3,680 2,638
========= ========= ===== ===== ===== ==== ===== =====
</TABLE>
Productive wells consist of producing wells and wells capable of production,
including gas wells awaiting pipeline connections to commence deliveries and oil
wells awaiting connection to production facilities. Wells which are completed in
more than one producing horizon are counted as one well. Of the gross wells
reported above, five had multiple completions.
PRODUCTION; UNIT PRICES; COSTS
The following table sets forth information with respect to production and
average unit prices and costs for the periods indicated:
-20-
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
--------- -------- ------
<S> <C> <C> <C>
Production:
Oil (MBbls) -
U.S....................... 7,694 6,647 6,657
Argentina................. 4,245 961 -
Total..................... 11,939 7,608 6,657
Gas, all U.S. (MMcf)....... 32,366 30,610 28,884
Average sales prices:
Oil (per Bbl) -
U.S....................... $ 17.19 (a) $ 15.44 $ 13.53
Argentina................. 15.91 (a) 13.98 -
Total..................... 16.73 (a) 15.26 13.53
Gas, all U.S. (per Mcf).... 1.81 1.46 1.78
Production costs (per BOE):
U.S........................ 5.42 5.24 5.17
Argentina.................. 4.93 5.42 -
Total...................... 5.30 5.25 5.17
</TABLE>
- -----------
(a) The impact of oil hedges reduced the Company's 1996 U.S., Argentina and
total average oil prices per Bbl by $1.47, $2.96 and $2.00, respectively.
The components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors, but generally
include production taxes, maintenance and repairs, labor and utilities.
UNDEVELOPED ACREAGE
At December 31, 1996, the Company held the following undeveloped acres
located in the United States, Ecuador and Bolivia. With respect to such United
States acreage held under leases, 96,950 gross (34,535 net) acres are held under
leases with primary terms that expire at varying dates through December 31,
2000, unless commercial production is commenced. The Ecuador and Bolivia
acreage are held under concessions with primary terms that expire at varying
dates in 1999. The following table sets forth the location of the Company's
undeveloped acreage and the number of gross and net acres in each. Although
substantial undeveloped acreage exists in the Company's concessions in
Argentina, the concessions in their entirety are held by production.
-21-
<PAGE>
<TABLE>
<CAPTION>
GROSS NET
STATE/COUNTRY ACRES ACRES
- ----------------------------------- --------- -------
<S> <C> <C>
California.......................... 6,698 6,090
Colorado............................ 2,720 972
Kansas.............................. 1,420 1,420
Louisiana........................... 1,182 430
Mississippi......................... 204 65
Montana............................. 12,382 6,250
New Mexico.......................... 11,469 1,656
Oklahoma............................ 13,978 8,510
Texas............................... 52,506 13,985
--------- -------
Total U.S.......................... 102,559 39,378
Ecuador............................. 494,226 148,268
Bolivia............................. 485,552 485,552
--------- -------
Total Company...................... 1,082,337 673,198
========= =======
</TABLE>
DRILLING ACTIVITY
During the periods indicated, the Company drilled or participated in
the drilling of the following exploratory and development wells:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Development:
United States -
Productive............ 22 12.67 36 19.26 31 18.75
Non-Productive........ 5 2.94 5 3.49 2 1.04
Argentina -
Productive............ 39 39.00 - - - -
Non-Productive........ 2 2.00 - - - -
----- ----- ----- ----- ----- -----
Total................ 68 56.61 41 22.75 33 19.79
===== ===== ===== ===== ===== =====
Exploratory:
United States -
Productive............ 6 3.00 13 9.84 12 2.82
Non-Productive........ 7 3.12 5 2.69 5 4.04
Argentina -
Productive............ 2 2.00 - - - -
Non-Productive........ 1 1.00 - - - -
Other International -
Productive............ - - - - - -
Non-Productive........ 1 1.00 - - - -
----- ----- ----- ----- ----- -----
Total................ 17 10.12 18 12.53 17 6.86
===== ===== ===== ===== ===== =====
Total:
Productive............. 69 56.67 49 29.10 43 21.58
Non-Productive......... 16 10.06 10 6.18 7 5.07
----- ----- ----- ----- ----- -----
Total................. 85 66.73 59 35.28 50 26.65
===== ===== ===== ===== ===== =====
</TABLE>
The above well information excludes wells in which the Company has only a
royalty interest.
-22-
<PAGE>
At December 31, 1996, the Company was a participant in the drilling or
completion of 23 gross (19.63 net) wells. All of the Company's drilling
activities are conducted with independent contractors. The Company owns no
drilling equipment.
SEASONALITY
The results of operations of the Company are somewhat seasonal due to
seasonal fluctuations in the price for gas. Gas prices have been generally
higher in the fourth and first quarters. Due to these seasonal fluctuations,
results of operations for individual quarterly periods may not be indicative of
results which may be realized on an annual basis.
COMPETITION
Competition in the oil and gas industry is intense. Both in seeking to
obtain and acquire desirable producing properties, new leases and exploration
prospects, and in marketing oil and gas, the Company faces competition from both
major and independent oil and gas companies, as well as from numerous
individuals and drilling programs. Many of these competitors have financial and
other resources substantially in excess of those available to the Company.
Increases in worldwide energy production capability have brought about
substantial surpluses in energy supplies in recent years. This, in turn, has
resulted in substantial competition for markets historically served by domestic
gas resources from alternative sources of energy, such as residual fuel oil, and
among domestic gas suppliers. Changes in government regulations relating to the
production, transportation and marketing of gas have also resulted in
significant changes in the historical marketing patterns of the industry.
Generally, these changes have resulted in the abandonment by many pipelines of
long-term contracts for the purchase of gas, the development by gas producers of
their own marketing programs to take advantage of new regulations requiring
pipelines to transport gas for regulated fees, and the emergence of various
types of marketing companies and other aggregators of gas supplies. As a
consequence, gas prices, which were once effectively determined by government
regulations, are now largely established by competition. Competitors of the
Company in this market include other producers, gas pipelines and their
affiliated marketing companies, independent marketers, and providers of
alternate energy supplies, such as residual fuel oil.
Exploration for and production of oil and gas are affected by the
availability of pipe, casing and other tubular goods and certain other oil field
equipment, including drilling rigs and tools. The Company is dependent upon
independent drilling contractors to furnish rigs, equipment and tools to drill
the wells it operates. The Company has not experienced and does not anticipate
difficulty in obtaining supplies, materials, drilling rigs, equipment or tools.
Higher prices for oil and gas production, however, may cause competition for
these items to increase and may result in increased costs of operations.
RISKS OF INTERNATIONAL OPERATIONS
International investments represent approximately 39 percent of the
Company's total proved reserves at December 31, 1996, and are expected to
represent a significant portion of the Company's total assets in the future.
The Company continues to evaluate international investment opportunities but
currently has no binding agreements or commitments to make any material
international acquisitions.
The Company's foreign properties, operations or investments may be adversely
affected by local political and economic developments, exchange controls,
currency fluctuations, royalty and tax increases, retroactive tax claims,
expropriation, import and export regulations and other foreign laws or policies
as well as by laws and policies of the United States affecting foreign trade,
taxation and investment. In addition, in the event of a dispute arising from
foreign operations, the Company may
-23-
<PAGE>
be subject to the exclusive jurisdiction of foreign courts or may not be
successful in subjecting foreign persons to the jurisdiction of the courts in
the United States. The Company may also be hindered or prevented from enforcing
its rights with respect to a governmental instrumentality because of the
doctrine of sovereign immunity.
REGULATION
The oil and gas industry is extensively regulated by federal, state and
local authorities. Legislation affecting the oil and gas industry is under
constant review for amendment or expansion. Numerous departments and agencies,
both federal and state, have issued rules and regulations affecting the oil and
gas industry and its individual members, some of which carry substantial
penalties for the failure to comply. The regulatory burden on the oil and gas
industry increases its cost of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such regulations.
Exploration and Production. Exploration and production operations of the
Company are subject to various types of regulation at the federal, state and
local levels. Such regulation includes requiring permits for the drilling of
wells, maintaining bonding requirements in order to drill or operate wells, and
regulating the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilled and the
plugging and abandoning of wells. The Company's operations are also subject to
various conservation regulations, including regulation of the size of drilling
and spacing units or proration units, the density of wells which may be drilled
and the unitization or pooling of oil and gas properties. In this regard, some
states allow the forced pooling or integration of lands and leases to facilitate
exploration, while other states rely on voluntary pooling of lands and leases.
In addition, state conservation laws establish maximum rates of production from
oil and gas wells, generally prohibit the venting or flaring of gas and impose
certain requirements regarding the ratability of production. The effect of
these regulations is to limit the amounts of oil and gas the Company can produce
from its wells and the number of wells or the locations at which the Company can
drill.
In March 1992, Oklahoma enacted legislation which further limits the daily
allowable of gas production during periods of low demand for gas. The Oklahoma
Corporation Commission sets production levels quarterly. The production of gas
from a single well is limited to the greater of a specified Mcf per day or a
percentage of the total daily production capacity of the well. Since March
1992, the daily Mcf has been between 750 and 1,000 Mcf and the total daily
production has ranged from 25 percent to 50 percent. Effective July 1, 1992,
the Texas Railroad Commission, which is the state agency that regulates oil and
gas production in Texas (the "TRC"), enacted new regulations that may limit the
rate at which oil and gas may be produced from the Company's Texas properties.
Under the new Texas rules, the TRC relies upon certain information filed monthly
by well operators, in addition to using historical production data for each well
during comparable past periods, to arrive at a production allowable. These
Texas and Oklahoma regulations and legislation have not had a significant impact
on the Company's operations. The Company cannot predict whether other states
will adopt similar regulations or legislation. The effect of such future
legislation and regulations may be to decrease the allowable daily production
and the revenues from gas properties, including properties that produce both oil
and gas. It is also possible that such future legislation and regulations may
result in a decrease in gas production in such states, which could exert upward
pressure on the price of gas.
-24-
<PAGE>
Various federal, state and local laws and regulations covering the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, may affect exploration, development and production operations
of the Company. For example, the discharge or substantial threat of a discharge
of oil by the Company into United States waters or onto an adjoining shoreline
may subject the Company to liability under the Oil Pollution Act of 1990 and
similar state laws. While liability under the Oil Pollution Act of 1990 is
limited under certain circumstances, such limits are so high that the maximum
liability would likely have a significant adverse effect on the Company. The
Company's operations generally will be covered by insurance which the Company
believes is adequate for these purposes. However, there can be no assurance
that such insurance coverage will always be in force or that, if in force, it
will adequately cover any losses or liability the Company may incur. The
Company is also subject to laws and regulations concerning occupational safety
and health. It is not anticipated that the Company will be required in the near
future to expend amounts that are material in the aggregate to the Company's
overall operations by reason of environmental or occupational safety and health
laws and regulations, but because such laws and regulations are frequently
changed, the Company is unable to predict the ultimate cost of compliance.
Certain of the Company's oil and gas leases are granted by the federal
government and administered by various federal agencies. Such leases require
compliance with detailed federal regulations and orders which regulate, among
other matters, drilling and operations on these leases and calculation of
royalty payments to the federal government. The Mineral Lands Leasing Act of
1920 places limitations on the number of acres under federal leases that may be
owned in any one state. While subject to this law, the Company does not have a
substantial federal lease acreage position in any state or in the aggregate.
The Mineral Lands Leasing Act of 1920 and related regulations also may restrict
a corporation from the holding of a federal onshore oil and gas lease if stock
of such corporation is owned by citizens of foreign countries which are not
deemed reciprocal under such Act. Reciprocity depends, in large part, on whether
the laws of the foreign jurisdiction discriminate against a United States
person's ownership of rights to minerals in such jurisdiction. The purchase of
shares in the Company by citizens of foreign countries who are not deemed to be
reciprocal under such Act could have an impact on the Company's ownership of
federal leases.
Marketing, Gathering and Transportation. Federal legislation and regulatory
controls have historically affected the price of the gas produced and sold by
the Company and the manner in which such production is marketed. Historically,
the transportation and sale for resale of gas in interstate commerce have been
regulated pursuant to the Natural Gas Act of 1938 (the "NGA"), the Natural Gas
Policy Act of 1978 (the "NGPA") and the regulations promulgated thereunder by
the Federal Energy Regulatory Commission ("FERC"). Since 1978, maximum selling
prices of certain categories of gas, whether sold in interstate or intrastate
commerce, were regulated pursuant to the NGPA. The NGPA established various
categories of gas and provided for graduated deregulation of price controls of
several categories of gas and the deregulation of sales of certain categories of
gas. All price deregulation contemplated under the NGPA has already taken
place. On July 26, 1989, the Natural Gas Wellhead Decontrol Act of 1989 (the
"Decontrol Act") was enacted. The Decontrol Act amended the NGPA to remove, as
of July 27, 1989, both price and nonprice controls from gas not subject to a
contract in effect on July 26, 1989. Gas under contract on July 26, 1989, was
decontrolled on the earlier of the termination of the contract or January 1,
1993. Gas from wells spudded after July 26, 1989, was decontrolled on May 15,
1991, even if those wells were still covered by an existing contract. In
December 1992, the FERC issued Order 547, which, effective January 7, 1993,
constitutes a blanket certificate of public convenience and necessity pursuant
to Section 7 of the NGA authorizing any company which is not an interstate
natural gas pipeline or an affiliate thereof to make sales for resale at
negotiated rates in interstate commerce of any category of gas that is subject
to the FERC's NGA jurisdiction.
As a result of such deregulation provisions, virtually all of the Company's
gas production is no longer subject to price regulation. Gas which has been
removed from price regulation is subject only
-25-
<PAGE>
to that price contractually agreed upon between the producer and purchaser.
Under current market conditions, deregulated gas prices under recently
negotiated contracts tend to be substantially lower than most regulated price
ceilings that were previously prescribed by the NGPA.
In February 1988, the FERC issued Order No. 490, which promulgated new
abandonment regulations for expired, canceled or modified contracts involving
the sale of certain gas committed or dedicated to interstate commerce prior to
the enactment of the NGPA. The new rules largely eliminate delays and
regulatory burdens associated with securing approval to abandon gas service upon
termination or expiration of a contract for the sale of such gas. The new rules
also significantly facilitate certain pipelines' ability to discontinue
purchasing such gas under terms unfavorable to the pipeline in situations in
which the contract has expired or terminated, but abandonment authorization is
required to terminate the service. The Company has gas purchase agreements with
purchasers that have been abandoned pursuant to Order No. 490. Order No. 490 is
currently being challenged in the courts. The Company is unable to predict the
outcome of these proceedings, and is also unable to predict the consequences to
it of any possible future vacation of Order No. 490.
Commencing in 1985, the FERC promulgated a series of orders and regulations
adopting changes that significantly affect the transportation and marketing of
gas. These changes have been intended to foster competition in the gas industry
by, among other things, inducing or mandating that interstate pipeline companies
provide nondiscriminatory transportation services to producers, distributors and
other shippers (so-called "open access" requirements). The FERC has also sought
to expedite the certification process for new services, facilities, and
operations of those pipeline companies providing "open access" services. The
FERC's actions in these areas have been subject to extensive judicial review and
have generated significant industry comment and proposals for modifications to
existing regulations.
In April 1992 (and clarified in August 1992 and finalized in November 1992),
the FERC issued Order 636, a complex regulation which changed gas pipeline
operations, services and rates. Among other things, Order 636 required each
interstate pipeline company to "unbundle" its traditional wholesale services and
create and make available on an open and nondiscriminatory basis numerous
constituent services (such as gathering services, storage services, firm and
interruptible transportation services, and stand-by sales services) and to adopt
a new rate making methodology to determine appropriate rates for those services.
To the extent the pipeline company or its sales affiliate makes gas sales as a
merchant in the future, it will do so in direct competition with all other
sellers pursuant to private contracts; however, pipeline companies are not
required to remain "merchants" of gas, and many of the interstate pipeline
companies have or will become "transporters only." Each pipeline company had to
develop the specific terms of service in individual proceedings. The new rules
and various pipeline compliance filings are the subject of appeals and resulting
remand proceedings concerning certain issues. The Company cannot predict
whether and to what extent further FERC remand proceedings and judicial review
will affect these matters. Although the new regulations do not directly
regulate gas producers such as the Company, the availability of non-
discriminatory transportation services and the ability of pipeline customers to
modify or terminate their existing purchase obligations under these regulations
have greatly enhanced the ability of producers to market their gas directly to
end users and local distribution companies. In this regard, access to markets
through interstate gas pipelines is critical to the marketing activities of the
Company.
Under the NGA, gas gathering facilities are generally exempt from FERC
jurisdiction. Interstate transmission facilities are, on the other hand,
subject to FERC jurisdiction. The FERC has historically distinguished between
these types of activities on a very fact-specific basis which makes it difficult
to predict with certainty the status of the Company's gathering facilities.
While the FERC has not issued any order or opinion declaring the Company's
facilities as gathering rather than transmission facilities, the Company
believes that these systems meet the traditional tests that the FERC has used to
establish a pipeline status as a gatherer. Further, while some states provide
for the rate regulation
-26-
<PAGE>
of pipelines engaged in the intrastate transportation of gas, such regulation
has not generally been applied against gatherers of gas. The Company's
gathering systems could be adversely affected should they be subjected in the
future to the application of such state or federal regulation.
As a result of Order 636 a number of interstate pipeline companies have (i)
"spun down" their gathering systems from regulated pipeline transportation
companies to unregulated affiliates, (ii) "spun-off" gathering systems to non-
related entities, and/or (iii) "refunctionalized" portions of their pipeline
facilities from transmission to gathering. In May 1994 (and clarified in
December 1994) FERC ruled that it generally does not have jurisdiction over
gathering facilities absent abuse involving the pipeline-affiliate relationship.
However, FERC directed pipelines spinning down or off their gathering systems to
include certain Order No. 497 standards of conduct in their tariffs and to enter
into continuity of service agreements with existing users or to execute a
"default contract" with users with whom they cannot reach agreement, with the
default contract to contain a minimum two-year term, use the pipeline gatherer's
then current rate (with an appropriate escalator clause) for existing customers
for similar service, and contain terms and conditions consistent with those
applicable to the pipeline's gathering service. In addition, the interstate
pipeline must seek authority under Section 7(b) of the NGA to abandon certified
gathering facilities and must file for authority under Section 4 of the NGA to
terminate gathering service from both certified and uncertified facilities. On
appeal, FERC's decisions were generally upheld, except the court held that FERC
did not have the authority to require an unregulated entity to implement
"default contracts" and therefore remanded this aspect back to FERC. A
consequence of this divestiture of gathering facilities could be separate, and
higher, gathering fees.
With respect to oil pipeline rates subject to the FERC's jurisdiction, in
October 1993 the FERC issued Order 561 to fulfill the requirements of Title
XVIII of the Energy Policy Act of 1992. Order 561 established an indexing
system, effective January 1, 1995, under which oil pipelines will be able to
readily change their rates to track changes in the Producer Price Index for
Finished Goods (PPI-FG), minus one percent. This index established ceiling
levels for rates. Order 561 also permits cost-of-service proceedings to
establish just and reasonable rates. The order does not alter the right of a
pipeline to seek FERC authorization to charge market-based rates. However,
until the FERC makes the finding that the pipeline does not exercise significant
market power, the pipeline's rates cannot exceed the applicable index ceiling
level or a level justified by the pipeline's cost of service.
EMPLOYEES
The Company employs approximately 193 people in its Tulsa office whose
functions are associated with management, engineering, geology, land and legal,
accounting, financial planning, and administration. In addition, approximately
171 full time employees are responsible for the supervision and operation of its
U.S. field activities. The Company also has approximately 136 employees located
in South America for the management and operation of its properties in Argentina
and Bolivia. The Company believes its relations with its employees are
excellent.
ITEM 3. LEGAL PROCEEDINGS.
On November 5, 1996, the Province of Santa Cruz, Argentina brought suit
against Cadipsa in the Corte Suprema de Justicia de la Nacion (the Supreme Court
of Justice of the Argentine Republic, Buenos Aires, Argentina), Dossier No. s-
1451, seeking to recover approximately $10.6 million (which sum includes
interest) allegedly due as additional royalties on four concessions granted in
1990 in which the Company currently owns a 100 percent working interest. The
Company and its predecessors in title have been paying royalties at an eight
percent rate; the Province of Santa Cruz claims the rate should be 12 percent.
The amount of such claim will increase at the differential of these royalty
rates until this claim is resolved. With respect to the 50 percent interest in
the two concessions that the Company acquired from British Gas, plc, the Company
believes that it is entitled to indemnification by
-27-
<PAGE>
British Gas, plc for any loss sustained by the Company as a result of this
claim. Such indemnification equals approximately $4.0 million of the $10.6
million claim. The Company has no indemnification from its predecessors in title
with respect to the payment of royalties on the other two concessions. Although
the Company cannot predict the outcome of this litigation, based upon the advice
of counsel, the Company does not expect this claim to have a material adverse
impact on the Company's financial position or results of operations.
The Company is also a named defendant in various other lawsuits and is a
party in governmental proceedings from time to time arising in the ordinary
course of business. While the outcome of such other lawsuits or proceedings
against the Company cannot be predicted with certainty, management does not
expect these matters to have a material adverse effect on the Company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
There were no matters submitted to the Company's stockholders during the
fourth quarter of the fiscal year ended December 31, 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the executive
officers of the Company. Officers are elected annually by the Board of Directors
and serve at its discretion.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- -----------------------------------------------------
<S> <C> <C>
Charles C. Stephenson, Jr.. 60 Director and Chairman of the Board of Directors
Jo Bob Hille............... 55 Director, Vice Chairman of the Board of Directors
and Chief Executive Officer
S. Craig George............ 44 Director, President and Chief Operating Officer
William C. Barnes.......... 42 Director, Executive Vice President, Chief
Financial Treasurer and Secretary
William L. Abernathy....... 45 Senior Vice President--Acquisitions
Robert W. Cox.............. 51 Vice President--General Counsel
William E. Dozier.......... 44 Vice President--Operations
Michael F. Meimerstorf..... 40 Vice President and Controller
Robert E. Phaneuf.......... 50 Vice President--Corporate Development
Barry D. Quackenbush....... 55 Vice President--Production
Larry W. Sheppard.......... 42 Vice President--International
</TABLE>
Mr. Stephenson, a co-founder of the Company, has been a Director since June
1983 and Chairman of the Board of Directors of the Company since April 1987. He
was also Chief Executive Officer of the Company from April 1987 to March 1994
and President of the Company from June 1983 to May 1990. From October 1974 to
March 1983, he was President of Santa Fe-Andover Oil Company (formerly Andover
Oil Company), an independent oil and gas company ("Andover"), and from January
1973 to October 1974, he was Vice President of Andover. Mr. Stephenson also
serves as a Director of AAON, Inc. Mr. Stephenson has a B.S. Degree in Petroleum
Engineering from the University of Oklahoma, and has approximately 37 years of
oil and gas experience.
Mr. Hille, the other co-founder of the Company, has been a Director of the
Company since June 1983, Chief Executive Officer of the Company since March 1994
and Vice Chairman of the Company
-28-
<PAGE>
since September 1995. He was also President of the Company from May 1990 to
September 1995, Chief Operating Officer of the Company from April 1987 to March
1994, Executive Vice President of the Company from June 1983 to May 1990 and
Treasurer and Secretary of the Company from June 1983 to April 1987. From August
1972 to March 1983, Mr. Hille was employed by Andover where he served at various
times primarily as Executive Vice President and Vice President--Operations. Mr.
Hille has a B.S. Degree in Petroleum Engineering from the University of Tulsa,
and has approximately 31 years of oil and gas experience.
Mr. George has been a Director since October 1991, President of the Company
since September 1995 and Chief Operating Officer of the Company since March
1994. He was also an Executive Vice President of the Company from March 1994 to
September 1995 and a Senior Vice President of the Company from October 1991 to
March 1994. From April 1991 to October 1991, Mr. George was Vice President of
Operations and International with Santa Fe Minerals, Inc., an independent oil
and gas company ("Santa Fe Minerals"). From May 1981 to March 1991, he served in
various other management and executive capacities with Santa Fe Minerals and its
subsidiary, Andover. From December 1974 to April 1981, Mr. George held various
management and engineering positions with Amoco Production Company. He has a
B.S. Degree in Mechanical Engineering from the University of Missouri-Rolla.
Mr. Barnes, a certified public accountant, has been a Director, Treasurer
and Secretary of the Company since April 1987, an Executive Vice President of
the Company since March 1994 and Chief Financial Officer of the Company since
May 1990. He was also a Senior Vice President of the Company from May 1990 to
March 1994 and Vice President--Finance of the Company from January 1984 to May
1990. From November 1982 to December 1983, Mr. Barnes was an audit manager for
Arthur Andersen & Co., an independent public accounting firm, where he dealt
primarily with clients in the oil and gas industry. He was Assistant Controller-
- -Finance of Andover from December 1980 to November 1982. From June 1976 to
December 1980, he was an auditor with Arthur Andersen & Co., where he dealt
primarily with clients in the oil and gas industry. Mr. Barnes has a B.S. Degree
in Business Administration from Oklahoma State University.
Mr. Abernathy has been Senior Vice President--Acquisitions of the Company
since March 1994. He was Vice President--Acquisitions of the Company from May
1990 to March 1994 and Manager--Acquisitions of the Company from June 1987 to
May 1990. From June 1976 to June 1987, Mr. Abernathy was employed by Exxon
Company USA, where he served at various times as Senior Staff Engineer, Senior
Supervising Engineer and in other engineering capacities, with assignments in
drilling, production and reservoir engineering in the Gulf Coast and offshore.
He has B.S. and M.S. Degrees in Mechanical Engineering from Auburn University.
Mr. Cox has been Vice President--General Counsel of the Company since March
1988. From August 1982 to March 1988, he was employed by Santa Fe Minerals and
its subsidiary, Andover, where he served at various times as Vice President--Law
and Regional Attorney. From April 1982 to August 1982, he was employed as
Corporate Attorney by Andover. Prior to that time, Mr. Cox was employed by
Amerada Hess Corporation, a major oil company, served as General Counsel and
Secretary of Kissinger Petroleum Corporation, an independent oil and gas
company, and served on the legal staff of Champlin Petroleum Company, an
independent oil and gas company. He has a B.S. Degree in Business Administration
with a major in Petroleum Marketing from the University of Tulsa, and a Juris
Doctor from the University of Michigan Law School.
Mr. Dozier has been Vice President--Operations of the Company since May
1992. From June 1983 to April 1992, he was employed by Santa Fe Minerals where
he held various engineering and management positions serving most recently as
Manager of Operations Engineering. From January 1975 to May 1983, he was
employed by Amoco Production Company serving in various positions where he
worked all phases of production, reservoir evaluations, drilling and completions
in the Mid-
-29-
<PAGE>
Continent and Gulf Coast areas. He has a B.S. Degree in Petroleum Engineering
from the University of Texas.
Mr. Meimerstorf, a certified public accountant, has been Controller of the
Company since January 1988 and a Vice President of the Company since May 1990.
He was Accounting Manager of the Company from February 1984 to January 1988.
From April 1981 to February 1984, he was the Financial Reporting Supervisor for
Andover. From June 1979 to April 1981, he was an auditor with Arthur Andersen &
Co. He has a B.S. Degree in Accounting from Arkansas Tech University and an
M.B.A. Degree from the University of Arkansas.
Mr. Phaneuf joined the Company as Vice President--Corporate Development in
October 1995. From June 1995 to October 1995, he was employed in the Corporate
Finance Group of Arthur Andersen LLP, specializing in energy industry corporate
finance activities. From April 1993 to August 1994, he was Senior Vice President
and head of the Energy Research Group at Kemper Securities, an investment
banking firm. From 1988 until April 1993, he was employed by Rauscher, Pierce
Refsnes, Inc., an investment banking firm, as a Senior Vice President, serving
as an energy analyst involved in equity research. From 1978 to 1988, Mr. Phaneuf
was Vice President of Kidder, Peabody, & Co., an investment banking firm,
serving as an energy analyst in the Research Department. From 1976 to 1978, he
was employed by Schneider, Bernet, and Hickman, serving as an energy analyst in
the Research Department. From 1972 to 1976, he held the position of Investment
Advisor for First International Investment Management, a subsidiary of
NationsBank. He holds a B.A. Degree in Psychology and an M.B.A. Degree from the
University of Texas.
Mr. Quackenbush has been Vice President--Production of the Company since May
1990. He was Manager--Production of the Company from November 1989 to May 1990.
From May 1970 to July 1989, Mr. Quackenbush was employed by Tenneco Oil Co., an
oil and gas company, where he served as Acquisition Manager and in various
engineering positions. He has a B.S. Degree in Petroleum Engineering from the
Colorado School of Mines.
Mr. Sheppard has been Vice President--International of the Company since
November 1994. From June 1984 to August 1994, he was employed by Santa Fe
Minerals serving as Manager--Acquisitions & Special Projects, Manager--
International Operations, and in various other management and supervisory
capacities. From August 1977 to June 1984, he was employed by Amoco Production
Company serving in various engineering and supervisory capacities. He has a B.S.
Degree in Petroleum Engineering from Texas Tech University.
-30-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this Item is incorporated by reference from the
sections on page 51 of the Company's 1996 Annual Report to Stockholders entitled
"Stock Price Information," "Dividend Policy" and "Number of Stockholders."
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is incorporated by reference from page
25 of the Company's 1996 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this Item is incorporated by reference from
pages 26 through 30 of the Company's 1996 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is incorporated by reference from
pages 31 through 49 of the Company's 1996 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item with respect to the Company's
directors is incorporated by reference from the sections of the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders (the
"Proxy Statement") entitled "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance." The information required by this
Item with respect to the Company's executive officers appears at Item 4A of Part
I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference from the
section of the Proxy Statement entitled "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference from the
section of the Proxy Statement entitled "Principal Stockholders and Security
Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference from the
section of the Proxy Statement entitled "Certain Transactions."
-31-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements:
The financial statements of the Company and its subsidiaries and report of
independent public accountants listed below are incorporated by reference from
the following pages of the Company's 1996 Annual Report to Stockholders:
Annual Report
Page
-------------
Consolidated Balance Sheets as of December 31, 1996 and 1995..... 31
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994.............................. 32
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994.......... 33
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.............................. 34
Notes to Consolidated Financial Statements for the years ended
December 31, 1996, 1995 and 1994.............................. 35 through 48
Report of Independent Public Accountants......................... 49
(2) Financial Statement Schedules:
All schedules are omitted as inapplicable or because the required
information is contained in the financial statements or included in the
footnotes thereto.
(3) Exhibits:
The following documents are included as exhibits to this Form 10-K. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
3.1 Restated Certificate of Incorporation of the Company (Filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-35289 (the "S-1 Registration Statement")).
3.2 Restated By-laws of the Company (Filed as Exhibit 3.2 to the S-1
Registration Statement).
4.1 Form of stock certificate for Common Stock, par value $.005 per
share (Filed as Exhibit 4.1 to the S-1 Registration Statement).
4.2 Indenture dated as of December 20, 1995, between Chemical Bank, as
Trustee, and the Company (Filed as Exhibit 99.1 to the Company's
report on Form 8-K filed January 16, 1996).
4.3 Indenture dated as February 5, 1997, between The Chase Manhattan
Bank, as Trustee, and the Company.
-32-
<PAGE>
10.1* Employment and Noncompetition Agreement dated January 7, 1987,
between the Company and Charles C. Stephenson, Jr. (Filed as Exhibit
10.19 to the S-1 Registration Statement).
10.2* Employment and Noncompetition Agreement dated January 7, 1987,
between the Company and Jo Bob Hille (Filed as Exhibit 10.20 to the
S-1 Registration Statement).
10.3* Employment Agreement dated September 19, 1995, between the Company
and Robert E. Phaneuf (Filed as Exhibit 10.3 to the Company's report
on Form 10-K for the year ended December 31, 1995, filed April 1,
1996).
10.4* Form of Indemnification Agreement between the Company and certain of
its officers and directors (Filed as Exhibit 10.23 to the S-1
Registration Statement).
10.5* Vintage Petroleum, Inc. 1990 Stock Plan (Filed as Exhibit 4(d) to
the Company's Registration Statement on Form S-8, Registration No.
33-37505).
10.6* Amendment No. 1 to Vintage Petroleum, Inc. 1990 Stock Plan,
effective January 1, 1991 (Filed as Exhibit 10.15 to the Company's
report on Form 10-K for the year ended December 31, 1991, filed
March 30, 1992).
10.7* Amendment No. 2 to Vintage Petroleum, Inc. 1990 Stock Plan dated
February 24, 1994 (Filed as Exhibit 10.15 to the Company's report on
Form 10-K for the year ended December 31, 1993, filed March 29,
1994).
10.8* Amendment No. 3 to Vintage Petroleum, Inc. 1990 Stock Plan dated
March 15, 1996 (Filed as Exhibit A to the Company's Proxy Statement
for Annual Meeting of Stockholders dated April 1, 1996).
10.9* Vintage Petroleum, Inc. 401(k) Plan (Filed as Exhibit 4(c) to the
Company's Registration Statement on Form S-8, Registration No. 33-
55706).
10.10* Vintage Petroleum, Inc. Non-Management Director Stock Option Plan
(Filed as Exhibit 10.18 to the Company's report on Form 10-K for the
year ended December 31, 1992, filed March 31, 1993 (the "1992 Form
10-K")).
10.11* Form of Incentive Stock Option Agreement under the Vintage
Petroleum, Inc. 1990 Stock Plan (Filed as Exhibit 10.20 to the
Company's report on Form 10-K for the year ended December 31, 1990,
filed April 1, 1991).
10.12* Form of Non-Qualified Stock Option Agreement under the Vintage
Petroleum, Inc. 1990 Stock Plan (Filed as Exhibit 10.20 to the 1992
Form 10-K).
10.13 Credit Agreement dated August 29, 1996, among the Company, as
borrower, certain commercial lending institutions, as lenders, and
Bank of Montreal, as agent (Filed as Exhibit 10.1 to the Company's
report on Form 10-Q for the quarter ended September 30, 1996, filed
November 7, 1996).
10.14 First Amendment to Credit Agreement (Exhibit No. 10.13 above) dated
October 21, 1996, among the Company, as borrower, certain commercial
lending institutions, as lenders, and Bank of Montreal, as agent
(Filed as Exhibit 10.2 to the Company's report on Form 10-Q for the
quarter ended September 30, 1996, filed November 7, 1996).
-33-
<PAGE>
10.15 Second Amendment to Credit Agreement (Exhibit No. 10.13 above) dated
January 9, 1997, among the Company, as borrower, certain commercial
lending institutions, as lenders, and Bank of Montreal, as agent
(Filed as Exhibit 99 to the Company's Registration Statement on Form
S-3, Registration No. 333-19569).
10.16 Assignment Agreement dated November 3, 1995, between Shell Compania
Argentina de Petroleo S.A. and Vintage Petroleum Argentina, Inc.
(Filed as Exhibit 2.1 to the Company's Registration Statement on
Form S-3, Registration No. 33-97844 (the "S-3 Registration
Statement")).
10.17 Assignment Agreement dated November 3, 1995, between Astra Compania
Argentina de Petroleo S.A. and Vintage Petroleum Argentina, Inc.
(Filed as Exhibit 2.2 to the S-3 Registration Statement).
10.18 Cadipsa Main Purchase Agreement dated June 2, 1995, between certain
shareholders of Cadipsa S.A. listed in Annex 1 thereto and Vintage
Petroleum Argentina, Inc. (Filed as Exhibit 2.1 to the Company's
report on Form 8-K filed July 20, 1995).
10.19 Purchase Agreement dated June 2, 1995, between certain shareholders
of Cadipsa S.A. listed in Annex 1 thereto and Vintage Petroleum,
Argentina Inc. (Filed as Exhibit 2.2 to the Company's report on Form
8-K filed July 20, 1995).
10.20 Amended and Restated Investment Agreement dated April 28, 1994,
between Cadipsa S.A. and International Finance Corporation ("IFC")
(Filed as Exhibit 99.1 to the S-3 Registration Statement).
10.21 Rescheduling, Amendatory and Temporary Guarantee Agreement dated
September 28, 1995, between Cadipsa S.A. and the Company and IFC
(Filed as Exhibit 99.2 to the S-3 Registration Statement).
10.22 Purchase Agreement dated September 28, 1995, between IFC and Vintage
Petroleum Argentina, Inc. (Filed as Exhibit 99.3 to the S-3
Registration Statement).
10.23 British Gas BGA Purchase Agreement dated September 28, 1995, between
British Gas plc and Vintage Petroleum Argentina, Inc. (Filed as
Exhibit 2.1 to the Company's report on Form 8-K filed October 4,
1995).
13. Portions of the Company's 1996 Annual Report to Stockholders.
21. Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Netherland, Sewell & Associates, Inc.
27. Financial Data Schedule.
99.1 Letter of Netherland, Sewell & Associates, Inc. dated March 17,
1997, regarding U.S. oil and gas reserve information.
99.2 Letter of Netherland, Sewell & Associates, Inc. dated March 24,
1997, regarding South American oil and gas reserve information.
- -----------------------
-34-
<PAGE>
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of the fiscal
year ended December 31, 1996.
-35-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VINTAGE PETROLEUM, INC.
Date: March 27, 1997 By: /s/ C. C. Stephenson, Jr.
--------------------------------
C. C. Stephenson, Jr.
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ C. C. Stephenson, Jr. Director and Chairman of the Board March 27, 1997
- ----------------------------
C. C. Stephenson, Jr.
/s/ Jo Bob Hille Director, Vice Chairman of the March 27, 1997
- ---------------------------- Board and Chief Executive Officer
Jo Bob Hille (Principal Executive Officer)
/s/ S. Craig George Director, President and March 27, 1997
- ---------------------------- Chief Operating Officer
S. Craig George
/s/ William C. Barnes Director, Executive Vice President, March 27, 1997
- ---------------------------- Chief Financial Officer and
William C. Barnes Treasurer (Principal Financial Officer)
/s/ Bryan H. Lawrence Director March 27, 1997
- ----------------------------
Bryan H. Lawrence
/s/ John T. McNabb, II Director March 27, 1997
- ----------------------------
John T. McNabb, II
/s/ Michael F. Meimerstorf Vice President and Controller March 27, 1997
- ---------------------------- (Principal Accounting Officer)
Michael F. Meimerstorf
</TABLE>
-36-
<PAGE>
INDEX TO EXHIBITS
The following documents are included as exhibits to this Form 10-K. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Restated Certificate of Incorporation of the Company (Filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-35289 (the "S-1 Registration Statement")).
3.2 Restated By-laws of the Company (Filed as Exhibit 3.2 to the S-1
Registration Statement).
4.1 Form of stock certificate for Common Stock, par value $.005 per
share (Filed as Exhibit 4.1 to the S-1 Registration Statement).
4.2 Indenture dated as of December 20, 1995, between Chemical Bank,
as Trustee, and the Company (Filed as Exhibit 99.1 to the
Company's report on Form 8-K filed January 16, 1996).
4.3 Indenture dated as February 5, 1997, between The Chase Manhattan
Bank, as Trustee, and the Company.
10.1* Employment and Noncompetition Agreement dated January 7, 1987,
between the Company and Charles C. Stephenson, Jr. (Filed as
Exhibit 10.19 to the S-1 Registration Statement).
10.2* Employment and Noncompetition Agreement dated January 7, 1987,
between the Company and Jo Bob Hille (Filed as Exhibit 10.20 to
the S-1 Registration Statement).
10.3* Employment Agreement dated September 19, 1995, between the
Company and Robert E. Phaneuf (Filed as Exhibit 10.3 to the
Company's report on Form 10-K for the year ended December 31,
1995, filed April 1, 1996).
10.4* Form of Indemnification Agreement between the Company and
certain of its officers and directors (Filed as Exhibit 10.23 to
the S-1 Registration Statement).
10.5* Vintage Petroleum, Inc. 1990 Stock Plan (Filed as Exhibit 4(d)
to the Company's Registration Statement on Form S-8,
Registration No. 33-37505).
10.6* Amendment No. 1 to Vintage Petroleum, Inc. 1990 Stock Plan,
effective January 1, 1991 (Filed as Exhibit 10.15 to the
Company's report on Form 10-K for the year ended December 31,
1991, filed March 30, 1992).
10.7* Amendment No. 2 to Vintage Petroleum, Inc. 1990 Stock Plan dated
February 24, 1994 (Filed as Exhibit 10.15 to the Company's
report on Form 10-K for the year ended December 31, 1993, filed
March 29, 1994).
<PAGE>
10.8* Amendment No. 3 to Vintage Petroleum, Inc. 1990 Stock Plan dated
March 15, 1996 (Filed as Exhibit A to the Company's Proxy
Statement for Annual Meeting of Stockholders dated April 1,
1996).
10.9* Vintage Petroleum, Inc. 401(k) Plan (Filed as Exhibit 4(c) to
the Company's Registration Statement on Form S-8, Registration
No. 33-55706).
10.10* Vintage Petroleum, Inc. Non-Management Director Stock Option
Plan (Filed as Exhibit 10.18 to the Company's report on Form 10-
K for the year ended December 31, 1992, filed March 31, 1993
(the "1992 Form 10-K")).
10.11* Form of Incentive Stock Option Agreement under the Vintage
Petroleum, Inc. 1990 Stock Plan (Filed as Exhibit 10.20 to the
Company's report on Form 10-K for the year ended December 31,
1990, filed April 1, 1991).
10.12* Form of Non-Qualified Stock Option Agreement under the Vintage
Petroleum, Inc. 1990 Stock Plan (Filed as Exhibit 10.20 to the
1992 Form 10-K).
10.13 Credit Agreement dated August 29, 1996, among the Company, as
borrower, certain commercial lending institutions, as lenders,
and Bank of Montreal, as agent (Filed as Exhibit 10.1 to the
Company's report on Form 10-Q for the quarter ended September
30, 1996, filed November 7, 1996).
10.14 First Amendment to Credit Agreement (Exhibit No. 10.13 above)
dated October 21, 1996, among the Company, as borrower, certain
commercial lending institutions, as lenders, and Bank of
Montreal, as agent (Filed as Exhibit 10.2 to the Company's
report on Form 10-Q for the quarter ended September 30, 1996,
filed November 7, 1996).
10.15 Second Amendment to Credit Agreement (Exhibit No. 10.13 above)
dated January 9, 1997, among the Company, as borrower, certain
commercial lending institutions, as lenders, and Bank of
Montreal, as agent (Filed as Exhibit 99 to the Company's
Registration Statement on Form S-3, Registration No. 333-19569).
10.16 Assignment Agreement dated November 3, 1995, between Shell
Compania Argentina de Petroleo S.A. and Vintage Petroleum
Argentina, Inc. (Filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-3, Registration No. 33-97844
(the "S-3 Registration Statement")).
10.17 Assignment Agreement dated November 3, 1995, between Astra
Compania Argentina de Petroleo S.A. and Vintage Petroleum
Argentina, Inc. (Filed as Exhibit 2.2 to the S-3 Registration
Statement).
10.18 Cadipsa Main Purchase Agreement dated June 2, 1995, between
certain shareholders of Cadipsa S.A. listed in Annex 1 thereto
and Vintage Petroleum Argentina, Inc. (Filed as Exhibit 2.1 to
the Company's report on Form 8-K filed July 20, 1995).
10.19 Purchase Agreement dated June 2, 1995, between certain
shareholders of Cadipsa S.A. listed in Annex 1 thereto and
Vintage Petroleum, Argentina Inc. (Filed as Exhibit 2.2 to the
Company's report on Form 8-K filed July 20, 1995).
10.20 Amended and Restated Investment Agreement dated April 28, 1994,
between Cadipsa S.A. and International Finance Corporation
("IFC") (Filed as Exhibit 99.1 to the S-3 Registration
Statement).
<PAGE>
10.21 Rescheduling, Amendatory and Temporary Guarantee Agreement dated
September 28, 1995, between Cadipsa S.A. and the Company and IFC
(Filed as Exhibit 99.2 to the S-3 Registration Statement).
10.22 Purchase Agreement dated September 28, 1995, between IFC and
Vintage Petroleum Argentina, Inc. (Filed as Exhibit 99.3 to the
S-3 Registration Statement).
10.23 British Gas BGA Purchase Agreement dated September 28, 1995,
between British Gas plc and Vintage Petroleum Argentina, Inc.
(Filed as Exhibit 2.1 to the Company's report on Form 8-K filed
October 4, 1995).
13. Portions of the Company's 1996 Annual Report to Stockholders.
21. Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Netherland, Sewell & Associates, Inc.
27. Financial Data Schedule.
99.1 Letter of Netherland, Sewell & Associates, Inc. dated March 17,
1997, regarding U.S. oil and gas reserve information.
99.2 Letter of Netherland, Sewell & Associates, Inc. dated March 24,
1997, regarding South American oil and gas reserve information.
- ---------------------------
* Management contract or compensatory plan or arrangement.
<PAGE>
Exhibit 4.3
================================================================================
VINTAGE PETROLEUM, INC.
TO
THE CHASE MANHATTAN BANK
Trustee
INDENTURE
Dated as of February 5, 1997
8 5/8% SENIOR SUBORDINATED NOTES DUE 2009
================================================================================
<PAGE>
CERTAIN SECTIONS OF THIS INDENTURE RELATING TO SECTIONS 310 THROUGH 318,
INCLUSIVE OF THE TRUST INDENTURE ACT OF 1939:
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
(S) 310(a)(1) ................................. 609
(a)(2) ................................. 609
(a)(3) ................................. Not Applicable
(a)(4) ................................. Not Applicable
(b) ................................. 608
610
(S) 311(a) ................................. 613
(b) ................................. 613
(S) 312(a) ................................. 701
702
(b) ................................. 702
(c) ................................. 702
(S) 313(a) ................................. 703
(b) ................................. 703
(c) ................................. 703
(d) ................................. 703
(S) 314(a) ................................. 704
(a)(4) ................................. 101
1004
(b) ................................. Not Applicable
(c)(1) ................................. 102
(c)(2) ................................. 102
(c)(3) ................................. Not Applicable
(d) ................................. Not Applicable
(e) ................................. 102
(S) 315(a) ................................. 601
(b) ................................. 602
(c) ................................. 601
(d) ................................. 601
(e) ................................. 514
(S) 316(a) ................................. 101
(a)(1)(A) ................................. 502
512
(a)(1)(B) ................................. 513
(a)(2) ................................. Not Applicable
(b) ................................. 508
(c) ................................. 104
(S) 317(a)(1) ................................. 503
(a)(2) ................................. 504
(b) ................................. 1003
(S) 318(a) ................................. 107
</TABLE>
__________________
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
________
<TABLE>
<CAPTION>
PAGE
----
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
<S> <C>
SECTION 101. Definitions........................................................ 1
Act.............................................................. 1
Additional Assets................................................ 2
Adjusted Consolidated Net Tangible Assets........................ 2
Affiliate........................................................ 3
Asset Sale....................................................... 3
Authenticating Agent............................................. 4
Average Life..................................................... 4
Bank Credit Facilities........................................... 4
Board of Directors............................................... 4
Board Resolution................................................. 5
Business Day..................................................... 5
Capital Lease Obligation......................................... 5
Capital Stock.................................................... 5
Change of Control................................................ 5
Change of Control Offer.......................................... 6
Change of Control Payment Date................................... 6
Commission....................................................... 6
Company.......................................................... 6
Company Request or Company Order................................. 6
Consolidated Interest Coverage Ratio............................. 6
Consolidated Interest Expense.................................... 7
Consolidated Net Income.......................................... 7
Consolidated Net Worth........................................... 8
Corporate Trust Office........................................... 8
corporation...................................................... 8
Covenant Defeasance.............................................. 8
CUSIP Number..................................................... 8
Default.......................................................... 8
Defaulted Interest............................................... 8
Defeasance....................................................... 9
Depositary....................................................... 9
Designated Senior Indebtedness................................... 9
Dollar-Denominated Production Payments........................... 9
EBITDA........................................................... 9
Event of Default................................................. 9
Excess Proceeds.................................................. 9
Exchange Act..................................................... 10
Exchanged Properties............................................. 10
Exchange Rate Contract........................................... 10
Expiration Date.................................................. 10
Expiry Date...................................................... 10
Fair Market Value................................................ 10
Foreign Subsidiary............................................... 10
Global Security.................................................. 10
Guarantee........................................................ 10
Hedging Agreements............................................... 11
Holder........................................................... 11
Incur............................................................ 11
Indebtedness..................................................... 11
Indenture........................................................ 12
Interest Payment Date............................................ 12
Interest Rate Protection Agreement............................... 12
Investment....................................................... 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Issue Date....................................................... 13
Investment Company Act........................................... 13
Legal Holiday.................................................... 13
Lien............................................................. 13
Liquid Securities................................................ 13
Maturity......................................................... 13
Material Change.................................................. 13
Moody's.......................................................... 14
Net Available Cash............................................... 14
Net Working Capital.............................................. 14
9% Indenture..................................................... 15
9% Notes......................................................... 15
Notice of Default................................................ 15
Officers' Certificate............................................ 15
Oil and Gas Business............................................. 15
Oil and Gas Liens................................................ 15
Oil and Gas Purchase and Sale Contract........................... 16
Opinion of Counsel............................................... 16
Outstanding...................................................... 16
paid in full or payment in full.................................. 17
pari passu....................................................... 17
Pari Passu Indebtedness.......................................... 17
Participants..................................................... 17
pay the Securities............................................... 17
Paying Agent..................................................... 17
Payment Blockage Notice.......................................... 17
Payment Blockage Period.......................................... 17
Permitted Business Investments................................... 17
Permitted Designee............................................... 18
Permitted Holders................................................ 18
Permitted Indebtedness........................................... 18
Permitted Investments............................................ 19
Permitted Liens.................................................. 20
Permitted Short-Term Investments................................. 20
Person........................................................... 21
Predecessor Security............................................. 21
Preferred Stock.................................................. 21
Prepayment Offer................................................. 21
Prepayment Offer Notice.......................................... 21
primary obligor.................................................. 23
Production Payments and Reserve Sales............................ 23
Property......................................................... 23
Purchase Amount.................................................. 23
Purchase Date.................................................... 23
Purchase Price................................................... 23
Redeemable Stock................................................. 23
Redemption Date.................................................. 24
Redemption Price................................................. 24
Registrar........................................................ 24
Regular Record Date.............................................. 24
Remaining Excess Proceeds........................................ 24
Representative................................................... 24
Restricted Payment............................................... 24
</TABLE>
ii
<PAGE>
<TABLE>
PAGE
----
<S> <C>
Restricted Subsidiary................................... 25
Sale and Leaseback Transaction.......................... 25
Securities.............................................. 25
Securities Act.......................................... 25
Security Register and Security Registrar................ 25
Senior Indebtedness..................................... 25
Special Record Date..................................... 25
S&P..................................................... 26
Stated Maturity......................................... 26
Subsidiary.............................................. 26
Surviving Entity........................................ 26
Transaction Date........................................ 26
Trust Indenture Act..................................... 26
Trust Officer........................................... 26
Trustee................................................. 26
Unrestricted Subsidiary................................. 26
U.S. GAAP............................................... 26
U.S. Government Obligation.............................. 27
Vice President.......................................... 27
Volumetric Production Payments.......................... 27
Voting Redeemable Stock................................. 27
Voting Stock............................................ 27
Wholly Owned Subsidiary................................. 27
SECTION 102. Compliance Certificates and Opinions.............................. 27
SECTION 103. Form of Documents Delivered to Trustee............................ 28
SECTION 104. Acts of Holders; Record Dates..................................... 29
SECTION 105. Notices, Etc., to Trustee and Company............................. 31
SECTION 106. Notice to Holders; Waiver......................................... 32
SECTION 107. Conflict with Trust Indenture Act................................. 32
SECTION 108. Effect of Headings, Table of Contents and Cross-Reference Sheet... 32
SECTION 109. Successors and Assigns............................................ 32
SECTION 110. Separability Clause............................................... 33
SECTION 111. Benefits of Indenture............................................. 33
SECTION 112. Governing Law..................................................... 33
SECTION 113. Legal Holidays.................................................... 33
ARTICLE TWO
SECURITY FORMS
SECTION 201. Form of Securities................................................ 34
SECTION 202. Form of Face of Global Security................................... 34
SECTION 203. Form of Reverse of Global Security................................ 36
SECTION 204. Form of Trustee's Certificate of Authentication................... 39
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE THREE
THE SECURITIES
<S> <C>
SECTION 301. Denominations.................................................... 39
SECTION 302. Execution, Authentication, Delivery and Dating................... 39
SECTION 303. Temporary Securities............................................. 40
SECTION 304. Registration, Registration of Transfer and Exchange.............. 41
SECTION 305. Mutilated, Destroyed, Lost and Stolen Securities................. 43
SECTION 306. Payment of Interest; Interest Rights Preserved................... 44
SECTION 307. Persons Deemed Owners............................................ 45
SECTION 308. Cancellation..................................................... 46
SECTION 309. Computation of Interest.......................................... 46
SECTION 310. CUSIP Numbers.................................................... 46
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture........................... 47
SECTION 402. Application of Trust Money........................................ 48
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default................................................. 48
SECTION 502. Acceleration of Maturity; Rescission and Annulment................ 50
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee... 51
SECTION 504. Trustee May File Proofs of Claim.................................. 52
SECTION 505. Trustee May Enforce Claims Without Possession of Securities....... 52
SECTION 506. Application of Money Collected.................................... 53
SECTION 507. Limitation on Suits............................................... 53
SECTION 508. Unconditional Right of Holders To Receive Principal, Premium and
Interest.......................................................... 54
SECTION 509. Restoration of Rights and Remedies................................ 54
SECTION 510. Rights and Remedies Cumulative.................................... 54
SECTION 511. Delay or Omission Not Waiver...................................... 55
SECTION 512. Control by Holders................................................ 55
SECTION 513. Waiver of Past Defaults........................................... 55
SECTION 514. Undertaking for Costs............................................. 56
SECTION 515. Waiver of Usury, Stay or Extension Laws........................... 56
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.............................. 56
SECTION 602. Notice of Defaults............................................... 57
SECTION 603. Certain Rights of Trustee........................................ 57
SECTION 604. Trustee's Disclaimer............................................. 58
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 605. May Hold Securities.............................................. 58
SECTION 606. Money Held in Trust.............................................. 58
SECTION 607. Compensation and Reimbursement................................... 59
SECTION 608. Conflicting Interests............................................ 59
SECTION 609. Corporate Trustee Required; Eligibility.......................... 60
SECTION 610. Resignation and Removal; Appointment of Successor................ 60
SECTION 611. Acceptance of Appointment by Successor........................... 61
SECTION 612. Merger, Conversion, Consolidation or Succession to Business...... 62
SECTION 613. Preferential Collection of Claims Against Company................ 62
SECTION 614. Appointment of Authenticating Agent.............................. 62
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE
SECTION 701. Company To Furnish Trustee Names and Addresses of
Holders......................................................... 64
SECTION 702. Preservation of Information; Communications to Holders........... 65
SECTION 703. Reports by Trustee............................................... 65
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms............. 66
SECTION 802. Successor Substituted............................................ 67
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders................ 67
SECTION 902. Supplemental Indentures with Consent of Holders................... 68
SECTION 903. Execution of Supplemental Indentures.............................. 70
SECTION 904. Effect of Supplemental Indentures................................. 70
SECTION 905. Conformity with Trust Indenture Act............................... 70
SECTION 906. Reference in Securities to Supplemental Indentures................ 70
SECTION 907. Payment for Consent............................................... 70
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest...................... 71
SECTION 1002. Registrar and Paying Agent...................................... 71
SECTION 1003. Money for Securities Payments To Be Held in Trust............... 72
SECTION 1004. Statement by Officers as to Default............................. 73
SECTION 1005. Existence....................................................... 73
SECTION 1006. Maintenance of Properties....................................... 73
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1007. Payment of Taxes and Other Claims............................... 74
SECTION 1008. Limitation on Indebtedness...................................... 74
SECTION 1009. Limitation on Liens............................................. 74
SECTION 1010. Limitation on Restricted Payments............................... 76
SECTION 1011. Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries.................................................... 77
SECTION 1012. Limitation on Asset Sales....................................... 78
SECTION 1013. Incurrence of Layered Indebtedness.............................. 80
SECTION 1014. Transactions with Affiliates.................................... 80
SECTION 1015. Limitation on Restrictions on Distributions from Restricted
Subsidiaries.................................................... 81
SECTION 1016. Restricted and Unrestricted Subsidiaries........................ 82
SECTION 1017. Commission Reports.............................................. 83
SECTION 1018. Waiver of Certain Covenants..................................... 83
SECTION 1019. Mandatory Repurchase Upon a Change of Control................... 83
SECTION 1020. Further Instruments and Acts.................................... 85
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Election To Redeem; Notice to Trustee........................... 85
SECTION 1102. Selection by Trustee of Securities To Be Redeemed............... 85
SECTION 1103. Notice of Redemption............................................ 86
SECTION 1104. Deposit of Redemption Price..................................... 87
SECTION 1105. Securities Payable on Redemption Date........................... 87
SECTION 1106. Securities Redeemed in Part..................................... 88
SECTION 1107. Purchase of Securities.......................................... 88
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Defeasance and Discharge........................................ 88
SECTION 1202. Covenant Defeasance............................................. 89
SECTION 1203. Conditions to Defeasance or Covenant Defeasance................. 89
SECTION 1204. Deposited Money and U.S. Government Obligations To Be Held
in Trust; Miscellaneous Provisions.......................... 91
SECTION 1205. Reinstatement................................................... 92
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES
<S> <C>
SECTION 1301. Agreement to Subordinate........................................ 92
SECTION 1302. Liquidation, Dissolution and Bankruptcy......................... 92
SECTION 1303. Default on Senior Indebtedness.................................. 93
SECTION 1304. Acceleration of Payment of Securities........................... 94
SECTION 1305. When Distribution Must Be Paid Over............................. 94
SECTION 1306. Subrogation..................................................... 94
SECTION 1307. Relative Rights................................................. 95
SECTION 1308. Subordination May Not Be Impaired by Company.................... 95
SECTION 1309. Rights of Trustee and Paying Agent.............................. 95
SECTION 1310. Distribution or Notice to Representative........................ 95
SECTION 1311. Trust Moneys Not Subordinated................................... 95
SECTION 1312. Trustee Entitled To Rely........................................ 96
SECTION 1313. Trustee To Effectuate Subordination............................. 96
SECTION 1314. Trustee Not Fiduciary for Holders of Senior Indebtedness........ 97
SECTION 1315. Reliance by Holders of Senior Indebtedness on Subordination
Provisions.................................................... 97
SECTION 1316. Proofs of Claim................................................. 97
SECTION 1317. Rights of Trustee as Holder of Senior Indebtedness; Preservation
of Trustee's Rights........................................... 97
SECTION 1318. Article Applicable to Paying Agents............................. 98
SECTION 1319. Defeasance of this Article Thirteen............................. 98
ARTICLE FOURTEEN
CONCERNING THE HOLDERS
SECTION 1401. Identification of Company-Owned Securities...................... 98
SECTION 1402. Revocation of Consents.......................................... 98
ARTICLE FIFTEEN
HOLDERS' MEETINGS
SECTION 1501. Purposes of Meetings............................................ 99
SECTION 1502. Call of Meetings by Trustee..................................... 99
SECTION 1503. Call of Meetings by Company or Holders.......................... 100
SECTION 1504. Qualifications for Voting....................................... 100
SECTION 1505. Regulations..................................................... 100
SECTION 1506. Voting.......................................................... 102
SECTION 1507. No Delay of Rights by Meeting................................... 102
ARTICLE SIXTEEN
MISCELLANEOUS PROVISIONS
SECTION 1601. Indenture and Securities Solely Corporate Obligations........... 103
SECTION 1602. Execution in Counterparts....................................... 103
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TESTIMONIUM.................................................................... 104
SIGNATURE AND SEALS............................................................ 104
ACKNOWLEDGMENT.............................................................105, 106
</TABLE>
viii
<PAGE>
INDENTURE, dated as of February 5, 1997, between VINTAGE PETROLEUM,
INC., a Delaware corporation (herein called the "Company"), having its principal
office at 4200 One Williams Center, Tulsa, OK 74172, and THE CHASE MANHATTAN
BANK, a New York banking corporation, as Trustee (herein called the "Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Company's 8 5/8% Senior
Subordinated Notes Due 2009 (the "Securities").
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them
in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to
them therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with U.S. GAAP; provided, however, that for the
avoidance of any possible doubt, any act or condition in accordance herewith
and permitted hereunder when taken, created or occurring shall not become a
violation of any provision of this Indenture as a result of a subsequent
change in U.S. GAAP;
(4) any reference to an "Article" or a "Section" refers to an Article or a
Section, as the case may be, of this Indenture;
(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; and
(6) all dollar amounts are expressed in United States dollars.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
<PAGE>
2
"Additional Assets" means (i) any property (other than cash, cash
equivalents or securities) used in any business in which the Company or any
Restricted Subsidiary is engaged as of the date of the Indenture or any business
ancillary thereto, (ii) Investments in any other Person engaged in the Oil and
Gas Business or any business ancillary thereto (including the acquisition from
third parties of Capital Stock of such Person) as a result of which such other
Person becomes a Restricted Subsidiary in compliance with Section 1016), (iii)
the acquisition from third parties of Capital Stock of a Restricted Subsidiary,
(iv) the costs of acquiring, exploiting, developing and exploring in respect of
oil and gas properties or (v) Permitted Business Investments.
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination, (a) the sum of (i) discounted future net revenues
from proved oil and gas reserves of the Company and its Restricted Subsidiaries
calculated in accordance with Commission guidelines before any state, federal or
foreign income taxes, as estimated by a nationally recognized firm of
independent petroleum engineers in a reserve report prepared as of the end of
the Company's most recently completed fiscal year for which financial statements
are available, as increased by, as of the date of determination, the estimated
discounted future net revenues from (A) estimated proved oil and gas reserves
acquired since the date of such year-end reserve report, and (B) estimated oil
and gas reserves attributable to upward revisions of estimates of proved oil and
gas reserves since the date of such year-end reserve report due to exploration,
development or exploitation activities, in each case calculated in accordance
with Commission guidelines (utilizing the prices utilized in such year-end
reserve report), and decreased by, as of the date of determination, the
estimated discounted future net revenues from (C) estimated proved oil and gas
reserves produced or disposed of since the date of such year-end reserve report
and (D) estimated oil and gas reserves attributable to downward revisions of
estimates of proved oil and gas reserves since the date of such year-end reserve
report due to changes in geological conditions or other factors which would, in
accordance with standard industry practice, cause such revisions, in each case
calculated in accordance with Commission guidelines (utilizing the prices
utilized in such year-end reserve report); provided that, in the case of each of
the determinations made pursuant to clauses (A) through (D), such increases and
decreases shall be as estimated by the Company's petroleum engineers, unless
there is a Material Change as a result of such acquisitions, dispositions or
revisions, in which event the discounted future net revenues utilized for
purposes of this clause (a)(i) shall be confirmed in writing by a nationally
recognized firm of independent petroleum engineers, (ii) the capitalized costs
that are attributable to oil and gas properties of the Company and its
Restricted Subsidiaries to which no proved oil and gas reserves are
attributable, based on the Company's books and records as of a date no earlier
than the date of the Company's latest annual or quarterly financial statements,
(iii) the Net Working Capital on a date no earlier than the date of the
Company's latest annual or quarterly financial statements and (iv) the greater
of (A) the net book value on a date no earlier than the date of the Company's
latest annual or quarterly financial statements or (B) the
<PAGE>
3
appraised value, as estimated by independent appraisers, of other tangible
assets (including, without duplication, Investments in unconsolidated Restricted
Subsidiaries) of the Company and its Restricted Subsidiaries, as of the date no
earlier than the date of the Company's latest audited financial statements,
minus (b) the sum of (i) minority interests, (ii) any gas balancing liabilities
of the Company and its Restricted Subsidiaries reflected in the Company's latest
audited financial statements, (iii) to the extent included in (a)(i) above, the
discounted future net revenues, calculated in accordance with Commission
guidelines (utilizing the prices utilized in the Company's year-end reserve
report), attributable to reserves which are required to be delivered to third
parties to fully satisfy the obligations of the Company and its Restricted
Subsidiaries with respect to Volumetric Production Payments on the schedules
specified with respect thereto and (iv) the discounted future net revenues,
calculated in accordance with Commission guidelines, attributable to reserves
subject to Dollar-Denominated Production Payments which, based on the estimates
of production and price assumptions included in determining the discounted
future net revenues specified in (a)(i) above, would be necessary to fully
satisfy the payment obligations of the Company and its Restricted Subsidiaries
with respect to Dollar-Denominated Production Payments on the schedules
specified with respect thereto. If the Company changes its method of accounting
from the full cost method to the successful efforts method or a similar method
of accounting, "Adjusted Consolidated Net Tangible Assets" will continue to be
calculated as if the Company were still using the full cost method of
accounting.
"Affiliate" of any specified Person means any other Person (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person or (ii)
which beneficially owns or holds directly or indirectly 10% or more of any class
of the Voting Stock of such specified Person or of any Subsidiary of such
specified Person. For the purposes of this definition, "control", when used with
respect to any specified Person, means the power to direct the management and
policies of such Person directly or indirectly, whether through the ownership of
Voting Stock, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (including, without limitation, dispositions
pursuant to any consolidation or merger) by such Person or any of its Restricted
Subsidiaries in any single transaction or series of transactions of (a) shares
of Capital Stock or other ownership interests of another Person (including
Capital Stock of Unrestricted Subsidiaries) or (b) any other Property of such
Person or any of its Restricted Subsidiaries; provided, however, that the term
"Asset Sale" shall not include: (i) the sale or transfer of Permitted Short-Term
Investments, inventory, accounts receivable or other Property in the ordinary
course of business; (ii) the liquidation of Property received in settlement of
debts owing to the Company or any Restricted Subsidiary as a result of
foreclosure, perfection or enforcement of any Lien or debt, which debts were
owing to the Company or any Restricted Subsidiary in the ordinary
<PAGE>
4
course of business of the Company or such Restricted Subsidiary; (iii) when used
with respect to the Company, any asset disposition permitted pursuant to Section
801 which constitutes a disposition of all or substantially all of the Company's
assets; (iv) the sale or transfer of any Property by the Company or a Restricted
Subsidiary to the Company or a Restricted Subsidiary; or (v) the sale or
transfer of any asset with a Fair Market Value of less than $1 million.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate the Securities.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal or liquidation value payment of
such Indebtedness or Preferred Stock, respectively, and the amount of such
principal or liquidation value payment, by (ii) the sum of all such principal or
liquidation value payments, provided, however, that in the case of any
Indebtedness in respect of a revolving credit facility, the payment date shall
be deemed to be the later of (x) the date of expiration of such facility or, if
there is any interim reduction in the availability of credit thereunder, the
date of such reduction to the extent of such reduction and (y) the scheduled
repayment date in respect of such Indebtedness.
"Bank Credit Facilities" means, with respect to any Person, one or more
debt facilities or commercial paper facilities with banks or other institutional
lenders (including, without limitation, the credit facility pursuant to the
Credit Agreement, dated August 29, 1996, as amended, among the Company and
certain banks) providing for revolving credit loans, term loans, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or trade letters of credit. Notwithstanding the foregoing, for
purposes of determining whether Indebtedness under Bank Credit Facilities
constitutes Permitted Indebtedness and only for such purposes, Indebtedness
Incurred in reliance on clause (a) of Section 1008 shall not be deemed to
constitute Indebtedness Incurred in reliance on the exception provided by clause
(b) or clause (l) of the definition of Permitted Indebtedness. Notwithstanding
any of the foregoing, Bank Credit Facilities shall not include (i) the
Refinancing Agreement dated May 19, 1995 between Cadipsa S.A. and Banco Medefin
S.A., Banco Mercantil Argentino S.A. and ABN AmroBank, or (ii) the Amended and
Restated Investment Agreement dated April 28, 1994, as amended, between the
International Finance Corporation and Cadipsa S.A. Notwithstanding anything to
the contrary herein, the principal amount outstanding on the Issue Date under
Bank Credit Facilities, together with accrued and unpaid interest thereon (if
any) on the Issue Date, shall be Senior Indebtedness for purposes of this
Indenture.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
<PAGE>
5
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each day that is not a Legal Holiday.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other arrangement conveying the
right to use) real or personal property of such Person which is required to be
classified and accounted for as a capital lease or a liability on the face of a
balance sheet of such Person in accordance with U.S. GAAP. For purposes of
Section 1009, a Capital Lease Obligation shall be deemed to be secured by a Lien
on the property being leased.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities convertible into an
equity interest), warrants or options to subscribe for or to acquire an equity
interest in such Person; provided, however, that "Capital Stock" shall not
include Redeemable Stock.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (within the meaning of Sections 13(d)(3) and
14(d)(2) of the Exchange Act or any successor provision to either of the
foregoing, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than any one or more of the Permitted Holders, becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act)
of 50% or more of the total voting power of all classes of the Voting Stock of
the Company and/or warrants or options to acquire such Voting Stock, calculated
on a fully diluted basis; (ii) the sale, lease, conveyance or transfer of all or
substantially all of the assets of the Company (other than to any Wholly Owned
Subsidiary) shall have occurred; (iii) the stockholders of the Company shall
have approved any plan of liquidation or dissolution of the Company; (iv) the
Company consolidates with or merges into another Person or any Person
consolidates with or merges into the Company in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is reclassified
into or exchanged for cash, securities or other property, other than any such
transaction where (a) the outstanding Voting Stock of the Company is
reclassified into or exchanged for Voting Stock of the surviving corporation
that is Capital Stock and (b) the holders of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the Voting Stock of the surviving corporation immediately after
such transaction in substantially the same proportion as before the transaction;
or (v) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Company's Board of Directors (together
with any new directors whose election or appointment by such board or whose
nomination for election by the
<PAGE>
6
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Company's Board
of Directors then in office.
"Change of Control Offer" has the meaning specified in Section 1019.
"Change of Control Payment Date" has the meaning specified in Section 1019.
"Commission" means the Securities and Exchange Commission, from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Consolidated Interest Coverage Ratio" means, as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of (i) the aggregate amount
of EBITDA of the Company and its consolidated Restricted Subsidiaries for the
four full fiscal quarters immediately prior to the Transaction Date for which
financial statements are available to (ii) the aggregate Consolidated Interest
Expense of the Company and its Restricted Subsidiaries that is anticipated to
accrue during a period consisting of the fiscal quarter in which the Transaction
Date occurs and the three fiscal quarters immediately subsequent thereto (based
upon the pro forma amount and maturity of, and interest payments in respect of,
Indebtedness of the Company and its Restricted Subsidiaries expected by the
Company to be outstanding on the Transaction Date), assuming for the purposes of
this measurement the continuation of market interest rates prevailing on the
Transaction Date and base interest rates in respect of floating interest rate
obligations equal to the base interest rates on such obligations in effect as of
the Transaction Date; provided, that if the Company or any of its Restricted
Subsidiaries is a party to any Interest Rate Protection Agreement which would
have the effect of changing the interest rate on any Indebtedness of the Company
or any of its Restricted Subsidiaries for such four quarter period (or a portion
thereof), the resulting rate shall be used for such four quarter period or
portion thereof; provided further that any
<PAGE>
7
Consolidated Interest Expense with respect to Indebtedness Incurred or retired
by the Company or any of its Restricted Subsidiaries during the fiscal quarter
in which the Transaction Date occurs shall be calculated as if such Indebtedness
was so Incurred or retired on the first day of the fiscal quarter in which the
Transaction Date occurs. In addition, if since the beginning of the four full
fiscal quarter period preceding the Transaction Date, (x) the Company or any of
its Restricted Subsidiaries shall have engaged in any Asset Sale, EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive), or
increased by an amount equal to the EBITDA (if negative), directly attributable
to the assets which are the subject of such Asset Sale for such period
calculated on a pro forma basis as if such Asset Sale and any related retirement
of Indebtedness had occurred on the first day of such period or (y) the Company
or any of its Restricted Subsidiaries shall have acquired any material assets,
EBITDA shall be calculated on a pro forma basis as if such asset acquisitions
had occurred on the first day of such four fiscal quarter period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, (i) the sum of (a) the aggregate amount of cash and
non-cash interest expense (including capitalized interest) of such Person and
its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with U.S. GAAP in respect of Indebtedness (including,
without limitation, (A) any amortization of debt discount, (B) net costs
associated with Interest Rate Protection Agreements (including any amortization
of discounts), (C) the interest portion of any deferred payment obligation, (D)
all accrued interest, and (E) all commissions, discounts, commitment fees,
origination fees and other fees and charges owed with respect to Bank Credit
Facilities and other Indebtedness) paid, accrued or scheduled to be paid or
accrued during such period; (b) Redeemable Stock dividends of such Person (and
of its Restricted Subsidiaries if paid to a Person other than such Person or its
Wholly Owned Subsidiaries) declared and payable other than in kind; (c) the
portion of any rental obligation of such Person or its Restricted Subsidiaries
in respect of any Capital Lease Obligation allocable to interest expense in
accordance with U.S. GAAP; (d) the portion of any rental obligation of such
Person or its Restricted Subsidiaries in respect of any Sale and Leaseback
Transaction allocable to interest expense (determined as if such obligation were
treated as a Capital Lease Obligation); and (e) to the extent any Indebtedness
of any other Person (other than Restricted Subsidiaries) is Guaranteed by such
Person or any of its Restricted Subsidiaries, the aggregate amount of interest
paid, accrued or scheduled to be paid or accrued by such other Person during
such period attributable to any such Indebtedness; less (ii) to the extent
included in (i) above, amortization or write-off of deferred financing costs of
such Person and its Restricted Subsidiaries during such period; in the case of
both (i) and (ii) above, after elimination of intercompany accounts among such
Person and its Restricted Subsidiaries and as determined in accordance with U.S.
GAAP.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or net loss, as the case may be) of such Person and its
Restricted Subsidiaries for such period on a consolidated basis, determined in
<PAGE>
8
accordance with U.S. GAAP; provided that there shall be excluded therefrom,
without duplication, (i) items classified as extraordinary (other than the tax
benefit of the utilization of net operating loss carry-forwards and alternative
minimum tax credits); (ii) any gain or loss, net of taxes, on the sale or other
disposition of assets (including the Capital Stock of any other Person) in
excess of $5.0 million, from any sale or disposition, or series of related sales
or dispositions (but in no event shall this clause (ii) apply to the sale of oil
and gas inventories in the ordinary course of business); (iii) the net income of
any Subsidiary of such specified Person to the extent the transfer to that
Person of that income is restricted by contract or otherwise, except for any
cash dividends or cash distributions actually paid by such Subsidiary to such
Person during such period; (iv) the net income (or loss) of any other Person in
which such specified Person or any of its Restricted Subsidiaries has an
interest (which interest does not cause the net income of such other Person to
be consolidated with the net income of such specified Person in accordance with
U.S. GAAP or is an interest in a consolidated Unrestricted Subsidiary), except
to the extent of the amount of cash dividends or other cash distributions
actually paid to such Person or its Restricted Subsidiaries by such other Person
during such period; (v) the net income of any Person acquired by such specified
Person or any of its Restricted Subsidiaries in a pooling-of-interests
transaction for any period prior to the date of such acquisition; (vi) any gain
or loss, net of taxes, realized on the termination of any employee pension
benefit plan; (vii) any adjustments of a deferred tax liability or asset
pursuant to Statement of Financial Accounting Standards No. 109 which result
from changes in enacted tax laws or rates; and (viii) the cumulative effect of a
change in accounting principles.
"Consolidated Net Worth" of any Person means the stockholders' equity of
such Person and its Restricted Subsidiaries, as determined on a consolidated
basis in accordance with U.S. GAAP, less (to the extent included in
stockholders' equity) amounts attributable to Redeemable Stock of such Person or
its Restricted Subsidiaries.
"Corporate Trust Office" means the office of the Trustee in The Borough of
Manhattan, The City of New York, at which at any particular time its corporate
trust business shall be principally administered and which at the date hereof is
located at 450 West 33rd Street, New York, NY 10001.
"corporation" means a corporation, association, company, joint-stock
company or business trust.
"Covenant Defeasance" has the meaning specified in Section 1202.
"CUSIP Number" means, with respect to the Securities, an identification
number assigned to such security pursuant to the procedures of the Committee on
Uniform Security Identification Procedures and by the CUSIP Service Bureau.
<PAGE>
9
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 306.
"Defeasance" has the meaning specified in Section 1201.
"Depositary" means, with respect to Securities issuable in whole or in part
in the form of one or more Global Securities, a clearing agency registered under
the Exchange Act that is designated by the Company to act as Depositary for such
Securities. Initially, the Depositary shall be The Depository Trust Company,
its nominees and their respective successors.
"Designated Senior Indebtedness" means any Senior Indebtedness which has,
at the time of determination, an aggregate principal amount outstanding of at
least $10 million (including the amount of all undrawn commitments and matured
and contingent reimbursement obligations pursuant to letters of credit
thereunder) and is specifically designated in the instrument evidencing such
Senior Indebtedness and is designated in a notice delivered by the Company to
the holders or a Representative of the holders of such Senior Indebtedness and
the Trustee as "Designated Senior Indebtedness" of the Company.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with U.S. GAAP, together with
all undertakings and obligations in connection therewith.
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person and its consolidated Restricted Subsidiaries for such
period, plus (a) the sum of, to the extent reflected in the consolidated income
statement of such Person and its Restricted Subsidiaries for such period from
which Consolidated Net Income is determined and deducted in the determination of
such Consolidated Net Income, without duplication, (i) income tax expense (but
excluding income tax expense relating to sales or other dispositions of assets
(including the Capital Stock of any other Person) the gains and losses from
which are included in the determination of such Consolidated Net Income), (ii)
Consolidated Interest Expense, (iii) depreciation and depletion expense, (iv)
amortization expense, (v) exploration expense, and (vi) any other non-cash
charges including, without limitation, unrealized foreign exchange losses (but
excluding losses on sales or other dispositions of assets which are included in
the determination of such Consolidated Net Income); less (b) the sum of, to the
extent reflected in the consolidated income statement of such Person and its
Restricted Subsidiaries for such period from which Consolidated Net Income is
determined and added in the determination of such Consolidated Net Income,
without duplication (i) income tax recovery (but excluding income tax recovery
relating to sales or other dispositions of assets (including the Capital Stock
of any other Person) the gains and losses from which are included in the
determination of such Consolidated Net Income) and (ii) unrealized foreign
exchange gains.
<PAGE>
10
"Event of Default" has the meaning specified in Section 501.
"Excess Proceeds" shall have the meaning specified in Section 1012.
"Exchange Act" means the United States Securities Exchange Act of 1934 and
any statute successor thereto, in each case as amended from time to time.
"Exchanged Properties" means oil and gas properties received by the Company
or a Restricted Subsidiary in trade or as a portion of the total consideration
for other such properties.
"Exchange Rate Contract" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or any combination thereof, designed to provide
protection against fluctuations in currency exchange rates.
"Expiration Date" has the meaning specified in Section 104.
"Expiry Date" has the meaning specified in the definition of "Prepayment
Offer Notice" set forth in this Section 101.
"Fair Market Value" means, with respect to any assets to be transferred
pursuant to any Asset Sale or Sale and Leaseback Transaction or any non-cash
consideration or property transferred or received by any Person, the fair market
value of such consideration or property as determined in good faith by (i) any
officer of the Company if such fair market value is less than $10 million and
(ii) the Board of Directors as evidenced by a Board Resolution if such fair
market value is equal to or in excess of $10 million; provided that if such
resolution indicates that such fair market value is equal to or in excess of $20
million and such transaction involves any Affiliate of the Company (other than a
Restricted Subsidiary), such resolution shall be accompanied by the written
opinion of an independent, nationally recognized investment banking firm or
appraisal firm, in either case specializing or having a specialty in the type
and subject matter of the transaction (or series of transactions) at issue, to
the effect that such consideration or property is fair, from a financial point
of view, to such Person.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in
a jurisdiction other than the United States or a State thereof or the District
of Columbia and engages in the Oil and Gas Business exclusively outside the
United States of America.
"Global Security" means a Security that evidences all or part of the
Securities and bears the legend set forth in Section 202.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of
<PAGE>
11
guaranteeing any Indebtedness of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation, any
Lien on the assets of such Person securing obligations of the primary obligor
and any obligation of such Person (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness or to purchase (or to
advance or supply funds for the purchase or payment of) any security for the
payment of such Indebtedness, (ii) to purchase Property, securities or services
for the purpose of assuring the holder of such Indebtedness of the payment of
such Indebtedness, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness (and "Guaranteed",
"Guaranteeing" and "Guarantor" shall have meanings correlative to the
foregoing); provided, however, that a Guarantee by any Person shall not include
(i) endorsements by such Person for collection or deposit, in either case, in
the ordinary course of business or (ii) a contractual commitment by one Person
to invest in another Person for so long as such Investment is reasonably
expected to constitute a Permitted Investment under clause (b) of the definition
of Permitted Investments.
"Hedging Agreements" means Interest Rate Protection Agreements, Exchange
Rate Contracts and Oil and Gas Purchase and Sale Contracts.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), extend,
assume, Guarantee or become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to U.S. GAAP or otherwise, of
any such Indebtedness or obligation on the balance sheet of such Person (and
"Incurrence", "Incurred", "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in U.S. GAAP
that results in an obligation of such Person that exists at such time, and is
not theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed an Incurrence of such Indebtedness. For purposes of this definition,
Indebtedness of the Company or a Restricted Subsidiary held by a Wholly Owned
Subsidiary shall be deemed to be Incurred by the Company or such Restricted
Subsidiary in the event such Wholly Owned Subsidiary ceases to be a Wholly Owned
Subsidiary or in the event such Indebtedness is transferred to a Person other
than the Company or a Wholly Owned Subsidiary.
"Indebtedness" means at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for borrowed
money, (ii) any obligation of such Person evidenced by bonds, debentures, notes,
Guarantees or other similar instruments, including, without limitation, any such
obligations Incurred in connection with the acquisition of Property, assets or
businesses, (iii) any reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar
<PAGE>
12
facilities issued for the account of such Person, (iv) any obligation of such
Person issued or assumed as the deferred purchase price of Property or services,
(v) any Capital Lease Obligation of such Person, (vi) the maximum fixed
redemption or repurchase price of Redeemable Stock of such Person at the time of
determination, (vii) any payment obligation of such Person under Hedging
Agreements at the time of determination, (viii) any obligation to pay rent or
other payment amounts of such Person with respect to any Sale and Leaseback
Transaction to which such Person is a party, and (ix) any obligation of the type
referred to in clauses (i) through (viii) of this paragraph of another Person
and all dividends of another Person the payment of which, in either case, such
Person has Guaranteed or is responsible or liable, directly or indirectly, as
obligor, Guarantor or otherwise; provided that Indebtedness shall not include
Production Payments and Reserve Sales. For purposes of this definition, the
maximum fixed repurchase price of any Redeemable Stock that does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock as if such Redeemable Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to this
Indenture; provided, however, that if such Redeemable Stock is not then
permitted to be repurchased, the repurchase price shall be the book value of
such Redeemable Stock. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and the maximum liability at such date in respect of any
contingent obligations described above.
"Indenture" means this instrument as originally executed and as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument and any such supplemental indenture, respectively.
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.
"Interest Rate Protection Agreement" means, with respect to any Person, any
interest rate swap agreement, forward rate agreement, interest rate cap or
collar agreement or other financial agreement or arrangement designed to protect
such Person or its Restricted Subsidiaries against fluctuations in interest
rates, as in effect from time to time.
"Investment" means, with respect to any Person, (i) any amount paid by such
Person, directly or indirectly (such amount to be the fair market value of such
Capital Stock, securities or Property at the time of transfer), to any other
Person for Capital Stock or other Property of, or as a capital contribution to,
any other Person or (ii) any direct or indirect loan or advance to any other
Person (other than accounts receivable of such Person arising in the ordinary
course of business); provided, however, that Investments shall not include
extensions of trade credit on commercially reasonable terms in accordance with
<PAGE>
13
normal trade practices and any increase in the equity ownership in any Person
resulting from retained earnings of such Person.
"Issue Date" means the date upon which the Securities first were issued and
authenticated hereunder.
"Investment Company Act" means the United States Investment Company Act of
1940 and any statute successor thereto, in each case as amended from time to
time.
"Legal Holiday" has the meaning specified in Section 113.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest, lien
(statutory or other), charge, easement, encumbrance, preference, priority or
other security or similar agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing). For purposes
of Section 1009, a Capital Lease Obligation shall be deemed to be secured by a
Lien on the property being leased.
"Liquid Securities" means securities (i) of an issuer that is not an
Affiliate of the Company, (ii) that are publicly traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market and (iii) as
to which the Company is not subject to any restrictions on sale or transfer
(including any volume restrictions under Rule 144 under the Securities Act or
any other restrictions imposed by the Securities Act) or as to which a
registration statement under the Securities Act covering the resale thereof is
in effect for as long as the securities are held; provided, that securities
meeting the requirements of clauses (i), (ii) and (iii) above shall be treated
as Liquid Securities from the date of receipt thereof until and only until the
earlier of (x) the date on which such securities are sold or exchanged for cash
or cash equivalents and (y) 180 days following the date of receipt of such
securities. In the event such securities are not sold or exchanged for cash or
cash equivalents within 180 days of receipt thereof, for purposes of determining
whether the transaction pursuant to which the Company or a Restricted Subsidiary
received the securities was in compliance with Section 1012, such securities
shall be deemed not to have been Liquid Securities at any time.
"Maturity" means the date on which the principal of the Securities or an
installment of principal becomes due and payable as therein or herein provided,
whether at the Stated Maturity or by declaration of acceleration, call for
redemption, pursuant to a Prepayment Offer or Change of Control Offer or
otherwise.
"Material Change" means an increase or decrease (except to the extent
resulting from changes in prices) of more than 30% during a fiscal quarter in
the estimated discounted future net revenues from proved oil and gas reserves
<PAGE>
14
of the Company and its Restricted Subsidiaries, calculated in accordance with
clause (a)(i) of the definition of Adjusted Consolidated Net Tangible Assets;
provided, however, that the following will be excluded from the calculation of
Material Change: (i) any acquisitions during the quarter of oil and gas reserves
with respect to which the Company's estimate of the discounted future net
revenues from proved oil and gas reserves has been confirmed by independent
petroleum engineers and (ii) any dispositions of Properties during such quarter
that were disposed of in compliance with Section 1012.
"Moody's" means Moody's Investors Service Inc., and any successor to its
business or operations.
"Net Available Cash" from an Asset Sale means cash proceeds received
(including any cash proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, and excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to such properties or assets) therefrom, in each case net of (i) all legal,
title and recording expenses, commissions and other fees and expenses incurred,
and all Federal, state, foreign and local taxes required to be paid or accrued
as a liability under U.S. GAAP as a consequence of such Asset Sale, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Sale, in accordance with the terms of any Lien upon such assets, or which
must by its terms, or in order to obtain a necessary consent to such Asset Sale
or by applicable law, be repaid out of the proceeds from such Asset Sale, (iii)
all distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Sale, and
(iv) the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with U.S. GAAP, against any liabilities associated with
the assets disposed of in such Asset Sale and retained by the Company or any
Restricted Subsidiary after such Asset Sale; provided, however, that in the
event that any consideration for an Asset Sale (which would otherwise constitute
Net Available Cash) is required to be held in escrow pending determination of
whether a purchase price adjustment will be made, such consideration (or any
portion thereof) shall become Net Available Cash only at such time as it is
released to such Person or its Restricted Subsidiaries from escrow; and
provided, further, however, that any non-cash consideration received in
connection with an Asset Sale which is subsequently converted to cash shall be
deemed to be Net Available Cash at such time and shall thereafter be applied in
accordance with Section 1012.
"Net Working Capital" means (i) all current assets of the Company and its
Restricted Subsidiaries, less (ii) all current liabilities of the Company and
its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with U.S. GAAP.
<PAGE>
15
"9% Indenture" means the indenture dated as of December 20, 1995, between
the Company and The Chase Manhattan Bank (formerly known as Chemical Bank), as
trustee, relating to the issuance of the 9% Notes.
"9% Notes" means the 9% Senior Subordinated Notes Due 2005 of the Company,
issued pursuant to the 9% Indenture.
"Notice of Default" means a written notice of the kind specified in Section
501.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President or any Vice President,
together with any one of the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Assistant Secretary, of the Company, and delivered to the
Trustee. One of the officers signing an Officers' Certificate given pursuant to
Section 1004 shall be the principal executive, financial or accounting officer
of the Company.
"Oil and Gas Business" means the business of exploiting, exploring for,
developing, acquiring, producing, processing, gathering, marketing, storing and
transporting hydrocarbons and other related energy businesses.
"Oil and Gas Liens" means (i) Liens on any specific property or any
interest therein, construction thereon or improvement thereto to secure all or
any part of the costs incurred for surveying, exploration, drilling, extraction,
development, operation, production, construction, alteration, repair or
improvement of, in, under or on such property and the plugging and abandonment
of wells located thereon (it being understood that, in the case of oil and gas
producing properties, or any interest therein, costs incurred for "development"
shall include costs incurred for all facilities relating to such properties or
to projects, ventures or other arrangements of which such properties form a part
or which relate to such properties or interests); (ii) Liens on an oil and/or
gas producing property to secure obligations Incurred or guarantees of
obligations Incurred in connection with or necessarily incidental to commitments
for the purchase or sale of, or the transportation or distribution of, the
products derived from such property; (iii) Liens arising under partnership
agreements, oil and gas leases, overriding royalty agreements, net profits
agreements, production payment agreements, royalty trust agreements, master
limited partnership agreements, farm-out agreements, division orders, contracts
for the sale, purchase, exchange, transportation, gathering or processing of
oil, gas or other hydrocarbons, unitizations and pooling designations,
declarations, orders and agreements, development agreements, operating
agreements, production sales contracts, area of mutual interest agreements, gas
balancing or deferred production agreements, injection, repressuring and
recycling agreements, salt water or other disposal agreements, seismic or
geophysical permits or agreements, and other agreements which are customary in
the Oil and Gas Business, provided in all instances that such Liens are limited
to the assets that are the subject of the relevant agreement; (iv) Liens arising
in connection with Production Payments
<PAGE>
16
and Reserve Sales; and (v) Liens on pipelines or pipeline facilities that arise
by operation of law.
"Oil and Gas Purchase and Sale Contract" means, with respect to any Person,
any oil and gas agreements, and other agreements or arrangements, or any
combination thereof, designed to provide protection against oil and gas price
fluctuations.
"Opinion of Counsel" means a written opinion of counsel, who may be
internal legal counsel for the Company, who shall be acceptable to the Trustee
and who may rely as to factual matters on Officers' Certificates.
"Outstanding" means, as of the date of determination, all Securities
theretofore authenticated and delivered under this Indenture, except:
(1) Securities theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(2) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Paying Agent (other than the
Company or its Wholly Owned Subsidiaries) in trust for the Holders of such
Securities and the Paying Agent is not prohibited from paying such money to
the Holders of Securities on that date pursuant to the terms of this
Indenture; provided that, if such Securities are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;
(3) Securities as to which Defeasance has been effected pursuant to
Section 1201; and
(4) Securities which have been paid pursuant to Section 305 or in exchange
for or in lieu of which other Securities have been authenticated and delivered
pursuant to this Indenture, other than any such Securities in respect of which
there shall have been presented to the Trustee proof satisfactory to it that
such Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, Securities owned by the Company or any other
obligor upon the Securities or any Affiliate of the Company or of such other
obligor shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent, waiver or other
action, only Securities which the Trustee actually knows to be so owned shall be
so disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such
<PAGE>
17
Securities and that the pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor.
"paid in full" or "payment in full" has the meaning specified in Section
1302.
"pari passu", when used with respect to the ranking of any Indebtedness of
any Person in relation to other Indebtedness of such Person, means that each
such Indebtedness (a) either (i) is not subordinated in right of payment to any
other Indebtedness of such Person or (ii) is subordinate in right of payment to
the same Indebtedness of such person as is the other and is so subordinate to
the same extent and (b) is not subordinate in right of payment to the other or
to any Indebtedness of such Person as to which the other is not so subordinated.
"Pari Passu Indebtedness" means any Indebtedness of the Company (including,
without limitation, the 9% Notes) that is pari passu in right of payment to the
Securities.
"Participants" has the meaning specified in Section 304.
"pay the Securities" has the meaning specified in Section 1303.
"Paying Agent" has the meaning specified in Section 1002.
"Payment Blockage Notice" has the meaning specified in Section 1303.
"Payment Blockage Period" has the meaning specified in Section 1303.
"Permitted Business Investments" means Investments and expenditures made in
the ordinary course of, and of a nature that is or shall have become customary
in, the Oil and Gas Business as means of actively exploiting, exploring for,
acquiring, developing, processing, gathering, marketing or transporting oil and
gas through agreements, transactions, interests or arrangements which permit one
to share risks or costs, comply with regulatory requirements regarding local
ownership or satisfy other objectives customarily achieved through the conduct
of Oil and Gas Business jointly with third parties, including, without
limitation, (i) ownership interests in oil and gas properties or gathering,
transportation, processing, storage or related systems and (ii) Investments and
expenditures in the form of or pursuant to operating agreements, processing
agreements, farm-in agreements, farm-out agreements, development agreements,
area of mutual interest agreements, unitization agreements, pooling
arrangements, joint bidding agreements, service contracts, joint venture
agreements, partnership agreements (whether general or limited), subscription
agreements, stock purchase agreements and other similar agreements with third
parties (including Unrestricted Subsidiaries).
''Permitted Designee'' means (i) a spouse or a child of a Permitted Holder,
(ii) trusts for the benefit of a Permitted Holder or a spouse or child of
<PAGE>
18
a Permitted Holder, (iii) in the event of the death or incompetence of a
Permitted Holder, his estate, heirs, executor, administrator, committee or other
personal representative or (iv) any Person so long as a Permitted Holder owns at
least 51% of the voting power of all classes of the Voting Stock of such Person.
"Permitted Holders" means Charles C. Stephenson, Jr., Jo Bob Hille, S.
Craig George, William C. Barnes and their Permitted Designees.
"Permitted Indebtedness" means any and all of the following: (a)
Indebtedness evidenced by the Securities; (b) Indebtedness under Bank Credit
Facilities, provided that the aggregate principal amount of all such
Indebtedness under Bank Credit Facilities, together with all Indebtedness
Incurred pursuant to clause (l) of this paragraph in respect of Indebtedness
previously Incurred pursuant to this clause (b), at any one time outstanding
does not exceed the greater of (i) $265 million and (ii) an amount equal to the
sum of (A) $100 million and (B) 15% of Adjusted Consolidated Net Tangible Assets
determined as of the date of the Incurrence of such Indebtedness; provided,
however, that the maximum amount available to be outstanding under Bank Credit
Facilities shall be permanently reduced by the amount of Net Available Cash
from Assets Sales used to permanently repay Indebtedness under Bank Credit
Facilities, and not subsequently reinvested in Additional Assets or used to
permanently reduce other Indebtedness to the extent permitted pursuant to
Section 1012; (c) Indebtedness to the Company or any of its Wholly Owned
Subsidiaries by any of its Restricted Subsidiaries or Indebtedness of the
Company to any of its Wholly Owned Subsidiaries (but only so long as such
Indebtedness is held by the Company or a Wholly Owned Subsidiary); (d)
Indebtedness in connection with one or more standby letters of credit,
Guarantees, performance bonds or other reimbursement obligations issued in the
ordinary course of business and not in connection with the borrowing of money or
the obtaining of advances or credit (other than advances or credit on open
account, includable in current liabilities, for goods and services in the
ordinary course of
<PAGE>
19
business and on terms and conditions which are customary in the Oil and Gas
Business and other than the extension of credit represented by such letter of
credit, Guarantee or performance bond itself); (e) Indebtedness of any Person
which shall merge or consolidate with or into the Company in accordance with
Section 801, which was outstanding prior to such merger or consolidation; (f)
Indebtedness under Interest Rate Protection Agreements entered into for the
purpose of limiting interest rate risks, provided that the obligations under
such agreements are related to payment obligations on Indebtedness otherwise
permitted by the terms of Section 1008; (g) Indebtedness under Exchange Rate
Contracts, provided that such Exchange Rate Contracts were entered into for the
purpose of limiting exchange rate risks in connection with transactions entered
into in the ordinary course of business; (h) Indebtedness under Oil and Gas
Purchase and Sale Contracts, provided that such contracts were entered into in
the ordinary course of business for the purpose of limiting risks that arise in
the ordinary course of business of the Company and its Subsidiaries; (i) in-kind
obligations relating to net oil or gas balancing positions arising in the
ordinary course of business that are customary in the Oil and Gas Business; (j)
Indebtedness outstanding on the Issue Date not otherwise permitted in clauses
(a) through (i) above; (k) Indebtedness not otherwise permitted to be Incurred
pursuant to this paragraph, provided that the aggregate principal amount of all
Indebtedness Incurred pursuant to this clause (k), together with all
Indebtedness Incurred pursuant to clause (l) of this paragraph in respect of
Indebtedness previously Incurred pursuant to this clause (k), at any one time
outstanding does not exceed $25 million; (l) Indebtedness Incurred in exchange
for, or the proceeds of which are used to refinance, (i) Indebtedness referred
to in clauses (a) through (k) of this paragraph (including Indebtedness
previously Incurred pursuant to this clause (l)) and (ii) Indebtedness Incurred
pursuant to clause (a) of Section 1008; provided, however, that (i) such
Indebtedness is in an aggregate principal amount not in excess of the sum of (A)
the aggregate principal amount then outstanding of the Indebtedness being
exchanged or refinanced and (B) an amount necessary to pay any fees and
expenses, including premiums, related to such exchange or refinancing, (ii) such
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being exchanged or refinanced, (iii) such Indebtedness has an
Average Life to Stated Maturity at the time such Indebtedness is Incurred that
is equal to or greater than the Average Life to Stated Maturity of the
Indebtedness being exchanged or refinanced, and (iv) such Indebtedness is
subordinated in right of payment to Senior Indebtedness or the Securities to at
least the same extent, if any, as the Indebtedness being exchanged or
refinanced; (m) Indebtedness consisting of obligations in respect of purchase
price adjustments, indemnities or Guarantees of the same or similar matters in
connection with the acquisition or disposition of assets; and (n) accounts
payable or other obligations of the Company or any Restricted Subsidiary to
trade creditors created or assumed by the Company or such Restricted Subsidiary
in the ordinary course of business in connection with the obtaining of goods or
services.
"Permitted Investments" means any and all of the following: (a) Permitted
Short-Term Investments; (b) Investments in property, plant and equipment used in
the ordinary course of business and Permitted Business Investments; (c)
Investments by the Company or any Restricted Subsidiary in a Restricted
Subsidiary and Investments by a Restricted Subsidiary in the Company; (d)
Investments in any other Person, including the acquisition from third parties of
Capital Stock of a Restricted Subsidiary or any other Person, as a result of
which such other Person becomes a Restricted Subsidiary in compliance with
Section 1016 or is merged into or consolidated with or transfers or conveys all
or substantially all of its assets to the Company or a Restricted Subsidiary;
(e) negotiable instruments held for collection; lease, utility and other similar
deposits; or stock, obligations or securities received in settlement of debts
owing to the Company or any of its Restricted Subsidiaries as a result of
foreclosure, perfection or enforcement of any Lien or Indebtedness, in each of
the foregoing cases in the ordinary course of business of the Company or such
Restricted Subsidiary; (f) Investments in Persons in the Oil and Gas Business
(other than Restricted Subsidiaries) intended to promote the Company's strategic
business objectives in an amount not to exceed $20
<PAGE>
20
million at any one time outstanding; (g) loans made (i) to officers, directors
and employees of the Company or any Subsidiary approved by the Board of
Directors (or by a duly authorized officer), the proceeds of which are used
solely to exercise stock options received pursuant to an employee stock option
plan or other incentive plan, in a principal amount not to exceed the exercise
price of such stock options, and (ii) to refinance loans, together with accrued
interest thereon, made pursuant to this clause (g); (h) advances and loans to
officers, directors and employees of the Company or any Subsidiary in the
ordinary course of business, provided such loans and advances do not exceed $3.0
million at any one time outstanding; (i) Investments in the form of securities
received from Asset Sales, provided that such Asset Sales are made in compliance
with Section 1012; and (j) Investments pursuant to any agreement or obligation
of the Company or any of its Restricted Subsidiaries as in effect on the Issue
Date (other than Investments described in clauses (a) through (i) above).
"Permitted Liens" shall have the meaning specified in Section 1009.
"Permitted Short-Term Investments" means (a) Investments in U.S. Government
Obligations maturing within one year of the date of acquisition thereof, (b)
Investments in demand accounts, time deposit accounts, certificates of deposit,
bankers acceptances and money market deposits maturing within one year of the
date of acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America or any State thereof that is a
member of the Federal Reserve System having capital, surplus and undivided
profits aggregating in excess of $500 million and whose long-term indebtedness
is rated "A" (or higher) according to Moody's, (c) Investments in demand
accounts, time deposit accounts, certificates of deposit, bankers acceptances
and money market deposits maturing within one year of the date of acquisition
thereof issued by a Canadian bank to which the Bank Act (Canada) applies having
capital, surplus and undivided profits aggregating in excess of $500 million,
(d) Investments in deposits available for withdrawal on demand with any
commercial bank which is organized under the laws of any country in which the
Company or any Restricted Subsidiary maintains an office or is engaged in the
Oil and Gas Business, provided that (i) all such deposits have been made in such
accounts in the ordinary course of business and (ii) such deposits do not at any
one time exceed $20 million in the aggregate, (e) repurchase and reverse
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (a) entered into with a bank meeting
the qualifications described in either clause (b) or (c), (f) Investments in
commercial paper, maturing not more than one year after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America or any State thereof
with a rating at the time as of which any Investment therein is made of "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to S&P, and (g)
Investments in any money market mutual fund having assets in excess of $250
million substantially all of which consist of other obligations of the types
described in clauses (a), (b), (e) and (f) hereof.
<PAGE>
21
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 305 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends and/or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of any other class of such Person; provided, however, that
"Preferred Stock" shall not include Redeemable Stock.
"Prepayment Offer" has the meaning specified in Section 1012(c).
"Prepayment Offer Notice" means a written notice of a Prepayment Offer sent
by the Company by first-class mail, postage prepaid, to each Holder at his
address appearing in the Security Register on the date of the Prepayment Offer
offering to purchase up to the principal amount of Securities specified in such
Prepayment Offer at the purchase price specified in such Prepayment Offer (as
determined pursuant to this Indenture). Unless otherwise required by applicable
law, the Prepayment Offer Notice shall specify an expiry date (the "Expiry
Date") of the Prepayment Offer which shall be, subject to any contrary
requirements of applicable law, and a settlement date (the "Purchase Date") for
purchase of the Securities which shall be, subject to any contrary requirements
of applicable law, not less than 30 days nor more than 60 days after the date
the Prepayment Offer Notice is mailed. The Prepayment Offer Notice shall
contain information concerning the business of the Company and its Subsidiaries
which the Company in good faith believes will enable such Holders to make an
informed decision with respect to the Prepayment Offer, which at a minimum will
include (i) the Company's most recent annual and quarterly financial statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" (which requirements may be satisfied by delivery of such documents
together with the Prepayment Offer), (ii) a description of material developments
in the Company's business subsequent to the date of the latest of such financial
statements referred to in clause (i), (iii) if applicable, appropriate pro forma
financial information concerning the Prepayment Offer, (iv) a description of the
events requiring the Company to make the Prepayment Offer, (v) a description of
the procedure which Holders must follow and any other information necessary to
enable such Holders to tender Securities pursuant to the Prepayment Offer, (vi)
a description of the procedure which Holders must follow and any other
information necessary to enable such Holders to withdraw an election to tender
<PAGE>
22
Securities for payment, and (vi) any other information required by applicable
law to be included therein. The Prepayment Offer Notice shall also state:
(1) the Expiry Date and the Purchase Date;
(2) that any Securities (or any portion thereof) accepted for payment (and
duly paid on the Purchase Date) pursuant to the Prepayment Offer shall cease
to accrue interest after the Purchase Date;
(3) the aggregate principal amount of the Securities offered to be
purchased by the Company pursuant to the Prepayment Offer (including, if less
than 100%, the manner by which such has been determined pursuant to the
Indenture) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000 aggregate
principal amount of Securities accepted for payment (as specified pursuant to
this Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Securities
registered in the name of such Holder and that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal amount;
(6) the place or places where Securities are to be surrendered for tender
pursuant to the Prepayment Offer;
(7) that each Holder electing to tender a Security pursuant to the
Prepayment Offer will be required to surrender such Security at the place or
places specified in the Prepayment Offer Notice prior to the close of business
on the Expiry Date (such Security being, if the Company or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Trustee duly executed by, the
Holder thereof or his attorney duly authorized in writing);
(8) that Holders will be entitled to withdraw all or any portion of the
Securities tendered if the Company (or its Paying Agent) receives, not later
than the close of business on the Expiry Date, a facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Security the Holder tendered, the certificate number of the Security the
Holder tendered and a statement that such Holder is withdrawing all or a
portion of his tender;
(9) that if Securities in an aggregate principal amount less than or equal
to the Purchase Amount are duly tendered and not withdrawn pursuant to the
Prepayment Offer, the Company shall purchase all such Securities; and
(10) that in case of any Holder whose Security is purchased only in part,
the Company shall execute, and the Trustee shall authenticate and
<PAGE>
23
deliver to the Holder of such Security without service charge, a new Security
or Securities, of any authorized denomination as requested by such Holder, in
an aggregate principal amount equal to and in exchange for the unpurchased
portion of the Security so tendered.
Any Prepayment Offer Notice shall be governed by and effected in accordance with
Section 1012.
"primary obligor" has the meaning specified in the definition of
"Guarantee" set forth in this Section 101.
"Production Payments and Reserve Sales" means the grant or transfer to any
Person of a royalty, overriding royalty, net profits interest, production
payment (whether volumetric or dollar denominated), master limited partnership
interest or other interest in oil and gas properties, reserves or the right to
receive all or a portion of the production or the proceeds from the sale of
production attributable to such properties where the holder of such interest has
recourse solely to such production or proceeds of production, subject to the
obligation of the grantor or transferor to operate and maintain, or cause the
subject interests to be operated and maintained, in a reasonably prudent manner
or other customary standard or subject to the obligation of the grantor or
transferor to indemnify for environmental matters.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Capital Stock in any other Person
(but excluding Capital Stock or other securities issued by such first mentioned
Person).
"Purchase Amount" has the meaning specified in the definition of
"Prepayment Offer Notice" set forth in this Section 101.
"Purchase Date" has the meaning specified in the definition of "Prepayment
Offer Notice" set forth in this Section 101.
"Purchase Price" has the meaning specified in the definition of "Prepayment
Offer Notice" set forth in this Section 101.
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or otherwise (including on the happening of an
event), is or could become required to be redeemed for cash or other Property or
is or could become redeemable for cash or other Property at the option of the
holder thereof, in whole or in part, on or prior to the first anniversary of the
Stated Maturity of the Securities; or is or could become exchangeable at the
option of the holder thereof for Indebtedness at any time, in whole or in part,
on or prior to the first anniversary of the Stated Maturity of the Securities;
provided, however, that Redeemable Stock shall not include any security by
virtue of the fact that it may be exchanged or converted at the
<PAGE>
24
option of the holder for Capital Stock of the Company having no preference as to
dividends or liquidation over any other Capital Stock of the Company.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Registrar" has the meaning specified in Section 1002.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Securities means the date specified for that purpose in the Securities.
"Remaining Excess Proceeds" shall have the meaning specified in Section
1012.
"Representative" means the trustee, agent or representative expressly
authorized to act in such capacity, if any, for an issue of Senior Indebtedness.
"Restricted Payment" means (i) a dividend or other distribution declared or
paid on the Capital Stock or Redeemable Stock of the Company or to the Company's
stockholders (other than dividends, distributions or payments made solely in
Capital Stock of the Company), or declared and paid to any Person other than the
Company or any of its Restricted Subsidiaries on the Capital Stock or Redeemable
Stock of any Restricted Subsidiary, (ii) a payment made by the Company or any of
its Restricted Subsidiaries (other than to the Company or any Restricted
Subsidiary) to purchase, redeem, acquire or retire any Capital Stock or
Redeemable Stock of the Company or of a Restricted Subsidiary, (iii) a payment
made by the Company or any of its Restricted Subsidiaries to redeem, repurchase,
defease or otherwise acquire or retire for value (including pursuant to
mandatory repurchase covenants), prior to any scheduled maturity, scheduled
sinking fund or scheduled mandatory redemption, Indebtedness of the Company
which is subordinate (whether pursuant to its terms or by operation of law) in
right of payment to the Securities, (iv) an Investment by the Company or a
Restricted Subsidiary in any Person other than the Company or a Restricted
Subsidiary, or (v) the sale or issuance of Capital Stock of a Restricted
Subsidiary to a Person other than the Company or another Restricted Subsidiary
if the result thereof is that such Restricted Subsidiary shall cease to be a
Restricted Subsidiary, in which event the amount of such "Restricted Payment"
shall be the Fair Market Value of the remaining interest in such former
Restricted Subsidiary held by the Company and its other Restricted Subsidiaries.
<PAGE>
25
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated an Unrestricted Subsidiary in the manner provided in Section
1016.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement (excluding, however, any such arrangement between
such Person and a Wholly Owned Subsidiary of such Person or between one or more
Wholly Owned Subsidiaries of such Person) pursuant to which Property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Restricted Subsidiaries.
"Securities" has the meaning stated in the preamble of this Indenture, as
amended or supplemented from time to time in accordance with the terms hereof,
and more particularly means any Securities authenticated and delivered under
this Indenture.
"Securities Act" means the United States Securities Act of 1933 and any
statute successor thereto, in each case as amended from time to time.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 304.
"Senior Indebtedness" means (i) all obligations consisting of the principal
of and premium, if any, and accrued and unpaid interest in respect of (A)
Indebtedness of the Company for borrowed money and (B) Indebtedness evidenced by
notes, debentures, bonds or other similar instruments permitted under this
Indenture for the payment of which the Company is responsible or liable; (ii)
all Capital Lease Obligations of the Company; (iii) all obligations of the
Company (A) for the reimbursement of any obligor on any letter of credit,
bankers' acceptance or similar credit transaction, (B) under Hedging Agreements
or (C) issued or assumed as the deferred purchase price of property and all
conditional sale obligations of the Company and all obligations under any title
retention agreement permitted under this Indenture; and (iv) all obligations of
other persons of the type referred to in clauses (i) and (ii) for the payment of
which the Company is responsible or liable as Guarantor; provided that Senior
Indebtedness does not include (i) Pari Passu Indebtedness or Indebtedness of the
Company that is by its terms subordinate in right of payment to the Securities;
(ii) any Indebtedness Incurred in violation of the provisions of this Indenture;
(iii) accounts payable or any other obligations of the Company to trade
creditors created or assumed by the Company in the ordinary course of business
in connection with the obtaining of materials or services; (iv) in-kind
obligations relating to net oil and gas balancing positions; or (v) any
liability for Federal, state, local or other taxes owed or owing by the Company.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 306.
<PAGE>
26
"S&P" means Standard & Poor's Ratings Group and any successor to its
business or operations.
"Stated Maturity", when used with respect to any security or any
installment of principal thereof or interest thereon, means the date specified
in such security as the fixed date on which the principal of such security or
such installment of principal or interest is due and payable, including pursuant
to any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subsidiary" of a Person means (a) another Person which is a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned or
controlled by (i) the first Person, (ii) the first Person and one or more of its
Subsidiaries, or (iii) one or more of the first Person's Subsidiaries or (b)
another Person which is not a corporation (x) at least 50% of the ownership
interest of which and (y) the power to elect or direct the election of a
majority of the directors or other governing body of which are controlled by
Persons referred to in clauses (i), (ii) or (iii) above.
"Surviving Entity" has the meaning specified in Section 801.
"Transaction Date" has the meaning specified in the definition of
"Consolidated Interest Coverage Ratio" set forth in this Section 101.
"Trust Indenture Act" means the United States Trust Indenture Act of 1939
as in force at the date as of which this instrument was executed; provided,
however, that in the event the United States Trust Indenture Act of 1939 is
amended after such date, "Trust Indenture Act" means, to the extent required by
any such amendment, the United States Trust Indenture Act of 1939 as so amended.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include the successor.
"Unrestricted Subsidiary" means (i) each Subsidiary of the Company that the
Company has designated pursuant to Section 1016 as an Unrestricted Subsidiary
and (ii) any Subsidiary of an Unrestricted Subsidiary.
"U.S. GAAP" means United States generally accepted accounting principles as
in effect on the date of this Indenture, unless stated otherwise.
"U.S. Government Obligation" means (x) any security which is (i) a direct
obligation of the United States of America for the payment of which the
<PAGE>
27
full faith and credit of the United States of America is pledged or (ii) an
obligation of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case (i) or (ii), is not callable or
redeemable at the option of the issuer thereof, and (y) any depositary receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as
custodian with respect to any U.S. Government Obligation which is specified in
clause (x) above and held by such bank for the account of the holder of such
depositary receipt, or with respect to any specific payment of principal of or
interest on any U.S. Government Obligation which is so specified and held,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depositary
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal or interest evidenced
by such depositary receipt.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with U.S. GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Redeemable Stock" of any Person means Redeemable Stock of such
Person which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such Person whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary all
of the Voting Stock of which (except directors' qualifying shares) is at the
time owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion
<PAGE>
28
of Counsel, if to be given by counsel, and shall comply with the requirements of
the Trust Indenture Act and any other requirements set forth in this Indenture.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (except for certificates provided for in
Section 1004) shall include,
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
<PAGE>
29
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Dates.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given, made or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing or alternatively, may be embodied in and evidenced by the
record of Holders voting in favor thereof, either in person or by proxies duly
appointed in writing, at any meeting of Holders duly called and held in
accordance with the provisions of Article Fifteen, or a combination of such
instruments and any such record; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
or record or both are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments and any such record
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or instruments
or so voting at any such meeting. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and (subject to Section 601) conclusive in favor of the Trustee
and the Company, if made in the manner provided in this Section. The record of
any meeting of Holders shall be proved in the manner provided in Section 1506.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is
by a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security Register.
Except as provided in Section 1402, any request, demand, authorization,
direction, notice, consent, waiver or other Act of the Holder of any Security
shall bind every future Holder of the same Security and the Holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustee or the Company in reliance thereon, whether or not
notation of such action is made upon such Security.
<PAGE>
30
The Company may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities entitled to give, make or take any
request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Securities; provided that the Company may not set a record date for,
and the provisions of this paragraph shall not apply with respect to, the giving
or making of any notice, declaration, request or direction referred to in the
next paragraph. If any record date is set pursuant to this paragraph, the
Holders of Outstanding Securities on such record date, and no other Holders,
shall be entitled to take or revoke the relevant action, whether or not such
Holders remain Holders after such record date; provided that no such action
shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities on such record date. Nothing in this paragraph shall be construed to
prevent the Company from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be cancelled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Company, at its own
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder of Securities in the manner set forth in Section 106.
The Trustee may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities entitled to join in the giving or making
of (i) any Notice of Default, (ii) any declaration of acceleration referred to
in Section 502, (iii) any request to institute proceedings referred to in
Section 507(2) or (iv) any direction referred to in Section 512, in each case
with respect to the Securities. If any record date is set pursuant to this
paragraph, the Holders of Outstanding Securities on such record date, and no
other Holders, shall be entitled to join in such notice, declaration, request or
direction or to revoke the same, whether or not such Holders remain Holders
after such record date; provided that no such action shall be effective
hereunder unless taken on or prior to the applicable Expiration Date by Holders
of the requisite principal amount of Outstanding Securities on such record date.
Nothing in this paragraph shall be construed to prevent the Trustee from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities on the date such action is taken. Promptly after any record date is
set pursuant to this paragraph, the Trustee, at the Company's expense, shall
cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Company in writing and to each
Holder of Securities in the manner set forth in Section 106.
<PAGE>
31
With respect to any record date set pursuant to this Section, the party
hereto which sets such record date may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day; provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities in the manner set forth in Section 106, on or prior
to the existing Expiration Date; provided, further, that the Expiration Date
shall be no later than 180 days following the record date relating to such
Expiration Date. If an Expiration Date is not designated with respect to any
record date set pursuant to this Section, the party hereto which set such record
date shall be deemed to have designated the 180th day after such record date as
the Expiration Date with respect thereto, subject to its right to change the
Expiration Date to any earlier day as provided in this paragraph.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to the Securities may do so with regard to all or
any part of the principal amount of such Securities or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or
with the Trustee at its Corporate Trust Office, Attention: Corporate Trustee
Administration, or
(2) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to
it at the address of its principal office specified in the first paragraph of
this instrument, Attention: Chief Financial Officer or at any other address
previously furnished in writing to the Trustee by the Company.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification shall constitute a sufficient notification for every purpose
hereunder if made, given, furnished or filed in writing by facsimile
transmission or otherwise to or with the Company at its principal office
specified in the first paragraph of this instrument or at any other address
previously furnished in writing to the Trustee by the Company.
<PAGE>
32
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders
is given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act which is required under the Trust Indenture Act to be a
part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act which may be so modified or excluded, the latter provision shall
be deemed to apply to this Indenture as so modified or to be excluded, as the
case may be.
SECTION 108. Effect of Headings, Table of Contents and Cross-Reference Sheet.
The Article and Section headings herein, the Table of Contents and the
Cross-Reference Sheet are for convenience only and shall not affect the
construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
<PAGE>
33
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness and the Holders, any benefit or
any legal or equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the internal laws of the State of New York without reference to
principles of conflicts of laws.
SECTION 113. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
In any case where any Interest Payment Date, Redemption Date, Purchase
Date, Change of Control Payment Date or Stated Maturity of any Security shall be
a Legal Holiday, then (notwithstanding any other provision of this Indenture or
of the Securities other than a provision in the Securities which expressly
states that such provision shall apply in lieu of this Section) payment of
interest or principal (and premium, if any) need not be made on such date, but
may be made on the next succeeding day that is not a Legal Holiday with the same
force and effect as if made on the Interest Payment Date, Redemption Date,
Purchase Date, Change of Control Payment Date or at the Stated Maturity,
provided that no interest shall accrue from and after such Interest Payment
Date, Redemption Date, Purchase Date, Change of Control Payment Date or Stated
Maturity, as the case may be. If a regular record date is a Legal Holiday, the
record date shall not be affected.
<PAGE>
34
ARTICLE TWO
SECURITY FORMS
SECTION 201. Form of Securities.
The Securities shall be in substantially the form set forth in this Article
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture. The Securities may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or Depositary therefor or as may, consistently herewith, be
determined by the officers executing such Securities, as evidenced by their
execution thereof.
The Securities shall be issued initially in the form of one or more
permanent Global Securities in definitive, fully registered form without
interest coupons in substantially the form set forth in Sections 202 and 203
hereof, which shall be deposited on behalf of the purchasers of the Securities
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary, and registered in the name of the Depositary or a nominee of the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Global Securities
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee in the limited
circumstances hereinafter provided.
The Securities shall be typed, printed, lithographed or engraved or may be
produced in any other manner, all as determined by the officers executing the
Securities, as evidenced by their execution of the Securities.
SECTION 202. Form of Face of Global Security.
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE
REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
<PAGE>
35
.....................................
8 5/8% Senior Subordinated Note Due 2009
.............................................
No. ...... $ .....
CUSIP No. 927460 AB 1
VINTAGE PETROLEUM, INC., a Delaware corporation (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
............................. or registered assigns, the principal sum of
...................... on February 1, 2009, and to pay interest thereon from
February 5, 1997, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, semiannually in arrears on February
1 and August 1 in each year, commencing August 1, 1997, at the rate of 8.625%
per annum, both before and after default, with interest upon overdue interest at
the same rate (to the extent legally permitted) until the principal hereof is
paid or made available for payment. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
such Indenture, be paid to the Person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest, which shall be the January 15 or July 15
(whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and any such interest on
this Security will be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan in The City of New York, in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
36
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
VINTAGE PETROLEUM, INC.
By..................................
By..................................
SECTION 203. Form of Reverse of Global Security.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued under an Indenture, dated as of
February 5, 1997 (herein called the "Indenture", which term shall have the
meaning assigned to it in such instrument), between the Company and The Chase
Manhattan Bank, as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby made to the
Indenture for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Company, the Trustee, the holders of
Senior Indebtedness and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. This
Security is one of the Securities issued pursuant to the Indenture limited in
aggregate principal amount to $100,000,000.
The Securities are subject to redemption upon not less than 30 nor more
than 60 days' notice by mail, at any time on or after February 1, 2002, in whole
or in part, at the election of the Company, at the following Redemption Prices
(expressed as percentages of the principal amount): If redeemed during the 12-
month period beginning February 1 of the years indicated:
Redemption
Year Price
---- ----------
2002 104.313%
2003 103.234%
2004 102.156%
2005 101.078%
and thereafter, beginning February 1, 2006, at a Redemption Price equal to 100%
of the principal amount, together, in the case of any such redemption,
<PAGE>
37
with accrued and unpaid interest (if any) to the Redemption Date, but interest
installments whose Stated Maturity is on or prior to such Redemption Date will
be payable to the Holders of the Securities, or one or more Predecessor
Securities, of record at the close of business on the relevant Record Dates
referred to on the face hereof, all as provided in the Indenture.
In the event of redemption of this Security in part only, a new Security or
Securities of like tenor for the unredeemed portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.
Upon a Change of Control, any Holder of Securities will have the right to
cause the Company to purchase all or any part of the Securities of such Holder
at a purchase price equal to 101% of the principal amount of the Securities to
be purchased plus accrued and unpaid interest thereon to the Change of Control
Payment Date as provided in, and subject to the terms of, the Indenture.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided, and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Security or certain restrictive covenants and Events of
Default with respect to this Security, in each case upon compliance with certain
conditions set forth in the Indenture.
If an Event of Default with respect to the Securities shall occur and be
continuing, the principal of and accrued and unpaid interest on the Securities
may be declared due and payable in the manner and with the effect provided in
the Indenture.
The Indenture provides that modifications and amendments of the Indenture
may be made by the Company and the Trustee without the consent of any Holders of
Securities in certain limited circumstances. The Indenture permits, with certain
exceptions as therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders of the
Securities under the Indenture at any time by the Company and the Trustee with
the consent of the Holders of a majority in aggregate principal amount of the
Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in principal amount of the
Securities at the time Outstanding, on behalf of the Holders of all Securities,
to waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the
<PAGE>
38
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities, the Holders of not less than 25% in principal amount of the
Securities at the time Outstanding shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default as Trustee
and offered the Trustee reasonable indemnity, and the Trustee shall not have
received from the Holders of a majority in principal amount of Securities at the
time Outstanding a direction inconsistent with such request, and shall have
failed to institute any such proceeding, for 60 days after receipt of such
notice, request and offer of indemnity. The foregoing shall not apply to any
suit instituted by the Holder of this Security for the enforcement of any
payment of principal hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
Interest on the Securities shall be computed on the basis of a 360-day year
of twelve 30-day months.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in any place where the principal of and any premium and
interest on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of like tenor,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 or any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of like
tenor of a different authorized denomination, as requested by the Holder
surrendering the same.
<PAGE>
39
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and none of the Company, the
Trustee and any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 204. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in substantially the
following form:
This is one of the Company's 8 5/8% Senior Subordinated Notes Due 2009
referred to in the within-mentioned Indenture.
Dated:
The Chase Manhattan Bank, As Trustee
By......................................
Authorized Officer
ARTICLE THREE
THE SECURITIES
SECTION 301. Denominations.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 or an integral multiple thereof.
SECTION 302. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its President or by any Vice
President, together with any one of the Treasurer, any Assistant
<PAGE>
40
Treasurer, the Secretary or any Assistant Secretary of the Company. The
signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder. Notwithstanding the foregoing, if any Security shall have been
authenticated and delivered hereunder but never issued and sold by the Company,
and the Company shall deliver such Security to the Trustee for cancellation as
provided in Section 308, for all purposes of this Indenture such Security shall
be deemed never to have been authenticated and delivered hereunder and shall
never be entitled to the benefits of this Indenture.
The Trustee shall authenticate and deliver Securities for original issue in
an aggregate principal amount of $100,000,000, upon Company Order. Such Company
Order shall specify the date on which the original issue of Securities is to be
authenticated and shall further provide instructions concerning registration,
amounts for each Holder and delivery. The aggregate principal amount of
Securities outstanding at any time may not exceed $100,000,000, except as
provided in Section 305.
SECTION 303. Temporary Securities.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company maintained for that purpose, without charge to the
<PAGE>
41
Holder. Upon surrender for cancellation of any one or more temporary Securities,
the Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor one or more definitive Securities, of any authorized
denominations and of like tenor and aggregate principal amount. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
SECTION 304. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office a register
(the register maintained in such office or in any other office or agency of the
Company maintained pursuant to Section 1002 being herein sometimes referred to
as the "Security Register") in which, subject to such reasonable regulations as
it may prescribe, the Company shall provide for the registration of Securities
and of transfers of Securities. The Trustee is hereby appointed "Security
Registrar" for the purpose of registering Securities and transfers of Securities
as herein provided.
Upon surrender for registration of transfer of any Security at the office
or agency of the Company maintained for such purpose, the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities, of any authorized
denominations and of like tenor and aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities, of any authorized denominations and of like tenor and aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 303, 906 or 1106 not involving any transfer.
<PAGE>
42
If the Securities are to be redeemed in part, the Company shall not be
required (A) to issue, register the transfer of or exchange any Securities
during a period beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption of any such Securities selected for
redemption under Section 1102 and ending at the close of business on the day of
such mailing, or (B) to register the transfer of or exchange any Security so
selected for redemption, in whole or in part, except the unredeemed portion of
any Security being redeemed in part.
With respect to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security
or a nominee thereof and deposited with such Depositary or a nominee thereof
or custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
(2) A Global Security may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary. A Global Security is exchangeable for certificated Securities
only if (i) the Depositary notifies the Company that it is unwilling or unable
to continue as a Depositary for such Global Security or if at any time the
Depositary ceases to be a clearing agency registered under the Exchange Act,
(ii) the Company executes and delivers to the Trustee a notice that such
Global Security shall be so transferable, registrable, and exchangeable, and
such transfers shall be registrable or (iii) there shall have occurred and be
continuing an Event of Default or an event which, with the giving of notice or
lapse of time or both, would constitute an Event of Default with respect to
the Securities represented by such Global Security. Any Global Security that
is exchangeable for certificated Securities pursuant to the preceding sentence
will be transferred to, and registered and exchanged for, certificated
Securities in authorized denominations, without legends applicable to a Global
Security, and registered in such names as the Depositary holding such Global
Security may direct. Subject to the foregoing, a Global Security is not
exchangeable, except for a Global Security of like denomination to be
registered in the name of the Depositary or its nominee. In the event that a
Global Security becomes exchangeable for certificated Securities, (i)
certificated Securities will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof, (ii) payment of
principal, any repurchase price, and interest on the certificated Securities
will be payable, and the transfer of the certificated Securities will be
registerable, at the office or agency of the Company maintained for such
purposes, and (iii) no service charge will be made for any registration of
transfer or exchange of the certificated Securities, although the Company may
require payment of a sum sufficient to cover any tax or governmental charge
imposed in connection therewith.
<PAGE>
43
(3) Securities issued in exchange for a Global Security or any portion
thereof shall have an aggregate principal amount equal to that of such Global
Security or portion thereof to be so exchanged, shall be registered in such
names and be in such authorized denominations as the Depositary shall
designate and shall bear the applicable legends provided for herein. Any
Global Security to be exchanged in whole shall be surrendered by the
Depositary to the Trustee. With respect to any Global Security to be
exchanged in part, either such Global Security shall be so surrendered for
exchange or, if the Trustee is acting as custodian for the Depositary or its
nominee with respect to such Global Security, the principal amount thereof
shall be reduced, by an amount equal to the portion thereof to be so
exchanged, by means of an appropriate adjustment made on the records of the
Trustee. Upon any such surrender or adjustment, the Trustee shall
authenticate and deliver the Security issuable on such exchange to or upon the
order of the Depositary or an authorized representative thereof.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Section, Section 303, 305, 906 or
1106 or otherwise, shall be authenticated and delivered in the form of, and
shall be, a Global Security, unless such Security is registered in the name of
a Person other than the Depositary for such Global Security or a nominee
thereof.
Members of, or participants in, the Depositary ("Participants") shall have
no rights under this Indenture with respect to any Global Security held on their
behalf by the Depositary or by the Trustee as the custodian of the Depositary or
under such Global Security, and the Depositary may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwith standing the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depositary or impair, as between
the Depositary and its Participants, the operation of customary practices of
such Depositary governing the exercise of the rights of a holder of a beneficial
interest in any Global Security.
SECTION 305. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange there for a
new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice
<PAGE>
44
to the Company or the Trustee that such Security has been acquired by a bona
fide purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected there with.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 306. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at
<PAGE>
45
the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this Clause provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest
which shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the name
and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to
be given to each Holder of Securities in the manner set forth in Section
106, not less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so mailed, such Defaulted Interest shall be paid to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on such Special Record
Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Securities in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 307. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of and any premium and
(subject to Section 306) any interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
<PAGE>
46
SECTION 308. Cancellation.
All Securities surrendered for payment, redemption or registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled Securities held by the Trustee shall be disposed of as
directed by a Company Order; provided, however, that the Trustee shall not be
required to destroy such cancelled Securities.
SECTION 309. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day year
of twelve 30-day months.
SECTION 310. CUSIP Numbers.
The Company in issuing the Securities may use CUSIP numbers, and, if so,
the Trustee shall use CUSIP numbers in notices of redemption, any Prepayment
Offer Notice or any notice of a Change of Control Offer as a con venience to
Holders; provided that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of redemption, Prepayment Offer Notice or any notice of
a Change of Control Offer and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption,
prepayment or offer shall not be affected by any defect in or omission of such
numbers.
<PAGE>
47
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 305 and (ii) Securities for
whose payment money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one
year, or
(iii)are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company;
and the Company, in the case of (i), (ii) or (iii) above, has irrevocably
deposited or caused to be irrevocably deposited with the Trustee, as trust
funds in trust for the purpose, money in an amount sufficient to pay and
discharge the entire indebtedness on such Securities not there tofore
delivered to the Trustee for cancellation (and the Company is not
prohibited from depositing such money for such purpose on that date
pursuant to the terms of this Indenture) for principal and any premium and
interest to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date, as
the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
<PAGE>
48
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Company to any Authenticating Agent under Section 614, the obligation of the
Company under the last paragraph of Section 1003 and, if money shall have been
deposited with the Trustee pursuant to subclause (B) of Clause (1) of this
Section, the obligations of the Trustee under Section 402 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent as the
Trustee may determine, to the Persons entitled thereto, of the principal and any
premium and interest for whose payment such money has been deposited with the
Trustee. Money held by the Trustee pursuant to this Article shall not be
subject to the claims of the holders of Senior Indebtedness.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be occasioned by the
provisions of Article Thirteen or be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(2) default in the payment of the principal of (or premium, if any, on)
any Security at its Maturity; or
(3) default in the performance, or breach, of any covenant or warranty of
the Company in this Indenture (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section specifically
dealt with) and continuance of such default or breach for a period of 60 days
after there has been given, by registered or certified mail,
<PAGE>
49
to the Company by the Trustee or to the Company and the Trustee by the Holders
of at least 25% in principal amount of the Outstanding Securities a written
notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(4) a default under any Indebtedness for borrowed money by the Company or
any Restricted Subsidiary, or under any mortgage, indenture or instrument
(including this Indenture) under which there may be issued or by which there
may be secured or evidenced any such Indebtedness, which default shall have
resulted in an amount greater than $10 million ($40 million in the case of
Indebtedness of a Foreign Subsidiary the recourse for which is limited to
solely Foreign Subsidiaries) of such Indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise have become due
and payable, or a failure to pay any Indebtedness in an amount greater than
$10 million ($40 million in the case of Indebtedness of a Foreign Subsidiary
the recourse for which is limited to solely Foreign Subsidiaries) at maturity,
in each case without such Indebtedness having been discharged, or such
acceleration having been rescinded or annulled, within a period of 10 days
after there shall have been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in principal amount of the Outstanding Securities a written notice
specifying such default and requiring the Company to cause such Indebtedness
to be dis charged or cause such acceleration to be rescinded or annulled, as
the case may be, and stating that such notice is a "Notice of Default"
hereunder; or
(5) a final judgment or order or final judgments or orders for the payment
of money are entered against the Company or any Restricted Subsidiary in an
uninsured or unindemnified aggregate amount in excess of $10 million by a
court or courts of competent jurisdiction, which judgments or orders are not
discharged, waived, stayed, satisfied or bonded within a period (during which
execution shall not be effectively stayed) of 60 con secutive days after the
right to appeal all such judgments or orders has expired; or
(6) the Company or any Restricted Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any substantial
part of its property; or
(D) makes a general assignment for the benefit of its creditors;
<PAGE>
50
or takes any comparable action under any foreign laws relating to insolvency;
or
(7) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company or any Restricted Subsidiary in an
involuntary case;
(B) appoints a Custodian of the Company or any Restricted Subsidiary or for
any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any Restricted
Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 days.
The term "Bankruptcy Law" means Title 11, United States Code, or any
------------------
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in Section
501(6) or 501(7)) shall occur and be continuing, then in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal amount of and accrued and
unpaid interest on all the Securities to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders), and
upon any such declaration such principal amount and accrued and unpaid interest
shall become immediately due and payable. If an Event of Default specified in
Section 501(6) or 501(7) occurs, the principal amount of and interest on all the
Securities shall automatically, and without any declaration or other action on
the part of the Trustee or any Holder, become immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree based on acceleration for payment of the money due
has been obtained by the Trustee as hereinafter in this Article provided,
<PAGE>
51
the Holders of a majority in aggregate principal amount of the Outstanding
Securities, by written notice to the Company and the Trustee, may rescind and
annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient to
pay
(A) all overdue interest on all Securities,
(B) to the extent that payment of such interest is lawful and is
required hereunder, interest upon overdue interest at the rate borne by
such Securities, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the principal or
interest of the Securities which has become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereto.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on the Securities when
such interest becomes due and payable and such default continues for a period
of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) the Securities at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of the Securities, the whole amount then due and payable on the
Securities for principal and any premium and interest and, to the extent that
payment of such interest shall be legally enforceable, interest on any overdue
principal and premium and on any overdue interest, at the rate borne by the
Securities, and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
<PAGE>
52
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders of the Securities by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise, to
take any and all actions authorized under the Trust Indenture Act in order to
have claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys or
other property payable or deliverable on any such claims and to distribute the
same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities.
<PAGE>
53
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or any premium
or interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: to the payment of all amounts due the Trustee under Section 607;
and
SECOND: subject to Article Thirteen, to the payment of the amounts then
due and unpaid for principal of and any premium and interest on the Securities
in respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal and any premium and interest,
respectively; and
THIRD: to the Company.
SECTION 507. Limitation on Suits.
No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of,
<PAGE>
54
any provision of this Indenture to affect, disturb or prejudice the rights of
any other of such Holders, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all of such Holders.
SECTION 508. Unconditional Right of Holders To Receive Principal, Premium and
Interest.
Notwithstanding any other provision in this Indenture, a Holder of the
Securities shall have the right, which is absolute and unconditional, to receive
payment of the principal of and any premium and (subject to Section 306)
interest on the Securities on the Stated Maturities expressed in the Securities
(or, in the case of redemption, prepayment or Change of Control, on the
Redemption Date, Purchase Date or Change of Control Payment Date, respectively)
and to institute suit for the enforcement of any such payment, and such rights
shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
305, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
<PAGE>
55
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of the Securities to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee with respect to the Securities; provided that
(1) such direction shall not be in conflict with any rule of law or with
this Indenture and would not involve the Trustee in personal liability, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may by Act of such Holders on behalf of the Holders of
all the Securities waive any past or existing Default or Event of Default
hereunder and its consequences, except a Default
(1) in the payment of the principal of or any premium or interest on the
Securities, or
(2) in respect of a covenant or provision hereof which under Article Nine
cannot be modified or amended without the consent of the Holder of each
Outstanding Security.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereto.
<PAGE>
56
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company or the Trustee.
SECTION 515. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by the
Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
<PAGE>
57
SECTION 602. Notice of Defaults.
If a Default occurs and is continuing and if it is known to the Trustee,
the Trustee shall mail to each Holder notice of the Default within 90 days after
it occurs. Except in the case of a Default in payment of principal of or
interest on any Security (including payments pursuant to the mandatory
redemption provisions of such Security, if any), the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interests of Holders.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(1) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order, and any
resolution of the Board of Directors shall be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel reasonably selected by it and the
written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses
and liabilities which might be incurred by it in compliance with such request
or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
<PAGE>
58
Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled
to examine the books, records and premises of the Company, personally or by
agent or attorney; and
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 604. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company in this Indenture or
in any document issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of authentication. The Trustee
shall not be charged with notice or knowledge of any Default or Event of Default
unless (i) a Trust Officer shall have actual knowledge thereof or (ii) the
Trustee shall have received notice thereof in accordance with Section 105 from
the Company or any Holder.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Company. So long as no Event of Default shall have
occurred and be continuing, all interest allowed on any such money shall be paid
to the Company from time to time upon receipt by the Trustee of a Company Order
except as otherwise provided in this Indenture.
<PAGE>
59
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time such compensation as shall be
agreed to in writing by the Company and the Trustee for all services rendered
by it hereunder (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith;
and
(3) to indemnify each of the Trustee and any predecessor Trustee for, and
to hold it harmless against, any and all loss, liability, damage, claim or
expense incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
Without limiting any rights available to the Trustee under applicable law,
when the Trustee incurs expenses or renders services in connection with an Event
of Default specified in Section 501(6) or Section 501(7), the expenses
(including the reasonable fees and expenses of its counsel) and the compensation
for the services are intended to constitute expenses of administration under any
applicable Federal or State bankruptcy, insolvency or other similar law.
To secure the Company's payment obligations under this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee as such, except money or property held in trust to pay
the principal of or interest on particular Securities.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 608. Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture. To the extent
<PAGE>
60
permitted by the Trust Indenture Act, the Trustee shall not be deemed to have a
conflicting interest by virtue of being trustee under the 9% Indenture, relating
to the 9% Notes.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be one (and only one) Trustee hereunder. The
Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act
to act as such and has a combined capital and surplus of at least $50,000,000.
If any such Person publishes reports of condition at least annually, pursuant to
law or to the requirements of its supervising or examining authority, then for
the purposes of this Section and to the extent permitted by the Trust Indenture
Act, the combined capital and surplus of such Person shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 611.
The Trustee may resign at any time by giving written notice thereof to the
Company.
The Trustee may be removed at any time by Act of the Holders of a majority
in principal amount of the Outstanding Securities, delivered to the Trustee and
to the Company.
If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation,
<PAGE>
61
then, in any such case, (A) the Company by a Board Resolution may remove the
Trustee, or (B) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
If the instrument of acceptance by a successor Trustee required by Section
611 shall not have been delivered to the Trustee within 30 days after (i) the
giving of such notice of resignation or (ii) the removal of the Trustee by the
Company pursuant to a Board Resolution, the Trustee who has so resigned or been
removed may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
If the Trustee shall resign, be removed or become incapable of acting, or
if a vacancy shall occur in the office of Trustee for any reason, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee (it being
understood that at any time there shall be only one Trustee) and shall comply
with the applicable requirements of Section 611. If, within one year after such
resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment in accordance with the applicable requirements of
Section 611, become the successor Trustee and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee shall have
been so appointed by the Company or the Holders and accepted appointment in the
manner required by Section 611, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
The Company shall give notice of each resignation and each removal of the
Trustee and each appointment of a successor Trustee to all Holders of Securities
in the manner provided in Section 106. Each notice shall include the name of
the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Trustee, every such
successor Trustee so appointed shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; provided that, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly
<PAGE>
62
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder.
Upon request of any such successor Trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts referred to in the
preceding paragraph.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee, with the prior written consent of the Company and after giving
notice of the appointment described in this Section 614 in the manner provided
in Section 106 to all Holders of Securities, may appoint an Authenticating Agent
or Agents which shall be authorized to act on behalf of the Trustee to
authenticate Securities issued upon exchange, registration of transfer or
partial redemption thereof or pursuant to Section 305, and the Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the
<PAGE>
63
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate agency or corporate trust business of an Authenticating Agent,
shall continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 106 to all Holders of Securities.
Any successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
<PAGE>
64
If an appointment is made pursuant to this Section, the Securities may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternative certificate of authentication in the following form:
This is one of the Company's 8 5/8% Senior Subordinated Notes Due 2009
referred to in the within-mentioned Indenture.
The Chase Manhattan Bank, As Trustee
By .................... ,
As Authenticating Agent
By .................... ,
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE
SECTION 701. Company To Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(1) semiannually, not later than February 1 and August 1 in each year, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders of Securities as of the preceding January 15 or July
15, as the case may be, and
(2) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such
list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
<PAGE>
65
SECTION 702. Preservation of Information; Communications to Holders.
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided by the Trust
Indenture Act.
Every Holder of Securities, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.
SECTION 703. Reports by Trustee.
The Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto. If
required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within
60 days after each May 15 following the date of this Indenture, deliver to
Holders a brief report, dated as of such May 15, which complies with the
provisions of such Section 313(a).
A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will promptly notify the Trustee when the Securities are listed on any stock
exchange.
<PAGE>
66
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not merge or consolidate with or into any other entity
(other than a merger of a Restricted Subsidiary into the Company) or sell,
transfer, assign, lease, convey or otherwise dispose of all or substantially all
of its Property or assets in any one transaction or series of transactions
unless:
(a) the entity formed by or surviving any such consolidation or merger
(if the Company is not the surviving entity) or the Person to which such
sale, assignment, transfer, lease or conveyance is made (the ''Surviving
Entity'') shall be a corporation organized and existing under the laws of
the United States of America or a State thereof or the District of Columbia
and such corporation expressly assumes, by supplemental indenture in form
satisfactory to the Trustee, executed and delivered to the Trustee by such
corporation, the due and punctual payment of the principal of, premium, if
any, and interest on all the Securities, according to their tenor, and the
due and punctual performance and observance of all of the covenants and
conditions of the Indenture to be performed by the Company;
(b) in the case of a sale, transfer, assignment, lease, conveyance or
other disposition of all or substantially all of the Company's Property or
assets, such Property or assets shall have been transferred as an entirety
or virtually as an entirety to one Person;
(c) immediately before and after giving effect to such transaction or
series of transactions, no Default or Event of Default shall have occurred
and be continuing;
(d) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness Incurred or anticipated to be Incurred in connection with such
transaction or series of transactions), the Company or the Surviving
Entity, as the case may be, would be able to Incur at least $1.00 of
additional Indebtedness under clause (a) of Section 1008;
(e) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness Incurred or anticipated to be Incurred in connection with such
transaction or series of transactions), the Company or the Surviving Entity
shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to the transaction
or series of transactions; and
<PAGE>
67
(f) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
sale, assignment, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture, comply with this Article and that all conditions
precedent herein provided for relating to such transaction have been
complied with.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any sale, conveyance, transfer, assignment or lease of all
or substantially all of the Property or assets of the Company in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or to which such sale, conveyance, assignment, transfer or
lease is made shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the same effect as if
such successor Person had been named as the Company herein, and thereafter,
except in the case of a sale, conveyance, assignment, transfer or lease of the
Property or assets of the Company, the predecessor Person shall be relieved of
all obligations and covenants under this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto or otherwise amend this Indenture, in
form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and in
the Securities; or
(2) to add to the covenants of the Company for the benefit of the Holders
of the Securities or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default for the benefit of the Holders
of the Securities; or
<PAGE>
68
(4) to add to or change any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal, and
with or without interest coupons, or to permit or facilitate the issuance of
Securities in uncertificated form; or
(5) to secure the Securities pursuant to the requirements of Section 1009
or otherwise; or
(6) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee pursuant to the requirements of Section 611; or
(7) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture, provided that such action pursuant to this Clause (7) shall
not adversely affect the interests of the Holders of Securities in any
material respect; or
(8) to comply with any requirements of the Commission in connection with
the qualification of this Indenture under the Trust Indenture Act; or
(9) to make any other change that does not adversely affect the interests
of any Holder of Securities in any material respect.
After an amendment under this Section becomes effective, the Company shall
mail to Holders of Securities a notice briefly describing such amendment. The
failure to give such notice to all Holders of Securities, or any defect therein,
shall not impair or affect the validity of an amendment under this Section.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto, amendments to this Indenture or waivers for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of the Securities under this Indenture; provided, however, that no such
supplemental indenture, amendment or waiver shall, without the consent of the
Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any Security, or reduce the principal amount thereof or the rate
of interest thereon or any premium payable upon the redemption thereof,
<PAGE>
69
or reduce the amount of the principal of any Security which would be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502 or alter the redemption or, except as provided in clause (5)
below, repurchase provisions with respect thereto, or change the coin or
currency in which any Security or any premium or interest thereon is payable,
or impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof (or, in the case of redemption,
prepayment or Change of Control, on or after the Redemption Date, Purchase
Date or Change of Control Payment Date, respectively);
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences provided for in this Indenture;
(3) modify any of the provisions of this Section, Section 513 or Section
1018, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent
of the Holder of each Outstanding Security affected thereby;
(4) modify any of the provisions of this Indenture relating to the
subordination of the Securities or reduce the relative ranking of any
Securities in a manner adverse to Holders;
(5) following the mailing of a Prepayment Offer pursuant to Section 1012
or a Change of Control Offer pursuant to Section 1019, modify the provisions
of this Indenture with respect to such Prepayment Offer or Change of Control
Offer in a manner adverse in any material respect to such Holder; or
(6) release any security that may have been granted in respect of the
Securities.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed amendment, waiver or supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
After an amendment under this Section becomes effective, the Company shall
mail to Holders of Securities a notice briefly describing such amendment. The
failure to give such notice to all Holders of Securities, or any defect therein,
shall not impair or affect the validity of an amendment under this Section.
<PAGE>
70
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby. No such supplemental indenture shall directly or
indirectly modify the provisions of Article Thirteen in any manner which might
terminate or impair the rights of the holders of Senior Indebtedness pursuant to
such subordination provisions without the consent of such holders.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture or amendment executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 907. Payment for Consent.
Neither the Company nor any Affiliate of the Company shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of this
<PAGE>
71
Indenture or the Securities unless such consideration is offered to be paid to
all Holders that so consent, waive or agree to amend in the time frame set forth
in solicitation documents relating to such consent, waiver or agreement.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of the Securities that it
will duly and punctually pay the principal of and any premium and interest on
the Securities in accordance with the terms of the Securities and this
Indenture. Principal, premium, if any, and interest shall be considered paid on
the date due if on such date the Trustee or Paying Agent (other than the Company
or its Wholly Owned Subsidiaries) holds in accordance with this Indenture money
sufficient to pay all principal, premium, if any, and interest then due and the
Trustee or such Paying Agent, as the case may be, is not prohibited from paying
such money to the Holders of Securities on that date pursuant to the terms of
this Indenture.
SECTION 1002. Registrar and Paying Agent.
The Company shall maintain in The City of New York an office or agency
where Securities may be presented for registration of transfer or for exchange
(the "Registrar") and an office or agency where Securities may be presented for
payment (the "paying agent"). The Registrar shall keep a register of the
Securities and of their transfer and exchange. The Company may have one or more
co-registrars and one or more additional paying agents. The term "Paying Agent"
includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the Trust Indenture Act. Such agreement shall
implement the provisions of this Indenture that relate to such agent. The
Company shall notify the Trustee of the name and address of any such agent. If
the Company fails to maintain or act as Registrar or Paying Agent, the Trustee
shall act as such and shall be entitled to appropriate compensation therefor
pursuant to Section 607. The Company or any of its domestically incorporated
Wholly Owned Subsidiaries may act as Paying Agent, Registrar, co-registrar or
transfer agent.
<PAGE>
72
The Company initially appoints the Trustee as Registrar and Paying Agent in
connection with the Securities.
SECTION 1003. Money for Securities Payments To Be Held in Trust.
If the Company or any of its Wholly Owned Subsidiaries shall at any time
act as Paying Agent, it will, on or before each due date of the principal of or
any premium or interest on any of the Securities, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal and any premium and interest so becoming due until such sums shall be
paid to such Persons or otherwise disposed of as herein provided and will
promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will, on or prior to each due date of the principal of or any
premium or interest on any Securities, deposit with a Paying Agent a sum
sufficient to pay such amount, such sum to be held as provided by the Trust
Indenture Act, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent for the Securities other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent will (1) comply with the provisions of the Trust
Indenture Act applicable to it as a Paying Agent and (2) during the continuance
of any default by the Company (or any other obligor upon the Securities) in the
making of any payment in respect of the Securities, upon the written request of
the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying
Agent for payment in respect of the Securities.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
The Trustee and the Paying Agent shall promptly pay to the Company upon
Company Request any money or securities held by them at any time in excess of
amounts required to pay principal of, premium, if any, or interest on the
Securities.
Any money deposited with the Trustee or any other Paying Agent, or then
held by the Company, in trust for the payment of the principal of or any premium
or interest on any Security and remaining unclaimed for one year after such
principal, premium or interest has become due and payable may be paid
<PAGE>
73
to the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense of the Company cause
to be published once, in a newspaper published in the English language,
customarily published on each Business Day and of general circulation in The
City of New York, notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining will be
repaid to the Company.
SECTION 1004. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 90 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
SECTION 1005. Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1006. Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any of such
<PAGE>
74
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1007. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon the Company or any Subsidiary or upon the
income, profits or property of the Company or any Subsidiary, and (2) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien upon the property of the Company or any Subsidiary; provided, however, that
the Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.
SECTION 1008. Limitation on Indebtedness.
The Company shall not, and it shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, Incur any Indebtedness unless, after
giving pro forma effect to the application of the proceeds thereof, no Default
or Event of Default would occur as a consequence of such Incurrence or be
continuing following such Incurrence and either (a) after giving pro forma
effect to the Incurrence of such Indebtedness and the receipt and application of
the proceeds thereof, the Consolidated Interest Coverage Ratio exceeds 2.5 to
1.0 or (b) such Indebtedness is Permitted Indebtedness.
SECTION 1009. Limitation on Liens.
The Company shall not, directly or indirectly, Incur any Lien on or with
respect to any Property of the Company, whether owned on the Issue Date or
acquired after the Issue Date, or any interest therein or any income or profits
therefrom, unless the Securities are secured equally and ratably with (or prior
to) any and all other obligations secured by such Lien, except that the Company
may without restriction Incur Liens securing Senior Indebtedness and the
following (each a "Permitted Lien"):
(a) Liens existing as of the Issue Date;
(b) any Lien existing on any Property of a Person at the time such Person
is merged or consolidated with or into the Company (and not Incurred in
anticipation of such transaction), provided that such Liens are not extended to
other Property of the Company;
<PAGE>
75
(c) any Lien existing on any Property at the time of the acquisition
thereof (and not Incurred in anticipation of such transaction), provided that
such Liens are not extended to other Property of the Company;
(d) Liens securing the Securities and other obligations arising under this
Indenture;
(e) Liens to secure any permitted extension, renewal, refinancing,
refunding or exchange (or successive extensions, renewals, refinancings,
refundings or exchanges), in whole or in part, of or for any Indebtedness
secured by Liens referred to in clauses (a) through (d) of this Section 1009;
provided, however, that (i) such new Lien shall be limited to all or part of the
same Property that secured the original Lien, plus improvements on such Property
and (ii) the Indebtedness secured by such Lien at such time is not increased to
any amount greater than the sum of (A) the outstanding principal amount or, if
greater, committed amount of the Indebtedness secured by Liens described under
clauses (a) through (d) of this Section 1009 at the time the original Lien
became a Lien permitted in accordance with the Indenture and (B) an amount
necessary to pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement;
(f) any Lien incidental to the normal conduct of the business of the
Company, the ownership of its property or the conduct in the ordinary course of
its business (including, without limitation, (i) easements, rights of way and
similar encumbrances, (ii) rights of lessees under leases, (iii) rights of
collecting banks having rights of setoff, revocation, refund or chargeback with
respect to money or instruments of the Company or on deposit with or in the
possession of such banks, (iv) Liens imposed by law, including, without
limitation, Liens under workers' compensation or similar legislation and
mechanics', carriers', warehousemen's, materialmen's, suppliers' and vendors'
Liens, (v) Oil and Gas Liens, and (vi) Liens Incurred to secure performance of
obligations with respect to statutory or regulatory requirements, performance or
return-of-money bonds, surety bonds or other obligations of a like nature and
Incurred in a manner consistent with industry practice) in each case which are
not Incurred in connection with the borrowing of money, the obtaining of
advances or credit or the payment of the deferred purchase price of Property and
which do not in the aggregate impair in any material respect the use of Property
in the operation of the business of the Company and its Restricted Subsidiaries
taken as a whole;
(g) Liens for taxes not yet due or which are being contested in good faith
by appropriate proceedings, so long as reserves have been established to the
extent required by U.S. GAAP as in effect at such time;
(h) Liens incurred to secure appeal bonds and judgment and attachment
Liens, in each case in connection with litigation or legal proceedings that are
being contested in good faith by appropriate proceedings, so long as reserves
have been established to the extent required by U.S. GAAP as in effect at such
<PAGE>
76
time and so long as such Liens do not encumber assets by an amount in excess of
$20 million;
(i) Liens securing Hedging Agreements, so long as such Hedging Agreements
are permitted under Section 1008;
(j) Liens in connection with Sale and Leaseback Transactions permitted
pursuant to Section 1008;
(k) Liens resulting from a pledge of Capital Stock of a Person that is not
a Restricted Subsidiary to secure obligations of such Person and any
refinancings thereof; and
(l) Liens resulting from the deposit of funds or evidences of Indebtedness
in trust for the purpose of decreasing Indebtedness of the Company or any of its
Subsidiaries so long as such deposit of funds is permitted under Section 1010.
SECTION 1010. Limitation on Restricted Payments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment if, at the
time of and after giving effect to the proposed Restricted Payment:
(a) any Default or Event of Default would have occurred and be continuing;
(b) the Company could not Incur at least $1.00 of additional Indebtedness
pursuant to clause (a) of Section 1008; or
(c) the aggregate amount expended or declared for all Restricted Payments
from December 20, 1995 would exceed the sum of (i) $25 million, (ii) 100% of the
aggregate net cash proceeds or the Fair Market Value of Property other than cash
received by the Company on or subsequent to December 20, 1995, from capital
contributions to the Company (other than from a Subsidiary of the Company) and
from the issuance or sale (other than to a Subsidiary of the Company) of Capital
Stock of the Company, including Capital Stock of the Company issued upon
conversion of convertible debt or convertible Redeemable Stock and upon the
exercise of options, warrants or rights to purchase Capital Stock of the
Company, (iii) 50% of the aggregate Consolidated Net Income of the Company (or,
if Consolidated Net Income shall be a deficit, less 100% of such deficit)
subsequent to September 30, 1995, and ending on the last day of the fiscal
quarter ending on or immediately preceding the date of such Restricted Payment,
and (iv) an amount equal to the net reduction in Investments made by the Company
and its Restricted Subsidiaries subsequent to December 20, 1995 in any Person
resulting from (A) payments of interest on debt, dividends, repayment of loans
or advances, or other transfers or distributions of Property (but only to the
extent the
<PAGE>
77
Company excludes such transfers or distributions from the calculation of
Consolidated Net Income for purposes of clause (iii) above), in each case to the
Company or any Restricted Subsidiary from any Person, or (B) the redesignation
of any Unrestricted Subsidiary as a Restricted Subsidiary, not to exceed, in the
case of (A) or (B), the amount of such Investments previously made in such
Person or such Unrestricted Subsidiary, as the case may be, which were treated
as Restricted Payments.
Any payments made pursuant to clauses (a) through (i) of the definition of
Permitted Investments shall be excluded for purposes of any calculation of the
aggregate amount of Restricted Payments. Any payments made pursuant to clause
(j) of the definition of Permitted Investments shall be included for purposes of
any calculation of the aggregate amount of Restricted Payments.
The foregoing limitations do not prevent the Company or any Restricted
Subsidiary from (a) paying a dividend on its Capital Stock within 60 days after
declaration thereof if, on the declaration date, such dividend could have been
paid in compliance with the Indenture, or (b) making Permitted Investments so
long as no Default or Event of Default shall have occurred and be continuing.
SECTION 1011. Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries.
The Company will not (a) permit any Restricted Subsidiary to issue any
Capital Stock other than to the Company or one of its Wholly Owned Subsidiaries
or (b) permit any Person other than the Company or a Restricted Subsidiary to
own any Capital Stock of any other Restricted Subsidiary (other than directors'
qualifying shares), except, in each case, for (i) a sale of the Capital Stock of
a Restricted Subsidiary owned by the Company or its Restricted Subsidiaries
effected in accordance with Section 1012, (ii) the issuance of Capital Stock by
a Restricted Subsidiary to a Person other than the Company or a Restricted
Subsidiary and (iii) the Capital Stock of a Restricted Subsidiary owned by a
Person at the time such Restricted Subsidiary became a Restricted Subsidiary or
acquired by such Person in connection with the formation of the Restricted
Subsidiary, or transfers thereof; provided, that any sale or issuance of Capital
Stock of a Restricted Subsidiary shall be deemed to be an Asset Sale to the
extent the percentage of the total outstanding Voting Stock of such Restricted
Subsidiary owned directly and indirectly by the Company is reduced as a result
of such sale or issuance; provided, further, that if a Person whose Capital
Stock was issued or sold in a transaction described under this Section 1011 is,
as a result of such transaction, no longer a Restricted Subsidiary, then the
Fair Market Value of Capital Stock of such Person retained by the Company and
the other Restricted Subsidiaries shall be treated as an Investment for purposes
of Section 1010.
<PAGE>
78
SECTION 1012. Limitation on Asset Sales.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, consummate any Asset Sale after the Issue Date, unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the shares
and assets subject to such Asset Sale and (ii) all of the consideration paid to
the Company or such Restricted Subsidiary in connection with such Asset Sale is
in the form of cash, cash equivalents, Liquid Securities, or the assumption by
the purchaser of liabilities of the Company (other than liabilities of the
Company that are by their terms subordinated to the Securities) or any
Restricted Subsidiary as a result of which the Company and its remaining
Restricted Subsidiaries are no longer liable; provided, however, that (x) the
Fair Market Value of Exchanged Properties shall be treated as cash for purposes
of this clause (ii) and (y) the Company and its Restricted Subsidiaries shall be
permitted to receive property and securities other than cash, cash equivalents,
Exchanged Properties or Liquid Securities, so long as the aggregate Fair Market
Value of all such property and securities received in Asset Sales held by the
Company or any Restricted Subsidiary at any one time shall not exceed 10% of
Adjusted Consolidated Net Tangible Assets.
(b) The Net Available Cash from Asset Sales may be applied by the Company
or a Restricted Subsidiary, to the extent the Company or such Restricted
Subsidiary elects (or is required by the terms of any Senior Indebtedness), (A)
to prepay, repay or purchase Senior Indebtedness or Indebtedness of a Restricted
Subsidiary (in each case excluding Indebtedness owed to the Company or an
Affiliate of the Company); (B) to reinvest in Additional Assets (including by
means of an Investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the Company or another Restricted Subsidiary); or (C)
if there are no 9% Notes outstanding, to purchase Securities (excluding
Securities owned by the Company or an Affiliate of the Company).
(c) Any Net Available Cash from an Asset Sale not applied in accordance
with the preceding paragraph within 365 days from the date of such Asset Sale
shall constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10 million, the Company will be required to comply with the applicable
provisions of the 9% Indenture to make a prepayment offer to purchase on a pro
rata basis, from all holders of the 9% Notes, an aggregate principal amount of
9% Notes equal to the Excess Proceeds, at a price in cash not in excess of 100%
of the outstanding principal amount thereof plus accrued interest, if any. To
the extent that any portion of the amount of such Excess Proceeds remains after
compliance with the preceding sentence, such amount shall constitute "Remaining
Excess Proceeds" held for the benefit of the holders of the Securities and any
then outstanding Pari Passu Indebtedness (other than the 9% Notes) and the
amount of Excess Proceeds will be reset to zero. When the aggregate amount of
Remaining Excess Proceeds exceeds $10 million, the Company will be required to
make an offer to purchase (the "Prepayment Offer"), on a pro rata basis, the
Securities and any then
<PAGE>
79
outstanding Pari Passu Indebtedness (other than the 9% Notes), at a purchase
price of at least 100% of their principal amount plus accrued and unpaid
interest thereon (if any) to the Purchase Date. Such Prepayment Offer with
respect to the Securities shall be made in accordance with the procedures
(including prorating in the event of oversubscription) set forth herein. If the
aggregate principal amount of Securities surrendered for purchase by Holders
thereof exceeds the pro rata amount of Remaining Excess Proceeds allocated for
the purchase thereof, then the Trustee shall select the Securities to be
purchased pro rata according to principal amount with such adjustments as may be
deemed appropriate by the Company so that any Securities in denominations of
$1,000, or integral multiples thereof, shall be purchased. To the extent that
any portion of the amount of Remaining Excess Proceeds remains after compliance
with the preceding sentence and provided that all Holders of Securities have
been given the opportunity to tender their Securities for purchase as described
in the following paragraph in accordance with the Indenture, the Company or such
Restricted Subsidiary may use such remaining amount for general corporate
purposes and the amount of Remaining Excess Proceeds will be reset to zero.
(d) Within five Business Days after the later of (i) 365 days from the date
of an Asset Sale and (ii) the completion of any offer for the 9% Notes required
by the 9% Indenture, the Company shall, if it is obligated to apply an amount
equal to any Remaining Excess Proceeds (or any portion thereof) to fund an offer
to purchase the Securities, send a Prepayment Offer Notice to the Holders of
Securities. The Company shall notify the Trustee at least 15 Business Days (or
such shorter period as is acceptable to the Trustee) prior to the mailing of the
Prepayment Offer Notice of the Company's obligation to make a Prepayment Offer,
and the Prepayment Offer Notice shall be mailed by the Company or, at the
Company's request, by the Trustee in the name and at the expense of the Company.
The Company will comply, to the extent applicable, with the requirements of
Rules 13e-4 and 14e-1 under the Exchange Act and any other securities laws or
regulations thereunder to the extent such laws and regulations are applicable in
connection with the purchase of Securities as described above. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions relating to the Prepayment Offer, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations described above by virtue thereof.
Notwithstanding the foregoing provisions of this clause (d), if any
Security (or any portion thereof) accepted for payment shall not be so paid
pursuant to the provisions described in the preceding paragraph, then, from the
Purchase Date until the date on which the principal of and premium (if any) and
interest on such Security is paid, interest shall be paid on the unpaid
principal and premium (if any) and, to the extent permitted by law, on any
accrued but unpaid interest thereon, in each case, at the rate borne by such
Security.
<PAGE>
80
SECTION 1013. Incurrence of Layered Indebtedness.
The Company shall not Incur any Indebtedness which is subordinate or junior
in right of payment to any Senior Indebtedness unless such Indebtedness
constitutes Indebtedness which is junior to, or pari passu with, the Securities
in right of payment.
SECTION 1014. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, conduct any business or enter into any
transaction or series of transactions (including, but not limited to, the sale,
transfer, disposition, purchase, exchange or lease of Property, the making of
any Investment, the giving of any Guarantee or the rendering of any service)
with or for the benefit of any Affiliate of the Company, unless (a) such
transaction or series of transactions is in the best interest of the Company or
such Restricted Subsidiary, (b) such transaction or series of transactions is on
terms no less favorable to the Company or such Restricted Subsidiary than those
that could be obtained in a comparable arm's-length transaction with a Person
that is not an Affiliate of the Company or such Restricted Subsidiary, and (c)
with respect to a transaction or series of transactions involving aggregate
payments by or to the Company or such Restricted Subsidiary having a Fair Market
Value equal to or in excess of (i) $5.0 million but less than $20.0 million,
the Board of Directors (including a majority of the disinterested members of the
Board of Directors) approves such transaction or series of transactions and, in
its good faith judgment, believes that such transaction or series of
transactions complies with clauses (a) and (b) of this paragraph as evidenced by
a Board Resolution or (ii) $20.0 million, (A) the Company receives from an
independent, nationally recognized investment banking firm or appraisal firm, in
either case specializing or having a specialty in the type and subject matter of
the transaction (or series of transactions) at issue, a written opinion that
such transaction (or series of transactions) is fair, from a financial point of
view, to the Company or such Restricted Subsidiary and (B) the Board of
Directors (including a majority of the disinterested members of the Board of
Directors) approves such transaction or series of transactions and, in its good
faith judgment, believes that such transaction or series of transactions
complies with clauses (a) and (b) of this paragraph, as evidenced by a Board
Resolution.
The limitations of the preceding paragraph do not apply to (a) the payment
of reasonable and customary regular fees to directors of the Company or any of
its Restricted Subsidiaries who are not employees of the Company or any of its
Restricted Subsidiaries, (b) indemnities of officers and directors of the
Company or any Subsidiary consistent with such Person's bylaws and applicable
statutory provisions, (c) any employment agreement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
(d) loans made (i) to officers and directors of the
<PAGE>
81
Company or any Subsidiary approved by the Board of Directors (or by a duly
authorized officer), the proceeds of which are used solely to exercise stock
options received pursuant to an employee stock option plan or other incentive
plan, in a principal amount not to exceed the exercise price of such stock
options or (ii) to refinance loans, together with accrued interest thereon, made
pursuant to this clause (d), (e) advances and loans to officers and directors of
the Company or any Subsidiary in the ordinary course of business, provided such
loans and advances do not exceed $3.0 million at any one time outstanding, or
(f) transactions with Restricted Subsidiaries.
SECTION 1015. Limitation on Restrictions on Distributions from Restricted
Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, assume or otherwise cause or
suffer to exist or become effective, or enter into any agreement with any Person
that would cause to become effective, any consensual encumbrance or restriction
on the legal right of any Restricted Subsidiary (other than a Foreign
Subsidiary) to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock or Redeemable Stock held by
the Company or a Restricted Subsidiary, (b) pay any Indebtedness or other
obligation owed to the Company or any other Restricted Subsidiary, (c) make any
loans or advances to the Company or any other Restricted Subsidiary or (d)
transfer any of its property or assets to the Company or any other Restricted
Subsidiary. Such limitation will not apply (1) with respect to clauses (c) and
(d) only, to encumbrances and restrictions (i) in existence under or by reason
of any agreements in effect on the Issue Date, (ii) required by Bank Credit
Facilities that are not more restrictive than those in effect under the Bank
Credit Facility on the Issue Date, (iii) existing at such Restricted Subsidiary
at the time it became a Restricted Subsidiary if (A) such encumbrance or
restriction was not created in anticipation of such acquisition and (B)
immediately following such acquisition, on a pro forma basis, the Company could
incur at least $1.00 of additional Indebtedness pursuant to clause (a) of
Section 1008 or (iv) which result from the renewal, refinancing, extension or
amendment of an agreement referred to in the immediately preceding clauses (i),
(ii) and (iii) above, provided, such replacement or encumbrance or restriction
is no more restrictive to the Company or Restricted Subsidiary and is not
materially less favorable to the Holders of Securities than those under or
pursuant to the agreement evidencing the Indebtedness so extended, renewed,
refinanced or replaced, and (2) with respect to clause (d) only, to (i) any
restriction on the sale, transfer or other disposition of assets or Property
securing Indebtedness as a result of a Lien permitted under Section 1009, (ii)
any encumbrance or restriction in connection with an acquisition of Property, so
long as such encumbrance or restriction relates solely to the Property so
acquired and was not created in connection with or in anticipation of such
acquisition, (iii) customary provisions restricting subletting or assignment of
leases and customary provisions in other agreements that restrict assignment of
such agreements or rights thereunder,
<PAGE>
82
(iv) any encumbrance or restriction due to applicable law, (v) customary
restrictions contained in asset sale agreements limiting the transfer of such
assets pending the closing of such sale and (vi) restrictions contained in
purchase money obligations for Property acquired in the ordinary course of
business with respect to transfers of such Property.
SECTION 1016. Restricted and Unrestricted Subsidiaries.
Unless defined or designated as an Unrestricted Subsidiary, any Person that
becomes a Subsidiary of the Company or any of its Restricted Subsidiaries shall
be classified as a Restricted Subsidiary subject to the provisions of the next
paragraph. The Company may designate a Subsidiary (including a newly formed or
newly acquired Subsidiary) of the Company or any of its Restricted Subsidiaries
as an Unrestricted Subsidiary if (i) such Subsidiary does not own any Capital
Stock, Redeemable Stock or Indebtedness of, or own or hold any Lien on any
property of, the Company or any other Restricted Subsidiary, (ii) such
Subsidiary does not have any Indebtedness or other obligations which, if in
Default, would result (with the passage of time or notice or otherwise) in a
default on any Indebtedness of the Company or any Restricted Subsidiary and
(iii)(A) such designation is effective immediately upon such Subsidiary becoming
a Subsidiary of the Company or of a Restricted Subsidiary, (B) the Subsidiary to
be so designated has total assets of $1,000 or less or (C) if such Subsidiary
has assets greater than $1,000, then such redesignation as an Unrestricted
Subsidiary is deemed to constitute a Restricted Payment in an amount equal to
the Fair Market Value of the Company's direct and indirect ownership interest in
such Subsidiary, and such Restricted Payment would be permitted to be made at
the time of such designation under Section 1010. Except as provided in clauses
(iii)(B) and (C) of this paragraph, no Restricted Subsidiary may be redesignated
as an Unrestricted Subsidiary. The designation of an Unrestricted Subsidiary or
removal of such designation shall be made by the Board of Directors pursuant to
a Board Resolution and shall be effective as of the date specified in the
applicable certified resolution, which shall not be prior to the date such
certified resolution is delivered to the Trustee.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, take any action or enter into any transaction or series of
transactions that would result in a Person becoming a Restricted Subsidiary
(whether through an acquisition or otherwise) unless, after giving effect to
such action, transaction or series of transactions, on a pro forma basis, (i)
the Company could Incur at least $1.00 of additional Indebtedness pursuant to
clause (a) of Section 1008 and (ii) no Default or Event of Default would occur
or be continuing.
<PAGE>
83
SECTION 1017. Commission Reports.
The Company shall file with the Trustee and provide Holders of Securities,
within 15 days after it files them with the Commission, copies of its annual
report and the information, documents and other reports which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act, and, with respect to the annual consolidated financial statements
only, a report thereon by the Company's independent auditors. Notwithstanding
that the Company may not be required to remain subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall
continue to file with the Commission and provide the Trustee and Holders of
Securities with the annual reports and the information, documents and other
reports which are specified in Sections 13 and 15(d) of the Exchange Act, and,
with respect to the annual consolidated financial statements only, a report
thereon by the Company's independent auditors. Delivery of such reports,
information and documents to the Trustee is for informational purposes only and
the Trustee's receipt of such shall not constitute constructive notice of any
information contained therein, including the Company's compliance with any of
its covenants hereunder (as to which the Trustee is entitled to rely exclusively
on Officers' Certificates). The Company also shall comply with the other
provisions of (S) 314(a) of the Trust Indenture Act.
SECTION 1018. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in any covenant provided pursuant to Sections
901(2) for the benefit of the Holders or in any of Sections 1008 through 1017
(second sentence only), inclusive, if before the time for such compliance the
Holders of at least a majority in principal amount of the Outstanding Securities
shall, by Act of such Holders and on behalf of the Holders of all Securities,
either waive such compliance in such instance or generally waive compliance with
such term, provision or condition, but no such waiver shall extend to or affect
such term, provision or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect.
SECTION 1019. Mandatory Repurchase Upon a Change of Control.
(a) Upon the occurrence of a Change of Control, the Company will, in
accordance with Section 1019(b), notify each Holder, with a copy of such notice
to the Trustee, in writing of the occurrence of a Change of Control and
accompanying such notice will be an offer to purchase the Securities (a "Change
of Control Offer") at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest thereon to the date of purchase.
<PAGE>
84
(b) Within 30 days following any Change of Control, the Company shall mail
a notice to each Holder stating: (1) that a Change of Control has occurred and a
Change of Control Offer is being made pursuant to this Section and that all
Securities (or portions thereof) timely tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be, subject to any
contrary requirements of applicable law, no earlier than 30 days nor later than
60 days from the date such notice is mailed (the ''Change of Control Payment
Date''); (3) that any Security (or portion thereof) accepted for payment (and
duly paid on the Change of Control Payment Date) pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control Payment
Date; (4) that any Securities (or portions thereof) not tendered will continue
to accrue interest; (5) a description of the transaction or transactions
constituting the Change of Control; (6) the procedures that Holders of
Securities must follow in order to tender their Securities (or portions thereof)
for payment and the procedures that Holders of Securities must follow in order
to withdraw an election to tender Securities (or portions thereof) for payment;
and (7) that in case of any Holder whose Security is purchased only in part, the
Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge, a new Security or Securities, of
any authorized denomination as requested by such Holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of the
Security so tendered.
(c) On or prior to the Change of Control Payment Date, the Company shall
irrevocably deposit with the Trustee or with a Paying Agent (or, if the Company
or any of its Wholly Owned Subsidiaries is acting as Paying Agent, segregate and
hold in trust) in cash an amount equal to the purchase price plus accrued and
unpaid interest, if any, payable to the Holders entitled thereto, to be held for
payment in accordance with the provisions of this Section. Holders electing to
have a Security (or portion thereof) purchased will be required to surrender the
Security, with an appropriate form duly completed, to the Company at the address
specified in the notice at least five Business Days prior to the Change of
Control Payment Date. Holders will be entitled to withdraw their election if
the Trustee or the Company receives not later than three Business Days prior to
the Change of Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Security which was delivered for purchase by the Holder and a statement that
such Holder is withdrawing his election to have such Security (or portion
thereof) purchased.
(d) On the Change of Control Payment Date, the Company shall deliver to
the Trustee the Securities or portions thereof which have been properly tendered
to and are to be accepted by the Company for payment. The Trustee shall, on the
Change of Control Payment Date, mail or deliver payment to each tendering Holder
of the purchase price. In the event that the aggregate purchase price of the
Securities delivered by the Company to the Trustee is less than the amount
deposited with the Trustee, the Trustee shall deliver the excess to the Company
immediately after the Change of Control Payment Date.
<PAGE>
85
(e) The Company will comply, to the extent applicable, with the
requirements of Rules 13e-4 and 14e-1 under the Exchange Act, and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the purchase of Securities in
connection with a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions relating to the
Change of Control Offer, the Company will comply with the applicable securities
laws and regulations and will not be deemed to have breached its obligations
described above by virtue thereof.
Notwithstanding the foregoing provisions of this Section, if any Security
(or any portion thereof) accepted for payment shall not be so paid pursuant to
the provisions described in paragraph (d), then, from the Change of Control
Payment Date until the date on which the principal of and premium (if any) and
interest on such Security is paid, interest shall be paid on the unpaid
principal and premium (if any) and, to the extent permitted by law, on any
accrued but unpaid interest thereon, in each case, at the rate borne by such
Security.
SECTION 1020. Further Instruments and Acts.
Upon request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Election To Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution. In case of any redemption at the election of the Company
of (i) less than all the Securities (including any such redemption affecting
only a single Security), the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company or (ii) all the Securities, the Company
shall, at least 45 days prior to the Redemption Date fixed by the Company (in
either case, unless a shorter notice shall be satisfactory to the Trustee),
notify the Trustee of such Redemption Date and of the principal amount of
Securities to be redeemed.
SECTION 1102. Selection by Trustee of Securities To Be Redeemed.
If less than all the Securities are to be redeemed (unless such redemption
affects only a single security), the particular Securities to be redeemed shall
be selected not more than 60 days prior to the Redemption Date by the Trustee,
<PAGE>
86
from the Outstanding Securities not previously called for redemption, by such
method as the Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of a portion of the principal amount of any
Security, provided that the unredeemed portion of the principal amount of any
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption as aforesaid and, in case of any Securities selected for
partial redemption as aforesaid, the principal amount thereof to be redeemed.
The provisions of the two preceding paragraphs shall not apply with respect
to any redemption affecting only a single Security, whether such Security is to
be redeemed in whole or in part. In the case of any such redemption in part,
the unredeemed portion of the principal amount of the Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1103. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register.
All notices of redemption shall identify the Securities to be redeemed
(including CUSIP number) and state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities consisting of more than a
single Security are to be redeemed, the identification (and, in the case of
partial redemption of any such Securities, the principal amounts) of the
particular Securities to be redeemed and, if less than all the Outstanding
Securities consisting of a single Security are to be redeemed, the principal
amount of the particular Security to be redeemed,
<PAGE>
87
(4) that on the Redemption Date the Redemption Price will become due and
payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date, and
(5) the place or places where each such Security is to be surrendered for
payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.
SECTION 1104. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company or any of its Wholly Owned
Subsidiaries is acting as Paying Agent, segregate and hold in trust as provided
in Section 1003) an amount of money sufficient to pay the Redemption Price of,
and (except if the Redemption Date shall be an Interest Payment Date) accrued
interest on, all the Securities which are to be redeemed on that date. Upon
Company Order, the Paying Agent shall promptly return to the Company any money
so deposited which is not required for such purpose.
SECTION 1105. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest or the Paying Agent is prohibited from making such payment pursuant to
the terms of this Indenture) such Securities shall cease to bear interest. Upon
surrender of any such Security for redemption in accordance with said notice,
such Security shall be paid by the Company at the Redemption Price, together
with accrued interest to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
306.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium shall, until paid, bear
interest from the Redemption Date at the rate borne by the Security.
<PAGE>
88
SECTION 1106. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered
(with, if the Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing), and the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Security without service charge, a new Security or
Securities of any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Security so surrendered.
SECTION 1107. Purchase of Securities.
The Company shall have the right at any time and from time to time to
purchase Securities in the open market or otherwise at any price.
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Defeasance and Discharge.
The Company shall be deemed to have been discharged from its obligations,
and the provisions of Article Thirteen shall cease to be effective, with respect
to the Securities as provided in this Section on and after the date the
conditions set forth in Section 1203 are satisfied (hereinafter called
"Defeasance"). For this purpose, such Defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness represented by the
Securities and to have satisfied all its other obligations under the Securities
and this Indenture insofar as the Securities are concerned (and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging the
same), subject to the following which shall survive until otherwise terminated
or discharged hereunder: (1) the rights of Holders of the Securities to
receive, solely from the trust fund described in Section 1203 and as more fully
set forth in such Section, payments in respect of the principal of and any
premium and interest on the Securities when payments are due, (2) the Company's
obligations with respect to the Securities under Sections 303, 304, 305, 1002
and 1003, (3) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (4) this Article. Subject to compliance with this Article, the
Company may exercise its option (if any) to have this Section applied to any
Securities notwithstanding the prior exercise of its option (if any) to have
Section 1202 applied to the Securities.
<PAGE>
89
SECTION 1202. Covenant Defeasance.
(1) The Company shall be released from its obligations under Sections 1007
through 1016, inclusive, and 1019, and Sections 801(d) and 801(e), and any
covenants provided pursuant to Section 901(2) for the benefit of the Holders of
the Securities, (2) the occurrence of any event specified in Sections 501(3)
(with respect to any of Sections 801(d) and 801(e), Sections 1007 through 1016,
inclusive, and 1019, and any such covenants provided pursuant to Section
901(2)), 501(4) and 501(5) shall be deemed not to be or result in an Event of
Default and (3) the provisions of Article Thirteen shall cease to be effective,
in each case with respect to the Securities as provided in this Section on and
after the date the conditions set forth in Section 1203 are satisfied
(hereinafter called "Covenant Defeasance"). For this purpose, such Covenant
Defeasance means that, with respect to the Securities, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such specified Section (to the extent so specified
in the case of Section 501(3)) or Article Thirteen, whether directly or
indirectly by reason of any reference elsewhere herein to any such Section or
Article or by reason of any reference in any such Section or Article to any
other provision herein or in any other document, but the remainder of this
Indenture and the Securities shall be unaffected thereby.
SECTION 1203. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to the application of Section 1201 or
Section 1202 to the Securities:
(1) The Company shall irrevocably have deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefits of the Holders of the Securities, money in an amount, or U.S.
Government Obligations, or a combination thereof, which through the payment of
principal and interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment, money in
an amount, in each case sufficient, in the opinion of a United States
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee to pay and discharge, the principal
of and any premium and interest on the Securities at Stated Maturity or on
earlier redemption in accordance with the terms of this Indenture and the
Securities.
(2) With respect to Section 1201, the Company shall have delivered to the
Trustee an Opinion of Counsel to the effect that (i) the Company has received
from, or there has been published by, the Internal Revenue Service a ruling or
(ii) since the date of this Indenture there has been a change in the
applicable Federal income tax law, in either case to the effect that, and
based thereon such Opinion of Counsel shall confirm that, the Holders of
<PAGE>
90
the Securities will not recognize gain or loss for Federal income tax purposes
as a result of the deposit, Defeasance and discharge to be effected with
respect to the Securities and will be subject to Federal income tax on the
same amount, in the same manner and at the same times as would have been the
case if such deposit, Defeasance and discharge were not to occur.
(3) With respect to Section 1202, the Company shall have delivered to the
Trustee an Opinion of Counsel to the effect that the Holders of the Securities
will not recognize gain or loss for Federal income tax purposes as a result of
the deposit and Covenant Defeasance to be effected with respect to the
Securities and will be subject to Federal income tax on the same amount, in
the same manner and at the same times as would be the case if such deposit and
Covenant Defeasance were not to occur.
(4) The Company shall have delivered to the Trustee an Officers'
Certificate to the effect that the Securities, if then listed on any
securities exchange, will not be delisted as a result of such deposit.
(5) No Default shall have occurred and be continuing at the time of such
deposit or, with regard to any such event specified in Sections 501(6) and
501(7), at any time on or prior to the 90th day after the date of such deposit
(it being understood that this condition shall not be deemed satisfied until
after such 90th day).
(6) Such Defeasance or Covenant Defeasance shall not cause the Trustee to
have a conflicting interest within the meaning of the Trust Indenture Act
(assuming all Securities are in default within the meaning of such Act).
(7) Such Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Company is a party or by which it is bound.
(8) Such Defeasance or Covenant Defeasance shall not result in the trust
arising from such deposit constituting an investment company within the
meaning of the Investment Company Act unless such trust shall be registered
under such Act or exempt from registration thereunder.
(9) At the time of such deposit, (A) no default in the payment of any
principal of or premium or interest on any Senior Indebtedness shall have
occurred and be continuing, (B) no event of default with respect to any Senior
Indebtedness shall have resulted in such Senior Indebtedness becoming, and
continuing to be, due and payable prior to the date on which it would
otherwise have become due and payable (unless payment of such Senior
Indebtedness has been made or duly provided for), (C) no other event of
default with respect to any Senior Indebtedness shall have occurred and be
continuing permitting (after notice or lapse of time or both) the holders of
such Senior Indebtedness (or a trustee on behalf of such
<PAGE>
91
holders) to declare such Senior Indebtedness due and payable prior to the date
on which it would otherwise have become due and payable and (D) the Company is
not prohibited from making such deposit for such purpose pursuant to the terms
of this Indenture.
(10) If the Securities are to be redeemed prior to their Stated Maturity,
notice of such redemption shall have been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee shall have been
made.
(11) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
SECTION 1204. Deposited Money and U.S. Government Obligations To Be Held in
Trust; Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Obligations (including the proceeds thereof) deposited with
the Trustee pursuant to Section 1203 in respect of any Securities shall be held
in trust and applied by the Trustee, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
such Paying Agent as the Trustee may determine, to the Holders of the
Securities, of all sums due and to become due thereon in respect of principal
and any premium and interest, but money so held in trust need not be segregated
from other funds except to the extent required by law. Money and U.S. Government
Obligations so held in trust shall not be subject to the provisions of Article
Thirteen.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1203 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of Outstanding Securities.
Anything in this Article to the contrary notwithstanding, the Trustee shall
deliver or pay to the Company from time to time upon Company Request any money
or U.S. Government Obligations held by it as provided in Section 1203 with
respect to any Securities which, in the opinion of a United States nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect the Defeasance or
Covenant Defeasance, as the case may be, with respect to the Securities.
<PAGE>
92
SECTION 1205. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article with respect to any Securities by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, then the obligations under this
Indenture and the Securities from which the Company has been discharged or
released pursuant to Section 1201 or 1202 shall be revived and reinstated as
though no deposit had occurred pursuant to this Article with respect to the
Securities, until such time as the Trustee or Paying Agent is permitted to apply
all money held in trust pursuant to Section 1204 with respect to the Securities
in accordance with this Article; provided, however, that if the Company makes
any payment of principal of or any premium or interest on any Security following
such reinstatement of its obligations, the Company shall be subrogated to the
rights (if any) of the Holders of the Securities to receive such payment from
the money so held in trust.
ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES
SECTION 1301. Agreement to Subordinate.
The Company covenants and agrees, and each Holder by accepting a Security
agrees, that the Indebtedness evidenced by the Securities is subordinated in
right of payment, to the extent and in the manner provided in this Article
Thirteen (subject to the provisions of Articles Four and Twelve), to the prior
payment of all Senior Indebtedness and that the subordination is for the benefit
of and enforceable by the holders of Senior Indebtedness. The Securities shall
in all respects rank pari passu with all other existing and future senior
subordinated Indebtedness of the Company (including, without limitation, the 9%
Notes) and only Indebtedness of the Company which is Senior Indebtedness shall
rank senior to the Securities in accordance with the provisions set forth
herein. All provisions of this Article Thirteen shall be subject to Section
1312.
SECTION 1302. Liquidation, Dissolution and Bankruptcy.
Upon any payment or distribution of the assets of the Company to creditors
upon a total or partial liquidation, dissolution or winding up of the Company or
in a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property (each such event, if any, herein
sometimes referred to as a "Proceeding"):
(1) holders of Senior Indebtedness shall be entitled to receive payment in
full in cash of the Senior Indebtedness before Holders shall be entitled to
<PAGE>
93
receive any payment of principal of, or premium, if any, or interest on the
Securities; and
(2) until the Senior Indebtedness is paid in full in cash, any
distribution to which Holders would be entitled but for this Article Thirteen
shall be made to holders of Senior Indebtedness as their interests may appear,
except that Holders may receive and retain shares of stock and any debt
securities that are subordinated to Senior Indebtedness to at least the same
extent as the Securities.
For purposes of this Section "paid in full" or "payment in full", as used with
respect to Senior Indebtedness, means the receipt of cash in payment of the
principal amount of the Senior Indebtedness and premium, if any, and interest
thereon (including any interest thereon accruing after the commencement of any
Proceeding) to the date of such payment.
The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
sale, conveyance, assignment, lease or transfer of all or substantially all of
its Property or assets to another Person upon the terms and conditions set forth
in Article Eight shall not be deemed a Proceeding for the purposes of this
Section if the Person formed by such consolidation or into which the Company is
merged or the Person which acquires by sale, conveyance, assignment, lease or
transfer such Property or assets, as the case may be, shall, as a part of such
consolidation, merger, sale, conveyance, assignment, lease or transfer, comply
with the conditions set forth in Article Eight.
SECTION 1303. Default on Senior Indebtedness.
The Company may not pay the principal of, premium, if any, or interest on,
the Securities or make any deposit pursuant to Sections 1203 or 401 and may not
repurchase, redeem or otherwise retire any Securities (collectively, "pay the
Securities") if (a) any principal, premium or interest in respect of Senior
Indebtedness is not paid when due (after giving effect to any applicable grace
period), including at maturity, or (b) any other default on Senior Indebtedness
occurs and the maturity of such Senior Indebtedness is accelerated in accordance
with its terms unless, in either case, the default has been cured or waived and
any such acceleration has been rescinded or such Senior Indebtedness has been
paid in full; provided, however, that the Company may pay the Securities without
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of each issue of Designated
Senior Indebtedness. During the continuance of any default (other than a
default described in clause (a) or (b) of the preceding sentence) with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may be
required to effect such acceleration), the Company may not pay the Securities
for a period (a "Payment Blockage Period") commencing upon the receipt by the
Company
<PAGE>
94
and the Trustee of written notice of such default from the Representative of the
holders of any Designated Senior Indebtedness specifying an election to effect a
Payment Blockage Period (a "Payment Blockage Notice") and ending 179 days
thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee and the Company from the Representative which gave
such Payment Blockage Notice, (ii) because the default specified in such Payment
Blockage Notice is no longer continuing or (iii) because such Designated Senior
Indebtedness has been repaid in full). Notwithstanding the provisions described
in the immediately preceding sentence, unless the holders of such Designated
Senior Indebtedness or the Representative of such holders shall have accelerated
the maturity of such Designated Senior Indebtedness and not rescinded such
acceleration, the Company may resume payment on the Securities after the end of
such Payment Blockage Period (unless otherwise prohibited pursuant to the first
sentence of this Section). Not more than one Payment Blockage Notice may be
given in any consecutive 360-day period, irrespective of the number of defaults
with respect to any number of issues of Designated Senior Indebtedness during
such period.
SECTION 1304. Acceleration of Payment of Securities.
If payment of the Securities is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify the Representative of each
issue of Designated Senior Indebtedness of the acceleration. The Company may
not pay the Securities until five days after such notice is received and,
thereafter, may pay the Securities only if this Article Thirteen otherwise
permits the payment at that time.
SECTION 1305. When Distribution Must Be Paid Over.
If a distribution is made to Holders that because of this Article Thirteen
should not have been made to them, the Holders who receive the distribution
shall hold it in trust for holders of Senior Indebtedness and pay it over to
them as their interests may appear.
SECTION 1306. Subrogation.
After all Senior Indebtedness is paid in full and until the Securities are
paid in full, the Holders shall be subrogated to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness. A
distribution made under this Article Thirteen to holders of Senior Indebtedness
which otherwise would have been made to Holders is not, as between the Company
and Holders, a payment by the Company on Senior Indebtedness.
<PAGE>
95
SECTION 1307. Relative Rights.
This Article Thirteen defines the relative rights of Holders and holders of
Senior Indebtedness. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders, the obligation of the
Company, which is absolute and unconditional, to pay principal of, premium, if
any, and interest on the Securities in accordance with their terms; or
(2) except as set forth in Section 1304, prevent the Trustee or any Holder
from exercising its available remedies upon a Default, subject to the rights
of holders of Senior Indebtedness to receive distributions otherwise payable
to Holders.
SECTION 1308. Subordination May Not Be Impaired by Company.
No right of any holder of Senior Indebtedness to enforce the subordination
of the Indebtedness evidenced by the Securities shall be impaired by any act or
failure to act by the Company or by its failure to comply with this Indenture.
SECTION 1309. Rights of Trustee and Paying Agent.
Notwithstanding Section 1303 (but subject to Section 1305), the Trustee or
Paying Agent may continue to make payments on the Securities and shall not be
charged with knowledge of the existence of facts that would prohibit the making
of any such payments unless, not less than two Business Days prior to the date
of such payment, a Trust Officer of the Trustee receives notice satisfactory to
it that payments may not be made under this Article Thirteen. The Company, the
Security Registrar, the Paying Agent, a Representative or a holder of Senior
Indebtedness may give the notice; provided, however, that, if an issue of Senior
Indebtedness has a Representative, only the Representative may give the notice.
SECTION 1310. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representative (if any).
SECTION 1311. Trust Moneys Not Subordinated.
Notwithstanding anything contained herein to the contrary, payments from
money or the proceeds of U.S. Government Obligations held in trust
<PAGE>
96
under Article Four or Twelve by the Trustee for the payment of principal of and
interest on the Securities shall not be subordinated to the prior payment of any
Senior Indebtedness or subject to the restrictions set forth in this Article
Thirteen, and none of the Holders or the Trustee shall be obligated to pay over
any such amount to the Company or any holder of Senior Indebtedness of the
Company or any other creditor of the Company or any Representative.
SECTION 1312. Trustee Entitled To Rely.
Upon any payment or distribution pursuant to this Article Thirteen, the
Trustee and the Holders shall be entitled to rely (i) upon any order or decree
of a court of competent jurisdiction in which any proceedings of the nature
referred to in Section 1302 are pending, (ii) upon a certificate of the
liquidating trustee, receiver, trustee in bankruptcy or agent or other Person
making such payment or distribution to the Trustee or to the Holders or (iii)
upon the Representatives for the holders of Senior Indebtedness or such holders
if there is no Representative with respect to any Senior Indebtedness, for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other Indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
Thirteen. In the event that the Trustee determines, in good faith, that
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Thirteen, the Trustee may request such Person to furnish evidence
to the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and other facts pertinent to the
rights of such Person under this Article Thirteen, and, if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment. The
provisions of Sections 601 and 603 shall be applicable to all actions or
omissions of actions by the Trustee pursuant to this Article Thirteen.
SECTION 1313. Trustee To Effectuate Subordination.
Each Holder by accepting a Security authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate the subordination between the Holders and the holders of Senior
Indebtedness as provided in this Article Thirteen and appoints the Trustee as
attorney-in-fact for any and all such purposes.
<PAGE>
97
SECTION 1314. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness and shall not be liable to any such holders if it shall
mistakenly pay over or distribute to Holders or the Company or any other Person,
money or assets to which any holders of Senior Indebtedness shall be entitled by
virtue of this Article Thirteen or otherwise. With respect to the holders of
Senior Indebtedness, the Trustee undertakes to perform or to observe only such
of its covenants or obligations as are specifically set forth in this Article
Thirteen and no implied covenants or obligations with respect to holders of
Senior Indebtedness shall be read into this Indenture against the Trustee.
SECTION 1315. Reliance by Holders of Senior Indebtedness on Subordination
Provisions.
Each Holder by accepting a Security acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Indebtedness, whether such
Senior Indebtedness was created or acquired before or after the issuance of the
Securities, to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively
to have relied on such subordination provisions in acquiring and continuing to
hold, or in continuing to hold, such Senior Indebtedness.
SECTION 1316. Proofs of Claim.
In the event that the Company is subject to any proceeding under any
bankruptcy, insolvency or analogous laws and the Holders and the Trustee fail to
file any proof of claim permitted to be filed in such proceeding with respect to
the Securities, then any Representative of Senior Indebtedness or any holder
thereof if there is no Representative therefor may file such proof of claim no
earlier than the later of (i) the expiration of 15 days after such
Representative notified the Trustee and the Company of its intention to do so
and (ii) 30 days preceding the last day it is permitted to file such claim.
SECTION 1317. Rights of Trustee as Holder of Senior Indebtedness; Preservation
of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness which may at
any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
<PAGE>
98
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
SECTION 1318. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee; provided, however, that
neither Section 1309 nor Section 1312 shall apply to the Company or any Wholly
Owned Subsidiary if it or such Wholly Owned Subsidiary acts as Paying Agent.
SECTION 1319. Defeasance of this Article Thirteen.
The subordination of the Securities provided by this Article Thirteen is
expressly made subject to the provisions for Defeasance or Covenant Defeasance
in Article Twelve hereof and, anything herein to the contrary notwithstanding,
upon the effectiveness of any such Defeasance or Covenant Defeasance, the
Securities then outstanding shall thereupon cease to be subordinated pursuant to
this Article Thirteen.
ARTICLE FOURTEEN
CONCERNING THE HOLDERS
SECTION 1401. Identification of Company-Owned Securities.
Upon request of the Trustee, the Company shall furnish to the Trustee
promptly an Officers' Certificate listing and identifying all Securities, if
any, known by the Company to be owned or held by or for the account of the
Company or any other obligor on the Securities or by any Affiliate of the
Company or any other obligor on the Securities; and, subject to the provisions
of Section 601, the Trustee shall be entitled to accept such Officers'
Certificate as conclusive evidence of the facts therein set forth and of the
fact that all Securities not listed therein are Outstanding for the purpose of
any such determination.
SECTION 1402. Revocation of Consents.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 104, of the taking of any action by the Holders of the
percentage in aggregate principal amount of the Securities specified in this
<PAGE>
99
Indenture in connection with such action, any Holder of a Security, except as
provided in Section 104 with respect to record dates, the serial number of which
is shown by the evidence to be included in the Securities the Holders of which
have consented to or are bound by consents to such action may, by filing written
notice with the Trustee at its Corporate Trust Office and upon proof of holding
as provided in Section 104, revoke such action so far as concerns such Security.
ARTICLE FIFTEEN
HOLDERS' MEETINGS
SECTION 1501. Purposes of Meetings.
A meeting of Holders of Securities may be called at any time and from time
to time pursuant to the provisions of this Article Fifteen for any of the
following purposes:
(1) to give any notice to the Company or to the Trustee, or to give any
directions to the Trustee, or to consent to the waiving of any Default
hereunder and its consequences, or to take any other action authorized to be
taken by Holders of Securities pursuant to any of the provisions of Article
Five;
(2) to remove the Trustee and nominate a successor trustee pursuant to the
provisions of Article Six;
(3) to consent to the execution of an indenture or indentures supplemental
hereto pursuant to the provisions of Section 902; or
(4) to take any other action authorized to be taken by or on behalf of the
Holders of any specified aggregate principal amount of the Securities under
any other provision of this Indenture or under applicable law.
SECTION 1502. Call of Meetings by Trustee.
The Trustee may at any time call a meeting of Holders of Securities to take
any action specified in Section 1501, to be held at such time and at such place
in the Borough of Manhattan, The City of New York, as the Trustee shall
determine. Notice of every meeting of the Holders of Securities, setting forth
the time and the place of such meeting and in general terms the action proposed
to be taken at such meeting, shall be mailed to all Holders of Securities at
their addresses as they shall appear on the Security Register. Such notice shall
be mailed not less than 20 nor more than 180 days prior to
<PAGE>
100
the date fixed for the meeting (or, in the case of a meeting of Holders with
respect to the Securities all or part of which are represented by a Global
Security, not less than 20 nor more than 40 days).
Upon the calling of a meeting of Holders with respect to the Securities all
or part of which are represented by a Global Security, a record date shall be
established for determining Holders of Outstanding Securities entitled to vote
at such meeting, which record date shall be the close of business on the day the
Trustee mails the notice of the Meeting of Holders. The Holders on such record
date, and their designated proxies, and only such Persons, shall be entitled to
vote at such meeting of Holders.
SECTION 1503. Call of Meetings by Company or Holders.
In case at any time the Company, pursuant to a resolution of its Board of
Directors, or the Holders, or their designated proxies, of at least 25% in
aggregate principal amount of the Outstanding Securities, shall have requested
the Trustee to call a meeting of the Holders, by written request setting forth
in reasonable detail the action proposed to be taken at the meeting and the
Trustee shall not have mailed the notice of such meeting within 20 days after
receipt of such request, then the Company or such Holders may determine the time
and the place in said Borough of Manhattan for such meeting and may call such
meeting to take any action authorized in Section 1501, by mailing notice thereof
as provided in Section 1502.
SECTION 1504. Qualifications for Voting.
To be entitled to vote at any meeting of Holders a Person shall (a) be a
Holder of one or more Securities or (b) be a Person appointed by an instrument
in writing as proxy by a Holder of one or more Securities; provided, however,
that in the case of any meeting of Holders with respect to the Securities all or
part of which are represented by a Global Security, only Holders, or their
designated proxies, of record of Outstanding Securities on the record date
established pursuant to Section 1502 hereof shall be entitled to vote at such
meeting. The only Persons who shall be entitled to be present or to speak at
any meeting of Holders shall be the Persons entitled to vote at such meeting and
their counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
SECTION 1505. Regulations.
Notwithstanding any other provisions of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any meeting of
Holders, in regard to proof of the holding of Securities and of the appointment
of proxies, and in regard to the appointment and duties of inspectors of votes,
the submission and examination of proxies, certificates and other evidence of
<PAGE>
101
the right to vote, and such other matters concerning the conduct of the meeting
as it shall think fit. Except as otherwise permitted or required by any such
regulation, the holding of Securities shall be proved in the manner specified in
Section 104 and the appointment of any proxy shall be proved in the manner
specified in said Section 104 or by having the signature of the Person executing
the proxy witnessed or guaranteed.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman and a temporary secretary of the meeting, unless the meeting shall have
been called by the Company or by Holders as provided in Section 1503, in which
case the Company or the Holders calling the meeting, as the case may be, shall
in like manner appoint a temporary chairman and a temporary secretary. A
permanent chairman and a permanent secretary of the meeting shall be elected by
the Persons holding or representing a majority of the Outstanding Securities
represented at the meeting.
Subject to the provisions of Section 1504, at any meeting each Holder or
proxy shall be entitled to one vote for each $1,000 principal amount of
Securities held or represented by him; provided, however, that no vote shall be
cast or counted at any meeting in respect of any Security challenged as not
Outstanding and ruled by the permanent chairman (or the temporary chairman, if
no permanent chairman shall have been elected pursuant to this Section) of the
meeting to be not Outstanding. Neither the temporary chairman nor the permanent
chairman of the meeting shall have a right to vote other than by virtue of
Securities held by him or instruments in writing as aforesaid duly designating
him as the Person to vote on behalf of other Holders. Any meeting of Holders
duly called pursuant to the provisions of Section 1502 or 1503 may be adjourned
from time to time by the Persons holding or representing a majority of the
Securities represented at the meeting, whether or not constituting a quorum, and
the meeting may be held as so adjourned without further notice.
At any meeting of the Holders of Securities a quorum shall consist of
Holders present in person or by proxy and representing at least 25% in principal
amount of the Outstanding Securities. If a quorum of the Holders of Securities
shall not be present within 30 minutes from the time fixed for holding any
meeting, the meeting, if summoned by the Holders or pursuant to a request of the
Holders, shall be dissolved; but in any other case the meeting shall be
adjourned to the same day in the next week (unless such day is a Legal Holiday
in which case it shall be adjourned to the next following day thereafter that is
not a Legal Holiday) at the same time and place and no notice shall be required
to be given in respect of such adjourned meeting. At the adjourned meeting the
Holders of Securities present in person or by proxy shall form a quorum and may
transact the business for which the meeting was originally convened
notwithstanding that they may not represent 25% of the principal amount of the
Outstanding Securities.
<PAGE>
102
SECTION 1506. Voting.
The vote upon any resolutions submitted to any meeting of Holders shall be
by written ballots on which shall be subscribed the signatures of the Holders of
Securities or of their representatives by proxy. The permanent chairman (or the
temporary chairman, if no permanent chairman shall have been elected pursuant to
Section 1505) of the meeting shall appoint two inspectors of votes who shall
count all votes cast at the meeting for or against any resolution and who shall
make and file with the permanent secretary (or the temporary secretary, if no
permanent secretary shall have been elected pursuant to Section 1505) of the
meeting their verified written reports in duplicate of all votes cast at the
meeting. A record in duplicate of the proceedings of each meeting of Holders
shall be prepared by the permanent secretary (or the temporary secretary, if no
permanent secretary shall have been elected pursuant to Section 1505) of the
meeting and there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one or
more persons having knowledge of the facts setting forth a copy of the notice of
the meeting and showing that said notice was mailed as provided in Section 1502.
The record shall be signed and verified by the affidavits of the permanent
chairman and the permanent secretary of the meeting (or if no permanent chairman
and/or permanent secretary shall have been elected pursuant to Section 1505,
then the temporary chairman and/or the temporary secretary, as the case may be,
shall take such action) and one of the duplicates shall be delivered to the
Company and the other to the Trustee to be preserved by the Trustee, the latter
to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
SECTION 1507. No Delay of Rights by Meeting.
Nothing in this Article Fifteen contained shall be deemed or construed to
authorize or permit, by reason of any call of a meeting of Holders or any rights
expressly or impliedly conferred hereunder to make such call, any hindrance or
delay in the exercise of any right or rights conferred upon or reserved to the
Trustee or to the Holders under any of the provisions of this Indenture or of
the Securities.
<PAGE>
103
ARTICLE SIXTEEN
MISCELLANEOUS PROVISIONS
SECTION 1601. Indenture and Securities Solely Corporate Obligations.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, any supplemental indenture, or of any Security, or for any claim
based thereon or otherwise in respect thereof, shall be had against any
incorporator, shareholder, officer or director, as such, past, present or
future, of the Company or of any successor corporation or Person, either
directly or through the Company, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise;
it being expressly understood that this Indenture and the obligations issued
hereunder are solely corporate obligations, and that no such personal liability
whatever shall attach to, or is or shall be incurred by, the incorporators,
shareholders, officers or directors, as such, of the Company or of any successor
corporation or Person, or any of them, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or any of the Securities or
implied therefrom; and that any and all such personal liability, either at
common law or in equity or by constitution or statute, of, and any and all such
rights and claims against, every such incorporator, shareholder, officer or
director, as such, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Indenture or in any of the Securities or implied therefrom,
are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of such
Securities.
SECTION 1602. Execution in Counterparts.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
___________________
<PAGE>
104
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and have caused their respective corporate seals to be hereunto
affixed and attested, all as of the day and year first above written.
VINTAGE PETROLEUM, INC.,
By /s/ S. Craig George
-----------------------------
By /s/ William C. Barnes
-----------------------------
[SEAL]
Attest:
/s/ William C. Barnes
- ---------------------------
THE CHASE MANHATTAN BANK,
as Trustee,
By /s/ Lawrence O'Brien
-----------------------------
[SEAL]
Attest:
/s/ Lawrence O'Brien
- --------------------------
<PAGE>
105
[Notarial Seal]
STATE OF NEW YORK,)
) SS.:
COUNTY OF NEW YORK )
Personally appeared before me, the undersigned authority in and for
the said county and state, on this 5th day of February 1997, within my
jurisdiction, the within named S. Craig George and William C. Barnes who
acknowledged that they are President and Secretary, respectively, of Vintage
Petroleum, Inc. and that for and on behalf of the said corporation, and as its
act and deed they executed the above and foregoing instrument, after first
having been duly authorized by said corporation so to do.
/s/ Thomas Gilles
------------------------------
NOTARY PUBLIC
<PAGE>
106
[Notarial Seal]
STATE OF NEW YORK,)
) SS.:
COUNTY OF NEW YORK )
Personally appeared before me, the undersigned authority in and for
the said county and state, on this 5th day of February 1997, within my
jurisdiction, the within named L. O'Brien who acknowledged that he is a Senior
Trust Officer of The Chase Manhattan Bank and that for and on behalf of the said
corporation, and as its act and deed he executed the above and foregoing
instrument, after first having been duly authorized by said corporation so to
do.
/s/ Annabelle DeLuca
-----------------------------
NOTARY PUBLIC
<PAGE>
EXHIBIT 13
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
==========================================================================================================================
YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND OPERATING DATA
Financial Data
Income Statement Data:
Oil and gas sales.......................... $ 258,368 $160,254 $141,357 $113,259 $ 61,194
Gathering revenues......................... 20,508 12,380 14,635 7,861 7,775
Gas marketing revenues..................... 31,920 20,912 27,285 36,175 31,097
Total revenues............................. 311,682 194,797 185,652 160,027 101,450
Operating expenses......................... 138,438 95,121 96,549 85,205 61,771
Depreciation, depletion and
amortization............................ 70,057 52,257 45,774 33,335 17,374
Interest................................... 30,109 20,178 12,002 6,943 4,497
Income before cumulative effect
of accounting change.................... 41,192 11,361 13,929 16,789 8,653
Net income................................. 41,192 11,361 13,929 18,514 8,653
Earnings per share before effect
of accounting change.................... 1.68 .53 .66 .81 .51
Earnings per share......................... 1.68 .53 .66 .89 .51
Dividends declared per share............... .11 .09 .07 .05 .02
------------- --------------- --------------- --------------- --------------
Balance Sheet Data (end of year):
Total assets............................... $ 813,950 $647,539 $407,752 $384,461 $259,887
Long-term debt, less current portion....... 372,390 315,846 186,548 174,164 127,993
Stockholders' equity....................... 265,105 223,960 155,993 143,392 78,696
------------- --------------- --------------- --------------- --------------
Operating Data
Production:
Oil (MBbls)................................ 11,939 7,608 6,657 4,785 1,978
Gas (MMcf)................................. 32,366 30,610 28,884 22,504 14,592
------------- --------------- --------------- --------------- --------------
Average Sales Prices:
Oil (per Bbl).............................. $ 16.73 $ 15.26 $ 13.53 $ 14.14 $ 17.88
Gas (per Mcf).............................. 1.81 1.46 1.78 2.03 1.77
------------- --------------- --------------- --------------- --------------
Proved Reserves (end of year):
Oil (MBbls)................................ 178,296 147,871 70,789 63,277 40,209
Gas (MMcf)................................. 382,846 310,762 281,638 273,142 206,582
------------- --------------- --------------- --------------- --------------
Present value of estimated future net
revenues before income taxes discounted
at 10 percent (in thousands):
Oil and gas properties............... $1,807,137 $894,249 $446,987 $359,978 $335,941
Gathering systems.................... 10,364 10,641 9,215 8,105 4,818
Standardized measure of discounted
future net cash flows (in thousands).... 1,392,841 736,546 385,721 339,701 274,443
------------- --------------- --------------- --------------- --------------
</TABLE>
Significant acquisitions of producing oil and gas properties during 1993 and
1995 affect the comparability between the Financial and Operating Data for the
years presented above.
1996 ANNUAL REPORT 25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
The Company's results of operations have been significantly affected by its
success in acquiring oil and gas properties and its ability to maintain or
increase production through its exploitation and exploration activities.
Fluctuations in oil and gas prices have also significantly affected the
Company's results. Principally through acquisitions, the Company has achieved
significant increases in its oil and gas production. The following table
reflects the Company's oil and gas production and its average oil and gas prices
for the periods presented:
<TABLE>
<CAPTION>
===============================================================================
YEARS ENDED DECEMBER 31, 1996 1995 1994
<S> <C> <C> <C>
Production:
Oil (MBbls)-
U.S. ....................................... 7,694 6,647 6,657
Argentina .................................. 4,245 961 --
Total ...................................... 11,939 7,608 6,657
Gas, all U.S. (MMcf) ......................... 32,366 30,610 28,884
Total MBOE ................................... 17,333 12,710 11,471
--------- --------- ---------
Average Sales Prices:
Oil (per Bbl)-
U.S. ....................................... $17.19 $15.44 $13.53
Argentina .................................. 15.91 13.98 --
Total ...................................... 16.73 15.26 13.53
Gas, all U.S. (per Mcf) ...................... 1.81 1.46 1.78
--------- --------- ---------
</TABLE>
Average U.S. oil prices received by the Company fluctuate generally with
changes in the West Texas Intermediate ("WTI") posted prices for oil. The
Company's Argentina oil production is sold at WTI spot prices less a specified
differential. The Company experienced a 10 percent increase in its average oil
price in 1996 compared to 1995. During 1996, the impact of oil hedges reduced
the Company's overall average oil price $2.00 to $16.73 per Bbl. The Company's
average U.S. oil price was reduced $1.47 to $17.19 per Bbl while its average
Argentina oil price was reduced $2.96 to $15.91 per Bbl. Approximately 67
percent of the Company's Argentina oil production and 38 percent of its U.S. oil
production (a combined 5.765 MMBbls) were covered by oil hedges in 1996.
The Company experienced a 13 percent increase in its average oil price in 1995
compared to 1994. Higher prices relative to WTI posted prices for the Company's
California oil production and the impact of one hedge (swap agreement) which
expired December 31, 1995, combined with higher WTI posted prices to account for
the increase. The Company's average realized oil price before the impact of oil
hedges increased from 87 percent of WTI posted prices in 1994 to 92 percent for
1996.
Average gas prices received by the Company fluctuate generally with changes in
spot market prices for gas, which may vary significantly by region. The
Company's average gas price for 1996, including the impact of hedging, was 24
percent higher than 1995. During 1996, the average gas price was negatively
impacted by five cents per Mcf as a result of certain gas hedges that were in
place for 40,000 Mcf of gas per day for the period January through March 1996.
The Company experienced an 18 percent decline in average gas prices in 1995
compared to 1994.
The Company has previously engaged in oil and gas hedging activities and will
continue to consider various hedging arrangements to realize commodity prices
which it considers favorable. Currently, oil hedges for the calendar year 1997
cover 2.738 MMBbls at an average NYMEX reference price of $19.26 per Bbl. Before
the impact of oil hedges, the Company's average realized oil price for 1996 was
$18.73 per Bbl, or approximately 85 percent of the average NYMEX reference
price.
Relatively modest changes in either oil or gas prices significantly impact the
Company's results of operations and cash flow. However, the impact of changes in
the market prices for oil and gas on the Company's average realized prices may
be reduced from time to time based on the level of the Company's hedging
activities. Based on 1996 oil production, a change in the average oil price
realized by the Company of $1.00 per Bbl would result in
26 VINTAGE PETROLEUM, INC.
<PAGE>
a change in net income and cash flow before income taxes for the year of
approximately $8.7 million and $11.6 million, respectively. A 10 cent per Mcf
change in the average price realized by the Company for gas would result in a
change in net income and cash flow before income taxes for the year of
approximately $1.9 million and $3.1 million, respectively, based on 1996 gas
production.
Period to Period Comparisons
During 1995, the Company made various acquisitions which significantly impacted
the period to period comparisons for 1996 and 1995. These acquisitions (the
"1995 Acquisitions") include the purchase of certain oil and gas properties from
Texaco Exploration and Production, Inc. ("Texaco") in May 1995, the acquisition
in July 1995 of a controlling interest in Cadipsa S.A. ("Cadipsa"), an Argentine
oil and gas exploration company which was publicly traded in Argentina until
December 26, 1996, the acquisition of Vintage Oil Argentina, Inc., formerly
BG Argentina, S.A. ("Vintage Argentina"), in September 1995, and the acquisition
of certain Argentina oil and gas properties from Astra Compania Argentina de
Petroleo S.A. and Shell Compania Argentina de Petroleo S.A. in November 1995 and
December 1995, respectively.
The Company's consolidated revenues and expenses for 1996 and 1995 include the
consolidation of 100 percent of Cadipsa from the date of acquisition under the
purchase method of accounting. The minority interest in (income) loss of
subsidiary reflects the portion of Cadipsa's (income) loss attributable to the
minority ownership during the years ended December 31, 1996 and 1995. At
December 31, 1996, the Company owned 96.8 percent of Cadipsa.
Year ended December 31, 1996, Compared to Year ended December 31, 1995
Net income was $41.2 million for the year ended December 31, 1996, up
263 percent from $11.4 million in 1995. Increases in the Company's oil and gas
production of 36 percent on an equivalent barrel basis, an increase of
24 percent in natural gas prices, and an increase of 10 percent in oil prices
are primarily responsible for the increase in net income. The production
increases primarily relate to the 1995 Acquisitions.
Oil and gas sales increased $98.1 million (61 percent), to $258.4 million for
1996 from $160.3 million for 1995. A 57 percent increase in oil production and a
10 percent increase in average oil prices combined to account for $83.7 million
of the increase. A six percent increase in gas production and a 24 percent
increase in average gas prices contributed to an additional $14.4 million
increase.
Oil and gas gathering net margins (revenue less expenses) increased $600,000
(21 percent), to $3.5 million for 1996 from $2.9 million for 1995, due primarily
to improved profitability on a gathering system located in Texas, additional net
margins from a gathering system located in California acquired from Texaco in
May 1995 and increased gas prices.
Gas marketing net margins (revenue less expenses) increased $300,000
(14 percent), to $2.4 million for 1996 from $2.1 million for 1995, due primarily
to an increase in the reserve for doubtful accounts associated with gas sales in
1995 with no similar increase in 1996 and increased gas prices.
Lease operating expenses, including production taxes, increased $25.1 million
(38 percent), to $91.9 million for 1996 from $66.8 million for 1995. The
increase in lease operating expenses is due primarily to the 1995 Acquisitions.
Lease operating expenses per equivalent barrel produced increased one percent to
$5.30 in 1996 from $5.25 for 1995.
General and administrative expenses increased $4.8 million (41 percent), to
$16.4 million for 1996 from $11.6 million for 1995, due primarily to the
acquisitions of Cadipsa and Vintage Argentina in the last half of 1995.
Depreciation, depletion and amortization increased $17.8 million (34 percent),
to $70.1 million for 1996 from $52.3 million for 1995, due primarily to the
36 percent increase in production on an equivalent barrel basis. Amortization
per equivalent barrel of the Company's U.S. oil and gas properties declined to
$3.78 in 1996 from $3.89 in 1995. Amortization per equivalent barrel of the
Company's Argentina oil and gas properties for 1996 was $4.12 as compared to
$4.28 for 1995.
Interest expense increased $9.9 million (49 percent), to $30.1 million for
1996 from $20.2 million for 1995, due primarily to a 24 percent increase in the
Company's total average outstanding debt related primarily to the 1995
Acquisitions.
Year ended December 31, 1995, Compared to Year ended December 31, 1994
Net income was $11.4 million for the year ended December 31, 1995, down
18 percent from $13.9 million in 1994. A decrease of 18 percent in natural gas
prices and a 68 percent increase in interest expense offset a 13 percent
increase in average oil prices and an 11 percent increase in production on an
equivalent barrel basis. In addition, certain oil and gas properties were shut-
in for a portion of the first six months of 1995 due to storm damage caused by
heavy rains in California and the resulting mudslides, reducing the Company's
overall production in the first half by approximately 70,000 Bbls of oil and
350,000 Mcf of gas.
1996 ANNUAL REPORT 27
<PAGE>
Oil and gas sales increased $18.9 million (13 percent), to $160.3 million for
1995 from $141.4 million for 1994, due primarily to a 13 percent increase in
average oil prices and an 11 percent increase in production on an equivalent
barrel basis, partially offset by an 18 percent decline in average natural gas
prices. The production increases primarily relate to the 1995 Acquisitions. How-
ever, these production increases were partially offset by lower production from
the Company's properties affected by the California storms. In addition, oil and
gas sales for 1995 were reduced by $0.5 million reflecting the total settlement
of a class action lawsuit filed on June 8, 1990, on behalf of certain royalty
and mineral interest owners.
Oil and gas gathering net margins (revenues less expenses) increased $600,000
(26 percent), to $2.9 million in 1995 from $2.3 million in 1994, due primarily
to net margins from a gathering system located in California acquired from
Texaco in May 1995 and additional third party volumes transported through an
existing system located in Texas.
Gas marketing net margins (revenues less expenses) decreased $200,000 (9
percent), to $2.1 million in 1995 from $2.3 million in 1994, due primarily to an
increase in the reserve for doubtful accounts associated with gas sales and the
decline in average natural gas prices.
Other income decreased $1.1 million (46 percent) to $1.3 million in 1995 from
$2.4 million in 1994, due primarily to the recognition of a $0.9 million loss
from 1996 natural gas price hedges (swap agreements) which no longer qualified
as hedges.
Lease operating expenses, including production taxes, increased $7.5 million
(13 percent), to $66.8 million in 1995 from $59.3 million in 1994. The increase
in lease operating expenses is due primarily to the 1995 Acquisitions. Lease
operating expenses per equivalent barrel produced increased two percent to $5.25
in 1995 from $5.17 in 1994, due to the impact of the California storms on
production and costs incurred.
General and administrative expenses increased $2.7 million (30 percent), to
$11.6 million in 1995 from $8.9 million in 1994, due primarily to the
acquisition of Cadipsa and the addition of new personnel throughout 1994 and
1995 as a result of acquisitions made in 1994 and an increase in the Company's
exploitation efforts.
Depreciation, depletion and amortization increased $6.5 million (14 percent),
to $52.3 million in 1995 from $45.8 million in 1994, due primarily to the 11
percent increase in production on an equivalent barrel basis. Amortization per
equivalent barrel of the Company's U.S. oil and gas properties increased two
percent to $3.89 in 1995 from $3.82 in 1994. Amortization per equivalent barrel
of the Company's Argentina oil and gas properties for 1995 was $4.28. The
Company had no Argentina operations prior to 1995.
Interest expense increased $8.2 million (68 percent), to $20.2 million in 1995
from $12.0 million in 1994, due primarily to a 28 percent increase in the
average interest rate on the Company's floating-rate debt with banks to 7.4
percent per annum in 1995 from 5.8 percent per annum in 1994, an increase in
average outstanding advances under the Company's bank revolving credit facility
and bank term loan, and interest expense on third-party debt of the Company's
foreign subsidiaries.
Capital Expenditures
During 1996, the Company's domestic capital expenditures totaled $113.7 million
of which $50.5 million were for acquisitions of producing oil and gas
properties. The largest of these acquisitions was approximately $28.5 million
for producing oil and gas properties located in south Alabama acquired from
Exxon Company, U.S.A. Funds for these acquisitions were provided by advances
under the Company's revolving credit facility.
The Company's 1996 international capital expenditures of $90.3 million
included approximately $49.4 million in Argentina, primarily for exploitation
activities, and $37.0 million in Bolivia related to the acquisition of 100
percent of the outstanding common stock of Shamrock Ventures Boliviana Ltd. from
affiliates of Ultramar Diamond Shamrock Corporation. Funds for the purchase of
the stock were provided by advances under the Company's revolving credit
facility.
In February 1997, the Company reached an agreement with subsidiaries of
Burlington Resources Inc. to purchase certain producing oil and gas properties
and facilities located in the Gulf Coast of Texas and Louisiana for $114.1
million in cash, subject to closing adjustments. The effective date of the
transaction is January 1, 1997, with closing scheduled for April 1, 1997,
subject to board approvals by the Company and Burlington Resources Inc. and
satisfaction of other normal conditions to closing. Funds for this acquisition
will be provided by advances under the Company's revolving credit facility.
The timing of most of the Company's capital expenditures is discretionary with
no material long-term capital expenditure commitments. Consequently, the Company
has a significant degree of flexibility to adjust the level of such expenditures
as circumstances warrant. The Company primarily uses internally generated cash
flow to fund capital expenditures other than significant acquisitions and
anticipates that its cash flow, net of debt service
28 VINTAGE PETROLEUM, INC.
<PAGE>
obligations, will be sufficient to fund its planned 1997 non-acquisition capital
expenditures of approximately $58 million in the U.S. and approximately $59
million in South America. The Company does not have a specific acquisition
budget since the timing and size of acquisitions are difficult to forecast. The
Company is actively pursuing additional acquisitions of oil and gas properties.
In addition to internally generated cash flow and advances under the Company's
revolving credit facility, the Company may seek additional sources of capital to
fund any future significant acquisitions (see "-Liquidity").
The Company's recent capital expenditure history is a follows:
<TABLE>
<CAPTION>
=====================================================================================
YEARS ENDED DECEMBER 31, 1996 1995 1994
<S> <C> <C> <C>
IN THOUSANDS
Acquisition of oil and gas reserves ................. $ 91,282 $207,658 $36,544
Drilling ............................................ 51,175 21,343 9,593
Workovers and recompletions ......................... 33,482 18,313 13,984
Acquisition of undeveloped acreage and seismic ...... 14,847 7,684 1,869
Acquisition and construction of gathering systems ... 724 234 632
Other ............................................... 12,546 5,367 3,146
-------- -------- --------
Total ............................................. $204,056 $260,599 $65,768
-------- -------- --------
</TABLE>
Liquidity
Internally generated cash flow and the borrowing capacity under its revolving
credit facility are the Company's major sources of liquidity. In addition, the
Company may use other sources of capital, including the issuance of additional
debt securities or equity securities, to fund any major acquisitions it might
secure in the future and to maintain its financial flexibility. The Company
funds its capital expenditures (excluding acquisitions) and debt service
requirements primarily through internally generated cash flows from operations.
Any excess cash flow is used to reduce outstanding advances under the Company's
revolving credit facility.
In the past, the Company has accessed the public markets to finance
significant acquisitions and provide liquidity for its future activities. In
conjunction with the purchase of substantial oil and gas assets in 1990, 1992
and 1995, the Company completed three public equity offerings, as well as a
public debt offering in 1995, which provided the Company with aggregate net
proceeds of approximately $272 million.
On February 5, 1997, the Company completed a public offering of 1,500,000
shares of common stock, all of which were sold by the Company. Net proceeds to
the Company of approximately $47.1 million were used to repay a portion of
existing indebtedness under the Company's revolving credit facility.
Also on February 5, 1997, the Company issued $100 million of its 8 5/8%
Senior Subordinated Notes Due 2009 (the "8 5/8% Notes"). Net proceeds to
the Company of approximately $96.4 million were used to repay a portion of
existing indebtedness under the Company's revolving credit facility.
The 8 5/8% Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after February 1, 2002. Upon a change in control (as
defined) of the Company, holders of the 8 5/8% Notes may require the Company to
repurchase all or a portion of the 8 5/8% Notes at a purchase price equal to 101
percent of the principal amount thereof, plus accrued and unpaid interest. The
8 5/8% Notes mature on February 1, 2009, with interest payable semiannually on
February 1 and August 1 of each year.
The 8 5/8% Notes are unsecured senior subordinated obligations of the
Company, rank subordinate in right of payment to all senior indebtedness (as
defined) and rank pari passu with the Company's 9% Senior Subordinated Notes Due
2005. The indenture for the 8 5/8% Notes contains limitations on, among other
things, additional indebtedness and liens, the payment of dividends and other
distributions, certain investments and transfers or sales of assets.
Under its Credit Agreement dated August 29, 1996, as amended (the "Credit
Agreement"), certain banks have provided to the Company an unsecured revolving
credit facility. The Credit Agreement establishes a borrowing base (currently
$270 million) determined by the banks' evaluation of the Company's U.S. and
certain Argentina oil and gas reserves.
1996 ANNUAL REPORT 29
<PAGE>
Outstanding advances under the revolving credit facility bear interest
payable quarterly at a floating rate based on Bank of Montreal's alternate base
rate (as defined) or, at the Company's option, at a fixed rate for up to six
months based on the eurodollar market rate ("LIBOR"). The Company's interest
rate increments above the alternate base rate and LIBOR vary based on the level
of outstanding senior debt and the portion of the borrowing base attributable to
the U.S. reserves at the time. As of February 19, 1997, the Company had elected
a fixed rate based on LIBOR for a substantial portion of its outstanding
advances which resulted in an average interest rate of approximately 6.2 percent
per annum. In addition, the Company must pay a commitment fee ranging from 0.25
to 0.375 percent per annum on the unused portion of the banks' commitment.
On a semiannual basis, the Company's borrowing base is redetermined by the
banks based upon their review of the Company's U.S. and certain Argentina oil
and gas reserves. If the sum of outstanding senior debt (excluding debt of the
Company's foreign subsidiaries) exceeds the borrowing base, as redetermined, the
Company must repay such excess. Any principal advances outstanding at October 1,
1999, will be payable in 12 equal consecutive quarterly installments commencing
January 1, 2000, with maturity at October 1, 2002.
The unused portion of the revolving credit facility was approximately $157
million at February 19, 1997. The unused portion of the revolving loan facility
and the Company's internally generated cash flow provide liquidity which may be
used to finance future capital expenditures, including acquisitions. As
additional U.S. and Argentina acquisitions are made and properties are added to
the borrowing base, the banks' determination of the borrowing base and their
commitment may be increased.
Inflation
In recent years inflation has not had a significant impact on the Company's
operations or financial condition.
Income Taxes
The total provision for U.S. income taxes is based on the Federal corporate
statutory income tax rate plus an estimated average rate for state income taxes.
The Company incurred a current provision for U.S. income taxes of approximately
$2.6 million in 1996 and a current benefit of approximately $1.0 million in
1995. The Company has a $5.4 million U.S. alternative minimum tax credit
carryforward which does not expire and is available to offset U.S. regular
income taxes in future years, but only to the extent that U.S. regular income
taxes exceed the U.S. alternative minimum tax in such years. An analysis of
income taxes is presented in Note 6 to the Company's December 31, 1996,
consolidated financial statements.
Earnings of the Company's foreign subsidiaries, Cadipsa and Vintage
Argentina, are subject to Argentina income taxes. Due to significant Argentina
net operating loss carryforwards for both companies, the Company does not expect
to pay any foreign income taxes related to these subsidiaries in 1997. No U.S.
deferred tax liability will be recognized related to the unremitted earnings of
these foreign subsidiaries, as it is the Company's intention, generally, to
reinvest such earnings permanently.
Foreign Operations
A majority of the Company's foreign operations are located in Argentina. The
Company believes Argentina offers a politically stable environment and does not
anticipate any significant change in the near future. The current democratic
form of government has been in place since 1983 and, since 1989, has pursued a
steady process of privatization, deregulation and economic stabilization and
reforms involving the reduction of inflation and public spending. Argentina's
12-month trailing inflation rate measured by the Argentine Consumer Price Index
declined from 200.7 percent as of June 1991 to 0.1 percent as of December 1996.
The Company believes that its Argentine operations present minimal currency
risk. All of the Company's Argentine revenues are U.S. dollar based, while a
large portion of its costs are Argentine peso denominated. The Argentina Central
Bank is obligated by law to sell dollars at a rate of one Argentine peso to one
U.S. dollar and has sought to prevent appreciation of the peso by buying dollars
at rates of not less than 0.998 peso to one U.S. dollar. As a result, the
Company believes that should any devaluation of the Argentine peso occur, its
revenues would be unaffected and its operating costs would not be significantly
increased. At the present time, there are no foreign exchange controls
preventing or restricting the conversion of pesos into dollars.
30 VINTAGE PETROLEUM, INC.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 1995
<S> <C> <C>
IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS
Assets
Current Assets:
Cash and cash equivalents............................................................... $ 2,774 $ 2,545
Accounts receivable -
Oil and gas sales.................................................................... 68,219 40,256
Joint operations..................................................................... 4,445 4,616
Prepaids and other current assets....................................................... 9,252 11,665
------------- -------------
Total current assets............................................................... 84,690 59,082
------------- -------------
Property, Plant And Equipment, at cost:
Oil and gas properties, full cost method................................................ 964,623 762,582
Oil and gas gathering systems........................................................... 13,489 12,765
Other ................................................................................. 8,439 7,733
------------- -------------
986,551 783,080
Less accumulated depreciation, depletion and amortization............................... 275,392 205,334
------------- -------------
711,159 577,746
------------- -------------
Other Assets, net....................................................................... 18,101 10,711
------------- -------------
$813,950 $647,539
------------- -------------
Liabilities And Stockholders' Equity
Current Liabilities:
Revenue payable......................................................................... $ 24,746 $ 16,855
Accounts payable - trade................................................................ 20,355 15,514
Other payables and accrued liabilities.................................................. 26,595 18,697
Current portion of long-term debt....................................................... 6,629 7,930
Acquisition costs payable............................................................... 35,051 --
------------- -------------
Total current liabilities............................................................ 113,376 58,996
------------- -------------
Long-Term Debt, less current portion above.............................................. 372,390 315,846
------------- -------------
Deferred Income Taxes................................................................... 57,610 37,753
------------- -------------
Other Long-Term Liabilities............................................................. 3,641 3,922
------------- -------------
Minority Interest In Subsidiary......................................................... 1,828 7,062
------------- -------------
Commitments And Contingencies (Note 4)
Stockholders' Equity, per accompanying statements:
Preferred stock, $.01 par, 5,000,000 shares authorized, zero shares issued and
outstanding............................................................................ -- --
Common stock, $.005 par, 40,000,000 shares authorized,
24,069,112 and 23,661,162 shares issued and outstanding.............................. 120 118
Capital in excess of par value.......................................................... 152,321 149,725
Retained earnings....................................................................... 112,664 74,117
------------- -------------
265,105 223,960
------------- -------------
$813,950 $647,539
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
1996 ANNUAL REPORT 31
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
<S> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Revenues:
Oil and gas sales......................................................... $258,368 $160,254 $141,357
Oil and gas gathering..................................................... 20,508 12,380 14,635
Gas marketing............................................................. 31,920 20,912 27,285
Other income.............................................................. 886 1,251 2,375
-------- -------- --------
311,682 194,797 185,652
-------- -------- --------
Costs And Expenses:
Lease operating, including production taxes............................... 91,916 66,771 59,292
Oil and gas gathering..................................................... 16,985 9,511 12,294
Gas marketing............................................................. 29,537 18,839 24,963
General and administrative................................................ 16,441 11,601 8,889
Depreciation, depletion and amortization.................................. 70,057 52,257 45,774
Interest.................................................................. 30,109 20,178 12,002
-------- -------- --------
255,045 179,157 163,214
-------- -------- --------
Income before income taxes and minority interest.......................... 56,637 15,640 22,438
Provision For Income Taxes:
Current................................................................... 2,610 (955) 1,576
Deferred.................................................................. 12,328 6,034 6,933
Minority Interest In (Income) Loss Of Subsidiary.......................... (507) 800 -
-------- -------- --------
Net Income................................................................ $ 41,192 $ 11,361 $ 13,929
-------- -------- --------
Earnings Per Share........................................................ $ 1.68 $ .53 $ .66
-------- -------- --------
Weighted average common shares and common
equivalent shares outstanding.......................................... 24,537 21,276 21,174
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
32 VINTAGE PETROLEUM, INC.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Common Stock
------------------ Capital Retained Total
Shares Amount In Earnings
Excess of
Par Value
IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993........................... 20,153 $101 $ 91,118 $ 52,173 $143,392
Net income........................................ -- -- -- 13,929 13,929
Exercise of stock options
and resulting tax effects...................... 10 -- 83 -- 83
Cash dividends declared ($.07 per share).......... -- -- -- (1,411) (1,411)
------- ---------- ------------ ----------- -----------
Balance at December 31, 1994........................... 20,163 101 91,201 64,691 155,993
Net income........................................ -- -- -- 11,361 11,361
Issuance of common stock.......................... 2,803 14 55,190 -- 55,204
Exercise of warrants.............................. 294 1 1,467 -- 1,468
Exercise of stock options
and resulting tax effects...................... 401 2 1,867 -- 1,869
Cash dividends declared ($.09 per share).......... -- -- -- (1,935) (1,935)
------- ---------- ------------ ----------- -----------
Balance at December 31, 1995........................... 23,661 118 149,725 74,117 223,960
Net income........................................ -- -- -- 41,192 41,192
Exercise of warrants.............................. 306 2 1,530 -- 1,532
Exercise of stock options
and resulting tax effects...................... 102 -- 1,066 -- 1,066
Cash dividends declared ($.11 per share).......... -- -- -- (2,645) (2,645)
------- ---------- ------------ ----------- -----------
Balance at December 31, 1996........................... 24,069 $120 $152,321 $112,664 $265,105
======= ========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
1996 ANNUAL REPORT 33
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
============================================================================================================================
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
IN THOUSANDS
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income.................................................................... $ 41,192 $ 11,361 $ 13,929
Adjustments to reconcile net income to cash provided by operating activities -
Depreciation, depletion and amortization................................... 70,057 52,257 45,774
Minority interest in income (loss) of subsidiary........................... 507 (800) -
Provision for deferred income taxes........................................ 12,328 6,034 6,933
----------- ----------- ------------
124,084 68,852 66,636
Decrease (increase) in receivables............................................ (24,614) (11,836) 3,005
Increase (decrease) in payables and accrued liabilities....................... 14,619 (1,012) (9,487)
Other......................................................................... 2,493 (1,805) (1,484)
----------- ----------- ------------
Cash provided by operating activities...................................... 116,582 54,199 58,670
----------- ----------- ------------
Cash Flows From Investing Activities:
Additions to property, plant and equipment -
Oil and gas properties..................................................... (162,129) (141,490) (65,136)
Gathering systems and other................................................ (1,430) (3,256) (1,832)
Proceeds from sales of oil and gas properties................................. 1,291 604 711
Purchase of companies, net of cash acquired................................... (9,160) (45,886) -
Other......................................................................... (3,233) 2,777 (4,411)
----------- ----------- ------------
Cash used by investing activities.......................................... (174,661) (187,251) (70,668)
----------- ----------- ------------
Cash Flows From Financing Activities:
Sale of common stock.......................................................... 2,528 51,191 -
Sale of 9% Senior Subordinated Notes Due 2005................................. - 145,137 -
Advances on revolving credit facility and other borrowings.................... 149,014 178,264 51,134
Payments on revolving credit facility and other borrowings.................... (90,720) (237,679) (37,959)
Dividends paid................................................................ (2,514) (1,747) (1,308)
----------- ----------- ------------
Cash provided by financing activities...................................... 58,308 135,166 11,867
----------- ----------- ------------
Net Increase (Decrease) In Cash............................................... 229 2,114 (131)
Cash And Cash Equivalents, beginning of year.................................. 2,545 431 562
----------- ----------- ------------
Cash And Cash Equivalents, end of year........................................ $ 2,774 $ 2,545 $ 431
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
34 VINTAGE PETROLEUM, INC.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
[1] Business and Significant Accounting Policies
Consolidation
Vintage Petroleum, Inc. is an independent energy company with operations
primarily in the exploration and production, gas marketing and gathering
segments of the oil and gas industry. Approximately 95 percent of the Company's
operations are within the exploration and production segment based on 1996
operating income. Its core areas of exploration and production operations
include California, the Gulf Coast, East Texas and Mid-Continent areas of the
United States, and the San Jorge Basin of Argentina. Argentina exploration and
production operations commenced in 1995 as a result of the acquisitions
discussed in Note 7.
The consolidated financial statements include the accounts of Vintage
Petroleum, Inc. and its wholly- and majority-owned subsidiaries (collectively,
the "Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities, if any, at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Oil and Gas Properties
Oil and gas properties are accounted for using the full cost method which
provides for the capitalization of all acquisition, exploration and development
costs incurred for the purpose of finding oil and gas reserves, including
salaries, benefits and other internal costs directly attributable to these
activities. The Company capitalized $5.5 million, $4.4 million and $2.3 million
of internal costs in 1996, 1995 and 1994, respectively. The unamortized
capitalized costs of oil and gas properties, including estimated future
development and abandonment costs, are amortized using the units-of-production
method based on proved reserves on a country-by-country basis. The Company's
unamortized costs of oil and gas properties are limited, on a country-by-country
basis, to the sum of the future net revenues attributable to proved oil and gas
reserves discounted at 10 percent plus the cost of any unproved properties. If
the Company's unamortized costs in oil and gas properties exceed this ceiling
amount, a provision for additional depreciation, depletion and amortization is
required. At December 31, 1996, 1995 and 1994, the Company's cost of oil and gas
properties by country did not exceed such ceiling amounts. Amortization per
equivalent barrel of the Company's U.S. oil and gas properties was $3.78, $3.89
and $3.82 for the years ended December 31, 1996, 1995 and 1994, respectively.
Amortization per equivalent barrel of the Company's Argentina oil and gas
properties for the years ended December 31, 1996 and 1995, was $4.12 and $4.28,
respectively. The Company had no Argentina operations prior to 1995.
Revenue Recognition
Natural gas revenues are recorded using the sales method. Under this method, the
Company recognizes revenues based on actual volumes of gas sold to purchasers.
The Company and other joint interest owners may sell more or less than their
entitlement share of the natural gas volumes produced. A liability is recorded
and revenue is deferred if the Company's excess sales of natural gas volumes
exceed its estimated remaining recoverable reserves.
Hedging Policy
The Company periodically uses hedges (swap agreements) to reduce the impact of
oil and natural gas price fluctuations. Gains or losses on swap agreements are
recognized as an adjustment to sales revenue when the related transactions being
hedged are finalized. Gains or losses from swap agreements that do not qualify
for accounting treatment as hedges are recognized currently as other income or
expense. The cash flows from such agreements are included in operating
activities in the consolidated statements of cash flows.
Depreciation
Depreciation of property, plant and equipment (other than oil and gas
properties) is provided using both straight-line and accelerated methods based
on estimated useful lives ranging from three to ten years.
Income Taxes
Deferred income taxes are provided on transactions which are recognized in
different periods for financial and tax
1996 ANNUAL REPORT 35
<PAGE>
reporting purposes. Such temporary differences arise primarily from the
deduction of certain oil and gas exploration and development costs which are
capitalized for financial reporting purposes and differences in the methods of
depreciation.
Statements of Cash Flows
Cash equivalents consist of highly liquid money-market mutual funds and bank
deposits with initial maturities of three months or less.
During the years ended December 31, 1996, 1995 and 1994, the Company made
cash payments for interest totaling $29.6 million, $21.6 million and $11.3
million, respectively, and cash payments for U.S. income taxes of $1.3 million,
$0.5 million and $3.1 million, respectively. Cash payments of $0.1 million were
made during 1996 for foreign tax withholdings. No cash payments were made during
1995 for foreign income taxes and the Company had no foreign operations prior to
1995.
During 1995, the Company purchased a majority interest in Cadipsa (see
Note 7). The value of the non-cash consideration is not reflected in the
Company's 1995 Consolidated Statement of Cash Flows. Such non-cash consideration
consisted of $5.7 million of the Company's common stock, $3.2 million cash
payable in 1996, and approximately $58.1 million of net liabilities and a $7.9
million minority interest added through consolidation of Cadipsa.
In December 1995, the Company purchased certain oil and gas properties from
Shell (see Note 7). Deferred payments valued at $5.1 million represent non-cash
consideration and are not reflected in the Company's 1995 Consolidated Statement
of Cash Flows.
In November 1996, the Company agreed to acquire 100 percent of the
outstanding common stock of Shamrock Ventures Boliviana Ltd. Acquisition costs
of $35.1 million remained unpaid at December 31, 1996, and are reflected in the
accompanying balance sheet as acquisition costs payable, a current liability.
These unpaid acquisition costs are not reflected in the Company's 1996
Consolidated Statement of Cash Flows.
Earnings Per Share
Earnings per share are based on the weighted average common shares and common
share equivalents outstanding, computed using the treasury stock method assuming
the exercise of all common stock options and warrants (except where the effect
is anti-dilutive).
General and Administrative Expense
The Company receives fees for operation of jointly-owned oil and gas properties
and records such reimbursements as reductions of general and administrative
expense. Such fees totaled approximately $2.3 million, $2.9 million and $2.3
million in 1996, 1995 and 1994, respectively.
Revenue Payable
Amounts payable to royalty and working interest owners resulting from sales of
oil and gas from jointly-owned properties and from purchases of oil and gas by
the Company's marketing and gathering segments are classified as revenue payable
in the accompanying financial statements.
Accounts Receivable
The Company's oil and gas, gas marketing and gathering sales are to a variety of
purchasers, including intrastate and interstate pipelines or their marketing
affiliates, independent marketing companies and major oil companies. The
Company's joint operations accounts receivable are from a large number of major
and independent oil companies, partnerships, individuals and others who own
interests in the properties operated by the Company.
[2] Long-Term Debt
Long-term debt at December 31, 1996 and 1995, consists of the following:
================================================================================
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
IN THOUSANDS
Revolving credit facility.......................... $200,800 $ 74,300
9% Senior Subordinated
Notes Due 2005,
less unamortized discount........................ 149,633 149,592
Bank term loan..................................... - 36,736
5.92% Senior note.................................. - 9,948
Subsidiary debt -
International Finance
Corporation notes.............................. 25,986 28,000
Other subsidiary debt.............................. 2,600 5,200
Bank of Boston senior note......................... - 20,000
--------- ---------
379,019 323,776
Less - Current portion of
long-term debt................................... 6,629 7,930
--------- ---------
$372,390 $315,846
--------- ---------
</TABLE>
36 VINTAGE PETROLEUM, INC.
<PAGE>
Subsidiary debt relates to borrowings of the Company's foreign subsidiaries,
the recourse of which is solely to such subsidiaries, except for $8.4 million
advanced by the International Finance Corporation which is guaranteed by the
Company.
Aggregate maturities of long-term debt for each of the years ending
December 31, 1997, through December 31, 2001, are $6.6 million, $4.0 million,
$4.0 million, $71.0 million and $69.7 million, with $223.7 million thereafter.
Revolving Credit Facility
The Company has available an unsecured revolving credit facility under the
Credit Agreement dated August 29, 1996, as amended (the "Credit Agreement"),
between the Company and certain banks. The Credit Agreement establishes a
borrowing base (currently $270 million) based on the banks' evaluation of the
Company's U.S. and certain Argentina oil and gas reserves.
Outstanding advances under the Company's revolving credit facility bear
interest payable quarterly at a floating rate based on Bank of Montreal's
alternate base rate (as defined) or, at the Company's option, at a fixed rate
for up to six months based on the eurodollar market rate ("LIBOR"). The
Company's interest rate increments above the alternate base rate and LIBOR vary
based on the level of outstanding senior debt and the portion of the borrowing
base attributable to the U.S. reserves at the time. In addition, the Company
must pay a commitment fee ranging from 0.25 to 0.375 percent per annum on the
unused portion of the banks' commitment. Total outstanding advances at
December 31, 1996, were $200.8 million at an average interest rate of
approximately 6.7 percent.
On a semiannual basis, the Company's borrowing base is redetermined by the
banks based upon their review of the Company's U.S. and certain Argentina oil
and gas reserves. If the sum of outstanding senior debt (excluding debt of the
Company's foreign subsidiaries) exceeds the borrowing base, as redetermined, the
Company must repay such excess. Any principal advances outstanding at October 1,
1999, will be payable in 12 equal consecutive quarterly installments commencing
January 1, 2000, with maturity at October 1, 2002.
The terms of the Credit Agreement impose certain restrictions on the Company
regarding the pledging of assets and limitations on, among other things,
additional indebtedness and the payment of dividends and other distributions. In
addition, the Credit Agreement requires the maintenance of a minimum current
ratio (as defined) and tangible net worth (as defined) of $200 million plus 75
percent of the net proceeds of any future equity offerings.
9% Senior Subordinated Notes
On December 20, 1995, the Company issued $150 million of its 9% Senior
Subordinated Notes Due 2005 (the "9% Notes"). The 9% Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after December 15,
2000. Upon a change in control (as defined) of the Company, holders of the 9%
Notes may require the Company to repurchase all or a portion of the 9% Notes at
a purchase price equal to 101 percent of the principal amount thereof, plus
accrued and unpaid interest. The 9% Notes mature on December 15, 2005, with
interest payable semiannually on June 15 and December 15 of each year.
The 9% Notes are unsecured senior subordinated obligations of the Company,
rank subordinate in right of payment to all senior indebtedness (as defined) and
rank pari passu with the new 8 5/8% Notes (see below). The indenture for the
9% Notes contains limitations on, among other things, additional indebtedness
and liens, the payment of dividends and other distributions, certain investments
and transfers or sales of assets.
8 5/8% Senior Subordinated Notes
On February 5, 1997, the Company issued $100 million of its 8 5/8% Senior
Subordinated Notes Due 2009 (the "8 5/8% Notes"). The 8 5/8% Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after February 1, 2002. Upon a change in control (as defined) of the Company,
holders of the 8 5/8% Notes may require the Company to repurchase all or a
portion of the 8 5/8% Notes at a purchase price equal to 101 percent of the
principal amount thereof, plus accrued and unpaid interest. The 8 5/8% Notes
mature on February 1, 2009, with interest payable semiannually on February 1 and
August 1 of each year.
The 8 5/8% Notes are unsecured senior subordinated obligations of the Company,
rank subordinate in right of payment to all senior indebtedness (as defined) and
rank pari passu with the 9% Notes. The indenture for the 8 5/8% Notes contains
limitations similar to those contained in the indenture for the 9% Notes. The
net proceeds
1996 ANNUAL REPORT 37
<PAGE>
to the Company from the sale of the 8 5/8% Notes (approximately $96.4 million)
and the concurrent sale of common stock (approximately $47.1 million--see Note
3) were used to repay approximately $143.5 million of the existing indebtedness
under the Company's revolving credit facility.
[3] Capital Stock
Public Offerings and Other Issuances
On July 5, 1995, the Company issued 302,808 shares of common stock valued at
$5.7 million as partial consideration to acquire a controlling interest in
Cadipsa (see Note 7).
On December 20, 1995, the Company completed a public offering of 2,793,700
shares of common stock, of which 2,500,000 shares were sold by the Company and
293,700 shares were sold by a stockholder. Net proceeds to the Company were
approximately $49.5 million. The net proceeds were used to repay advances made
under the revolving credit facility to fund the acquisition of a portion of the
Astra/Shell Properties (see Note 7) and to finance a substantial portion of the
acquisition of the remaining portion of the Astra/Shell Properties.
A portion of a stock subscription warrant was exercised on December 20, 1995,
for the purchase of 293,700 shares of the Company's common stock at an exercise
price of $5.00 per share yielding net proceeds to the Company of approximately
$1.5 million. The remaining portion of the stock subscription warrant was
exercised on January 4, 1996, for the purchase of 306,300 shares of the
Company's common stock at an exercise price of $5.00 per share yielding net
proceeds to the Company of approximately $1.5 million. The Company had no stock
subscription warrants outstanding as of December 31, 1996.
On February 5, 1997, the Company completed a public offering of 1,500,000
shares of common stock, all of which were sold by the Company. Net proceeds to
the Company of approximately $47.1 million were used to repay a portion of
existing indebtedness under the Company's revolving credit facility.
Stock Plans
The Company has three fixed plans which reserve shares of common stock for
issuance to key employees and non-management directors. The Company accounts for
these plans under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25") and has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ("SFAS No. 123"). Accordingly, no compensation cost
has been recognized. Had compensation cost for these plans been determined
consistent with the provisions of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the following pro forma amounts:
================================================================================
<TABLE>
<CAPTION>
1996 1995
IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS
<S> <C> <C>
Net income - as reported......................... $41,192 $11,361
Net income - pro forma........................... 40,781 11,320
Earnings per share - as reported................. 1.68 .53
Earnings per share - pro forma................... 1.66 .53
</TABLE>
The pro forma effect on net income for 1996 and 1995 may not be
representative of the pro forma effect on net income in future years because
SFAS No. 123 has not been applied to options granted prior to January 1, 1995.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The weighted average assumptions used
for options granted in 1996 include a dividend yield of 0.4 percent, expected
volatility of approximately 29.5 percent, a risk-free interest rate of
approximately 6.2 percent, and expected lives of 4.2 years. The weighted average
assumptions used for options granted in 1995 include a dividend yield of 0.4
percent, expected volatility of approximately 31.3 percent, a risk-free interest
rate of approximately 5.9 percent, and expected lives of 4.2 years.
Under the 1983 Stock Option Plan, as amended (the "1983 Plan"), incentive
stock options were granted to key employees of the Company. Generally, options
granted under the 1983 Plan are exercisable for a two to seven year period
beginning three years from the date granted. As of December 31, 1996, all
available options have been granted under the 1983 Plan.
Under the 1990 Stock Plan, as amended (the "1990 Plan"), a total of up to
2,250,000 shares of common stock are available for issuance to key employees of
the Company. The 1990 Plan permits the granting of any or all of the following
types of awards: (a) stock options, (b) stock appreciation rights, and (c)
restricted stock. As of December 31, 1996, awards for a total of 778,000 shares
of common stock remain available for grant under the 1990 Plan.
The 1990 Plan is administered by the Compensation Committee appointed by the
Board of Directors of the Company (the "Committee"). Subject to the terms of the
38 VINTAGE PETROLEUM, INC.
<PAGE>
1990 Plan, the Committee has the authority to determine plan participants, the
types and amounts of awards to be granted and the terms, conditions and
provisions of awards. Options granted pursuant to the 1990 Plan may, at the
discretion of the Committee, be either incentive stock options or non-qualified
stock options. The exercise price of incentive stock options may not be less
than the fair market value of the common stock on the date of grant and the term
of the option may not exceed 10 years. In the case of non-qualified stock
options, the exercise price may not be less than 85 percent of the fair market
value of the common stock on the date of grant. Any stock appreciation rights
granted under the 1990 Plan will give the holder the right to receive cash in an
amount equal to the difference between the fair market value of the share of
common stock on the date of exercise and the exercise price. Restricted stock
under the 1990 Plan will generally consist of shares which may not be disposed
of by participants until certain restrictions established by the Committee
lapse.
Under the Non-Management Director Stock Option Plan (the "Director Plan"),
30,000 shares of common stock are available for issuance to the outside
directors of the Company. Each outside director receives an initial option to
purchase 5,000 shares of common stock during the director's first year of
service to the Company. Annually thereafter, options to purchase 1,000 shares of
common stock are to be granted to each outside director. Options granted
pursuant to the Director Plan are non-qualified stock options with terms not to
exceed 10 years and the option exercise price must equal the fair market value
of the common stock on the date of grant. As of December 31, 1996, options for a
total of 14,000 shares of common stock remain available for grant under the
Director Plan.
The following is an analysis of all option activity under the 1983 Plan, the
1990 Plan and the Director Plan for 1996, 1995 and 1994:
================================================================================
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- ----------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning stock options outstanding............. 1,133,102 $14.81 1,457,000 $11.64 1,193,000 $10.34
Stock options granted........................... 315,000 19.41 98,000 20.23 274,000 17.04
Stock options cancelled......................... (2,000) 19.38 (20,000) 18.13 - -
Stock options exercised......................... (101,650) 9.88 (401,898) 4.47 (10,000) 4.89
Ending stock options outstanding................ 1,344,452 $16.25 1,133,102 $14.81 1,457,000 $11.64
----------------------- ----------------------- ----------------------
Ending stock options exercisable................ 599,387 $13.86 341,796 $11.16 338,014 $ 4.74
----------------------- ----------------------- ----------------------
Weighted average fair value of options granted.. $ 6.33 $ 6.75
------ ------
</TABLE>
Of the 1,344,452 options outstanding at December 31, 1996: (a) 343,102
options have exercise prices between $3.39 and $11.88, with a weighted average
exercise price of $9.58 and a weighted average contractual life of 5.4 years
(319,406 of these options are exercisable at a weighted average price of $9.82);
(b) 1,001,350 options have exercise prices between $16.75 and $25.56, with a
weighted average exercise price of $18.54 and a weighted average contractual
life of 8.1 years (279,981 of these options are exercisable at a weighted
average price of $18.48).
All of the outstanding options are exercisable at various times in years 1997
through 2006. All incentive stock options and non-qualified options were granted
at fair market value on the date of grant. As of December 31, 1996, no awards
other than incentive and non-qualified stock options have been granted under the
1990 Plan. Generally, options granted under the 1990 Plan have a 10-year term
and provide for vesting after three years.
At December 31, 1996, a total of 2,136,452 shares of the Company's common
stock are reserved for issuance pursuant to the 1983 Plan, the 1990 Plan and the
Director Plan.
1996 ANNUAL REPORT 39
<PAGE>
Preferred Stock
Preferred stock at December 31, 1996, consists of 5,000,000 authorized but
unissued shares. Preferred stock may be issued from time to time in one or more
series, and the Board of Directors, without further approval of the
stockholders, is authorized to fix the dividend rates and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
sinking fund and any other rights, preferences, privileges and restrictions
applicable to each series of preferred stock.
[4] Commitments and Contingencies
Rent expense was $1.0 million, $0.8 million and $0.5 million for 1996, 1995 and
1994, respectively. The future minimum commitments under long-term
noncancellable leases for office space are $0.8 million and $0.3 million for
1997 and 1998, respectively.
The Company has $7.8 million in letters of credit outstanding at December 31,
1996. These letters of credit relate primarily to bonding requirements of
various state regulatory agencies for oil and gas operations and various
obligations for acquisition and exploration activities in South America.
During 1995, the Company entered into an exploration contract on Block 19 in
Ecuador for a term of four years. Under the terms of the contract, the Company
is required to participate in the drilling of a minimum of two wells. The
Company estimates its share of the costs to drill these wells to be
approximately $4.5 million.
The Company assumed a commitment related to an exploration program within the
Chaco Block in Bolivia. The exploration program requires performance of 1,400
work units, which could include reprocessing of existing seismic, acquisition of
new seismic and the drilling of exploratory wells. The entire obligation,
however, can be fulfilled by the drilling of a 15,000 foot well. The Company
estimates the cost of this well to be approximately $4.5 million and expects to
fulfill the obligation by drilling such a well in the second half of 1997.
On November 5, 1996, the Province of Santa Cruz, Argentina brought suit
against Cadipsa in the Corte Suprema de Justicia de la Nacion (the Supreme Court
of Justice of the Argentine Republic, Buenos Aires, Argentina), Dossier No.
s-1451, seeking to recover approximately $10.6 million (which sum includes
interest) allegedly due as additional royalties on four concessions granted in
1990 in which the Company currently owns a 100 percent working interest. The
Company and its predecessors in title have been paying royalties at an eight
percent rate; the Province of Santa Cruz claims the rate should be 12 percent.
The amount of such claim will increase at the differential of these royalty
rates until this claim is resolved. With respect to the 50 percent interest in
the two concessions that the Company acquired from British Gas, plc, the Company
believes that it is entitled to indemnification by British Gas, plc for any loss
sustained by the Company as a result of this claim. Such indemnification equals
approximately $4.0 million of the $10.6 million claim. The Company has no
indemnification from its predecessors in title with respect to the payment of
royalties on the other two concessions. Although the Company cannot predict the
outcome of this litigation, based upon the advice of counsel, the Company does
not expect this claim to have a material adverse impact on the Company's
financial position or results of operations.
The Company is a defendant in various other lawsuits and is a party in
governmental proceedings from time to time arising in the ordinary course of
business. In the opinion of management, none of the various other pending
lawsuits and proceedings should have a material adverse impact on the Company's
financial position or results of operations.
[5] Financial Instruments
Price Risk Management
The Company periodically uses hedges (swap agreements) to reduce the impact of
oil and natural gas price fluctuations on its operating results and cash flows.
These swap agreements typically entitle the Company to receive payments from (or
require it to make payments to) the counterparties based upon the differential
between a fixed price and a floating price based on a published index. The
Company's hedging activities are conducted with major investment and commercial
banks which the Company believes are minimal credit risks.
At December 31, 1996, the Company was a party to oil price swap agreements
for calendar 1997 covering 2.738 MMBbls at an average NYMEX reference price of
$19.26
40 VINTAGE PETROLEUM, INC.
<PAGE>
per Bbl. At December 31, 1995, the Company was a party to natural gas price swap
agreements for the period January through March 1996 covering 3.64 Bcf at an
average NYMEX reference price of $2.05 per Mcf.
Fair Value of Financial Instruments
The Company values financial instruments as required by Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value of Financial
Instruments. The Company estimates the value of the 9% Notes based on quoted
market prices. The Company estimates the value of its other long-term debt based
on the estimated borrowing rates currently available to the Company for long-
term loans with similar terms and remaining maturities. The estimated fair value
of the Company's long-term debt at December 31, 1996 and 1995, was $383.9
million and $323.2 million, respectively, compared with a carrying value of
$379.0 million and $323.8 million, respectively.
The fair value of commodity swap agreements is the amount at which they could
be settled, based on quoted market prices. At December 31, 1996 and 1995, the
Company would have been required to pay approximately $9.2 million and $2.2
million, respectively, to terminate its swap agreements.
The carrying value of other financial instruments approximates fair value
because of the short maturity of those instruments.
[6] Income Taxes
Income before income taxes and minority interest is composed of the following:
================================================================================
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
IN THOUSANDS
Domestic..................................... $38,016 $15,536 $22,438
Foreign...................................... 18,621 104 -
--------- --------- ---------
$56,637 $15,640 $22,438
--------- --------- ---------
</TABLE>
The total provision for income taxes consists of the following:
================================================================================
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
IN THOUSANDS
Current:
Federal.................................. $ 2,360 $ (955) $1,119
State.................................... 250 - 457
Foreign.................................. - - -
--------- -------- --------
2,610 (955) 1,576
Deferred................................... 12,328 6,034 6,933
--------- -------- --------
$14,938 $5,079 $8,509
--------- -------- --------
</TABLE>
A reconciliation of the federal statutory income tax rate to the effective rate
is as follows:
================================================================================
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory income
tax rate.................................... 35.0% 35.0% 35.0%
State income tax, less
federal benefit............................. 3.9 3.9 3.9
Federal income
tax credits................................. (3.1) (7.4) -
Tax impact of foreign
operations.................................. (8.2) 1.3 -
Other......................................... (1.2) (0.3) (1.0)
------- ------- -------
26.4% 32.5% 37.9%
------- ------- -------
</TABLE>
The components of the Company's net deferred tax liability as of December 31,
1996 and 1995, are as follows:
================================================================================
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
IN THOUSANDS
Deferred Tax Liabilities:
Differences between book
and tax basis of property.................... $ 62,735 $ 41,699
Other.......................................... 778 -
--------- ---------
63,513 41,699
--------- ---------
Deferred Tax Assets:
Argentina net operating loss
carryforwards................................ 14,472 20,467
Alternative minimum tax
credit carryforward.......................... 5,403 3,538
Other.......................................... 500 408
--------- ---------
20,375 24,413
Valuation allowance.............................. (14,472) (20,467)
--------- ---------
5,903 3,946
--------- ---------
Net deferred tax liability....................... $ 57,610 $ 37,753
--------- ---------
</TABLE>
1996 ANNUAL REPORT 41
<PAGE>
Earnings of the Company's foreign subsidiaries, Cadipsa and Vintage Oil
Argentina, Inc. (see Note 7), are subject to Argentina income taxes. Due to
significant Argentina net operating loss carryforwards for both companies, the
Company does not expect to pay any foreign income taxes related to these
subsidiaries in 1997. No U.S. deferred tax liability will be recognized related
to the unremitted earnings of these foreign subsidiaries, as it is the Company's
intention, generally, to reinvest such earnings permanently.
As of December 31, 1996, the Company has an alternative minimum tax ("AMT")
credit carryforward of approximately $5.4 million. The AMT credit carryforward
does not expire and is available to offset regular income taxes in future years,
but only to the extent that regular income taxes exceed the AMT in such years.
As of December 31, 1996, the Company has net operating loss carryforwards for
Argentina income tax reporting purposes of approximately $44 million which can
be used to offset taxable income in Argentina. These carryforwards expire
beginning 1997 through 2001.
[7] Significant Acquisitions
In May 1995, the Company acquired certain U.S. oil and gas properties from
Texaco Exploration and Production, Inc. for approximately $26.7 million cash
(the "Texaco Acquisition").
Through a series of transactions during the last six months of 1995, the
Company purchased approximately 71.6 percent of the outstanding common stock of
Cadipsa S.A. ("Cadipsa"), a publicly-traded Argentine oil and gas exploration
and production company, for 302,808 shares of the Company's common stock (valued
at $5.7 million) and $12.4 million cash (the "Cadipsa Acquisition").
Approximately $58.1 million of net liabilities and a $7.9 million minority
interest result from the consolidation of Cadipsa as of the acquisition date. As
of December 31, 1996, the Company owned 96.8 percent of the outstanding common
stock of Cadipsa. Effective December 26, 1996, Cadipsa was delisted with the
Argentina Stock Exchange and is no longer a publicly-traded company.
On September 29, 1995, the Company purchased 100 percent of the outstanding
common stock of BG Argentina, S.A. ("BG Argentina") from British Gas, plc for
$37 million cash (the "BG Acquisition"). BG Argentina was subsequently renamed
Vintage Oil Argentina, Inc.
On November 3, 1995, the Company purchased a 35 percent interest in certain
Argentina oil and gas properties (the "Astra/Shell Properties") from Astra
Compania Argentina de Petroleo S.A. for $17.9 million cash. On December 28,
1995, the Company purchased the remaining 65 percent interest in the Astra/Shell
Properties from Shell Compania Argentina de Petroleo S.A. for $32.8 million cash
and deferred payments valued at $5.1 million.
The Company accounted for the Cadipsa Acquisition and the BG Acquisition
under the purchase method. The consolidated statements of income include the
operating results of the above acquisitions since their acquisition date.
The Company completed on December 20, 1995, a public offering of 2,793,700
shares of the Company's common stock (the "Common Stock Offering"), of which
2,500,000 shares were sold by the Company and 293,700 shares were sold by a
certain stockholder (see Note 3). The net proceeds to the Company of
approximately $49.5 million were used to fund a substantial portion of the
purchase of the Astra/Shell Properties.
The Company's unaudited pro forma revenues, net income and earnings per share
for the years ended December 31, 1995 and 1994, presented below have been
prepared assuming the Common Stock Offering, the Texaco Acquisition, the Cadipsa
Acquisition, the BG Acquisition and the acquisition of the Astra/Shell
Properties had been consummated as of January 1, 1994. However, such pro forma
information is not necessarily indicative of what actually would have occurred
had the transactions occurred on such date.
================================================================================
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Revenues (in thousands)............................. $244,921 $255,489
Net income (in thousands)........................... 18,712 9,059
Earnings per share.................................. .78 .37
</TABLE>
[8] Segment Information
The Company operates in the oil and gas exploration and production industry in
the United States and South America. Operations in the gathering and gas
marketing industries are in the United States.
42 VINTAGE PETROLEUM, INC.
<PAGE>
The following is industry segment data for the years ended December 31, 1996,
1995 and 1994:
================================================================================
<TABLE>
<CAPTION>
1996 1995 1994
IN THOUSANDS
<S> <C> <C> <C>
Revenues:
Exploration and production -
U.S............................................................................ $190,839 $146,819 $141,357
Argentina...................................................................... 67,529 13,435 -
Gas marketing..................................................................... 62,851 49,775 61,480
Gathering......................................................................... 34,917 22,289 17,630
Other income...................................................................... 886 1,251 2,375
Elimination of intersegment sales................................................. (45,340) (38,772) (37,190)
------------ ---------- ----------
$311,682 $194,797 $185,652
------------ ---------- ----------
Income Before Income Taxes And Minority Interest:
Exploration and production -
U.S............................................................................ $ 70,382 $ 39,524 $ 38,234
Argentina...................................................................... 29,110 4,114 -
Other international............................................................ (841) - -
Gas marketing..................................................................... 2,383 2,073 2,322
Gathering......................................................................... 2,186 1,568 1,058
Other income...................................................................... 886 1,251 2,375
------------ ---------- ----------
Operating income.................................................................. 104,106 48,530 43,989
Corporate expenses................................................................ (17,360) (12,712) (9,549)
Interest expense.................................................................. (30,109) (20,178) (12,002)
------------ ---------- ----------
$ 56,637 $ 15,640 $ 22,438
------------ ---------- ----------
Identifiable Assets:
Exploration and production -
U.S............................................................................ $499,439 $431,391 $386,824
Argentina...................................................................... 228,002 180,488 -
Other international............................................................ 44,473 1,269 -
Gas marketing..................................................................... 8,422 5,431 5,850
Gathering......................................................................... 10,249 11,084 8,918
Corporate......................................................................... 23,365 17,876 6,160
------------ ----------- ----------
$813,950 $647,539 $407,752
------------ ----------- ----------
Depreciation, Depletion And Amortization:
Exploration and production -
U.S............................................................................ $ 49,466 $ 45,730 $ 43,831
Argentina...................................................................... 17,494 4,115 -
Other international............................................................ 841 - -
Gathering......................................................................... 1,337 1,301 1,283
Corporate......................................................................... 919 1,111 660
------------ ----------- ----------
$ 70,057 $ 52,257 $ 45,774
------------ ----------- ----------
Capital Additions:
Exploration and production -
U.S............................................................................ $113,037 $ 88,149 $ 65,136
Argentina...................................................................... 49,429 170,947 -
Other international............................................................ 40,866 1,269 -
Gathering ........................................................................ 724 234 632
Corporate......................................................................... 706 3,023 1,200
------------ ----------- ----------
$204,762 $263,622 $ 66,968
------------ ----------- ----------
</TABLE>
During 1996, 1995 and 1994, sales to one crude oil purchaser represented
approximately 15 percent, 17 percent and 14 percent, respectively, of the
Company's total revenues (exclusive of eliminations of intersegment sales and
the impact of hedges).
1996 ANNUAL REPORT 43
<PAGE>
[9] Quarterly Results (Unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1996 and 1995:
================================================================================
<TABLE>
<CAPTION>
QUARTER ENDED March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
1996
Revenues............................................................... $71,340 $76,043 $75,952 $88,347
Operating income....................................................... 21,619 26,714 23,979 31,794
Net income............................................................. 7,174 9,796 9,827 14,395
Earnings per share..................................................... .30 .40 .40 .58
1995
Revenues............................................................... $41,042 $45,230 $50,101 $58,424
Operating income....................................................... 8,999 11,778 13,041 14,713
Net income............................................................. 1,608 3,244 2,724 3,786
Earnings per share..................................................... .08 .15 .13 .17
</TABLE>
[10] Supplementary Financial Information for Oil and Gas Producing Activities
Results of Operations from Oil and Gas
Producing Activities
The following sets forth certain information with respect to the Company's
results of operations from oil and gas producing activities for the years ended
December 31, 1996, 1995 and 1994. The Company began operations in Argentina
through various acquisitions in the last two quarters of 1995 (see Note 7).
Prior to 1995, all of the Company's oil and gas producing activities were
located in the United States.
================================================================================
<TABLE>
<CAPTION>
1996
-----------------------------------------------------
Other
U.S. Argentina International Total
-----------------------------------------------------
<S> <C> <C> <C> <C>
IN THOUSANDS
Revenues............................................................... $190,839 $67,529 $ - $258,368
Production (lifting) costs............................................. 70,991 20,925 - 91,916
Depreciation, depletion and amortization............................... 49,466 17,494 841 67,801
-----------------------------------------------------
Results of operations before income taxes.............................. 70,382 29,110 (841) 98,651
Income tax expense..................................................... 25,197 - (327) 24,870
-----------------------------------------------------
Results of operations (excluding corporate overhead and interest costs) $ 45,185 $29,110 $ (514) $ 73,781
-----------------------------------------------------
<CAPTION>
1995 1994
-----------------------------------------------------
U.S. Argentina Total Total
-----------------------------------------------------
<S> <C> <C> <C> <C>
IN THOUSANDS
Revenues............................................................... $146,819 $13,435 $160,254 $141,357
Production (lifting) costs............................................. 61,565 5,206 66,771 59,292
Depreciation, depletion and amortization............................... 45,730 4,115 49,845 43,831
-----------------------------------------------------
Results of operations before income taxes.............................. 39,524 4,114 43,638 38,234
Income tax expense..................................................... 12,332 - 12,332 14,529
-----------------------------------------------------
Results of operations (excluding corporate overhead and interest costs) $ 27,192 $ 4,114 $ 31,306 $ 23,705
-----------------------------------------------------
</TABLE>
44 VINTAGE PETROLEUM, INC.
<PAGE>
Capitalized Costs and Costs Incurred Relating to Oil and Gas Producing
Activities The Company's net investment in oil and gas properties at December
31, 1996 and 1995, was as follows:
================================================================================
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
Other
U.S. Argentina Bolivia International Total
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
IN THOUSANDS
Unproved properties not being amortized............................ $ 16,420 $ - $ - $5,087 $ 21,507
Proved properties being amortized.................................. 685,692 220,376 37,048 - 943,116
-----------------------------------------------------------
Total capitalized costs............................................ 702,112 220,376 37,048 5,087 964,623
Less accumulated depreciation, depletion and amortization.......... 240,059 21,609 - 841 262,509
-----------------------------------------------------------
Net capitalized costs........................................... $462,053 $198,767 $37,048 $4,246 $702,114
<CAPTION>
1995
-----------------------------------------------
Other
U.S. Argentina International Total
-----------------------------------------------
<S> <C> <C> <C> <C>
IN THOUSANDS
Unproved properties not being amortized........................................ $ 8,505 $ - $ 1,269 $ 9,774
Proved properties being amortized.............................................. 581,861 170,947 - 752,808
-----------------------------------------------
Total capitalized costs........................................................ 590,366 170,947 1,269 762,582
Less accumulated depreciation, depletion and amortization...................... 190,593 4,115 - 194,708
-----------------------------------------------
Net capitalized costs....................................................... $399,773 $166,832 $ 1,269 $567,874
-----------------------------------------------
</TABLE>
The following sets forth certain information with respect to costs incurred
(exclusive of general support facilities) in the Company's oil and gas
activities during 1996, 1995 and 1994:
================================================================================
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
Other
U.S. Argentina Bolivia International Total
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
IN THOUSANDS
Acquisition:
Undeveloped properties.......................................... $ 9,868 $ 2,080 $ - $3,818 $ 15,766
Producing properties............................................ 50,480 3,754 37,048 - 91,282
Costs incurred:
Exploratory..................................................... 6,502 1,383 - - 7,885
Development..................................................... 46,187 42,212 - - 88,399
-----------------------------------------------------------
Total costs incurred.......................................... $113,037 $ 49,429 $37,048 $3,818 $203,332
-----------------------------------------------------------
<CAPTION>
1995 1994
-----------------------------------------------------------
Other
U.S. Argentina International Total Total
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
IN THOUSANDS
Acquisition:
Undeveloped properties.......................................... $ 6,415 $ - $ 1,269 $ 7,684 $ 1,869
Producing properties............................................ 38,896 168,762 - 207,658 36,544
Costs incurred:
Exploratory..................................................... 2,037 - - 2,037 3,349
Development..................................................... 40,801 2,185 - 42,986 23,374
-----------------------------------------------------------
Total costs incurred.......................................... $ 88,149 $170,947 $ 1,269 $260,365 $ 65,136
-----------------------------------------------------------
</TABLE>
1996 ANNUAL REPORT 45
<PAGE>
Estimated Quantities of Proved Oil and Gas
Reserves (Unaudited)
Proved reserves are estimated quantities of crude oil, natural gas and natural
gas liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those which
are expected to be recovered through existing wells with existing equipment and
operating methods. The following is an analysis of the Company's proved oil and
gas reserves which are located in the United States. Argentina and Bolivia
(including its proportionate share of reserves of its limited partnerships and
joint venture) as estimated by the Company's independent petroleum consultants,
Netherland, Sewell & Associates, Inc.:
================================================================================
<TABLE>
<CAPTION>
U.S. Argentina Bolivia Total
--------------------------------------------------------------------------------
Oil Gas Oil Oil Gas Oil Gas
(MBbls) (MMcf) (MBbls) (MBbls) (MMcf) (MBbls) (MMcf)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Proved reserves at
December 31, 1993................ 63,277 273,142 - - - 63,277 273,142
Revisions of previous estimates..... 8,577 4,131 - - - 8,577 4,131
Extensions, discoveries and
other additions.................. 6 4,139 - - - 6 4,139
Production.......................... (6,657) (28,884) - - - (6,657) (28,884)
Purchase of reserves-in-place....... 5,645 29,655 - - - 5,645 29,655
Sales of reserves-in-place.......... (59) (545) - - - (59) (545)
--------------------------------------------------------------------------------
Proved reserves at
December 31, 1994................ 70,789 281,638 - - - 70,789 281,638
Revisions of previous estimates..... 7,160 18,405 2,952 - - 10,112 18,405
Extensions, discoveries
and other additions.............. 338 2,015 - - - 338 2,015
Production.......................... (6,647) (30,610) (961) - - (7,608) (30,610)
Purchase of reserves-in-place....... 8,840 39,486 65,653 - - 74,493 39,486
Sales of reserves-in-place.......... (253) (172) - - - (253) (172)
--------------------------------------------------------------------------------
Proved reserves at
December 31, 1995................ 80,227 310,762 67,644 - - 147,871 310,762
Revisions of previous estimates..... 13,382 21,834 12,449 - - 25,831 21,834
Extensions, discoveries
and other additions.............. 458 5,445 308 - - 766 5,445
Production.......................... (7,694) (32,366) (4,245) - - (11,939) (32,366)
Purchase of reserves-in-place....... 8,095 20,787 2,849 4,953 57,758 15,897 78,545
Sales of reserves-in-place.......... (130) (1,374) - - - (130) (1,374)
--------------------------------------------------------------------------------
Proved reserves at
December 31, 1996................ 94,338 325,088 79,005 4,953 57,758 178,296 382,846
--------------------------------------------------------------------------------
Proved developed reserves at:
December 31, 1994................... 55,037 220,112 - - - 55,037 220,112
--------------------------------------------------------------------------------
December 31, 1995................... 63,791 270,427 36,928 - - 100,719 270,427
--------------------------------------------------------------------------------
December 31, 1996................... 79,250 289,464 46,582 1,007 51,276 126,839 340,740
--------------------------------------------------------------------------------
</TABLE>
46 VINTAGE PETROLEUM, INC.
<PAGE>
Standardized Measure of Discounted Future
Net Cash Flows Relating to Proved Oil and Gas
Reserves (Unaudited)
The Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves ("Standardized Measure") is a disclosure requirement under
SFAS No. 69. The Standardized Measure does not purport to present the fair
market value of proved oil and gas reserves. This would require consideration of
expected future economic and operating conditions which are not taken into
account in calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by applying
year-end prices, adjusted for fixed and determinable escalations, to the
estimated future production of year-end proved reserves. Future cash inflows
were reduced by estimated future production, development and abandonment costs
based on year-end costs to determine pre-tax cash inflows. Future income taxes
were computed by applying the statutory tax rate to the excess of pre-tax cash
inflows over the Company's tax basis in the associated proved oil and gas
properties. Tax credits and permanent differences were also considered in the
future income tax calculation. Future net cash inflows after income taxes were
discounted using a 10 percent annual discount rate to arrive at the Standardized
Measure.
Set forth below is the Standardized Measure relating to proved oil and gas
reserves at December 31, 1996 and 1995:
================================================================================
<TABLE>
<CAPTION>
1996
----------------------------------------------
U.S. Argentina Bolivia Total
----------------------------------------------
<S> <C> <C> <C> <C>
IN THOUSANDS
Future cash inflows.................................................... $3,110,810 $1,743,483 $188,211 $5,042,504
Future production costs................................................ 1,063,823 575,101 51,578 1,690,502
Future development and abandonment costs............................... 133,243 134,219 14,804 282,266
----------------------------------------------
Future net cash inflows before income tax expense...................... 1,913,744 1,034,163 121,829 3,069,736
Future income tax expense.............................................. 611,554 229,649 38,268 879,471
----------------------------------------------
Future net cash flows.................................................. 1,302,190 804,514 83,561 2,190,265
10 percent annual discount for estimated timing of cash flows.......... 484,288 285,896 27,240 797,424
----------------------------------------------
Standardized Measure of discounted future net cash flows............... $ 817,902 $ 518,618 $ 56,321 $1,392,841
----------------------------------------------
<CAPTION>
1995
------------------------------------
U.S. Argentina Total
------------------------------------
<S> <C> <C> <C>
IN THOUSANDS
Future cash inflows............................................................. $1,786,545 $1,083,551 $2,870,096
Future production costs......................................................... 751,312 409,734 1,161,046
Future development and abandonment costs........................................ 118,784 119,916 238,700
------------------------------------
Future net cash inflows before income tax expense............................... 916,449 553,901 1,470,350
Future income tax expense....................................................... 232,036 86,162 318,198
------------------------------------
Future net cash flows........................................................... 684,413 467,739 1,152,152
10 percent annual discount for estimated timing of cash flows................... 224,078 191,528 415,606
------------------------------------
Standardized Measure of discounted future net cash flows........................ $ 460,335 $ 276,211 $ 736,546
------------------------------------
</TABLE>
1996 ANNUAL REPORT 47
<PAGE>
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves (Unaudited)
The following is an analysis of the changes in the Standardized Measure during
1996, 1995 and 1994:
================================================================================
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
IN THOUSANDS
Standardized Measure - Beginning of year...................... $ 736,546 $385,721 $339,701
Increases (decreases) -
Sales, net of production costs............................. (166,452) (93,483) (82,065)
Net change in sales price, net of production costs......... 644,367 131,697 54,864
Discoveries and extensions, net of related future
development and production costs......................... 20,085 4,585 4,724
Changes in estimated future development costs.............. (69,433) (31,210) (17,276)
Development costs incurred................................. 77,174 37,600 20,228
Revisions of previous quantity estimates................... 251,736 59,319 34,428
Accretion of discount...................................... 88,411 44,699 35,078
Net change in income taxes................................. (248,427) (86,296) (50,189)
Purchase of reserves-in-place.............................. 149,900 311,449 47,718
Sales of reserves-in-place................................. (1,859) (661) (694)
Timing of production of reserves and other................. (89,207) (26,874) (796)
----------- ---------- ----------
Standardized Measure - End of year............................ $1,392,841 $736,546 $385,721
----------- ---------- ----------
</TABLE>
[11] Subsequent Events
In February 1997, the Company reached an agreement with subsidiaries of
Burlington Resources Inc. to purchase certain producing oil and gas properties
and facilities located in the Gulf Coast of Texas and Louisiana for $114.1
million in cash, subject to closing adjustments. The effective date of the
transaction is January 1, 1997, with closing scheduled for April 1, 1997,
subject to board approvals by the Company and Burlington Resources Inc. and
satisfaction of other normal conditions to closing.
On February 5, 1997, the Company issued $100 million of its 8 5/8% Senior
Subordinated Notes Due 2009 (see Note 2) and completed a public offering of
1,500,000 shares of common stock (see Note 3). The net proceeds to the Company
from the sale of the 8 5/8% Notes (approximately $96.4 million) and the
concurrent sale of common stock (approximately $47.1 million) were used to repay
approximately $143.5 million of existing indebtedness under the Company's
revolving credit facility.
48 VINTAGE PETROLEUM, INC.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Vintage Petroleum, Inc.:
We have audited the accompanying consolidated balance sheets of Vintage
Petroleum, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vintage Petroleum, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Tulsa, Oklahoma ARTHUR ANDERSEN LLP
February 19, 1997
1996 ANNUAL REPORT 49
<PAGE>
STOCKHOLDER INFORMATION
Stock Price Information
The Company's common stock trades on the New York Stock Exchange.
The table below reflects the high and low sales prices and dividends paid
per share during each quarter of 1995 and 1996.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Quarter Ended High Low Dividends
Paid
<S> <C> <C> <C>
March 31, 1995............... $20 $16 $.02
June 30, 1995................ 21-5/8 18-1/4 .02
September 30, 1995........... 21-3/4 17 .02
December 31, 1995............ 22-1/2 19-1/8 .025
March 31, 1996............... 22-1/2 19-1/8 .025
June 30, 1996................ 26-3/4 19 .025
September 30, 1996........... 29-7/8 22-3/8 .025
December 31, 1996............ 34-3/4 28-3/4 .03
</TABLE>
Dividend Policy
The Company began paying a quarterly dividend in the fourth quarter of 1992 and
expects to continue paying a regular quarterly cash dividend.
Number of Stockholders
Substantially all of the Company's stockholders maintain their shares in "street
name" accounts and are not, individually, stockholders of record. There were 82
stockholders of record at December 31, 1996.
1996 ANNUAL REPORT 51
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<CAPTION>
State or Jurisdiction Ownership
Name of Incorporation Percentage
---- --------------------- ----------
<S> <C> <C>
Vintage Gas, Inc. Oklahoma 100
Vintage Marketing, Inc. Oklahoma 100
Vintage Pipeline, Inc. Oklahoma 100
Vintage Petroleum
International, Inc. Oklahoma 100
Vintage Oil Argentina, Inc.
(formerly BG Argentina,
S.A.) Cayman Islands 100
Cadipsa S.A. Republic of Argentina 96.8
Vintage Petroleum
Argentina, Inc. Cayman Islands 100
Vintage Petroleum
Ecuador, Inc. Cayman Islands 100
VPI Exploration &
Production Ltd. Alberta, Canada 100
Vintage Petroleum Bolivia, Ltd.
(formerly Shamrock Ventures
(Boliviana) Ltd.) Bermuda 100
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 19, 1997, incorporated by reference in this Form 10-K,
into the Company's previously filed Registration Statements on Form S-8 (File
Nos. 33-37505 and 333-09205).
/s/ ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
March 27, 1997
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF NETHERLAND, SEWELL & ASSOCIATES, INC. APPEARS HERE]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
---------------------------------------------------------
As Petroleum Engineers, we hereby consent to the inclusion of the
information included in this Form 10-K and incorporated by reference in this
Form 10-K from the 1996 Annual Report of Stockholders of Vintage Petroleum, Inc.
with respect to the oil and gas reserves of Vintage Petroleum, Inc., the future
net revenues from such reserves and the present value thereof, which information
has been included in this Form 10-K in reliance upon the report of this firm and
upon the authority of this firm as experts in petroleum engineering. We hereby
further consent to all references to our firm included in this Form 10-K and to
the incorporation by reference in the Registration Statements on Form S-8, No.
33-37505 and 333-09205, of Vintage Petroleum, Inc. of such information with
respect to the oil and gas reserves of Vintage Petroleum, Inc., the future net
revenues from such reserves and the present value thereof.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ FREDERIC D. SEWELL
_______________________
Frederic D. Sewell
President
Dallas, Texas
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,774
<SECURITIES> 0
<RECEIVABLES> 72,664
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,252
<PP&E> 986,551
<DEPRECIATION> 275,392
<TOTAL-ASSETS> 813,950
<CURRENT-LIABILITIES> 113,376
<BONDS> 372,390
0
0
<COMMON> 120
<OTHER-SE> 264,985
<TOTAL-LIABILITY-AND-EQUITY> 813,950
<SALES> 310,796
<TOTAL-REVENUES> 311,682
<CGS> 138,438
<TOTAL-COSTS> 138,438
<OTHER-EXPENSES> 86,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,109
<INCOME-PRETAX> 56,637
<INCOME-TAX> 14,938
<INCOME-CONTINUING> 41,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,192
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68
</TABLE>
<PAGE>
EXHIBIT 99.1
[LETTERHEAD OF NETHERLAND, SEWELL & ASSOCIATES, INC. APPEARS HERE]
March 17, 1997
Mr. S. Craig George
Vintage Petroleum, Inc.
4200 One Williams Center
Tulsa, Oklahoma 74172
Dear Mr. George:
In accordance with your request, we have estimated the proved reserves and
future revenue, as of January 1, 1997, to the Vintage Petroleum, Inc. (Vintage)
interest in certain oil and gas properties located in the United States as
listed in the accompanying tabulations. This report has been prepared using
constant prices and costs and conforms to the guidelines of the Securities and
Exchange Commission (SEC).
As presented in the accompanying summary projections, Tables I through V,
we estimate the net reserves and future net revenue to the Vintage interest, as
of January 1, 1997, to be:
<TABLE>
<CAPTION>
Net Reserves Future Net Revenue (M$)
------------------------ --------------------------
Oil Gas Present Worth
Category (Barrels) (MCF) Total at 10%
- ------------------- ------------------------ --------------------------
<S> <C> <C> <C> <C>
Proved Developed
Producing 67,917,766 221,461,021 1,283,335.9 791,679.8
Non-Producing 11,324,486 68,003,199 366,588.8 190,921.8
Proved Undeveloped 15,087,464 35,623,354 308,279.8 148,367.8
Pipeline Revenue/(1)/
Proved Developed 0 0 17,001.8 10,363.5
---------- ----------- ----------- -----------
Total Proved 94,329,716 325,087,574 1,975,206.3 1,141,332.9
</TABLE>
/(1)/ Revenue is from the operations of Vintage Pipeline, Inc. and Vintage
Marketing, Inc.
The oil reserves shown include crude oil, condensate, and gas plant
liquids. Oil volumes are expressed in barrels which are equivalent to 42 United
States gallons. Gas volumes are expressed in thousands of standard cubic feet
(MCF) at the contract temperature and pressure bases.
The estimates shown in the previous table do not include the effect of the
Section 29 non-conventional fuel federal income tax credit. However, at the
request of Vintage, we have prepared estimates of net reserves and future
revenue including the effect of the tax credit for certain oil wells
<PAGE>
[LOGO APPEARS HERE]
located in the Cat Canyon and Santa Maria Valley Fields, Santa Barbara County,
California, which Vintage believes qualify for the tax credit. The basis used to
identify wells which qualify for the Section 29 tax credit and the methods used
to calculate the effect of this credit were provided by Vintage and have not
been independently verified. As presented in the accompanying summary
projections, Tables VI through X, we estimate the net reserves and future net
revenue to the Vintage interest, including the effect of the Section 29 tax
credit, as of January 1, 1997, to be:
<TABLE>
<CAPTION>
Net Reserves Future Net Revenue (M$)
------------------------ --------------------------
Oil Gas Present Worth
Category (Barrels) (MCF) Total at 10%
- --------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Proved Developed
Producing 67,925,635 221,461,021 1,289,981.7 796,877.4
Non-Producing 11,324,440 68,003,199 367,442.0 191,578.4
Proved Undeveloped 15,087,464 35,623,354 311,110.4 150,456.4
Pipeline Revenue/(1)/
Proved Developed 0 0 17,001.8 10,363.5
---------- ----------- ----------- -----------
Total Proved 94,337,539 325,087,574 1,985,535.9 1,149,275.7
</TABLE>
/(1)/ Revenue is from the operations of Vintage Pipeline, Inc. and Vintage
Marketing, Inc.
The effect of the Section 29 tax credit on estimated reserves and future revenue
is presented in the table following this letter, along with estimated reserves
and future revenue to the Vintage interest in certain oil and gas properties, as
of January 1, 1997, both excluding and including the effect of the tax credit.
As shown in the Table of Contents, this report includes summary projections
of reserves and revenue for each reserve category along with one-line summaries
of reserves, economics, and basic data by lease, excluding the effect of the
Section 29 tax credit. Also included are summary projections of reserves and
revenue for each reserve category along with one-line summaries of reserves,
economics, and basic data by lease, including the effect of the Section 29 tax
credit, for the Cat Canyon and Santa Maria Valley Fields. For the purposes of
this report, the term "lease" refers to a single economic projection.
The estimated reserves and future revenue shown in this report are for
proved developed producing, proved developed non-producing, and proved
undeveloped reserves. In accordance with SEC guidelines, our estimates do not
include any value for probable or possible reserves which may exist for these
properties. This report does not include any value which could be attributed to
interests in undeveloped acreage beyond those tracts for which undeveloped
reserves have been estimated.
Future gross revenue to the Vintage interest is prior to deducting state
production taxes and ad valorem taxes. Future net revenue is after deducting
these taxes, future capital costs, and
<PAGE>
[LOGO APPEARS HERE]
operating expenses, but before consideration of federal income taxes. Estimates
are presented which include the effect of the Section 29 tax credit. In
accordance with SEC guidelines, the future net revenue has been discounted at an
annual rate of 10 percent to determine its "present worth." The present worth is
shown to indicate the effect of time on the value of money and should not be
construed as being the fair market value of the properties.
For the purposes of this report, a field inspection of the properties has
not been performed nor has the mechanical operation or condition of the wells
and their related facilities been examined. We have not investigated possible
environmental liability related to the properties; therefore, our estimates do
not include any costs which may be incurred due to such possible liability.
Also, our estimates do not include any salvage value for the lease and well
equipment nor the cost of abandoning the properties.
Oil prices used in this report are based on a December 31, 1996 West Texas
Intermediate posted price of $24.25 per barrel, adjusted by lease for gravity,
transportation fees, premiums, and regional posted price differentials. As
requested, additional oil premiums have been included for certain fields when
Vintage is receiving premiums through purchaser contracts over and above those
at the lease level. Oil prices are held constant in accordance with SEC
guidelines.
Gas prices used in this report are based on either the most current price
available for each lease, adjusted to a December 1996 regional spot market
price, or the contract price. At the expiration of existing contracts, gas
prices are adjusted to the December 1996 regional spot market price and held
constant thereafter. All other gas prices are held constant in accordance with
SEC guidelines.
Lease and well operating costs are based on operating expense records of
Vintage. For recently acquired properties for which there are not adequate
historical operating expense records, the operating expense estimates of Vintage
have been used. For non-operated properties, these costs include the per-well
overhead expenses allowed under joint operating agreements along with costs
estimated to be incurred at and below the district and field levels. As
requested, lease and well operating costs for the operated properties include
only direct lease and field level costs. Headquarters general and
administrative overhead expenses of Vintage are not included. Lease and well
operating costs are held constant in accordance with SEC guidelines. Capital
costs are included as required for workovers, new development wells, and
production equipment.
We have made no investigation of potential gas volume and value imbalances
which may have resulted from overdelivery or underdelivery to the Vintage
interest. Therefore, our estimates of reserves and future revenue do not
include adjustments for the settlement of any such imbalances; our projections
are based on Vintage receiving its net revenue interest share of estimated
future gross gas production.
The reserves included in this report are estimates only and should not be
construed as exact quantities. They may or may not be recovered; if recovered,
the revenues therefrom and the costs related thereto could be more or less than
the estimated amounts. The sales rates, prices received for the reserves, and
costs incurred in recovering such reserves may vary from assumptions
<PAGE>
[LOGO APPEARS HERE]
included in this report due to governmental policies and uncertainties of supply
and demand. Also, estimates of reserves may increase or decrease as a result of
future operations.
In evaluating the information at our disposal concerning this report, we
have excluded from our consideration all matters as to which legal or
accounting, rather than engineering and geological, interpretation may be
controlling. As in all aspects of oil and gas evaluation, there are
uncertainties inherent in the interpretation of engineering and geological data;
therefore, our conclusions necessarily represent only informed professional
judgments.
The titles to the properties have not been examined by Netherland, Sewell &
Associates, Inc., nor has the actual degree or type of interest owned been
independently confirmed. The data used in our estimates were obtained from
Vintage Petroleum, Inc.; other interest owners; various operators of the
properties; and the nonconfidential files of Netherland, Sewell & Associates,
Inc. and were accepted as accurate. We are independent petroleum engineers,
geologists, and geophysicists; we do not own an interest in these properties and
are not employed on a contingent basis. Basic geologic and field performance
data together with our engineering work sheets are maintained on file in our
office.
Very truly yours,
/s/ FREDERIC D. SEWELL
TJT:LJH
<PAGE>
EXHIBIT 99.2
[LETTERHEAD OF NETHERLAND, SEWELL & ASSOCIATES, INC. APPEARS HERE]
March 24, 1997
Mr. S. Craig George
Vintage Petroleum, Inc.
4200 One Williams Center
Tulsa, Oklahoma 74172
Dear Mr. George:
In accordance with your request, we have estimated the proved reserves and
future revenue, as of January 1, 1997, to the combined interests of Cadipsa
S.A., Vintage Oil Argentina, Inc., and Shamrock Ventures (Boliviana) Ltd.
(collectively referred to herein as "Total South America") in certain oil and
gas properties located in the South American countries of Argentina and Bolivia
as listed in the accompanying tabulations. This report has been prepared using
constant prices and costs and conforms to the guidelines of the United States
Securities and Exchange Commission (SEC). All prices, costs, and revenue
estimates are expressed in United States dollars ($).
As presented in the accompanying summary projections, Tables I through IV,
we estimate the net reserves and future net revenue to the Total South America
interest, as of January 1, 1997, to be:
<TABLE>
<CAPTION>
Net Reserves Future Net Revenue (M$)
----------------------- --------------------------
Oil Gas Present Worth
Category (Barrels) (MCF) Total at 10%
- ------------------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Proved Developed
Producing 34,963,303 46,238,051 438,660.2 303,863.1
Non-Producing 12,625,237 5,037,491 213,675.1 114,584.9
Proved Undeveloped 36,369,617 6,482,517 519,343.0 270,319.6
---------- ---------- --------- ---------
Total Proved 83,958,157 57,758,059 1,171,678.3 688,767.6
</TABLE>
The oil reserves shown include crude oil and condensate. Oil volumes are
expressed in barrels which are equivalent to 42 United States gallons. Gas
volumes are expressed in thousands of standard cubic feet (MCF) at the contract
temperature and pressure bases.
As shown in the Table of Contents, this report includes summary projections
of reserves and revenue for each country by reserve category. Summary
projections of reserves and revenue for each company by reserve category along
with one-line summaries of reserves, economics, and basic data by lease are also
included behind the appropriate tabs. For the purposes of this report, the term
"lease" refers to a single economic projection.
The estimated reserves and future revenue shown in this report are for
proved developed producing, proved developed non-producing, and proved
undeveloped reserves. In accordance with
<PAGE>
[LOGO APPEARS HERE]
SEC guidelines, our estimates do not include any value for probable or possible
reserves which may exist for these properties. This report does not include any
value which could be attributed to interests in undeveloped acreage beyond those
tracts for which undeveloped reserves have been estimated.
Future gross revenue to the Total South America interest is prior to
deducting provincial production taxes. Future net revenue is after deducting
these taxes, future capital costs, and operating expenses, but before
consideration of Argentine, Bolivian, or United States federal income taxes. In
accordance with SEC guidelines, the future net revenue has been discounted at an
annual rate of 10 percent to determine its "present worth." The present worth
is shown to indicate the effect of time on the value of money and should not be
construed as being the fair market value of the properties.
For the purposes of this report, a field inspection of the properties has
not been performed nor has the mechanical operation or condition of the wells
and their related facilities been examined. We have not investigated possible
environmental liability related to the properties; therefore, our estimates do
not include any costs which may be incurred due to such possible liability.
Also, our estimates do not include any salvage value for the lease and well
equipment nor the cost of abandoning the properties.
Oil prices used in this report are based on a December 31, 1996 New York
Mercantile Exchange spot price of $25.78 per barrel, adjusted by field for
gravity, transportation fees, marketing fees, and regional price differentials.
Oil prices are held constant in accordance with SEC guidelines. Gas prices used
in this report are based on contract prices, adjusted for transportation fees
and BTU content. These prices are adjusted according to the provisions of
existing gas contracts which remain in effect throughout the life of the
properties.
Lease and well operating costs are based on operating expense records of
Vintage Petroleum, Inc. (Vintage). For recently acquired properties for which
there are not adequate historical operating expense records, the operating
expense estimates of Vintage have been used. For non-operated properties, these
costs include the per-well overhead expenses allowed under joint operating
agreements along with costs estimated to be incurred at and below the district
and field levels. As requested, lease and well operating costs for the operated
properties in Argentina include only direct lease and field level costs, while
these costs for the operated properties in Bolivia also include the overhead
cost of maintaining an office in Santa Cruz, Bolivia. Headquarters general and
administrative overhead expenses of Vintage are not included. For certain
recently acquired properties, lease and well operating costs are adjusted to
reflect Vintage's intention to modify procedures upon obtaining operational
control of the properties. In accordance with SEC guidelines, lease and well
operating costs are held constant throughout the life of the properties with the
exception of the adjustments described herein. Capital costs are included as
required for workovers, new development wells, and production equipment.
The reserves included in this report are estimates only and should not be
construed as exact quantities. They may or may not be recovered; if recovered,
the revenues therefrom and the costs related thereto could be more or less than
the estimated amounts. The sales rates, prices received for the reserves, and
costs incurred in recovering such reserves may vary from assumptions included in
this report due to governmental policies and uncertainties of supply and demand.
Also, estimates of reserves may increase or decrease as a result of future
operations.
<PAGE>
[LOGO APPEARS HERE]
In evaluating the information at our disposal concerning this report, we
have excluded from our consideration all matters as to which political,
socioeconomic, legal, or accounting, rather than engineering and geological,
interpretation may be controlling. As in all aspects of oil and gas evaluation,
there are uncertainties inherent in the interpretation of engineering and
geological data; therefore, our conclusions necessarily represent only informed
professional judgments.
The titles to the properties have not been examined by Netherland, Sewell &
Associates, Inc., nor has the actual degree or type of interest owned been
independently confirmed. The data used in our estimates were obtained from
Vintage Petroleum, Inc. and the nonconfidential files of Netherland, Sewell &
Associates, Inc. and were accepted as accurate. We are independent petroleum
engineers, geologists, and geophysicists; we do not own an interest in these
properties and are not employed on a contingent basis. Basic geologic and field
performance data together with our engineering work sheets are maintained on
file in our office.
Very truly yours,
/s/ Frederic D. Sewell
TJT:LJH
