<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1997.
REGISTRATION NO. 333-19569
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------
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
(918) 592-0101
(ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHARLES C. STEPHENSON, JR.
CHAIRMAN OF THE BOARD
4200 ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(918) 592-0101
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
ROBERT J. MELGAARD, ESQ. THOMAS R. BROME, ESQ.
CONNER & WINTERS, CRAVATH, SWAINE & MOORE
A PROFESSIONAL CORPORATION WORLDWIDE PLAZA
2400 FIRST PLACE TOWER 825 EIGHTH AVENUE
15 EAST 5TH STREET NEW YORK, NEW YORK 10019
TULSA, OKLAHOMA 74103-4391 (212) 474-1000
(918) 586-5711
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practical after this Registration Statement becomes effective.
-------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus: one to be used
in connection with the offering of Senior Subordinated Notes Due 2009 (the
"Note Offering Prospectus") and the other to be used in connection with a
concurrent offering of shares of Common Stock (the "Common Stock Offering
Prospectus"). The closing of the offering being made pursuant to the Note
Offering Prospectus (the "Note Offering") is not conditioned on the closing of
the offering being made pursuant to the Common Stock Offering Prospectus (the
"Common Stock Offering"), and the closing of the Common Stock Offering is not
conditioned on the closing of the Note Offering. The form of Note Offering
Prospectus immediately follows this page and is followed by the form of Common
Stock Offering Prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
JANUARY 28, 1997
PROSPECTUS
$100,000,000
[LOGO OF VINTAGE
PETROLEUM, INC.
APPEARS HERE]
VINTAGE PETROLEUM, INC.
% SENIOR SUBORDINATED NOTES DUE 2009
The % Senior Subordinated Notes Due 2009 (the "Notes") of Vintage Petroleum,
Inc. (the "Company") are being offered (this "Offering" or the "Note Offering")
by the Company. The Notes will mature on , 2009. Interest on the Notes will
be payable semiannually on and of each year, beginning on , 1997.
The Notes will be redeemable at the option of the Company, in whole or in part,
at any time on or after , 2002, at the redemption prices set forth herein
plus accrued and unpaid interest, if any, to the date of redemption. See
"Description of Notes--Optional Redemption." Upon a Change of Control (as
defined), holders of the Notes may require the Company to repurchase all or a
portion of the Notes at a purchase price equal to 101 percent of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase. See "Description of Notes--Repurchase at the Option of Holders Upon
a Change of Control."
Concurrent with this Offering, the Company is offering 1,500,000 shares
(1,725,000 shares if the underwriters' over-allotment option is exercised in
full) of Common Stock of the Company (the "Common Stock") to the public (the
"Common Stock Offering"). See "Common Stock Offering." Consummation of this
Offering is not contingent upon consummation of the Common Stock Offering, and
there can be no assurance that the Common Stock Offering will be consummated.
The Notes will be unsecured senior subordinated obligations of the Company. The
Notes will rank subordinate in right of payment to all existing and future
Senior Indebtedness (as defined), pari passu with existing and any future
senior subordinated indebtedness and senior to any future junior subordinated
indebtedness of the Company. On an as adjusted combined basis (which gives
effect to debt incurred for certain acquisitions and the application of the net
proceeds of this Offering and the Common Stock Offering), Senior Indebtedness
at September 30, 1996, would have been $106 million ($154 million if the Common
Stock Offering is not consummated). See "Use of Proceeds." The Company also has
$150 million of outstanding 9% Senior Subordinated Notes Due 2005 (the "9%
Notes") which will rank pari passu with the Notes. The Notes will be
structurally subordinated to the indebtedness and other liabilities of the
Company's subsidiaries. The total liabilities of the Company's subsidiaries
included $73.3 million of liabilities at September 30, 1996.
The Notes will be represented by a Global Security registered in the name of
the nominee of The Depository Trust Company, which will act as the depository
(the "Depositary"). Beneficial interests in the Global Security will be shown
on, and transfers thereof will be effected only through, records maintained by
the Depositary and its participants. Except as described herein, Notes in
definitive form will not be issued. See "Description of Notes--Book-Entry
System."
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
<S> <C> <C> <C>
Per Note................................... % % %
Total...................................... $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from , 1997.
(2) Before deducting expenses payable by the Company estimated to be $ .
The Notes are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Notes will be made through the facilities of The
Depository Trust Company, on or about , 1997.
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
LEHMAN BROTHERS
NESBITT BURNS SECURITIES INC.
The date of this Prospectus is , 1997.
<PAGE>
CERTAIN DEFINITIONS
Unless the context requires otherwise, all references in this Prospectus to
"Vintage" or the "Company" include Vintage Petroleum, Inc., its consolidated
subsidiaries and its proportionately consolidated general partner interests in
various limited partnerships and joint ventures.
As used in this Prospectus, "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 Prospectus, 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. ("Cadipsa") and do not
reflect reductions for minority interest ownership. The term "oil" includes
crude oil, condensate and natural gas liquids. "Finding cost" means an amount
per BOE equal to the sum of all costs incurred relating to oil and gas
property acquisition, exploration and development activities divided by the
sum of all additions and revisions to estimated proved reserves, including
reserve purchases.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Securities
and Exchange Commission (the "Commission") (File No. 1-10578) are hereby
incorporated by reference in this Prospectus: (a) the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995; (b) the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June 30,
1996, and September 30, 1996; (c) the Company's Current Report on Form 8-K
dated July 5, 1995, and Amendment No. 1 thereto dated September 18, 1995; (d)
the Company's Current Report on Form 8-K dated December 28, 1995; and (e) the
Company's Current Report on Form 8-K dated January 10, 1997.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
subsequent to the date of this Prospectus and prior to the termination of this
Offering shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the date of filing of such document. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained in this Prospectus or
in any other subsequently filed document which also is or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus has been delivered, on written or oral request of such person, a
copy (without exhibits, unless such exhibits are specifically incorporated by
reference into such documents) of any or all documents incorporated by
reference in this Prospectus. Requests for such copies should be directed to
William C. Barnes, Secretary, at the Company's principal executive offices,
4200 One Williams Center, Tulsa, Oklahoma 74172, telephone number (918) 592-
0101.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) included
elsewhere in this Prospectus or incorporated by reference herein. Certain terms
used herein are defined under "Certain Definitions."
THE COMPANY
Vintage Petroleum, Inc. ("Vintage" or 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 September 30, 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 net acres in the Chaco Plains area
of southern Bolivia. See "Recent Acquisitions."
Vintage owned interests in 3,053 gross (1,934 net) producing wells in the
United States as of September 30, 1996, of which approximately 81 percent are
operated by the Company. Vintage owned interests in 610 gross (597 net)
producing wells in Argentina as of September 30, 1996, of which approximately
97 percent are operated by the Company. As of December 31, 1995, the Company's
properties had proved reserves of 199.7 MMBOE, comprised of 147.9 MMBbls of oil
and 310.8 Bcf of gas, with a present value of estimated future net revenues
before income taxes (utilizing a 10 percent discount rate) of $894 million and
a standardized measure of discounted future net cash flows of $737 million.
Since that date, acquisitions have added 28.4 MMBOE of proved reserves, as
estimated by the Company as of the date of each acquisition.
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 1993 through the third quarter of 1996, the
Company increased its average net daily production from 11,200 Bbls of oil to
32,900 Bbls of oil and from 60,000 Mcf of gas to 86,300 Mcf of gas. For the
year ended December 31, 1995, the Company generated revenues of $195 million
and EBITDA (as defined herein) of $88 million. For the nine months ended
September 30, 1996, the Company generated revenues of $223 million and EBITDA
of $111 million.
3
<PAGE>
BUSINESS STRATEGY
Vintage'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, 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, 1993, through
September 30, 1996, the Company acquired 140.1 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 3.1 times its production of 45.5 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, 1993, through December 31,
1995, the Company spent approximately $83.9 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 75 percent of these operations, and the
result of all of its exploitation activities, including development and
infill drilling, succeeded in replacing more than 78 percent of
production during this period. The Company has an extensive inventory of
exploitation and development opportunities including identified projects
which represent approximately a 10 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, 1993, through September 30, 1996, the Company spent
approximately $39.8 million on exploration activities including the
drilling of 75 gross (32.65 net) exploration wells, of which
approximately 69 percent gross (58 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.
4
<PAGE>
. 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 Vintage 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. Upon consummation of the Note Offering
and the Common Stock Offering and the application of the net proceeds
therefrom, and after giving effect to the related borrowing base
reduction, the unused portion of the Company's revolving credit facility
as of January 9, 1997, would have been approximately $158.7 million
($110.7 million if only the Note Offering is consummated).
RECENT ACQUISITIONS
Since December 31, 1995, the Company has acquired, through several
transactions, oil and gas properties for an aggregate purchase price of
approximately $89.7 million. Most of these properties were acquired subsequent
to September 30, 1996. Based on estimates prepared by the Company, proved
reserves as of the dates of the various acquisitions aggregated 16.0 MMBbls of
oil and 74.0 Bcf of gas, or a total of 28.4 MMBOE. These reserves were acquired
at an average cost of $3.16 per BOE.
The two most significant acquisitions made subsequent to September 30, 1996,
are described below. If these properties had been acquired on January 1, 1996,
these properties would have increased the Company's revenues by approximately
$13.5 million, EBITDA by approximately $8.5 million and production by
approximately 302 MBbls of oil and 4.0 Bcf of gas for the nine months ended
September 30, 1996.
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 $28.2 million in cash (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.
Also during 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 $35.5 million (including the effect of
approximately $6.6 million of deferred income taxes recorded under the purchase
method of accounting), and (b) inventory, receivables, cash and other assets
net
5
<PAGE>
of liabilities (other than bank debt repaid at closing) of approximately $9.3
million. The oil and gas properties of Shamrock consist of three blocks,
totaling approximately 570,000 net acres, in the Chaco Plains area of southern
Bolivia. 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 the Company, were 53.2 Bcf of gas
and 5.1 MMBbls of oil. Current net daily production is approximately 14,500 Mcf
of gas and 230 Bbls of condensate. Recent realized prices on the properties
were $1.23 per Mcf of gas and $21.00 per Bbl of condensate. 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. The Company believes that the Shamrock
properties contain substantial upside potential which may be realized through
exploitation and future exploration. See "Recent Acquisitions."
6
<PAGE>
THE OFFERING
Securities Offered.......... $100,000,000 principal amount of % Senior
Subordinated Notes Due 2009 (the "Notes").
Maturity Date............... , 2009.
Interest Payment Dates...... and of each year, commencing , 1997.
Optional Redemption......... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after , 2002, at the redemption prices set
forth herein plus accrued and unpaid interest, if
any, to the date of redemption. See "Description
of Notes--Optional Redemption."
Ranking..................... The Notes will be unsecured senior subordinated
obligations of the Company. The Notes will rank
subordinate in right of payment to all existing
and future Senior Indebtedness (as defined), pari
passu with existing and any future senior
subordinated indebtedness and senior to any
future junior subordinated indebtedness of the
Company. On an as adjusted combined basis, Senior
Indebtedness at September 30, 1996, would have
been $106 million ($154 million if the Common
Stock Offering is not consummated). The Company
also has $150 million of outstanding 9% Senior
Subordinated Notes Due 2005 which will rank pari
passu with the Notes. The Notes will be
structurally subordinated to the indebtedness and
other liabilities of the Company's subsidiaries.
The total liabilities of the Company's
subsidiaries included $73.3 million of
liabilities at September 30, 1996.
Change of Control........... Upon the occurrence of a Change of Control (as
defined), the Company will be required to make an
offer to repurchase the Notes at 101 percent of
the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of
repurchase. See "Description of Notes--Repurchase
at the Option of Holders Upon a Change of
Control."
Certain Covenants........... The Indenture for the Notes will contain
limitations on, among other things, (a) the
ability of the Company to Incur additional
Indebtedness, (b) the payment of dividends and
other distributions with respect to the Capital
Stock of the Company and the purchase, redemption
or retirement of Capital Stock of the Company,
(c) the making of certain Investments, (d) the
Incurrence of certain Liens, (e) Asset Sales, (f)
the issuance and sale of Capital Stock of
Restricted Subsidiaries, (g) transactions with
Affiliates, (h) payment restrictions affecting
Restricted Subsidiaries, and (i) certain
consolidations, mergers and transfers of assets.
All of these limitations will be subject to a
number of important qualifications. See
"Description of Notes."
7
<PAGE>
Use of Proceeds............. The net proceeds to the Company from the sale of
the Notes offered hereby are estimated to be
approximately $97.3 million. Such net proceeds
will be used to repay a portion of existing
indebtedness under the Company's revolving credit
facility (the "Bank Facility"). See "Use of
Proceeds."
Common Stock Offering....... Concurrent with this Offering, the Company is
offering 1,500,000 shares (1,725,000 shares if
the underwriters' over-allotment option is
exercised in full) of Common Stock to the public.
This Offering is not contingent upon consummation
of the Common Stock Offering, and there can be no
assurance that the Common Stock Offering will be
consummated. The net proceeds to the Company from
the Common Stock Offering will be used to repay a
portion of existing indebtedness under the
Company's Bank Facility. See "Common Stock
Offering" and "Use of Proceeds." Unless otherwise
indicated, all data in this Prospectus with
respect to the Common Stock Offering assumes no
exercise of the underwriters' over-allotment
option.
8
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents summary financial information for the periods
indicated and should be read in conjunction with the Company's consolidated
financial statements and the notes thereto included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Significant acquisitions of producing oil and gas
properties affect the comparability of the financial data for the periods
presented below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and gas sales...... $ 185,847 $ 112,809 $ 160,254 $ 141,357 $ 113,259
Oil and gas gathering.. 15,310 8,472 12,380 14,635 7,861
Gas marketing.......... 21,519 13,631 20,912 27,285 36,175
Other income........... 659 1,461 1,251 2,375 2,732
---------- ---------- ---------- ---------- ----------
223,335 136,373 194,797 185,652 160,027
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Lease operating,
including production
taxes................. 67,606 47,520 66,771 59,292 44,930
Oil and gas gathering.. 12,838 6,636 9,511 12,294 5,869
Gas marketing.......... 19,885 12,210 18,839 24,963 34,406
General and
administrative........ 12,026 8,258 11,601 8,889 6,066
Depreciation, depletion
and amortization...... 51,313 36,875 52,257 45,774 33,335
Interest............... 22,467 13,379 20,178 12,002 6,943
---------- ---------- ---------- ---------- ----------
186,135 124,878 179,157 163,214 131,549
---------- ---------- ---------- ---------- ----------
Income before income
taxes, minority
interest and cumulative
effect of accounting
change................. 37,200 11,495 15,640 22,438 28,478
Provision (benefit) for
income taxes:
Current................ 2,061 687 (955) 1,576 3,962
Deferred............... 7,982 3,895 6,034 6,933 7,727
Minority interest in
(income) loss of
subsidiary(a).......... (361) 662 800 -- --
---------- ---------- ---------- ---------- ----------
Income before cumulative
effect of accounting
change................. 26,796 7,575 11,361 13,929 16,789
Cumulative effect of
accounting change(b)... -- -- -- -- 1,725
---------- ---------- ---------- ---------- ----------
Net income.............. $ 26,796 $ 7,575 $ 11,361 $ 13,929 $ 18,514
========== ========== ========== ========== ==========
Weighted average common
shares outstanding..... 24,454 21,322 21,276 21,174 20,830
EARNINGS PER SHARE:
Income before cumulative
effect of accounting
change................. $ 1.10 $ .36 $ .53 $ .66 $ .81
Net income.............. 1.10 .36 .53 .66 .89
CASH FLOW DATA:
Cash provided (used) by:
Operating activities... $ 82,947 $ 48,904 $ 54,199 $ 58,670 $ 52,219
Investing activities... (100,699) (120,925) (187,251) (70,668) (146,126)
Financing activities... 20,546 73,134 135,166 11,867 93,900
BALANCE SHEET DATA (end
of period):
Property, plant and
equipment, net......... $ 623,092 $ 521,751 $ 577,746 $ 366,665 $ 346,034
Total assets............ 701,358 572,143 647,539 407,752 384,461
Total debt.............. 344,309 309,140 323,776 193,864 181,480
Minority interest(a).... 2,286 11,618 3,922 -- --
Stockholders' equity.... 251,232 169,702 223,960 155,993 143,392
OTHER FINANCIAL DATA:
Dividends declared per
share.................. $ .08 $ .07 $ .09 $ .07 $ .05
EBITDA(c)............... 110,980 61,749 88,075 80,214 68,756
Ratio of EBITDA to
interest expense....... 4.9x 4.6x 4.4x 6.7x 9.9x
Ratio of earnings to
fixed charges(d)....... 2.7x 1.9x 1.8x 2.9x 5.0x
</TABLE>
(see notes on following page)
9
<PAGE>
- --------
(a) Reflects the minority interest in Cadipsa S.A. See consolidated financial
statements and the notes thereto of the Company included elsewhere in this
Prospectus.
(b) Represents the cumulative effect on prior years of adopting Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
(c) EBITDA is presented herein as defined in the Indenture. See "Description of
Notes--Certain Definitions." EBITDA is included as a supplemental
disclosure because it is commonly accepted as providing useful information
regarding a company's ability to service and incur debt and certain
covenants contained in the Indenture are based in part on EBITDA. EBITDA,
however, should not be considered in isolation or as a substitute for net
income, cash flow provided by operating activities or other income or cash
flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity. If
the Exxon Properties and Shamrock had been acquired on January 1, 1996,
these properties would have increased the Company's EBITDA by approximately
$8.5 million for the nine months ended September 30, 1996. See "Recent
Acquisitions."
(d) For purposes of calculating the ratio of earnings to fixed charges,
earnings are defined as income of the Company and its subsidiaries before
income taxes and fixed charges. Fixed charges consist of interest expense,
including amortization of financing costs and any discount or premium
related to any indebtedness.
10
<PAGE>
SUMMARY OPERATING AND RESERVE DATA (A)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- ----------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)................ 8,649 5,310 7,608 6,657 4,785
Gas (MMcf)................. 24,535 22,489 30,610 28,884 22,504
Oil equivalent (MBOE)...... 12,738 9,058 12,710 11,471 8,536
Average sales prices:
Oil (per Bbl).............. $ 16.66(b) $ 15.33 $15.26 $13.53 $14.14
Gas (per Mcf).............. 1.70 1.42 1.46 1.78 2.03
Production costs (per
BOE)(c).................... 5.31 5.25 5.25 5.17 5.26
Three-year average finding
cost (per BOE)(d).......... N/A N/A 2.98 3.23 3.34
Proved reserves (end of
period):
Oil (MBbls)................ N/A N/A 147,871 70,789 63,277
Gas (MMcf)................. N/A N/A 310,762 281,638 273,142
Total proved reserves
(MBOE).................... N/A N/A 199,665 117,729 108,801
Proved developed reserves
(MBOE).................... N/A N/A 145,790 91,722 88,976
Annual reserve replacement
ratio(e)................... N/A N/A 747% 179% 504%
Estimated reserve life (in
years)(f).................. N/A N/A 15.7 10.3 12.7
Present value of estimated
future net revenues before
income taxes (discounted at
10%) (in thousands)........ N/A N/A $894,249 $446,987 $359,978
Standardized measure of
discounted future net cash
flows (in thousands)....... N/A N/A 736,546 385,721 339,701
</TABLE>
- --------
(a) Significant acquisitions of producing oil and gas properties affect the
comparability of the operating data for the periods presented.
(b) During the first nine months of 1996, the impact of oil hedges reduced the
Company's overall average oil price $1.17 to $16.66 per Bbl.
(c) Includes lease operating costs and production and ad valorem taxes.
(d) Represents the average finding cost per BOE during the three years ended
December 31 of the year shown in the column. See "Certain Definitions."
(e) The annual reserve replacement ratio is a percentage determined on a BOE
basis by dividing the estimated reserves added during a year from
exploitation, development and exploration activities, acquisitions of
proved reserves and revisions of previous estimates, excluding property
sales, by the oil and gas volumes produced during that year.
(f) Estimated reserve life is calculated on a BOE basis by dividing the total
estimated proved reserves at year-end by the total production during the
year. This calculation can be affected by the timing of major acquisitions.
For example, major acquisitions were made during the second half of 1995
which resulted in an estimated reserve life of 15.7 years for 1995. This
compares to an estimated reserve life of 12.0 years for 1995 based on
annualized first quarter 1996 production.
11
<PAGE>
SUMMARY OIL AND GAS RESERVE DATA
The following table sets forth summary information with respect to the
estimates of the Company's proved oil and gas reserves at December 31, 1995, as
evaluated by Netherland, Sewell & Associates, Inc. For additional information
relating to the Company's oil and gas reserves, see "Business--Reserves,"
"Recent Acquisitions" and Note 9 "Supplementary Financial Information for Oil
and Gas Producing Activities" to the Company's consolidated financial
statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PROVED RESERVES AT
DECEMBER 31, 1995
-----------------------------
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- -------
<S> <C> <C> <C>
United States:
Oil (MBbls)..................................... 63,791 16,436 80,227
Gas (MMcf)...................................... 270,427 40,335 310,762
MBOE............................................ 108,862 23,159 132,021
Argentina:
Oil (MBbls)..................................... 36,928 30,716 67,644
Total:
Oil (MBbls)..................................... 100,719 47,152 147,871
Gas (MMcf)...................................... 270,427 40,335 310,762
MBOE............................................ 145,790 53,875 199,665
</TABLE>
12
<PAGE>
RISK FACTORS
Prospective purchasers of the Notes offered hereby should carefully consider
the following risk factors, as well as the other information set forth in this
Prospectus.
INDUSTRY CONDITIONS; IMPACT ON COMPANY'S OPERATING RESULTS
The Company's revenues, operating results and future rate of growth are
substantially dependent upon prevailing prices for oil and gas. Historically,
oil and gas prices and markets have been volatile, and they are likely to
continue to be volatile in the future. Prices for oil and gas are subject to
wide fluctuations in response to relatively minor changes in the supply of and
demand for oil and gas, market uncertainty and a variety of additional factors
that are beyond the control of the Company. These factors include political
conditions in oil producing regions, including the Middle East, the domestic
and foreign supply of oil and gas, the level of consumer demand, weather
conditions, domestic and foreign government regulations, the price and
availability of alternative fuels and overall economic conditions. In
addition, various factors, including the capacity and availability of oil and
gas gathering systems and pipelines, the effect of federal and state
regulation of production and transportation, general economic conditions,
changes in supply due to drilling by other producers and changes in demand,
may adversely affect the Company's ability to market its oil and gas
production.
SUBSTANTIAL LEVERAGE
At September 30, 1996, on an as adjusted combined basis, the Company would
have had long-term debt of $357.5 million as compared to stockholders' equity
of $299.2 million ($405.5 million and $251.2 million, respectively, if the
Common Stock Offering is not consummated) resulting in a long-term debt to
total capitalization ratio of 54 percent (62 percent if the Common Stock
Offering is not consummated). See "Capitalization." Following this Offering,
the Company will have the ability to incur additional indebtedness under the
Indenture governing the Notes and the indenture governing the 9% Notes and
will have significant borrowing capacity under its revolving credit facility
(the "Bank Facility"). The Company's ability to meet its debt service
obligations and reduce total indebtedness will be dependent not only upon its
future drilling and production performance, but also on oil and gas prices,
general economic conditions and financial, business and other factors
affecting its operations, many of which are beyond its control. The Company's
historical focus has been and is expected to continue to be the acquisition,
exploitation, development and exploration of producing oil and gas properties.
Each of these activities requires substantial capital. The Company may finance
such capital expenditures in the future through the incurrence of additional
indebtedness. The degree to which the Company is leveraged could have
important consequences to holders of the Notes, including (a) the ability of
the Company to obtain any necessary financing in the future for working
capital, capital expenditures, acquisitions, debt service requirements or
other purposes may be limited; (b) a portion of the Company's cash flow from
operations must be dedicated to the payment of interest on its indebtedness
and will not be available for other purposes; (c) the Company's level of
indebtedness could limit its flexibility in planning for, or reacting to
changes in, its business; (d) the Company is more highly leveraged than some
of its competitors, which may place it at a competitive disadvantage; (e) the
Company's level of indebtedness may make it more vulnerable in the event of a
downturn in its business; and (f) the terms of certain of the Company's
indebtedness permit its creditors to accelerate payments upon certain events
of default or a change of control of the Company.
SUBORDINATION OF NOTES; HOLDING COMPANY STRUCTURE
The Indenture governing the Notes limits, but does not prohibit, the
incurrence by the Company of additional indebtedness that is senior in right
of payment to the Notes (including by reason of structural subordination of
the Notes to the indebtedness and other liabilities of the Company's
subsidiaries). In the event of bankruptcy, liquidation, reorganization or
other winding up of the Company, the assets of the Company will be available
to pay the Company's obligations on the Notes
13
<PAGE>
offered hereby only after all Senior Indebtedness has been paid in full, and
there may not be sufficient assets remaining to pay amounts due on the Notes.
In addition, under certain circumstances, no payments may be made with respect
to principal of, premium, if any, or interest on the Notes if a default exists
with respect to any Senior Indebtedness. See "Description of Notes--
Subordination."
Obligations of the Company's subsidiaries will represent prior claims with
respect to the assets and earnings of such subsidiaries. The Notes, therefore,
are structurally subordinated to all current and future liabilities (including
trade payables and accrued liabilities) of the Company's subsidiaries. The
Company's subsidiaries also may have contingent liabilities, which could be
substantial. The rights of the Company's creditors, including the holders of
the Notes, to realize upon the assets of any subsidiary upon such subsidiary's
liquidation or reorganization will be subject to the prior claims of such
subsidiary's creditors.
In the event that as a result of an Asset Sale (as defined) the Company was
required to apply any portion of the proceeds thereof to redeem the Notes or
to make an offer to repurchase the Notes, the Company would be required to
first redeem or repurchase the 9% Notes. In addition, the Company would be
required to make any such redemption of, or offer to repurchase, the Notes on
a pro rata basis with all then outstanding indebtedness that is pari passu
with the Notes (other than the 9% Notes). See "Description of Notes--Certain
Covenants--Limitation on Asset Sales."
In addition, an instrument of indebtedness of one of the Company's foreign
subsidiaries restricts its ability to pay dividends to the Company, and the
Indenture permits foreign subsidiaries of the Company to agree to similar
restrictions in the future. See "Description of Notes--Certain Covenants--
Limitation on Restricted Payments" and "--Limitation on Restrictions on
Distributions from Restricted Subsidiaries."
RELIANCE ON DEVELOPMENT OF ADDITIONAL RESERVES; ACQUISITION RISKS
The Company's future performance is dependent upon its ability to find or
acquire additional oil and gas reserves that are economically recoverable.
Unless the Company successfully replaces the reserves that it produces, the
Company's reserves will decline, resulting eventually in a decrease in oil and
gas production and lower revenues and cash flow from operations.
The Company in the past has focused, and expects to continue to focus, on
acquiring producing oil and gas properties to replace reserves. Although the
Company performs a review of the acquired properties that it believes is
consistent with industry practice, such reviews are inherently incomplete. In
general, it is not feasible to review in-depth each individual property being
acquired. Ordinarily, the Company will focus its review efforts on the higher-
valued properties and will sample the remainder. However, even an in-depth
review of all properties and records may not necessarily reveal existing or
potential problems nor will it permit the Company to become sufficiently
familiar with the properties to assess fully their deficiencies and
capabilities. Inspections may not always be performed on each well included in
an acquisition, and environmental problems, such as ground water
contamination, are not necessarily observable even when an inspection is
performed. In addition, competition for producing oil and gas properties is
intense and many of the Company's competitors have financial and other
resources substantially in excess of those available to the Company.
Therefore, no assurance can be given that the Company will be able to acquire
producing oil and gas properties that contain economically recoverable
reserves or that it will make such acquisitions at acceptable prices.
The Company historically has succeeded in replacing reserves through
exploitation, development and exploration. The Company has conducted such
activities on its existing oil and gas properties as well as on newly acquired
properties. However, no assurance can be given that the Company will continue
to replace reserves from such activities at acceptable costs. In addition,
exploitation, development and exploration involve numerous risks, including
depositional or trapping uncertainties or other conditions that may result in
dry holes, the failure to produce oil and gas in commercial quantities and the
inability to fully produce discovered reserves.
14
<PAGE>
UNCERTAINTIES IN ESTIMATING RESERVES AND FUTURE NET REVENUES; IMPAIRMENT OF
OIL AND GAS ASSETS
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing of
developmental expenditures, including many factors beyond the control of the
producer. The reserve data set forth in this Prospectus or incorporated by
reference herein represent only estimates. In addition, the estimates of
future net revenues from proved reserves of the Company and the present value
thereof are based upon certain assumptions about future production levels,
prices and costs that may not prove to be correct over time. The level of
future oil and gas production is subject to a number of uncertainties
including the degree to which the Company is successful in acquiring or
developing additional reserves. See "--Reliance on Development of Additional
Reserves; Acquisition Risks."
The Company accounts for its oil and gas producing activities under the full
cost method. This method imposes certain limitations on the carrying (book)
value of proved oil and gas properties and requires a writedown of such assets
for accounting purposes if such limits are exceeded. The risk that the Company
will be required to write down the carrying value of its oil and gas
properties increases as oil and gas prices decline or remain depressed. If a
writedown is required, it would result in a non-cash charge to earnings. If
declines in oil and gas prices are severe, the Company's borrowing base under
the Bank Facility may be reduced. In the event debt outstanding under the Bank
Facility exceeds the amount of the revised borrowing base, the Company would
be required to make a principal repayment to bring the total amount of debt
outstanding in compliance with the revised borrowing base. In the past, the
Company has not been required to writedown its oil and gas properties or make
a mandatory prepayment under the Bank Facility. However, no assurance can be
given that the Company will not be required to make such a writedown or make
such a mandatory prepayment in the future.
RISKS OF INTERNATIONAL OPERATIONS
International investments represent approximately 34 percent of the
Company's total proved reserves at December 31, 1995, 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 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.
RISKS OF HEDGING TRANSACTIONS
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. Currently, oil hedges for the
calendar year 1997 cover 2.738 MMBbls at an average NYMEX reference price of
$19.26. 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. These hedging arrangements may
limit potential gains by the Company if the market prices for oil and gas were
to rise substantially over the price established by the hedge. In addition,
the Company's hedging arrangements expose the Company to the risk of financial
loss in certain circumstances, including instances in which (a) production is
less than expected, (b) there is a
15
<PAGE>
widening of price differentials between delivery points for the Company's
production and the NYMEX reference price or (c) the counterparties to the
Company's hedging arrangements fail to honor their financial commitments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
RISKS RELATING TO A CHANGE OF CONTROL
In the event of a Change of Control, holders of the Notes, the 9% Notes and
all then outstanding indebtedness pari passu with the Notes that contains
similar change of control provisions will have the right to require the
Company, subject to certain conditions, to repurchase all or any part of such
holders' notes at a price equal to 101 percent of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
See "Description of Notes--Repurchase at the Option of Holders Upon a Change
of Control" and "Description of Certain Indebtedness--9% Senior Subordinated
Notes Due 2005." Existing Senior Indebtedness and existing senior subordinated
indebtedness includes, and future Indebtedness may include, change of control
provisions pursuant to which the Company would be required to repurchase, or
the lender could demand repayment of, upon a change of control (as defined
thereunder), the Indebtedness due thereunder. Upon such an occurrence, the
Company would be required to redeem or repay such Senior Indebtedness before
repurchasing the Notes, the 9% Notes and all then outstanding indebtedness
pari passu with the Notes that contains similar change of control provisions.
Furthermore, no assurance can be given that the Company would have sufficient
funds available or could obtain the financing required to repurchase the
Notes, the 9% Notes and such other outstanding indebtedness that is pari passu
with the Notes tendered by holders following a Change of Control. If a Change
of Control occurred and the Company had inadequate funds or financing
available to pay for Notes, 9% Notes and such other outstanding indebtedness
that is pari passu with the Notes tendered for repurchase, an Event of Default
(as defined) would be triggered under the Indenture and under the indentures
governing the 9% Notes and such other outstanding indebtedness that is pari
passu with the Notes, each of which could have adverse consequences for the
Company and the holders of the Notes.
OPERATING HAZARDS; UNINSURED RISKS
The Company's operations are subject to all of the risks and hazards
typically associated with the exploitation, development and exploration for,
the production of, and the transportation of oil and gas. Operating risks
include but are not limited to fires, explosions, formations with abnormal
pressures, blowouts, cratering and oil spills and other natural disasters, any
of which could result in loss to human life, significant damage to property,
environmental pollution, impairment of the Company's operations and
substantial losses to the Company. In accordance with customary industry
practice, the Company maintains insurance against some, but not all, of such
risks and some, but not all, of such losses. The occurrence of such an event
not fully covered by insurance could have a material adverse effect on the
financial position and operations of the Company.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company's business is subject to certain foreign, federal, state and
local laws and regulations relating to the exploration for and development,
production and marketing of oil and gas, including environmental and safety
matters. Such laws and regulations have generally become more stringent in
recent years, often imposing greater liability on a larger number of
potentially responsible parties. Such laws and regulations have increased the
costs of planning, designing, drilling, installing, operating and abandoning
the Company's oil and gas wells and other facilities.
The Company has expended significant resources to comply with certain laws
and environmental regulations and anticipates that it will continue to do so
in the future. Because the requirements imposed by such laws and regulations
are frequently changed, the Company is unable to predict the ultimate cost of
compliance with such requirements. There can be no assurance given that laws
and regulations enacted in the future, including changes to existing laws and
regulations, will not adversely affect the Company's business.
16
<PAGE>
COMPETITION
The oil and gas industry is highly competitive. The Company competes in the
areas of property acquisitions and the development, production and marketing
of oil and natural gas with major oil companies, other independent oil and
natural gas concerns and individual producers and operators. The Company also
competes with major and independent oil and natural gas concerns in recruiting
and retaining qualified employees. Many of these competitors have
substantially greater financial and other resources than the Company.
CONTROL BY CERTAIN STOCKHOLDERS
Upon the completion of the Common Stock Offering, the current officers and
directors of the Company as a group, will own at least 32 percent of the
outstanding Common Stock (or 34 percent if the Common Stock Offering is not
consummated). Consequently, these stockholders may be in a position to
effectively control the affairs of the Company, including the election of all
of the Company's directors and the approval or prevention of certain corporate
transactions which require majority stockholder approval.
ABSENCE OF A PREVIOUS MARKET FOR THE NOTES
The Notes are a new issue of securities with no established trading market
and the Company does not intend to apply for listing of the Notes on any
securities exchange. The Company has been advised by the Underwriters that,
subject to applicable laws and regulations, each of them currently intends to
make a market in the Notes; however, they are not obligated to do so and may
discontinue any such market making at any time without notice. No assurance
can be given as to the development or liquidity of any trading market in the
Notes. If an active market does not develop, the market price and liquidity of
the Notes may be adversely affected.
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Prospectus which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things
as future capital expenditures (including the amount and nature thereof),
wells to be drilled or reworked, oil and gas prices and demand, exploitation
and exploration prospects, development and infill potential, drilling
prospects, expansion and other development trends of the oil and gas industry,
business strategy, production of oil and gas reserves, expansion and growth of
the Company's business and operations, and other such matters are forward-
looking statements. These statements are based on certain assumptions and
analyses made by the Company in light of its experience and its perception of
historical trends, current conditions and expected future developments as well
as other factors it believes are appropriate in the circumstances. However,
whether actual results and developments will conform with the Company's
expectations and predictions is subject to a number of risks and
uncertainties, including the risk factors discussed in this Prospectus;
general economic, market or business conditions; the business opportunities
(or lack thereof) that may be presented to and pursued by the Company; changes
in laws or regulations; and other factors, most of which are beyond the
control of the Company. Consequently, all of the forward-looking statements
made in this Prospectus are qualified by these cautionary statements and there
can be no assurance that the actual results or developments anticipated by the
Company will be realized or, even if substantially realized, that they will
have the expected consequences to or effects on the Company or its business or
operations. The Company assumes no obligation to update any such forward-
looking statements.
17
<PAGE>
COMMON STOCK OFFERING
Concurrent with this Offering, the Company is offering 1,500,000 shares of
Common Stock to the public. In addition, the Company has granted the
underwriters an option to purchase up to 225,000 additional shares of Common
Stock to cover over-allotments, if any. This Offering and the Common Stock
Offering are not contingent upon each other and there can be no assurance that
the Common Stock Offering will be consummated.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby
are estimated to be approximately $97.3 million. Such net proceeds will be
used to reduce a portion of existing indebtedness under the Company's Bank
Facility. At January 9, 1997, the outstanding balance under the Bank Facility
totaled approximately $248.7 million, with an average interest rate of
approximately 6.8 percent. The Company's indebtedness under the Bank Facility
was incurred, in part, to finance the Company's acquisitions of oil and gas
reserves, including the acquisitions of Shamrock and the Exxon Properties. For
additional information regarding the term and the interest rate of the
indebtedness under the Bank Facility, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity."
If the concurrent Common Stock Offering is consummated, the net proceeds
from that offering to the Company are estimated to be approximately $48.0
million. Such net proceeds will also be used to reduce a portion of existing
indebtedness under the Bank Facility.
18
<PAGE>
CAPITALIZATION
The following table sets forth at September 30, 1996: (a) the historical
capitalization of the Company, (b) the as adjusted capitalization of the
Company after giving effect to the debt incurred to purchase the Exxon
Properties and the acquisition of Shamrock (see "Recent Acquisitions"), and
the Note Offering and the application of the estimated net proceeds therefrom
as set forth in "Use of Proceeds," and (c) the as adjusted combined
capitalization of the Company after giving effect to (b) above and the Common
Stock Offering and the application of the estimated net proceeds therefrom as
set forth in "Use of Proceeds." This table should be read in conjunction with
the Company's consolidated financial statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------
AS ADJUSTED
NOTE
OFFERING AND AS ADJUSTED
HISTORICAL ACQUISITIONS COMBINED
---------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt........ $ 7,929 $ 7,929 $ 7,929
======== ======== ========
Long-term debt:
Bank Revolving Loan Facility........... $164,800 $133,951(a) $ 85,957(b)
9% Senior Subordinated Notes Due 2005,
net of discount....................... 149,623 149,623 149,623
Notes offered hereby................... -- 100,000 100,000
International Finance Corporation Note. 21,957 21,957 21,957
-------- -------- --------
Total long-term debt................. 336,380 405,531 357,537
-------- -------- --------
Minority interest........................ 2,286 2,286 2,286
-------- -------- --------
Stockholders' equity:
Common stock........................... 120 120 128(b)
Capital in excess of par value......... 152,121 152,121 200,107(b)
Retained earnings...................... 98,991 98,991 98,991
-------- -------- --------
Total stockholders' equity........... 251,232 251,232 299,226
-------- -------- --------
Total capitalization..................... $589,898 $659,049 $659,049
======== ======== ========
</TABLE>
- --------
(a) Reflects the reduction in borrowings resulting from the application of the
estimated $97.3 million net proceeds from the Note Offering as well as
additional borrowings of $66.4 million to fund the acquisitions of the
Exxon Properties and Shamrock.
(b) Reflects the issuance of 1,500,000 shares of Common Stock by the Company
at an assumed public offering price of $33.75 per share, resulting in
estimated net proceeds of $48.0 million, of which $7,500 (equal to the par
value of the shares issued) is reflected in Common Stock and $48.0 million
is reflected in Capital in excess of par value. Net proceeds from the
Common Stock Offering are applied to reduce borrowings under the Bank
Facility. See "Use of Proceeds."
19
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The financial data presented in the table below for and at the end of each
of the years in the five-year period ended December 31, 1995, are derived from
the consolidated financial statements of the Company audited by Arthur
Andersen LLP, independent public accountants. The financial data presented in
the table below for and at the end of each of the nine-month periods ended
September 30, 1996 and 1995, are derived from the unaudited consolidated
financial statements of the Company. In the opinion of management of the
Company, such unaudited consolidated financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial data for such periods. The results for the
nine months ended September 30, 1996, are not necessarily indicative of the
results to be achieved for the full year.
The data presented below should be read in conjunction with the Company's
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Significant acquisitions of producing
oil and gas properties affect the comparability of the financial and operating
data for the periods presented below.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- ------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS, OPERATING DATA AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and gas sales...... $ 185,847 $ 112,809 $ 160,254 $ 141,357 $ 113,259 $ 61,194 $ 43,392
Oil and gas gathering.. 15,310 8,472 12,380 14,635 7,861 7,775 9,013
Gas marketing.......... 21,519 13,631 20,912 27,285 36,175 31,097 17,221
Other income........... 659 1,461 1,251 2,375 2,732 1,384 4,353
--------- --------- --------- --------- --------- -------- --------
223,335 136,373 194,797 185,652 160,027 101,450 73,979
--------- --------- --------- --------- --------- -------- --------
Costs and expenses:
Lease operating,
including production
taxes................. 67,606 47,520 66,771 59,292 44,930 26,334 19,146
Oil and gas gathering.. 12,838 6,636 9,511 12,294 5,869 5,901 6,894
Gas marketing.......... 19,885 12,210 18,839 24,963 34,406 29,536 16,652
General and
administrative........ 12,026 8,258 11,601 8,889 6,066 4,064 3,168
Depreciation, depletion
and amortization...... 51,313 36,875 52,257 45,774 33,335 17,374 12,927
Interest............... 22,467 13,379 20,178 12,002 6,943 4,497 4,244
--------- --------- --------- --------- --------- -------- --------
186,135 124,878 179,157 163,214 131,549 87,706 63,031
--------- --------- --------- --------- --------- -------- --------
Income before income
taxes, minority
interest and cumulative
effect of accounting
change................. 37,200 11,495 15,640 22,438 28,478 13,744 10,948
Provision (benefit) for
income taxes:
Current................ 2,061 687 (955) 1,576 3,962 1,650 2,367
Deferred............... 7,982 3,895 6,034 6,933 7,727 3,441 1,793
Minority interest in
(income) loss of
subsidiary(a).......... (361) 662 800 -- -- -- --
--------- --------- --------- --------- --------- -------- --------
Income before cumulative
effect of accounting
change................. 26,796 7,575 11,361 13,929 16,789 8,653 6,788
Cumulative effect of
accounting change(b)... -- -- -- -- 1,725 -- --
--------- --------- --------- --------- --------- -------- --------
Net income.............. $ 26,796 $ 7,575 $ 11,361 $ 13,929 $ 18,514 $ 8,653 $ 6,788
========= ========= ========= ========= ========= ======== ========
Weighted average common
shares outstanding..... 24,454 21,322 21,276 21,174 20,830 16,861 16,720
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS, OPERATING DATA AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS PER SHARE:
Income before cumulative
effect of accounting
change................. $ 1.10 $ .36 $ .53 $ .66 $ .81 $ .51 $ .41
Net income.............. 1.10 .36 .53 .66 .89 .51 .41
CASH FLOW DATA:
Cash provided (used) by:
Operating activities... $ 82,947 $ 48,904 $ 54,199 $ 58,670 $ 52,219 $ 28,949 $ 19,393
Investing activities... (100,699) (120,925) (187,251) (70,668) (146,126) (122,637) (30,882)
Financing activities... 20,546 73,134 135,166 11,867 93,900 93,923 11,345
BALANCE SHEET DATA (end
of period):
Property, plant and
equipment, net......... $ 623,092 $ 521,751 $ 577,746 $ 366,665 $ 346,034 $ 228,778 $ 126,286
Total assets............ 701,358 572,143 647,539 407,752 384,461 259,887 143,897
Total debt.............. 344,309 309,140 323,776 193,864 181,480 133,375 41,957
Minority interest(a).... 2,286 11,618 3,922 -- -- -- --
Stockholders' equity.... 251,232 169,702 223,960 155,993 143,392 78,696 69,828
OTHER FINANCIAL DATA:
Dividends declared per
share.................. $ .08 $ .07 $ .09 $ .07 $ .05 $ .02 $ --
EBITDA(c)............... 110,980 61,749 88,075 80,214 68,756 35,615 28,119
Ratio of EBITDA to
interest expense....... 4.9x 4.6x 4.4x 6.7x 9.9x 7.9x 6.6x
Ratio of earnings to
fixed charges(d)....... 2.7x 1.9x 1.8x 2.9x 5.0x 4.0x 3.6x
SELECTED OPERATING DATA
(Unaudited):
Production:
Oil (MBbls)............ 8,649 5,310 7,608 6,657 4,785 1,978 1,388
Gas (MMcf)............. 24,535 22,489 30,610 28,884 22,504 14,592 11,411
Oil equivalent (MBOE).. 12,738 9,058 12,710 11,471 8,536 4,410 3,290
Average sales prices:
Oil (per Bbl).......... $ 16.66(e) $ 15.33 $ 15.26 $ 13.53 $ 14.14 $ 17.88 $ 19.39
Gas (per Mcf).......... 1.70 1.42 1.46 1.78 2.03 1.77 1.44
Production costs (per
BOE)(f)................ 5.31 5.25 5.25 5.17 5.26 5.97 5.82
Three-year average
finding cost
(per BOE)(g)........... N/A N/A 2.98 3.23 3.34 3.39 4.06
Proved reserves (end of
period):
Oil (MBbls)............ N/A N/A 147,871 70,789 63,277 40,209 17,061
Gas (MMcf)............. N/A N/A 310,762 281,638 273,142 206,582 137,712
Total proved reserves
(MBOE)................ N/A N/A 199,665 117,729 108,801 74,639 40,013
Proved developed
reserves (MBOE)....... N/A N/A 145,790 91,722 88,976 61,581 31,620
Annual reserve
replacement ratio(h)... N/A N/A 747% 179% 504% 891% 215%
Estimated reserve life
(in years)(i).......... N/A N/A 15.7 10.3 12.7 11.5 12.2
Present value of
estimated future net
revenues before income
taxes (discounted at
10%)
(in thousands)......... N/A N/A $ 894,249 $ 446,987 $ 359,978 $ 335,941 $ 160,021
Standardized measure of
discounted future net
cash flows
(in thousands)......... N/A N/A 736,546 385,721 339,701 274,443 131,533
</TABLE>
- --------
(a) Reflects the minority interest in Cadipsa. See the consolidated financial
statements and the notes thereto of the Company included elsewhere in this
Prospectus.
(b) Represents the cumulative effect on prior years of adopting Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
(c) EBITDA is presented herein as defined in the Indenture. See "Description
of Notes--Certain Definitions." EBITDA is included as a supplemental
disclosure because it is commonly accepted
21
<PAGE>
as providing useful information regarding a company's ability to service
and incur debt and certain covenants contained in the Indenture are based
in part on EBITDA. EBITDA, however, should not be considered in isolation
or as a substitute for net income, cash flow provided by operating
activities or other income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity. If the Exxon Properties and Shamrock had been
acquired on January 1, 1996, these properties would have increased the
Company's EBITDA by approximately $8.5 million for the nine months ended
September 30, 1996. See "Recent Acquisitions."
(d) For purposes of calculating the ratio of earnings to fixed charges,
earnings are defined as income of the Company and its subsidiaries before
income taxes and fixed charges. Fixed charges consist of interest expense,
including amortization of financing costs and any discount or premium
related to any indebtedness.
(e) During the first nine months of 1996, the impact of oil hedges reduced the
Company's overall average oil price $1.17 to $16.66 per Bbl.
(f) Includes lease operating costs and production and ad valorem taxes.
(g) Represents the average finding cost per BOE during the three years ended
December 31 of the year shown in the column. See "Certain Definitions."
(h) The annual reserve replacement ratio is a percentage determined on a BOE
basis by dividing the estimated reserves added during a year from
exploitation, development and exploration activities, acquisitions of
proved reserves and revisions of previous estimates, excluding property
sales, by the oil and gas volumes produced during that year.
(i) Estimated reserve life is calculated on a BOE basis by dividing the total
estimated proved reserves at year-end by the total production during the
year. This calculation can be affected by the timing of major
acquisitions. For example, major acquisitions were made during the second
half of 1995 which resulted in an estimated reserve life of 15.7 years for
1995. This compares to an estimated reserve life of 12.0 years for 1995
based on annualized first quarter 1996 production.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 average oil and gas prices and its oil and gas
production for the periods presented:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------- --------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average prices:
Oil (per Bbl)--
U.S.............................. $ 17.08 $ 15.42 $ 15.44 $ 13.53 $ 14.14
Argentina........................ 15.87 14.20 13.98 -- --
Total............................ 16.66 15.33 15.26 13.53 14.14
Gas, all U.S. (per Mcf)........... $ 1.70 $ 1.42 $ 1.46 $ 1.78 $ 2.03
Production:
Oil (MBbls)--
U.S.............................. 5,683 4,933 6,647 6,657 4,785
Argentina........................ 2,966 377 961 -- --
Total............................ 8,649 5,310 7,608 6,657 4,785
Gas, all U.S. (MMcf).............. 24,535 22,489 30,610 28,884 22,504
</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 nine percent increase in its average
oil price in the first nine months of 1996 compared to the same period in
1995. During the first nine months of 1996, the impact of oil hedges reduced
the Company's overall average oil price $1.17 to $16.66 per Bbl. The Company's
average U.S. oil price was reduced 79 cents to $17.08 per Bbl while its
average Argentina oil price was reduced $1.89 to $15.87 per Bbl. Approximately
58 percent of the Company's Argentina oil production and 32 percent of its
U.S. oil production (a combined 3.561 MMBbls) were covered by oil hedges in
the first nine months of 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
declined four percent in 1994 compared to 1993. The Company's average realized
oil price has increased from 84 percent of WTI posted prices in 1993 to 91
percent for the first nine months of 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 the first nine months of 1996, including the
impact of hedging, was 20 percent higher than the same period of 1995. For the
first nine months of 1996, the average gas price was negatively impacted by
six 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 and a 12 percent decline in 1994 compared to 1993.
23
<PAGE>
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. The Company had oil hedges
(swap agreements) in place for the fourth quarter of 1996 covering 2.204
MMBbls at an average NYMEX reference price of $18.27 per Bbl. Before the
impact of oil hedges, the Company's average realized oil price for the first
nine months of 1996 was $17.83 per Bbl, or approximately 84 percent of the
average NYMEX reference price. The actual NYMEX reference price in the fourth
quarter of 1996 was $24.52 per Bbl. Currently, oil hedges for the calendar
year 1997 cover 2.738 MMBbls at an average NYMEX reference price of $19.26.
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 first nine months oil and gas production, a
change in the average oil price realized by the Company of $1.00 per Bbl would
result in a change in net income and cash flow before income taxes on a nine
month basis of approximately $6.3 million and $8.5 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 on a nine
month basis of approximately $1.4 million and $2.4 million, respectively.
PERIOD TO PERIOD COMPARISONS
During 1995, the Company made various acquisitions which significantly
impacted the period to period comparison for the first nine months of 1996.
These acquisitions (the "1995 Acquisitions") include the purchase of certain
oil and gas properties from Texaco Exploration and Production, Inc. ("Texaco")
(the "Texaco Properties") in May 1995, the acquisition of a controlling
interest in Cadipsa in July 1995, 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. (collectively, the "Astra/Shell Properties") 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 nine months ended September 30, 1996 and 1995,
and the year ended December 31, 1995. At September 30, 1996, the Company owned
95.7 percent of Cadipsa.
Nine Months Ended September 30, 1996, Compared to Nine Months Ended September
30, 1995
Net income was $26.8 million for the first nine months of 1996, up 253
percent from $7.6 million for the same period in 1995. Increases in the
Company's oil and gas production of 41 percent on an equivalent barrel basis,
an increase of 20 percent in natural gas prices, and an increase of nine
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 $73.0 million (65 percent), to $185.8 million
for the first nine months of 1996 from $112.8 million for the first nine
months of 1995. A 63 percent increase in oil production and a nine percent
increase in average oil prices combined to account for $62.7 million of the
increase. A nine percent increase in gas production and a 20 percent increase
in average gas prices contributed to an additional $10.3 million increase.
Oil and gas gathering net margins (revenue less expenses) increased $700,000
(39 percent), to $2.5 million for the first nine months of 1996 from $1.8
million for the first nine months of 1995, due
24
<PAGE>
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 $200,000 (14
percent), to $1.6 million for the first nine months of 1996 from $1.4 million
for the first nine months of 1995, due primarily to an increase in the reserve
for doubtful accounts associated with gas sales in the first nine months of
1995 with no similar increase in 1996.
Lease operating expenses, including production taxes, increased $20.1
million (42 percent), to $67.6 million for the first nine months of 1996 from
$47.5 million for the first nine months of 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 $5.31 in the
first nine months of 1996 from $5.25 for the same period in 1995.
General and administrative expenses increased $3.7 million (45 percent), to
$12.0 million for the first nine months of 1996 from $8.3 million for the
first nine months of 1995, due primarily to the acquisitions of Cadipsa and
Vintage Argentina in the last half of 1995.
Depreciation, depletion and amortization increased $14.4 million (39
percent), to $51.3 million for the first nine months of 1996 from $36.9
million for the first nine months of 1995, due primarily to the 41 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
$3.76 in the first nine months of 1996 from $3.87 in 1995. Amortization per
equivalent barrel of the Company's Argentina oil and gas properties for the
first nine months of 1996 was $4.18 as compared to $4.29 in the same period
for 1995.
Interest expense increased $9.1 million (68 percent), to $22.5 million for
the first nine months of 1996 from $13.4 million for the first nine months of
1995, due primarily to a 46 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.
During the last half of 1995, the Company purchased a 71.6 percent
controlling interest in Cadipsa, a publicly-traded Argentine oil and gas
exploration and production company. The Company's consolidated revenues and
expenses for the year ended December 31, 1995, include the consolidation of
100 percent of Cadipsa for the last half of 1995 under the purchase method of
accounting. The minority interest in loss of subsidiary of $0.8 million
reflects the portion of Cadipsa's loss attributable to the minority ownership
during the last half of 1995.
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 related to the Texaco
Properties purchased in May 1995, the acquisition of a controlling interest in
Cadipsa in July 1995, and the acquisition of Vintage Argentina in September
1995. However, these production increases were partially offset by lower
production from the Company's properties affected by the California storms. In
25
<PAGE>
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 on 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
qualify 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 acquisitions of
Cadipsa and Vintage Argentina and the Texaco Properties. Lease operating
expenses per equivalent barrel produced increased 2 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 1994 acquisitions 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 increased 2 percent to $3.89 in 1995 from
$3.82 in 1994 on the Company's U.S. oil and gas properties. 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.
Year Ended December 31, 1994, Compared to Year Ended December 31, 1993
Income before the cumulative effect of the change in accounting for income
taxes was $13.9 million for the year ended December 31, 1994, down 17 percent
from $16.8 million in 1993. Significantly lower gas prices combined with lower
oil prices more than offset the impact on net income of a 34 percent increase
in oil and gas production on an equivalent barrel basis. The production
increases related primarily to production from certain oil and gas properties
acquired through various acquisitions in 1993 and 1994. Net income for the
year ended December 31, 1993, of $18.5 million included $1.7 million related
to the cumulative effect on prior years of adopting Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109").
Oil and gas sales increased $28.1 million (25 percent), to $141.4 million in
1994 from $113.3 million in 1993 due primarily to a 39 percent increase in oil
production and a 28 percent increase in
26
<PAGE>
gas production. The production increases related primarily to production from
certain oil and gas properties acquired from Conoco Inc. ("Conoco") in June
1993, Santa Fe Energy Resources, Inc. ("Santa Fe") in November 1993 and
various smaller acquisitions made throughout 1994. The production increases
were partially offset by a 4 percent decrease in the Company's average oil
price and a 12 percent decrease in the Company's average gas price for the
period.
Oil and gas gathering net margins (revenues less expenses) increased
$300,000 (15 percent) to $2.3 million in 1994 from $2.0 million in 1993 due
primarily to the acquisition of the remaining interests in certain gathering
systems located in Oklahoma and Kansas by acquiring the Vintage/P Acquisition
Limited Partnership in November 1993 and the acquisition and construction of
certain smaller gathering systems located in Texas in 1994.
Gas marketing net margins (revenues less expenses) increased $500,000 (28
percent) to $2.3 million in 1994 from $1.8 million in 1993 due primarily to a
3 percent increase in gas volumes marketed and a $300,000 nonrecurring charge
in 1993 with no similar charge in 1994.
Other income decreased $300,000 (11 percent) to $2.4 million in 1994 from
$2.7 million in 1993 due primarily to the receipt in 1993 of $865,000 related
to gas contract settlements with no similar settlements in 1994 partially
offset by an increase in rental income from Company owned equipment.
Lease operating expenses, including production taxes, increased $14.4
million (32 percent) to $59.3 million in 1994 from $44.9 million in 1993 due
primarily to the 34 percent increase in oil and gas production (on an
equivalent barrel basis) resulting from the acquisitions discussed above.
Lease operating expenses per equivalent barrel produced decreased 2 percent to
$5.17 in 1994 from $5.26 in 1993.
General and administrative expenses increased $2.8 million (46 percent) to
$8.9 million in 1994 from $6.1 million in 1993 due primarily to the addition
of personnel in 1994 associated with the Company's significant acquisitions in
late 1993.
Depreciation, depletion and amortization increased $12.5 million (38
percent) to $45.8 million in 1994 from $33.3 million in 1993 due primarily to
the 34 percent increase in oil and gas production on an equivalent barrel
basis. Amortization per equivalent barrel produced increased only 3 percent to
$3.82 in 1994 from $3.71 in 1993.
Interest expense increased $5.1 million (74 percent) to $12.0 million in
1994 from $6.9 million in 1993 due primarily to an increase in the average
outstanding advances under the Company's revolving credit facility and an
increase in the average annual interest rate paid under this facility to 5.8
percent in 1994 from 4.5 percent in 1993.
CAPITAL EXPENDITURES
During the first nine months of 1996, the Company's domestic capital
expenditures totaled $58.6 million of which $18.0 million were for
acquisitions of domestic producing oil and gas properties. The largest of
these acquisitions was approximately $13.9 million for certain oil and gas
properties from Conoco. Subsequent to September 30, 1996, the Company
purchased the Exxon Properties for approximately $28.2 million. Funds for
these acquisitions were provided by advances under the Bank Facility. See
"Recent Acquisitions."
During the nine months ended September 30, 1996, the Company's international
capital expenditures of $38.9 million included $35.1 million in Argentina. In
November 1996, the Company agreed to purchase all the outstanding stock of
Shamrock 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
27
<PAGE>
provided by advances under the Company's Bank Facility. Shamrock's assets
include (a) oil and gas properties valued at $35.5 million (including the
effect of approximately $6.6 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 $9.3 million. See "Recent Acquisitions."
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
obligations, will be sufficient to fund its planned $117 million of non-
acquisition capital expenditures during 1997. Approximately $74 million of the
Company's planned 1997 non-acquisition capital expenditure budget is devoted
to reserve exploitation activities, including development and infill drilling,
and approximately $43 million is devoted to exploration activities. 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 Bank 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 as follows (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------
1996 1995 1994 1993
------------- -------- ------- --------
<S> <C> <C> <C> <C>
Acquisition of oil and gas reserves.... $21,712 $207,658 $36,544 $123,906
Workovers and recompletions............ 24,949 18,313 13,984 12,915
Drilling............................... 29,223 21,343 9,593 6,750
Acquisition and construction of gather-
ing systems........................... 107 234 632 3,319
Acquisition of undeveloped acreage and
seismic............................... 12,611 7,684 1,869 610
Other.................................. 8,876 5,367 3,146 3,071
------- -------- ------- --------
Total................................ $97,478 $260,599 $65,768 $150,571
======= ======== ======= ========
</TABLE>
LIQUIDITY
The $97.3 million of estimated net proceeds from the sale of the Notes under
the Note Offering will be used to repay a portion of existing indebtedness
outstanding under the Company's Bank Facility. In addition, the estimated
proceeds of $48.0 million from the Common Stock Offering will be used to repay
a portion of existing indebtedness outstanding under the Company's Bank
Facility. The Company may issue additional equity and debt securities in the
future in connection with any future major acquisitions and to maintain its
financial flexibility.
During 1990, early 1993 and late 1995, the Company completed public
offerings of Common Stock to finance certain acquisitions and provide
liquidity for its future activities. Simultaneous with the 1995 common stock
offering, the Company completed a public debt offering to provide liquidity
for its future activities.
In August 1990, the Company sold 3.4 million shares of its Common Stock for
net proceeds of approximately $32.8 million which were used to fund an
acquisition of oil and gas properties and reduce indebtedness under the
Company's revolving credit facility. In January 1993, the Company sold 3.9
million shares of its Common Stock for net proceeds of approximately $44.8
million which were used to reduce indebtedness under the Company's revolving
credit facility.
28
<PAGE>
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, after
underwriting commission and other expenses, were approximately $49.5 million
and were used to fund a substantial portion of the purchase of the Astra/Shell
Properties.
Also on December 20, 1995, the Company issued $150 million of its 9% Senior
Subordinated Notes Due 2005 (the "9% Notes"). The net proceeds to the Company
from the sale of the 9% Notes of approximately $145.1 million were used
principally to reduce a portion of the outstanding balance under the Company's
revolving credit facility. 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 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 will mature on December 15, 2005, with interest payable
semiannually on June 15 and December 15 of each year. See "Description of
Certain Indebtedness--9% Senior Subordinated Notes Due 2005."
Internally generated cash flow and the borrowing capacity under the Bank
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 through internally generated cash flows from operations. Any
excess cash flow is used to reduce outstanding advances under the Bank
Facility and other indebtedness.
Under its Credit Agreement dated August 29, 1996, as amended, certain banks
have provided to the Company an unsecured Bank Facility. The Bank Facility
establishes a borrowing base (currently $305 million) determined by the banks'
evaluation of the Company's U.S. and certain Argentina oil and gas reserves.
Outstanding advances under the Bank 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
U.S. reserves at the time. As of January 9, 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 6.8
percent. 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 under
the Bank Facility 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 Bank Facility was approximately $48.4 million at
January 9, 1997. The Company has entered into an amendment to its Bank
Facility in connection with the proposed Note Offering which provides that the
borrowing base will be reduced to approximately $270 million if such offering
is consummated. After giving effect to the application of the net proceeds
from the Note Offering and the Common Stock Offering as set forth in "Use of
Proceeds" and the related reduction in the borrowing base, the unused portion
of the Bank Facility would be approximately $158.7 million
29
<PAGE>
($110.7 million if only the Note Offering is consummated or $96.4 million if
only the Common Stock Offering is consummated). The unused portion of the Bank
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 commitments may be increased.
INFLATION
In recent years inflation has not had a significant impact on the Company's
operations or financial condition.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued SFAS 109.
The Company adopted SFAS 109 in 1993. An analysis of income taxes and a
discussion of the impact on the Company of adopting SFAS 109 is presented in
Notes 1 and 5 to the Company's December 31, 1995, consolidated financial
statements included elsewhere in this Prospectus.
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 benefit for income taxes of
approximately $1.0 million during 1995, and a current provision for income
taxes of $1.6 million and $4.0 million for 1994 and 1993, respectively. During
the first nine months of 1996 and 1995, the Company incurred a current
provision for income taxes of approximately $2.1 million and $0.7 million,
respectively.
The Company has a $5.4 million U.S. Alternative Minimum Tax ("AMT") 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. AMT in such years.
Earnings of the Company's 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 1996. Earnings of the
Company's subsidiary, Shamrock, are subject to Bolivia income taxes. 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
0.4 percent as of November 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
<PAGE>
RECENT ACQUISITIONS
Since December 31, 1995, the Company has acquired, through several
transactions, oil and gas properties for an aggregate purchase price of
approximately $89.7 million. Most of these properties were acquired subsequent
to September 30, 1996. Based on estimates prepared by the Company, proved
reserves as of the dates of the various acquisitions aggregated 16.0 MMBbls of
oil and 74.0 Bcf of gas, or a total of 28.4 MMBOE. These reserves were
acquired at an average cost of $3.16 per BOE.
The two most significant acquisitions made subsequent to September 30, 1996,
are described below. If these properties had been acquired on January 1, 1996,
these properties would have increased the Company's revenues by approximately
$13.5 million, EBITDA by approximately $8.5 million and production by
approximately 302 MBbls of oil and 4.0 Bcf of gas for the nine months ended
September 30, 1996.
EXXON PROPERTIES (GULF COAST)
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 $28.2 million in cash, subject to post-closing adjustments
(the "Exxon Properties"). Funds were provided by advances under the Company's
Bank 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.
SHAMROCK (BOLIVIA)
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 Bank Facility. Shamrock's assets include (a) oil
and gas properties valued at $35.5 million (including the effect of
approximately $6.6 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 $9.3 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 net 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 the Company,
were 53.2 Bcf of gas and 5.1 MMBbls of oil. Current net daily production is
approximately 14,500 Mcf of gas and 230 Bbls of condensate. Recent realized
prices on the properties were $1.23 per Mcf of gas and $21.00 per Bbl of
condensate. 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.
31
<PAGE>
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.
32
<PAGE>
BUSINESS
GENERAL
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 September 30, 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 the Exxon Properties and the Conoco Properties. 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 which owns and operates three blocks covering approximately 570,000
net acres in the Chaco Plains area of southern Bolivia. See "Recent
Acquisitions."
The Company owned interests in 3,053 gross (1,934 net) producing wells in
the United States as of September 30, 1996, of which approximately 81 percent
are operated by the Company. The Company owned interests in 610 gross (597
net) producing wells in Argentina as of September 30, 1996, of which
approximately 97 percent are operated by the Company. As of December 31, 1995,
the Company's properties had proved reserves of 199.7 MMBOE, comprised of
147.9 MMBbls of oil and 310.8 Bcf of gas, with a present value of estimated
future net revenues before income taxes (utilizing a 10 percent discount rate)
of $894 million and a standardized measure of discounted future net cash flows
of $737 million. Since that date, acquisitions have added 28.4 MMBOE of proved
reserves, as estimated by the Company as of the date of each acquisition.
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 1993 through the third quarter of 1996, the
Company increased its average net daily production from 11,200 Bbls of oil to
32,900 Bbls of oil and from 60,000 Mcf of gas to 86,300 Mcf of gas. For the
year ended December 31, 1995, the Company generated revenues of $195 million
and EBITDA (as defined herein) of $88 million. See "Description of Notes--
Certain Definitions." For the nine months ended September 30, 1996, the
Company generated revenues of $223 million and EBITDA of $111 million. (EBITDA
(presented herein as defined in the Indenture) is included as a supplemental
disclosure because it is commonly accepted as providing useful information
regarding a company's ability to service and incur debt and certain covenants
contained in the Indenture are based in part on EBITDA. EBITDA, however,
should not be considered in isolation or as a substitute for net income, cash
flow provided by operating activities or other income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.)
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
33
<PAGE>
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, 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, 1993, through
September 30, 1996, the Company acquired 140.1 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 3.1 times its production of 45.5 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, 1993, through December 31,
1995, the Company spent approximately $83.9 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 75 percent of these operations, and the
result of all of its exploitation activities, including development and
infill drilling, succeeded in replacing more than 78 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, 1993, through September 30, 1996, the Company spent
approximately $39.8 million on exploration activities including the
drilling of 75 gross (32.65 net) exploration wells, of which
approximately 69 percent gross (58 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.
34
<PAGE>
. 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. Upon consummation of the Note Offering
and the Common Stock Offering and the application of the net proceeds
therefrom, and after giving effect to the related borrowing base
reduction, the unused portion of the Bank Facility as of January 9,
1997, would have been approximately $158.7 million ($110.7 million if
only the Note Offering is consummated).
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, 1993, through September 30, 1996, the Company made oil and
gas property acquisitions involving total costs of approximately $390 million.
As a result of these acquisitions, the Company acquired approximately 140.1
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
1993.................... $123,906 27,898 68,000 39,231 $3.16
1994.................... 36,544 5,645 29,655 10,588 3.45
1995.................... 38,896 8,840 39,486 15,421 2.52
1996 (through September
30, 1996).............. 17,958 4,650 10,112 6,335 2.83
-------- --------- --------- ---------
Total U.S. Acquisi-
tions................ 217,304 47,033 147,253 71,575 3.04
-------- --------- --------- ---------
Argentina Acquisitions
1995.................... 168,762 65,653 -- 65,653 2.57
1996 (through September
30, 1996).............. 3,754 2,849 -- 2,849 1.32
-------- --------- --------- ---------
Total Argentina Acqui-
sitions.............. 172,516 68,502 -- 68,502 2.52
-------- --------- --------- ---------
Total U.S. and Argen-
tina Acquisitions.... $389,820 115,535 147,253 140,077 $2.78
======== ========= ========= =========
</TABLE>
The following is a brief discussion of significant acquisitions in recent
years:
1993 Acquisitions. In June 1993, the Company acquired the interest of Conoco
in certain oil and gas properties for approximately $38.1 million. The
properties, now operated by the Company, are located in the San Miguelito,
Rincon and Ventura fields in Ventura County, California. Proved reserves
35
<PAGE>
totaled approximately 11.7 MMBbls of oil and 5.8 Bcf of gas at the time of
acquisition. Exploitation potential identified at the time of acquisition
included the adding of additional productive intervals in existing producing
wells, recompletion of inactive wells and expansion of an existing waterflood
operation to include an additional zone.
In November 1993, the Company acquired certain oil and gas properties from
Santa Fe and its affiliates for approximately $43.4 million. The properties
are located primarily in the Ventura Basin of California and the Gulf Coast
areas of Texas, Louisiana and Mississippi. Substantially all of the properties
acquired are now operated by the Company and are adjacent or in close
proximity to Company-operated fields or increased the Company's ownership in
its existing fields. Proved reserves totaled approximately 11.6 MMBbls of oil
and 22.4 Bcf of gas at the time of acquisition. The major fields acquired
included the Sespe, Rincon, Santa Fe Springs, San Miguelito and Ojai-
Silverthread fields in California and the Gwinville field in Mississippi.
Included in this acquisition was an additional interest in the properties
acquired from Conoco in June 1993. In addition to cost efficiencies resulting
from consolidation with other Company operations, exploitation potential
identified in the properties at the time of acquisition included adding
productive intervals and stimulations of existing producing wells,
recompletions of inactive wells and development drilling.
The Company spent a total of approximately $27.7 million in several other
transactions throughout 1993 to increase its ownership in Company-owned
properties located primarily in the Mid-Continent and California areas.
Purchases of additional interests in currently owned properties enable the
Company to increase reserves, production and cash flow with little or no
incremental administrative costs.
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 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. 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 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 43.9 percent of
Cadipsa which increases its total ownership to approximately 95.7 percent.
36
<PAGE>
On September 29, 1995, the Company purchased 100 percent of the outstanding
common stock of Vintage Argentina from British Gas plc, for $37 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
Bank 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.
For additional 1996 acquisitions, see "Recent Acquisitions."
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 will be available to fund the Company's
desired acquisitions.
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.
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 78 percent of its production during the
last three years. The results of their efforts are reflected in revisions to
reserves. Net
37
<PAGE>
revisions to reserves for 1995 totaled 13.2 MMBOE, or 104 percent of the
Company's production of 12.7 MMBOE.
From January 1, 1993, through September 30, 1996, the Company spent
approximately $70.2 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, 1993, through September 30, 1996, the Company participated
in the drilling of 122 gross (69.36 net) development wells, of which
approximately 90 percent gross (89 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 1995, the Company participated in the drilling of 41 gross (22.75
net) development wells. At December 31, 1995, the Company's proved reserves
included approximately 135 development or infill drilling locations on its
U.S. acreage and 181 locations on its Argentine acreage. In addition, the
Company has an extensive inventory of development and infill drilling
locations on its existing properties which are not included in proved
reserves. During the nine-month period ended September 30, 1996, the Company
participated in the drilling of 31 gross (24.26 net) development wells. The
Company spent approximately $22.2 million on development/infill drilling
during the first nine months of 1996. The Company expects to spend
approximately $45 million on 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
38
<PAGE>
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
during 1996 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 barrels of oil per day
to a current rate of approximately 2,300 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, pending Texas Railroad Commission approval, 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.
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
39
<PAGE>
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,
1993, through September 30, 1996, the Company spent $39.8 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:
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 extentional 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
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
40
<PAGE>
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 extentional 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 extentional 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 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 September 30, 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 September 30, 1996, the Company operated
approximately 3,076 productive wells and also owned non-operating interests in
587 productive wells. 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.
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<PAGE>
The following table summarizes the Company's proved reserves in its 30
largest fields in the U.S. and its five largest concessions in Argentina at
December 31, 1995, as estimated by Netherland, Sewell. These fields and
concessions represent approximately 80 percent of the Company's proved
reserves on such date.
<TABLE>
<CAPTION>
LOCATION (COUNTY NET NET
OR PARISH, STATE OIL GAS
AREA FIELD/CONCESSION NAME OR PROVINCE) (MBBLS) (MMCF) MBOE
---- ----------------------------- ------------------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
West Coast.............. San Miguelito Ventura, CA 15,432 3,491 16,013
South Mountain Ventura, CA 5,498 6,975 6,660
Rincon Ventura, CA 4,371 4,094 5,053
Ojai-Silverthread Ventura, CA 2,961 12,230 5,000
North Tejon Kern, CA 1,746 9,540 3,336
Santa Maria Valley/Cat Canyon Santa Barbara, CA 3,294 0 3,294
Pleito Ranch Kern, CA 2,905 692 3,021
Canfield Ranch Kern, CA 2,700 508 2,784
Sespe Ventura, CA 2,311 1,915 2,630
Buena Vista Hills Kern, CA 2,065 3,348 2,623
Lathrop San Joaquin, CA 0 12,135 2,022
Antelope Hills Kern, CA 1,797 0 1,797
Zaca Santa Barbara, CA 1,693 0 1,693
Wheeler Ridge Kern, CA 1,235 2,497 1,651
Tejon Kern, CA 1,618 181 1,649
Landslide Kern, CA 1,251 182 1,282
Timber Canyon Ventura, CA 769 2,410 1,171
Gulf Coast.............. Waveland Hancock, MS 323 14,930 2,811
South Pass 24 Plaquemines, LA 1,200 3,142 1,724
Little Lake/Temple Jefferson, LA 1,190 2,740 1,647
Panther Reef Calhoun, TX 298 6,122 1,319
Trinity Bay Chambers, TX 1,114 804 1,248
Vacherie St. James, LA 39 7,016 1,209
East Texas.............. South Gilmer Upshur, TX 523 31,088 5,704
Southern Pine Cherokee, TX 0 25,128 4,188
Fruitvale Van Zandt, TX 0 23,384 3,897
Colgrade Winn, LA 3,393 0 3,393
Mid-Continent........... Shawnee Pottawatomie, OK 2,820 230 2,858
Booker Ochiltree, TX 1,848 171 1,877
Strong City Roger Mills, OK 59 9,867 1,703
San Jorge Basin,
Argentina.............. Canadon Minerales Santa Cruz Province 18,768 0 18,768
Las Heras/Piedra Clavada Santa Cruz Province 14,958 0 14,958
Canadon Seco Santa Cruz Province 11,103 0 11,103
Cerro Wenceslao Santa Cruz Province 9,477 0 9,477
Meseta Espinosa Santa Cruz Province 7,749 0 7,749
</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, 1995, the area comprised 35 percent
of the Company's total proved reserves and 54 percent of the Company's U.S.
proved reserves. The Company currently operates 1,158 productive wells with
daily gross production of approximately 11,700 Bbls of mid-gravity oil, 2,600
Bbls of heavy oil and 30,300 Mcf of gas. In addition, the Company owns an
interest in 72 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 underway in three of the producing zones. With the field still
producing in excess of 3,400 gross Bbls of oil per day, the Company believes
additional waterflood potential exists in lower sands currently producing on
42
<PAGE>
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. Gross daily production of 1,150 Bbls of oil and 2,000
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 1,030 Bbls of oil and 1,100 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 daily gross production exceeds 800 Bbls of oil and
3,500 Mcf of gas.
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. 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.
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 is
in excess of 1,400 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.
43
<PAGE>
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 gross production of approximately 600 Bbls of oil per day.
Gulf Coast Area. The Gulf Coast Area comprised approximately 12 percent of
the Company's December 31, 1995, 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 232 productive wells and owns
interests in an additional 166 productive wells in this area. Daily gross
production from the operated wells averages 7,600 Bbls of oil and 52,400 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.
Waveland. The Company's largest field in the Gulf Coast Area is the
--------
Waveland field. 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 3,250 Mcf of gas. This 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.
South Pass 24. The South Pass 24 field is located in state waters of
-------------
Plaquemines Parish, Louisiana, at shallow water depths averaging 10 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.
East Texas Area. The East Texas Area comprised approximately 11 percent of
the Company's December 31, 1995, 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 1,150 Bbls of oil and 30,500 Mcf of gas from 594 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.
44
<PAGE>
Southern Pine. The Southern Pine field is located in Cherokee County,
-------------
Texas, and produces from the Travis Peak formation with gross daily production
of 7,900 Mcf of gas. 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 7,900 Mcf of gas.
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 seven percent of the Company's total proved reserves as of December
31, 1995. The Company currently operates daily gross production of 3,500 Bbls
of oil and 29,500 Mcf of gas from 373 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 34 percent of the Company's
December 31, 1995, total proved reserves. The Company currently operates 600
productive wells (100 percent working interest) with daily gross production of
16,200 Bbls of oil. In addition, the Company owns an interest in 17 productive
wells operated by others. At December 31, 1995, the Company's proved reserves
included approximately 181 development or infill drilling locations and 253
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 4,000 feet. This concession currently has 169 producing wells and 31 water
injection wells with daily gross production of approximately 6,850 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 development 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 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 82 producing wells and three water injection wells with daily gross
production of
45
<PAGE>
approximately 1,160 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 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 74 producing wells and eight water injection wells with a daily
gross production of approximately 3,200 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 10
water injection wells with daily gross production of approximately 1,520 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 101
producing wells and 10 water injection wells with a daily gross production of
approximately 2,250 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.
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.
46
<PAGE>
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.
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 1995 was Texaco
Trading and Transportation, Inc. Such oil purchases amounted to approximately
17 percent of the Company's total revenues for 1995. No other purchaser of the
Company's oil or gas during 1995 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
September 30, 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.
RESERVES
At December 31, 1995, the Company had proved reserves, as estimated by
Netherland, Sewell, of 199.7 MMBOE, comprised of 147.9 MMBbls of oil and 310.8
Bcf of gas. The following table sets forth, at December 31, 1995, 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>
<S> <C>
Proved Reserves:
Future net revenues............................................ $1,470,350
Present value of future net revenues before income taxes, dis-
counted at 10 percent......................................... 894,249
Standardized measure of discounted future net cash flows....... 736,546
Proved Developed Reserves:
Future net revenues............................................ 1,032,798
Present value of future net revenues before income taxes, dis-
counted at 10 percent......................................... 675,318
</TABLE>
47
<PAGE>
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, 1995, economic
conditions. The estimated future production is priced at prices prevailing at
December 31, 1995, 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, 1995, 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 9 "Supplementary Financial Information for Oil and Gas
Producing Activities" to the Company's consolidated financial statements
included elsewhere in this Prospectus.
The following table sets forth estimates of the proved oil and gas reserves
of the Company at December 31, 1995, 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)........... 45,947 10,204 56,151 79,514 7,388 86,902 70,635
Gulf Coast.............. 9,159 1,936 11,095 73,772 7,777 81,549 24,687
East Texas.............. 3,723 1,167 4,890 75,934 23,483 99,417 21,459
Mid-Continent........... 4,619 2,854 7,473 41,180 1,687 42,867 14,618
Other U.S............... 343 275 618 27 -- 27 622
------- ------ ------- ------- ------ ------- -------
Total U.S............. 63,791 16,436 80,227 270,427 40,335 310,762 132,021
Argentina............... 36,928 30,716 67,644 -- -- -- 67,644
------- ------ ------- ------- ------ ------- -------
Total Company(b)...... 100,719 47,152 147,871 270,427 40,335 310,762 199,665
======= ====== ======= ======= ====== ======= =======
</TABLE>
- --------
(a) Total proved oil reserves include 5.1 MMBbls of heavy oil located in the
Company's Santa Maria Valley/Cat Canyon and Antelope Hills fields in
California.
(b) Does not include acquisitions since December 31, 1995. See "Recent
Acquisitions."
Estimates of the Company's 1995 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 67 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 Prospectus or incorporated by reference
herein 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.
48
<PAGE>
For further information on reserves, costs relating to oil and gas
activities and results of operations from producing activities, see Note 9
"Supplementary Financial Information for Oil and Gas Producing Activities" to
the Company's consolidated financial statements included elsewhere in this
Prospectus.
PRODUCTIVE WELLS; DEVELOPED ACREAGE
The following table sets forth the Company's domestic and Argentina
productive wells and developed acreage assignable to such wells at September
30, 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....................... 585,106 309,322 2,108 1,583 945 358 3,053 1,941
Argentina................. 1,008,339 844,372 610 597 -- -- 610 597
--------- --------- ----- ----- --- --- ----- -----
Total................... 1,593,445 1,153,694 2,718 2,180 945 358 3,663 2,538
========= ========= ===== ===== === === ===== =====
</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, two 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:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- ==========================
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)--
U.S......................... 5,683 4,933 6,647 6,657 4,785
Argentina................... 2,966 377 961 -- --
Total....................... 8,649 5,310 7,608 6,657 4,785
Gas, all U.S. (MMcf).......... 24,535 22,489 30,610 28,884 22,504
Average sales prices:
Oil (per Bbl)--
U.S. ....................... $ 17.08(a) $ 15.42 $ 15.44 $ 13.53 $ 14.14
Argentina................... 15.87(a) 14.20 13.98 -- --
Total....................... 16.66(a) 15.33 15.26 13.53 14.14
Gas, all U.S. (per Mcf)....... 1.70 1.42 1.46 1.78 2.03
Production costs (per BOE):
U.S........................... 5.38 5.27 5.24 5.17 5.26
Argentina..................... 5.07 4.62 5.42 -- --
Total......................... 5.31 5.25 5.25 5.17 5.26
</TABLE>
- --------
(a) The impact of oil hedges reduced the Company's 1996 U.S., Argentina and
total average oil prices per Bbl by $0.79, $1.89 and $1.17, 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.
49
<PAGE>
UNDEVELOPED ACREAGE
At September 30, 1996, the Company held the following undeveloped acres
located in the United States and Ecuador. With respect to such United States
acreage held under leases, 101,132 gross (38,363 net) acres are held under
leases with primary terms that expire at varying dates through December 31,
2000, unless commercial production is commenced. 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.
<TABLE>
<CAPTION>
STATE/COUNTRY GROSS ACRES NET ACRES
------------- ----------- ---------
<S> <C> <C>
California............................................. 6,698 5,910
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.................................................. 52,826 14,097
------- -------
Total U.S............................................ 102,879 39,310
Ecuador................................................ 494,226 148,268
------- -------
Total Company........................................ 597,105 187,578
======= =======
</TABLE>
DRILLING ACTIVITY
During the periods indicated, the Company drilled or participated in the
drilling of the following exploratory and development wells:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------------------
1996 1995 1994 1993
------------------ ----------- ----------- -----------
GROSS NET GROSS NET GROSS NET GROSS NET
------------------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Development:
United States--
Productive........... 11 5.69 36 19.26 31 18.75 16 2.12
Non-Productive....... 3 1.57 5 3.49 2 1.04 1 0.44
Argentina--
Productive........... 16 16.00 -- -- -- -- -- --
Non-Productive....... 1 1.00 -- -- -- -- -- --
------- --------- --- ----- --- ----- --- -----
Total.............. 31 24.26 41 22.75 33 19.79 17 2.56
======= ========= === ===== === ===== === =====
Exploratory:
United States--
Productive........... 4 2.25 13 9.84 12 2.82 21 2.01
Non-Productive....... 3 1.50 5 2.69 5 4.04 10 5.70
Argentina--
Productive........... 2 2.00 -- -- -- -- -- --
Non-Productive....... -- -- -- -- -- -- -- --
------- --------- --- ----- --- ----- --- -----
Total.............. 9 5.75 18 12.33 17 6.86 31 7.71
======= ========= === ===== === ===== === =====
Total:
Productive........... 33 25.94 49 29.10 43 21.58 37 4.13
Non-Productive....... 7 4.07 10 6.18 7 5.07 11 6.14
------- --------- --- ----- --- ----- --- -----
Total.............. 40 30.01 59 35.28 50 26.65 48 10.27
======= ========= === ===== === ===== === =====
</TABLE>
The above well information excludes wells in which the Company has only a
royalty interest.
50
<PAGE>
At September 30, 1996, the Company was a participant in the drilling or
completion of 18 gross (13.59 net) wells. All of the Company's drilling
activities are conducted with independent contractors. The Company owns no
drilling equipment.
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 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 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.
51
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the directors
and 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
Officer, Secretary and Treasurer
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.... 54 Vice President--Production
Larry W. Sheppard....... 42 Vice President--International
Bryan H. Lawrence....... 54 Director
John T. McNabb, II...... 52 Director
</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
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 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.
52
<PAGE>
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-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
53
<PAGE>
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.
Mr. Lawrence has been a Director of the Company since January 1987. He has
been employed by Dillon, Read & Co. Inc., an investment banking firm ("Dillon
Read"), since January 1966 and is currently a Managing Director. Mr. Lawrence
also serves as a Director of D & K Wholesale Drug, Inc., Hallador Petroleum
Company, TransMontaigne Oil Company and Willbros Group, Inc. (each a United
States public company), Benson Petroleum Ltd. and Cavell Energy Corp. (each a
Canadian public company) and certain non-public companies in which affiliates
of Dillon Read hold equity interests including Meenan Oil Co., Inc., Fintube
Limited Partnership, Interenergy Corporation, PetroSantander Inc., Strega
Energy, Inc. and Savoy Energy, L.P. Mr. Lawrence is a graduate of Hamilton
College and also has an M.B.A. from Columbia University.
Mr. McNabb has been a Director of the Company since October 1990. He has
been Chief Executive Officer of Growth Capital Partners, Inc., an investment
and advisory firm in Houston, Texas serving privately held and public middle
market companies based in the Southwest, since March 1992. From June 1990 to
January 1992, he was a Managing Director of Bankers Trust Company, managing
commercial banking, investment banking and financial advisory activities in
the Southwest for Bankers Trust Company, and head of BT Southwest, Inc., an
affiliate of Bankers Trust New York Corporation. From September 1984 to June
1990, Mr. McNabb was employed by investment affiliates of The Prudential
Insurance Company of America where he provided a wide range of investment
banking services and corporate finance expertise to corporate clients. Mr.
McNabb also serves as a Director of Hugoton Energy Corporation and several
non-public companies. He holds undergraduate and graduate (M.B.A.) degrees
from Duke University.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
BANK FACILITY
Under the Company's Credit Agreement dated August 29, 1996, as amended,
certain banks have provided to the Company an unsecured revolving credit
facility (the "Bank Facility"). The Bank Facility establishes a borrowing base
(currently $305 million) determined by the banks' evaluation of the Company's
U.S. and certain Argentina oil and gas reserves.
Outstanding advances under the Bank 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 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 U.S. reserves at the time. As of
January 9, 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 6.8 percent. 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 exceeds the borrowing
base, as redetermined, the Company must repay such excess. Any principal
advances outstanding under the Bank Facility 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 Bank Facility was approximately $48.4 million at
January 9, 1997. The Company has entered into an amendment to its Bank
Facility in connection with this Offering which provides that the borrowing
base will be reduced to approximately $270 million if this Offering is
consummated. After giving effect to the application of the net proceeds from
this Offering and the Common Stock Offering as set forth in "Use of Proceeds"
and the related reduction in the borrowing base, the unused portion of the
Bank Facility would be approximately $158.7 million ($110.7 million if only
the Note Offering is consummated).
The Bank Facility includes customary covenants, including, among other
things: (a) maintenance of consolidated tangible net worth; (b) limitations on
indebtedness; (c) limitations on creation of liens; (d) limitations on
guarantees, loans or advances; (e) limitations on certain consolidations,
mergers and transfers of assets; (f) limitations on investments; (g)
limitations on transactions with affiliates; and (h) payment restrictions
affecting restricted subsidiaries of the Company.
The Bank Facility includes customary events of default, including among
other things, and subject to applicable grace periods, if any: (a) failure of
the Company to make any payment of principal of or interest on any loan under
the Bank Facility when due and payable; (b) breaches of any representations or
warranties in any material respect when made; (c) a breach of certain
agreements and covenants, including all negative covenants in the Bank
Facility; (d) a default in payment under any other indebtedness for borrowed
money or contingent liability of the Company or any of its subsidiaries or any
other default if the effect of such is to permit acceleration of such
indebtedness; (e) any judgment or order for the payment of money in excess of
$10 million is rendered against the Company or any of its subsidiaries; (f)
certain acts of bankruptcy, insolvency or dissolution; and (g) any change in
control.
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9% SENIOR SUBORDINATED NOTES DUE 2005
In December 1995, the Company publicly offered and sold $150,000,000
aggregate principal amount at maturity of 9% Senior Subordinated Notes Due
2005 (the "9% Notes") pursuant to an Indenture between the Company and The
Chase Manhattan Bank (formerly Chemical Bank) (the "Existing Indenture").
Interest on the 9% Notes is payable on June 15 and December 15 of each year,
and such payments commenced on June 15, 1996. 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, at the redemption prices set forth in the Existing
Indenture plus accrued and unpaid interest, if any, to the date of redemption.
The 9% Notes are not subject to any mandatory sinking fund.
Upon the occurrence of a Change of Control (as defined in the Existing
Indenture), the Company will be required to make an offer to repurchase the 9%
Notes at 101 percent of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase.
The 9% Notes are unsecured senior subordinated obligations of the Company.
The 9% Notes rank subordinate in right of payment to all existing and future
senior indebtedness, pari passu with any existing and future senior
subordinated indebtedness (including the Notes) and senior to any future
junior subordinated indebtedness of the Company. The 9% Notes are structurally
subordinated to the indebtedness and other liabilities of the Company's
subsidiaries.
The Existing Indenture for the 9% Notes contains limitations on, among other
things, (a) the ability of the Company to incur additional indebtedness, (b)
the payment of dividends and other distributions with respect to the capital
stock of the Company and the purchase, redemption or retirement of capital
stock of the Company, (c) the making of certain investments, (d) the
incurrence of certain liens, (e) asset sales, (f) the issuance and sale of
capital stock of restricted subsidiaries, (g) transactions with affiliates,
(h) payment restrictions affecting restricted subsidiaries, and (i) certain
consolidations, mergers and transfers of assets.
Events of default under the Existing Indenture are: (a) failure to pay any
interest on the 9% Notes when due, continued for 30 days; (b) failure to pay
principal of (or premium, if any, on) the 9% Notes when due; (c) failure to
perform any other covenant of the Company in the Existing Indenture, continued
for 60 days after written notice as provided in the Existing Indenture; (d) a
default under any indebtedness for borrowed money by the Company or any
restricted subsidiary which results in acceleration of the maturity of such
indebtedness, or failure to pay any such indebtedness at maturity, 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) if such indebtedness is not discharged or such acceleration is
not rescinded or annulled within 10 days after written notice as provided in
the Existing Indenture; (e) one or more final judgments or orders by a court
of competent jurisdiction are entered against the Company or any restricted
subsidiary in an uninsured or unindemnified aggregate amount in excess of $10
million and such judgments or orders are not discharged, waived, stayed,
satisfied or bonded for a period of 60 consecutive days; and (f) certain
events of bankruptcy, insolvency or reorganization.
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DESCRIPTION OF NOTES
The Notes are to be issued under an Indenture dated as of , 1997 (the
"Indenture"), between the Company and The Chase Manhattan Bank, as Trustee
(the "Trustee"). A copy of the form of Indenture has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part and will be
made available to prospective purchasers of the Notes upon request. The
Indenture is subject to and is governed by the Trust Indenture Act of 1939, as
amended (the "1939 Act"). The following summaries of certain provisions of the
Indenture do not purport to be complete and are subject, and are qualified in
their entirety by reference, to the 1939 Act and to all the provisions of the
Notes and the Indenture, including the definitions therein of certain terms.
Wherever particular Sections or defined terms of the Indenture are referred to
herein, such Sections or defined terms are incorporated by reference herein.
For purposes of this Section, references to the "Company" shall mean Vintage
Petroleum, Inc. excluding its subsidiaries. Certain terms used in this Section
are defined under "--Certain Definitions."
GENERAL
The Notes will mature on , 2009, and will be limited to an aggregate
principal amount of $100,000,000. The Notes will bear interest at the rate set
forth on the cover page of this Prospectus from , 1997 (the "Issue Date"),
or from the most recent interest payment date to which interest has been paid,
payable semiannually on and of each year, beginning on , 1997, to
the person in whose name the Note (or any predecessor Note) is registered at
the close of business on the preceding or , as the case may be.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Principal of, premium, if any, and interest on, the Notes will be payable,
and the Notes will be exchangeable and transferable, at the office or agency
of the Company in The City of New York maintained for such purposes (which
initially will be the Corporate Trust Office of the Trustee) or such other
office or agency permitted under the Indenture; provided, however, that
payment of interest may be made at the option of the Company by check mailed
to the person entitled thereto as shown on the Security Register. The Notes
will be issued only in fully registered form without coupons, in denominations
of $1,000 and any integral multiple thereof. No service charge will be made
for any registration of transfer, exchange or redemption of Notes, except in
certain circumstances for any tax or other governmental charge that may be
imposed in connection therewith.
SUBORDINATION
The Notes will be unsecured senior subordinated obligations of the Company.
The payment of the principal of, premium, if any, and interest on, the Notes
will be subordinated in right of payment, as set forth in the Indenture, to
the payment when due in cash of all Senior Indebtedness (as defined) of the
Company. However, payment from the money or the proceeds of U.S. Government
Obligations held in any defeasance trust will not be subordinate to any Senior
Indebtedness or subject to the restrictions described herein. The Notes will
rank subordinate in right of payment to all existing and future Senior
Indebtedness, pari passu with the 9% Notes and all other existing and any
future senior subordinated indebtedness and senior to any future junior
subordinated indebtedness of the Company. As adjusted for the purchase of the
Exxon Properties, the acquisition of Shamrock and the consummation of the Note
Offering and the Common Stock Offering and the application of the estimated
net proceeds therefrom, at September 30, 1996, the Company's outstanding
Senior Indebtedness would have been $106 million ($154 million if the Common
Stock Offering is not consummated). The Company also has outstanding the 9%
Notes ($150 million) which will rank pari passu with the Notes. The Notes will
be structurally subordinated to indebtedness and other liabilities of the
Company's subsidiaries. The total liabilities of the Company's subsidiaries
included $73.3 million of liabilities at September 30, 1996. The Company and
its subsidiaries have other liabilities, including contingent liabilities,
which may be
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significant. Although the Indenture contains limitations on the amount of
additional Indebtedness which the Company and its Restricted Subsidiaries may
incur, the amounts of such Indebtedness could be substantial and, in any case,
such Indebtedness may be Senior Indebtedness or Indebtedness of subsidiaries
(to which the Notes will be structurally subordinated). See "--Certain
Covenants--Limitation on Indebtedness."
The Company may not pay principal of, premium, if any, or interest on, the
Notes or make any deposit pursuant to the provisions described under "--
Defeasance and Covenant Defeasance" and may not repurchase, redeem or
otherwise retire any Notes (collectively, "pay the Notes") if (a) any
principal, premium or interest in respect of any Senior Indebtedness is not
paid within 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 Notes without regard to the foregoing if
the Company and the Trustee receive written notice approving such payment from
the Representative of each issue of Designated Senior Indebtedness. 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 Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Company and the
Trustee of written notice of such default from the Representative of the
holders of any Designated Senior Indebtedness specifying an election to effect
a Payment Blockage Period (a "Payment Blockage Notice") and ending 179 days
thereafter (unless earlier terminated (i) by written notice to the Trustee and
the Company from the Representative which gave such Payment Blockage Notice,
(ii) because such default 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
have accelerated the maturity of such Designated Senior Indebtedness and not
rescinded such acceleration, the Company may (unless otherwise prohibited as
described in the first sentence of this paragraph) resume payments on the
Notes after the end of such Payment Blockage Period. Not more than one Payment
Blockage Notice may be given in any consecutive 360-day period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation, dissolution or winding up of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness
will be entitled to receive payment in full in cash before the holders of the
Notes are entitled to receive any payment of principal of, or premium, if any,
or interest on, the Notes. In addition, until the Senior Indebtedness is paid
in full in cash, any distribution to which holders of Notes would be entitled
but for the subordination provisions of the Indenture will be made to holders
of the Senior Indebtedness, except that holders of Notes 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 Notes.
By reason of such subordination provisions contained in the Indenture, in
the event of bankruptcy, insolvency or winding up, creditors of the Company
who are holders of Senior Indebtedness may recover more, ratably, than the
holders of the Notes, and creditors of the Company who are not holders of
Senior Indebtedness or the Notes may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than the holders of the
Notes.
Claims of creditors of the Company's subsidiaries, including trade
creditors, and holders of Preferred Stock of the Company's subsidiaries (if
any), will generally have a priority as to the assets of such subsidiaries
over the claims of the Company and the holders of the Company's Indebtedness,
including the Notes. Under the Indenture, and subject to certain limitations,
Indebtedness may be incurred by subsidiaries of the Company.
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OPTIONAL REDEMPTION
The Notes are not redeemable prior to , 2002. At any time on or after
, 2002, the Notes are redeemable at the option of the Company, in whole
or in part, on not less than 30 nor more than 60 days' prior notice, in
amounts of $1,000 or an integral multiple thereof at the following redemption
prices (expressed as percentages of principal amount), plus accrued and unpaid
interest, if any, to the date of redemption (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing
of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2002........................................................ %
2003........................................................ %
2004........................................................ %
2005........................................................ %
</TABLE>
and thereafter, beginning , 2006, at 100 percent of the principal amount
of the Notes.
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase such holder's Notes in whole or
in part in integral multiples of $1,000 pursuant to the offer described below
(the "Change of Control Offer") at a purchase price equal to 101 percent of
the principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the repurchase date (the "Change of Control Payment").
Within 30 days following any Change of Control, the Company shall mail a
notice to each holder stating, among other things: (1) that a Change of
Control has occurred and a Change of Control Offer is being made pursuant to
the covenant entitled "Mandatory Repurchase Upon a Change of Control" and that
all Notes (or portions thereof) timely tendered will be accepted for payment;
(2) the purchase price and the repurchase 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 Note (or portion thereof) accepted for payment
(and duly paid on the Change of Control Payment Date) pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of Control
Payment Date; (4) that any Notes (or portions thereof) not tendered will
continue to accrue interest; (5) a description of the transaction or
transactions constituting the Change of Control; and (6) the procedures that
holders of Notes must follow in order to tender their Notes (or portions
thereof) for payment and the procedures that holders of Notes must follow in
order to withdraw an election to tender Notes (or portions thereof) for
payment.
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 repurchase of Notes in connection with a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions relating to the Change of Control
Offer, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations described
above by virtue thereof.
Except as described above with respect to a Change of Control, the Indenture
does not contain any other provisions that permit the holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar restructuring.
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There can be no assurance that the Company will be able to fund any such
repurchase of the Notes and all other existing and future Pari Passu
Indebtedness. The Company's existing credit agreement contains and any future
credit agreements or other agreements relating to indebtedness of the Company
may contain prohibitions or restrictions on the Company's ability to effect a
Change of Control Payment. In the event a Change of Control occurs at a time
when such prohibitions or restrictions are in effect, the Company could seek
the consent of its lenders to the repurchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company will be
effectively prohibited from repurchasing Notes. In such case, the Company's
failure to repurchase tendered Notes would constitute an Event of Default
under the Indenture.
A "Change of Control" shall be deemed to occur if (i) any "person" or
"group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provision to either of the foregoing, including any group
acting for the purpose of acquiring, holding or disposing of securities within
the meaning of Rule 13d-5(b)(1) under the Exchange Act), 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 percent 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 stockholders
of the Company was approved by a vote of a majority of the directors then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Company's Board of Directors
then in office.
The definition of Change of Control includes a phrase relating to the sale,
lease, conveyance or transfer of "all or substantially all" of the Company's
assets. Although there is a developing body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a holder of Notes to
require the Company to repurchase such Notes as a result of a sale, lease,
conveyance or transfer of less than all of the assets of the Company to
another person may be uncertain.
"Permitted Holders" means Charles C. Stephenson, Jr., Jo Bob Hille, S. Craig
George, William C. Barnes and their Permitted Designees.
"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 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 percent of the voting power of all classes of the
Voting Stock of such Person.
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BOOK-ENTRY SYSTEM
The Notes will initially be issued in the form of one or more Global
Securities (as defined in the Indenture) held in book-entry form. Accordingly,
The Depository Trust Company ("DTC") or its nominee will initially be the sole
registered holder of the Notes for all purposes under the Indenture.
Upon the issuance of a Global Security, DTC or its nominee will credit the
accounts of persons holding through it with the respective principal amounts
of the Notes represented by such Global Security purchased by such persons in
this Offering. Such accounts shall be designated by the Underwriters with
respect to Notes placed by the Underwriters for the Company. Ownership of
beneficial interests in a Global Security will be limited to persons that have
accounts with DTC ("participants") or persons that may hold interests through
participants. Ownership of beneficial interests by participants in a Global
Security will be shown on, and the transfer of that ownership interest will be
effected only through, records maintained by DTC for such Global Security.
Ownership of beneficial interests in such Global Security by persons that hold
through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
Payment of principal and interest on Notes represented by any such Global
Security will be made to DTC or its nominee, as the case may be, as the sole
registered owner and the sole holder of the Notes represented thereby for all
purposes under the Indenture. None of the Company, the Trustee, any agent of
the Company, or the Underwriters will have any responsibility or liability for
any aspect of DTC's records relating to or payments made on account of
beneficial ownership interests in a Global Security representing any Notes or
for maintaining, supervising, or reviewing any of DTC's records relating to
such beneficial ownership interests.
The Company has been advised by DTC that upon receipt of any payment of
principal of, or interest on, any Global Security, DTC will immediately
credit, on its book-entry registration and transfer system, the accounts of
participants with payments in amounts proportionate to their respective
beneficial interests in the principal or face amount of such Global Security
as shown on the records of DTC. Payments by participants to owners of
beneficial interests in a Global Security held through such participants will
be governed by standing instructions and customary practices as is now the
case with securities held for customer accounts registered in "street name"
and will be the sole responsibility of such participants.
A Global Security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC. A Global Security is
exchangeable for certificated Notes only if (i) DTC notifies the Company that
it is unwilling or unable to continue as a Depositary for such Global Security
or if at any time DTC 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 Notes represented by such Global Security. Any
Global Security that is exchangeable for certificated Notes pursuant to the
preceding sentence will be transferred to, and registered and exchanged for,
certificated Notes in authorized denominations and registered in such names as
the 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 Notes, (i) certificated Notes 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
Notes will be payable, and
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the transfer of the certificated Notes 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 Notes, although the Company may require payment of a sum
sufficient to cover any tax or governmental charge imposed in connection
therewith.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Notes
represented by such Global Security for the purposes of receiving payment on
the Notes, receiving notices, and for all other purposes under the Indenture
and the Notes. Beneficial interests in Notes will be evidenced only by, and
transfers thereof will be effected only through, records maintained by the
Depositary and its participants. Cede & Co. has been appointed as the nominee
of DTC. Except as provided above, owners of beneficial interests in a Global
Security will not be entitled to and will not be considered the holders
thereof for any purposes under the Indenture. Accordingly, each person owning
a beneficial interest in a Global Security must rely on the procedures of the
Depositary, and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any
rights of a holder under the Indenture. The Company understands that under
existing industry practices, in the event that the Company requests any action
of holders or that an owner of a beneficial interest in a Global Security
desires to give or take any action which a holder is entitled to give or take
under the Indenture, the Depositary would authorize the participants holding
the relevant beneficial interest to give or take such action and such
participants would authorize beneficial owners owning through such
participants to give or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
DTC has advised the Company that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and
to facilitate the clearance and settlement of securities transactions among
its participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. DTC's participants include securities
brokers and dealers (including the Underwriters), banks, trust companies,
clearing corporations, and certain other organizations some of whom (and/or
their representatives) own DTC. Access to DTC's book-entry system is also
available to others, such as banks, brokers, dealers, and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
CERTAIN COVENANTS
Limitation on Indebtedness. The Indenture provides that the Company will
not, and it will not permit any of its Restricted Subsidiaries to, directly or
indirectly, Incur any Indebtedness 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.
Permitted Indebtedness means any and all of the following: (a) Indebtedness
evidenced by the Notes; (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 percent of Adjusted Consolidated Net Tangible Assets
determined as of the date of the Incurrence of such Indebtedness; provided,
however, that the
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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 the "Limitation on
Asset Sales" covenant; (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 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 the covenant described under "--Merger, Consolidation and Sale
of Assets," 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 the "Limitation on Indebtedness" covenant; (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 the first paragraph of the "Limitation on Indebtedness" covenant;
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 Notes 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.
Limitation on Liens. The Indenture provides that the Company will 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
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Notes 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
"Permitted Liens": (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; (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 Notes and other obligations arising under the
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 paragraph;
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 paragraph 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 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 the "Limitation on
Indebtedness" covenant; (j) Liens in connection with Sale and Leaseback
Transactions permitted pursuant to the "Limitation Indebtedness" covenant; (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 the "Limitation on Restricted Payments" covenant.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly
or indirectly, make any Restricted Payment if, at the time of and after giving
effect to the proposed Restricted Payment (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 the first
paragraph of the "Limitation on Indebtedness" covenant, or (c) the aggregate
amount expended or declared for all Restricted
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Payments from December 20, 1995 (the date of issue of the 9% Notes), would
exceed the sum of (i) $25 million, (ii) 100 percent 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
percent of the aggregate Consolidated Net Income of the Company (or, if
Consolidated Net Income shall be a deficit, less 100 percent 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 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.
Permitted Investments is defined to mean 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 the "Restricted and Unrestricted Subsidiaries" covenant 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 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 the "Limitation on
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Asset Sales" covenant; 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).
Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Indenture provides that 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 the "Limitation on Asset Sales" covenant, (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 in
this paragraph 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 the "Limitation on Restricted Payments"
covenant.
Limitation on Asset Sales. The Indenture provides that the Company will not,
and will not permit any Restricted Subsidiary to, consummate any Asset Sale
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the shares and assets subject to such Asset Sale and (ii)
all of the consideration paid to the Company or such Restricted Subsidiary in
connection with such Asset Sale is in the form of cash, cash equivalents,
Liquid Securities, or the assumption by the purchaser of liabilities of the
Company (other than liabilities of the Company that are by their terms
subordinated to the Notes) 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 percent of Adjusted
Consolidated Net Tangible Assets.
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 Notes (excluding
Notes owned by the Company or an Affiliate of the Company).
Any Net Available Cash from an Asset Sale not applied in accordance with the
preceding paragraph within 365 days from the date of such Asset Sale shall
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10 million, the Company will be required to comply with the
applicable provisions of the indenture relating to the 9% Notes, to make a
prepayment offer to purchase on a pro rata basis, from all holders of the 9%
Notes, an aggregate principal of 9%
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Notes equal to the Excess Proceeds, at a price in cash not in excess of 100
percent 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 Notes 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 (a "Prepayment Offer") on a pro
rata basis, from all holders of the Notes and any then outstanding Pari Passu
Indebtedness (other than the 9% Notes), an aggregate principal amount of Notes
and any then outstanding Pari Passu Indebtedness (other than the 9% Notes)
equal to the Remaining Excess Proceeds, at a price in cash at least equal to
100 percent of the outstanding principal amount thereof plus accrued interest,
if any, to the Purchase Date (as defined herein). 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 Notes have been
given the opportunity to tender their Notes for purchase as described in the
following paragraph in accordance with the Indenture, the Company or such
Restricted Subsidiary may use such remaining amount for general corporate
purposes and the amount of Remaining Excess Proceeds will be reset to zero.
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 indenture relating to the 9% Notes, the Company shall, if it is
obligated to make an offer to purchase the Notes pursuant to the preceding
paragraph, send a written Prepayment Offer notice, by first-class mail, to the
holders of the Notes (the "Prepayment Offer Notice"), accompanied by such
information regarding the Company and its Subsidiaries as the Company in good
faith believes will enable such holders of the Notes to make an informed
decision with respect to the Prepayment Offer. The Prepayment Offer Notice
will state, among other things, (a) that the Company is offering to purchase
Notes pursuant to the provisions of the Indenture described herein under "--
Limitation on Asset Sales," (b) that any Note (or any portion thereof)
accepted for payment (and duly paid on the Purchase Date) pursuant to the
Prepayment Offer shall cease to accrue interest after the Purchase Date, (c)
the purchase price and purchase date, which shall be, subject to any contrary
requirements of applicable law, no less than 30 days nor more than 60 days
after the date the Prepayment Offer Notice is mailed (the "Purchase Date"),
(d) the aggregate principal amount of Notes to be purchased, and (e) a
description of the procedure which holders of Notes must follow in order to
tender their Notes and the procedures that holders of Notes must follow in
order to withdraw an election to tender their Notes for payment.
The Company will comply, to the extent applicable, with the requirements of
Rules 13e-4 and 14e-1 under the Exchange Act and any other securities laws or
regulations thereunder to the extent such laws and regulations are applicable
in connection with the purchase of Notes as described above. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions relating to the Prepayment Offer, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations described above by virtue thereof.
Incurrence of Layered Indebtedness. The Indenture provides that the Company
will 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 Notes in right of
payment.
Transactions with Affiliates. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, conduct any business or enter into any transaction or series of
transactions (including, but not limited to, the sale, transfer, disposition,
purchase, exchange or lease of Property, the making of any Investment, the
giving of any Guarantee or the rendering of any service) with or for the
benefit of any Affiliate of the Company, unless (a) such
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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 of the Company
(including a majority of the disinterested members of the Board of Directors
of the Company) approves such transaction or series of transactions and, in
its good faith judgment, believes that such transaction or series of
transactions complies with clauses (a) and (b) of this paragraph as evidenced
by a certified resolution delivered to the Trustee 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 of the Company (including
a majority of the disinterested members of the Board of Directors of the
Company) approves such transaction or series of transactions and, in its good
faith judgment, believes that such transaction or series of transactions
complies with clauses (a) and (b) of this paragraph, as evidenced by a
certified resolution delivered to the Trustee.
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 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.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
assume or otherwise cause or suffer to exist or become effective, or enter
into any agreement with any Person that would cause to become effective, any
consensual encumbrance or restriction on the legal right of any Restricted
Subsidiary (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 the first paragraph of the
"Limitation on Indebtedness" covenant, or (iv) which
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result from the renewal, refinancing, extension or amendment of an agreement
referred to in the immediately preceding clauses (i), (ii) and (iii),
provided, such replacement or encumbrance or restriction is no more
restrictive to the Company or Restricted Subsidiary and is not materially less
favorable to the holders of Notes than those under or pursuant to the
agreement evidencing the Indebtedness so extended, renewed, refinanced or
replaced, and (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 the "Limitation on Liens"
covenant, (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,
(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.
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 the "Limitation on Restricted Payments"
covenant. Except as provided in clauses (iii)(B) and (C) of this paragraph, no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary. The
designation of an Unrestricted Subsidiary or removal of such designation shall
be made by the Board of Directors of the Company or a committee thereof
pursuant to a certified resolution delivered to the Trustee and shall be
effective as of the date specified in the applicable certified resolution,
which shall not be prior to the date such certified resolution is delivered to
the Trustee.
The Company will not, and will not permit any of its Restricted Subsidiaries
to, take any action or enter into any transaction or series of transactions
that would result in a Person becoming a Restricted Subsidiary (whether
through an acquisition or otherwise) 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 the first paragraph of the "Limitation on Indebtedness" covenant
and (ii) no Default or Event of Default would occur or be continuing.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indenture provides that the Company will 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
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(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 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 Notes, 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 the first paragraph of the "Limitation on
Indebtedness" covenant; and (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.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Additional Assets" means (i) any property (other than cash, 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 the
"Restricted and Unrestricted Subsidiaries" covenant, (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
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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 in the event that there is a Material Change as a result of such
acquisitions, dispositions or revisions, then 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 (i) the net book value on a date no earlier than the date
of the Company's latest annual or quarterly financial statements or (ii) the
appraised value, as estimated by independent appraisers, of other tangible
assets (including, without duplication, Investments in unconsolidated
Restricted Subsidiaries) of the Company and its Restricted Subsidiaries, as of
the date no earlier than the date of the Company's latest audited financial
statements, minus (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 percent 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 course
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of business of the Company or such Restricted Subsidiary; (iii) when used with
respect to the Company, any asset disposition permitted pursuant to the
covenant described under "--Merger, Consolidation and Sale of Assets" 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.
"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 the first paragraph of the "Limitation
on Indebtedness" covenant 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 (Contrato de Refinanciacion) 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 in the Indenture, 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 the Indenture.
"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
the "Limitation on Liens" covenant, 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.
"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
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of its Restricted Subsidiaries for such four quarter period (or a portion
thereof), the resulting rate shall be used for such four quarter period or
portion thereof; provided further that any Consolidated Interest Expense with
respect to Indebtedness Incurred or retired by the Company or any of its
Restricted Subsidiaries during the fiscal quarter in which the Transaction
Date occurs shall be calculated as if such Indebtedness was so Incurred or
retired on the first day of the fiscal quarter in which the Transaction Date
occurs. In addition, if since the beginning of the four full fiscal quarter
period preceding the Transaction Date, (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 noncash interest expense (including capitalized interest) of such Person
and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with 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 that is Indebtedness allocable to interest
expense (determined as if such obligation were treated as a Capital Lease
Obligation); and (e) to the extent any Indebtedness of any other Person (other
than Restricted Subsidiaries) is Guaranteed by such Person or any of its
Restricted 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 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
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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.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Designated Senior Indebtedness" 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) that is specifically designated in the instrument evidencing such
Senior Indebtedness and is designated in a notice delivered by the Company to
the holders or a Representative of the holders of such Senior Indebtedness and
the Trustee as "Designated Senior Indebtedness" of the Company.
"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
disposition 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 noncash 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.
"Event of Default" has the meaning set forth under the caption "--Events of
Default and Notice."
"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
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agreements, exchange rate insurance and other agreements or arrangements, or
any combination thereof, designed to provide protection against fluctuations
in currency exchange rates.
"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 of the Company as evidenced by a
certified resolution delivered to the Trustee if such fair market value is
equal to or in excess of $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.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, and including, without limitation, any Lien on
the assets of such Person securing obligations 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.
"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,
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debentures, notes, Guarantees or other similar instruments, including, without
limitation, any such obligations Incurred in connection with the acquisition
of Property, assets or businesses, (iii) any reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) any obligation of such
Person issued or assumed as the deferred purchase price of Property or
services, (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 the Indenture; provided, however, that if such
Redeemable Stock is not then permitted to be repurchased, the repurchase price
shall be the book value of such Redeemable Stock. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability at such
date in respect of any contingent obligations described above.
"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 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 Notes first were issued and
authenticated under the Indenture.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest,
lien (statutory or other), charge, easement, encumbrance, preference, priority
or other security or similar agreement or preferential arrangement of any kind
or nature whatsoever on or with respect to such Property (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing). For purposes
of the "Limitation on Liens" covenant, 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
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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 the
"Limitation on Asset Sales" covenant, such securities shall be deemed not to
have been Liquid Securities at any time.
"Material Change" means an increase or decrease (except to the extent
resulting from changes in prices) of more than 30 percent during a fiscal
quarter in the estimated discounted future net revenues from proved oil and
gas reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (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 the
"Limitation on Asset Sales" covenant.
"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 the "Limitation on Asset Sales"
covenant.
"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.
"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,
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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 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.
"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 Notes.
"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 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 Investors
Service Inc., (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 U.S. $500 million, (d)
Investments in deposits available for
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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 Investors Service Inc. or "A-1" (or higher)
according to Standard & Poor's Ratings Group, 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.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends 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.
"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).
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or otherwise (including on the
happening of an event), is or could become required to be redeemed for cash or
other Property or is or could become redeemable for cash or other Property at
the option of the holder thereof, in whole or in part, on or prior to the
first anniversary of the Stated Maturity of the Notes; or is or could become
exchangeable at the option of the holder thereof for Indebtedness at any time
in whole or in part, on or prior to the first anniversary of the Stated
Maturity of the Notes; provided, however, that Redeemable Stock shall not
include any security by virtue of the fact that it may be exchanged or
converted at the option of the holder for Capital Stock of the Company having
no preference as to dividends or liquidation over any other Capital Stock of
the Company.
"Representative" means the trustee, agent or representative expressly
authorized to act in such capacity, if any, for an issue of Senior
Indebtedness.
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"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 Notes, (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.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated an Unrestricted Subsidiary in the manner provided in the
covenant described under "--Certain Covenants--Restricted and Unrestricted
Subsidiaries."
"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.
"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 the
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 the 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 Notes; (ii) any Indebtedness Incurred in violation of the
provisions of the 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.
"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).
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"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 percent of
the ownership interest of which and (y) the power to elect or direct the
election of a majority of the directors or other governing body of which are
controlled by Persons referred to in clause (i), (ii) or (iii) above.
"Unrestricted Subsidiary" means (i) each Subsidiary of the Company that the
Company has designated pursuant to the covenant described under "--Certain
Covenants--Restricted and Unrestricted Subsidiaries" 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 the Indenture, unless stated otherwise.
"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.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company will be discharged from all its
obligations, and the provisions of the Indenture relating to subordination
will cease to be effective, with respect to the Notes (except for certain
obligations to exchange or register the transfer of Notes, to replace stolen,
lost or mutilated Notes, to maintain paying agencies and to hold moneys for
payment in trust) upon the deposit in trust for the benefit of the holders of
the Notes of money or U.S. Government Obligations, or a combination thereof,
which, through the payment of principal and interest in respect thereof in
accordance with their terms, will provide money in an amount sufficient to pay
the principal of and any premium and interest on the Notes at Stated Maturity
or on earlier redemption in accordance with the terms of the Indenture and the
Notes. Such defeasance or discharge may occur only if, among other things, the
Company has delivered to the Trustee an Opinion of Counsel to the effect that
(a) the Company has received from, or there has been published by, the United
States Internal Revenue Service a ruling or (b) since the date of the
Indenture there has been a change in the applicable Federal income tax law, in
either case to the effect that holders of the Notes will not recognize gain or
loss for federal income tax purposes as a result of such deposit, defeasance
and discharge and will be subject to federal income tax on the same amount, in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge were not to occur; and that the resulting
trust will not be an "Investment Company" within the meaning of the Investment
Company Act of 1940 unless such trust is qualified thereunder or exempt from
regulation thereunder.
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The Indenture provides that the Company may omit to comply with certain
covenants, including those described under "--Certain Covenants" and in
clauses (d) and (e) under the first paragraph of "--Merger, Consolidation and
Sale of Assets," that the occurrence of certain Events of Default, which are
described below in clause (c) (with respect to such covenants) and clauses (d)
and (e) under "--Events of Default and Notice" will be deemed not to be or
result in an Event of Default and that the provisions of the Indenture
relating to subordination will cease to be effective. The Company, in order to
exercise such option, will be required to deposit, in trust for the benefit of
the holders of the Notes, money or U.S. Government Obligations, or a
combination thereof, which, through the payment of principal and interest in
respect thereof in accordance with their terms, will provide money in an
amount sufficient to pay the principal of and any premium and interest on the
Notes at Stated Maturity or on earlier redemption in accordance with the terms
of the Indenture and the Notes. The Company will also be required, among other
things, to deliver to the Trustee an Opinion of Counsel to the effect that
holders of the Notes will not recognize gain or loss for federal income tax
purposes as a result of such deposit and defeasance of certain obligations and
will be subject to federal income tax on the same amount, in the same manner
and at the same times as would have been the case if such deposit and
defeasance were not to occur; and that the resulting trust will not be an
"Investment Company" within the meaning of the Investment Company Act of 1940
unless such trust is qualified thereunder or exempt from regulation
thereunder. In the event the Company were to exercise this option and the
Notes were declared due and payable because of the occurrence of any Event of
Default, the amount of money and U.S. Government Obligations so deposited in
trust would be sufficient to pay amounts due on the Notes at the time of their
Stated Maturity but may not be sufficient to pay amounts due on the Notes upon
any acceleration resulting from such Event of Default. In such case, the
Company would remain liable for such payments.
EVENTS OF DEFAULT AND NOTICE
The following are summaries of Events of Default under the Indenture with
respect to the Notes: (a) failure to pay any interest on the Notes when due,
continued for 30 days; (b) failure to pay principal of (or premium, if any,
on) the Notes when due; (c) failure to perform any other covenant of the
Company in the Indenture, continued for 60 days after written notice as
provided in the Indenture; (d) a default under any Indebtedness for borrowed
money by the Company or any Restricted Subsidiary which results in
acceleration of the maturity of such Indebtedness, or failure to pay any such
Indebtedness at maturity, 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) if such Indebtedness is not discharged
or such acceleration is not rescinded or annulled within 10 days after written
notice as provided in the Indenture; (e) one or more final judgments or orders
by a court of competent jurisdiction are entered against the Company or any
Restricted Subsidiary in an uninsured or unindemnified aggregate amount in
excess of $10 million and such judgments or orders are not discharged, waived,
stayed, satisfied or bonded for a period of 60 consecutive days; and (f)
certain events of bankruptcy, insolvency or reorganization.
The Indenture provides that if an Event of Default (other than an Event of
Default described in clause (f) above) with respect to the Notes at the time
Outstanding shall occur and be continuing, either the Trustee or the holders
of at least 25 percent in aggregate principal amount of the Outstanding Notes
by notice as provided in the Indenture may declare the principal amount of the
Notes to be due and payable immediately. If an Event of Default described in
clause (f) above with respect to the Notes at the time Outstanding shall
occur, the principal amount of all the Notes will automatically, and without
any action by the Trustee or any holder, become immediately due and payable.
After any such acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of the
Outstanding Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the nonpayment of
accelerated principal (or other specified amount), have been cured or waived
as provided in the Indenture.
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Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the holders of the
Notes, unless such holders shall have offered to the Trustee reasonable
indemnity. Subject to such provisions for the indemnification of the Trustee,
the holders of a majority in aggregate principal amount of the Outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee with respect to the Notes.
No holder of Notes will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or a trustee,
or for any other remedy thereunder, unless (i) such holder has previously
given to the Trustee written notice of a continuing Event of Default with
respect to the Notes, (ii) the holders of at least 25 percent in aggregate
principal amount of the Outstanding Notes have made written request, and such
holder or holders have offered reasonable indemnity, to the Trustee to
institute such proceeding as trustee and (iii) the Trustee has failed to
institute such proceeding, and has not received from the holders of a majority
in aggregate principal amount of the Outstanding Notes a direction
inconsistent with such request, within 60 days after such notice, request and
offer. However, such limitations do not apply to a suit instituted by a holder
of Notes for the enforcement of payment of the principal of or any premium or
interest on such Notes on or after the applicable due date specified in such
Notes.
MODIFICATION OF THE INDENTURE; WAIVER
The Indenture provides that modifications and amendments of the Indenture
may be made by the Company and the Trustee without the consent of any holders
of Notes in certain limited circumstances, including (a) to cure any
ambiguity, omission, defect or inconsistency, (b) to provide for the
assumption of the obligations of the Company under the Indenture upon the
merger, consolidation or sale or other disposition of all or substantially all
of the assets of the Company, (c) to provide for uncertificated Notes in
addition to or in place of certificated Notes, (d) to comply with any
requirement of the Commission in order to effect or maintain the qualification
of the Indenture under the 1939 Act, or (e) to make any change that does not
adversely affect the rights of any holder of Notes in any material respect.
The Indenture contains provisions permitting the Company and the Trustee,
with the written consent of the holders of not less than a majority in
aggregate principal amount of the Outstanding Notes, to execute supplemental
indentures or amendments adding any provisions to or changing or eliminating
any of the provisions of the Indenture or modifying the rights of the holders
of the Notes, except that no such supplemental indenture, amendment or waiver
may, without the consent of all the holders of Outstanding Notes, among other
things, (a) reduce the principal amount of Notes whose holders must consent to
an amendment or waiver; (b) reduce the rate of or change the time for payment
of interest on any Notes; (c) change the currency in which any amount due in
respect of the Notes is payable; (d) reduce the principal of or any premium on
or change the Stated Maturity of any Notes or alter the redemption or
repurchase provisions with respect thereto; (e) reduce the relative ranking of
any Notes; or (f) release any security that may have been granted in respect
of the Notes.
The holders of a majority in principal amount of the Outstanding Notes may
waive compliance by the Company with certain restrictive provisions of the
Indenture. The holders of a majority in principal amount of the Outstanding
Notes may waive any past default under the Indenture, except a default in the
payment of principal, premium or interest and certain covenants and provisions
of the Indenture which cannot be amended without the consent of the holder of
each Outstanding Note.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission (as defined herein), so long as any Notes are
outstanding, the Company will file with the
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Commission and furnish to the holders of Notes all quarterly and annual
financial information required to be contained in a filing with the Commission
on Forms 10-Q and 10-K, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
consolidated financial statements only, a report thereon by the Company's
independent auditors.
NOTICES
Notices to holders of Notes will be given by mail to the addresses of such
holders as they may appear in the Security Register.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance with
the internal laws of the State of New York without reference to principles of
conflicts of law.
THE TRUSTEE
The Chase Manhattan Bank is the Trustee under the Indenture. The Trustee
maintains normal banking relationships with the Company and its subsidiaries
and may perform certain services for and transact other business with the
Company and its subsidiaries from time to time in the ordinary course of
business.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the principal United States Federal
income tax consequences of the purchase, ownership and disposition of the
Notes to initial purchasers thereof who are United States Holders (as defined
below) and the principal United States Federal income and estate tax
consequences of the purchase, ownership and disposition of the Notes to
initial purchasers who are Foreign Holders (as defined below). This discussion
is based on currently existing provisions of the Internal Revenue Code of
1986, as amended (the "Code"), existing, temporary and proposed Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and
all of which are subject to change, possibly with retroactive effect, or
different interpretations. This discussion does not address the tax
consequences to subsequent purchasers of Notes and is limited to purchasers
who hold the Notes as capital assets, within the meaning of Section 1221 of
the Code. This discussion also does not address the tax consequences to
Foreign Holders that are subject to United States Federal income tax on a net
basis on income realized with respect to the Notes because such income is
effectively connected with the conduct of a U.S. trade or business. Such
Foreign Holders are generally taxed in a similar manner to United States
Holders, but certain special rules do apply. Moreover, this discussion is for
general information only and does not address all of the tax consequences that
may be relevant to particular initial purchasers in light of their personal
circumstances or to certain types of initial purchasers (such as certain
financial institutions, insurance companies, tax-exempt entities, dealers in
securities or persons who have hedged the risk of owning a Note).
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR ANY
STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN
APPLICABLE TAX LAWS OR INTERPRETATIONS THEREOF.
UNITED STATES FEDERAL INCOME TAXATION OF UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a holder of a Note
that is, for United States Federal income tax purposes, (a) an individual who
is a citizen or resident of the United States, (b) a corporation or other
entity taxable as a corporation created or organized in the United States or
under the laws of the United States or of any state thereof (including the
District of Columbia), or (c) an estate or trust the income of which is
includable in gross income for United States Federal income tax purposes
regardless of its source.
Payment of Interest on Notes. Interest paid or payable on a Note will be
taxable to a United States Holder as ordinary income, generally at the time it
is received or accrued, in accordance with such holder's regular method of
accounting for United States Federal income tax purposes.
Sale, Exchange or Retirement of the Notes. Upon the sale, exchange,
redemption, retirement at maturity or other disposition of a Note, a United
States Holder generally will recognize taxable gain or loss equal to the
difference between the sum of cash plus the fair market value of all non-cash
property received on such disposition (except to the extent such cash or
property is attributable to accrued, but unpaid, interest, which will be
taxable as ordinary income) and such United States Holder's adjusted tax basis
in the Note. A United States Holder's adjusted tax basis in a Note generally
will equal the cost of the Note to such United States Holder. Gain or loss
recognized on the disposition of a Note will be long-term capital gain or loss
if, at the time of such disposition, the United States Holder's holding period
for the Note is more than one year.
85
<PAGE>
Backup Withholding and Information Reporting. Backup withholding and
information reporting requirements may apply to certain payments of principal,
premium, if any, and interest on a Note and to proceeds of the sale or other
disposition of a Note before maturity. The Company, its agent or a broker, as
the case may be, will be required to withhold from any payment that is subject
to backup withholding United States Federal income tax equal to 31 percent of
such payment if a United States Holder fails to furnish its taxpayer
identification number (social security or employer identification number),
certify that such number is correct, certify that such United States Holder is
not subject to backup withholding or otherwise comply with the applicable
requirements of the backup withholding rules. Certain United States Holders,
including all corporations, are not subject to backup withholding and
information reporting requirements. Any amounts withheld under the backup
withholding rules from a payment to a United States Holder will be allowed as
a credit against such United States Holder's United States Federal income tax
and may entitle the United States Holder to a refund, provided that the
required information is furnished to the Internal Revenue Service ("IRS").
UNITED STATES FEDERAL INCOME TAXATION OF FOREIGN HOLDERS
As used herein, the term "Foreign Holder" means a holder of a Note that is
neither a United States Holder nor subject to United States Federal income
taxation with respect to income from the Note on a net income basis.
Payment of Interest on Notes. In general, payments of interest in respect of
a Note received by a Foreign Holder will not be subject to withholding of
United States Federal income tax, provided that (a)(i) the Foreign Holder does
not actually or constructively own 10 percent or more of the total combined
voting power of all classes of stock of the Company entitled to vote, (ii) the
Foreign Holder is not a "controlled foreign corporation" as defined in the
Code (generally, a foreign corporation controlled by certain United States
stockholders) that is related to the Company actually or constructively
through stock ownership, and (iii) either (A) the beneficial owner of the
Note, under penalties of perjury, provides the Company or its agent with such
beneficial owner's name and address and certifies on IRS Form W-8 (or a
suitable substitute form) that it is not a United States Holder or (B) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business (a
"financial institution") holds the Note and provides a statement to the
Company or its agent under penalties of perjury in which such financial
institution certifies that such an IRS Form W-8 (or a suitable substitute) has
been received by it from the beneficial owner of the Notes or from another
financial institution between it and the beneficial owner and furnishes the
Company or its agent a copy of such Form W-8 or (b) the Foreign Holder is
entitled to the benefits of an income tax treaty under which interest on the
Notes is exempt from withholding of United States Federal income tax and the
Foreign Holder or such Foreign Holder's agent provides a properly executed IRS
Form 1001 claiming the exemption. Payments of interest not exempt from
withholding of United States Federal income tax as described above will be
subject to such withholding at the rate of 30 percent (subject to reduction
under an applicable income tax treaty). Under the terms of the tax treaty
between Canada and the United States (the "Treaty"), interest paid to a
Foreign Holder that is not otherwise exempt from withholding of United States
Federal income tax as described above is subject to withholding at the reduced
rate of 10 percent, provided that such Foreign Holder is entitled to the
benefits of the Treaty.
Sale, Exchange or Retirement of the Notes. A Foreign Holder generally will
not be subject to United States Federal income tax (and generally no tax will
be withheld) with respect to gain realized (except to the extent attributable
to accrued, but unpaid, interest on the Note, which will be subject to the
treatment discussed in the preceding paragraph) on the sale, exchange,
redemption, retirement at maturity or other disposition of a Note unless the
Foreign Holder is an individual who is present in the United States for 183 or
more days in the taxable year of the sale, redemption, retirement at maturity
or other disposition of the Note and certain other conditions are met.
86
<PAGE>
Backup Withholding and Information Reporting. Backup withholding and
information reporting requirements do not apply to payments of interest made
by the Company or a paying agent to Foreign Holders if the certification
described above under "--United States Federal Income Taxation of Foreign
Holders--Payment of Interest on Notes" is received, provided that the payor
does not have actual knowledge that the holder is a United States Holder. If
any payments of principal and interest are made to the beneficial owner of a
Note by or through the foreign office of a foreign custodian, foreign nominee
or other foreign agent of such beneficial owner, or if the foreign office of a
foreign "broker" (as defined in applicable United States Treasury regulations)
pays the proceeds of the sale of a Note effected outside the United States to
the seller thereof, backup withholding and information reporting will not
apply. Information reporting requirements (but not backup withholding) will
apply, however, to a payment by or through a foreign office of a broker of
principal and interest or the proceeds of a sale of a Note effected outside
the United States if that broker (a) is a United States person, (b) derives 50
percent or more of its gross income for certain periods from the conduct of a
trade or business in the United States or (c) is a "controlled foreign
corporation," unless the broker has documentary evidence in its records that
the holder is a Foreign Holder and certain other conditions are met or the
Foreign Holder otherwise establishes an exemption. Payment by a United States
office of a broker is subject to both backup withholding at a rate of 31
percent and information reporting unless the holder certifies in the manner
required as to its Foreign Holder status under penalties of perjury or
otherwise establishes an exemption.
The procedures described above for withholding tax on interest payments, and
some of the associated backup withholding and information reporting rules, are
currently the subject of proposed regulations, which are proposed to be
effective for payments made after December 31, 1997, subject to certain
transition rules. The proposed regulations, if adopted in their current form,
would not substantially change the treatment of Foreign Holders described
above, except that a Form W-8 generally would be required for certification
purposes.
Federal Estate Taxes. Subject to applicable estate tax treaty provisions,
Notes held at the time of death (or Notes transferred before death but subject
to certain retained rights or powers) by an individual who at the time of
death is a Foreign Holder will not be included in such Foreign Holder's gross
estate for United States Federal estate tax purposes provided that the
individual does not actually or constructively own 10 percent or more of the
total combined voting power of all classes of stock of the Company entitled to
vote or hold the Notes in connection with a U.S. trade or business.
87
<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, with the Company, to purchase from
the Company the aggregate principal amount of Notes set forth opposite their
respective names. The Underwriters are committed to purchase all of the Notes
if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITERS OF NOTES
------------ ------------
<S> <C>
Salomon Brothers Inc........................................... $
Dillon, Read & Co. Inc.........................................
Lehman Brothers Inc............................................
Nesbitt Burns Securities Inc...................................
------------
Total........................................................ $100,000,000
============
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount of the Notes on sales to certain other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.
The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of any debt securities of the Company in an offering to the public (or
in a private offering where holders of the debt securities are granted rights
to have such debt securities registered under the Securities Act of 1933, as
amended (the "Securities Act"), or to exchange such debt securities for other
debt securities that are so registered) for a period of 120 days from the date
of this Prospectus without the prior written consent of Salomon Brothers Inc.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters
currently intend to make a market in the Notes. However, the Underwriters are
not obligated to do so and may discontinue any market making activities at any
time without notice. Accordingly, no assurance can be given about the
development or liquidity of any trading market for the Notes.
Each of Salomon Brothers Inc, Dillon, Read & Co. Inc. ("Dillon Read") and
Nesbitt Burns Securities Inc. has performed various investment banking services
for the Company from time to time, for which it has received customary fees. As
of the date of this Prospectus, certain Managing Directors and Senior Vice
Presidents of Dillon Read owned 120,248 shares of common stock of the Company
in the aggregate. Bryan H. Lawrence, a Managing Director of Dillon Read, has
been a member of the Board of Directors of the Company since January 1987.
Nesbitt Burns Securities Inc. is an affiliate of Bank of Montreal which is an
agent bank and a lender to the Company under the Bank Facility. Bank of
Montreal will receive from the proceeds of this Offering its proportionate
share of the repayment by the Company of a portion of the borrowings
outstanding under the Bank Facility. In addition, Bank of Montreal, or its
affiliates, participates on a regular basis in various general financing and
banking transactions for the Company.
Under the Conduct Rules of the National Association of Securities Dealers,
Inc. (the "NASD"), when 10 percent or more of the net proceeds of a public
offering of debt securities, not including underwriting compensation, are to be
paid to a member of the NASD participating in such public offering of debt
securities or an affiliate of such member, the yield at which the debt
securities are
88
<PAGE>
distributed to the public must be no lower than that recommended by a
"qualified independent underwriter" as defined in Rule 2720 of the Conduct
Rules of the NASD. Nesbitt Burns Securities Inc. is a member of the NASD and is
an affiliate of Bank of Montreal, a lender under the Bank Facility. Bank of
Montreal will receive more than 10 percent of the net proceeds from this
Offering as a result of the use of such proceeds to repay a portion of the
borrowings under the Bank Facility. See "Use of Proceeds." As a result, this
Offering is being made in compliance with Rule 2710(c)(8) of the Conduct Rules
of the NASD which relates to offerings where proceeds are directed to a member
of the NASD. Salomon Brothers Inc will act as a qualified independent
underwriter in connection with this Offering and assume the customary
responsibilities of acting as a qualified independent underwriter in pricing
and conducting due diligence for this Offering. The yield on the Notes sold to
the public will be no lower than that recommended by Salomon Brothers Inc
acting as a qualified independent underwriter in connection with this Offering.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including certain liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Conner &
Winters, A Professional Corporation, Tulsa, Oklahoma. Certain legal matters
will be passed upon for the Underwriters by Cravath, Swaine & Moore, New York,
New York.
EXPERTS
The audited financial statements of the Company included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The audited financial statements of Cadipsa as of, and for the year ended
June 30, 1995, included in the Company's Current Report on Form 8-K dated July
5, 1995 (as amended), which is incorporated herein by reference, have been
audited by Pistrelli, Diaz y Asociados and Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated herein in reliance upon the authority of said firms as experts in
giving said reports. Pistrelli, Diaz y Asociados is a member firm of Andersen
Worldwide SC.
The audited financial statements of Cadipsa as of June 30, 1994, and for the
years ended June 30, 1994 and 1993, included in the Company's Current Report on
Form 8-K dated July 5, 1995 (as amended), which is incorporated herein by
reference, have been audited by Deloitte & Touche, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
giving said reports.
The estimated reserve evaluations and related calculations of Netherland,
Sewell set forth or incorporated by reference in this Prospectus have been
included or incorporated by reference herein in reliance upon the authority of
said firm as experts in petroleum engineering.
89
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy and information statements
and other information with the Commission. Copies of such material can be
obtained by mail from the Public Reference Section of the Commission, at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, such reports, proxy and information statements and other
information can be inspected and copied at the public reference facility
referenced above and at the Commission's regional offices at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511 and Seven World Trade Center, Suite 1300, New York, New York 10048. Such
reports, proxy statements and other information concerning the Company can also
be inspected and copied at the New York Stock Exchange, 20 Broad Street, New
York, New York 10005. In addition, the Commission maintains a site on the World
Wide Web that contains reports, proxy and information statements and other
information filed electronically by the Company with the Commission which can
be accessed over the Internet at http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form S-
3 (herein, together with all amendments, supplements and exhibits thereto,
referred to as the "Registration Statement") under the Securities Act with
respect to the Notes offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS OF VINTAGE PETROLEUM, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994............ F-3
Consolidated Statements of Income for the years ended December 31, 1995,
1994 and 1993.......................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................... F-6
Notes to Consolidated Financial Statements for the years ended December
31, 1995, 1994 and 1993................................................ F-7
INTERIM FINANCIAL STATEMENTS OF VINTAGE PETROLEUM, INC. AND SUBSIDIARIES:
Consolidated Balance Sheet as of September 30, 1996 (Unaudited)......... F-23
Consolidated Statements of Income for the nine months ended September
30, 1996 and 1995 (Unaudited).......................................... F-24
Consolidated Statement of Changes in Stockholders' Equity for the nine
months ended September 30, 1996 (Unaudited)............................ F-25
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 (Unaudited)................................ F-26
Notes to Consolidated Financial Statements for the nine months ended
September 30, 1996 and 1995 (Unaudited)................................ F-27
</TABLE>
F-1
<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,
1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 5 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 109, effective January
1, 1993.
Arthur Andersen LLP
Tulsa, Oklahoma
February 22, 1996
F-2
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
A S S E T S
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 2,545 $ 431
Accounts receivable--
Oil and gas sales........................................... 40,256 26,278
Joint operations............................................ 4,616 4,205
Other....................................................... -- 4,300
Prepaids and other current assets............................ 11,665 4,036
-------- --------
Total current assets...................................... 59,082 39,250
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, full cost method..................... 762,582 502,821
Oil and gas gathering systems................................ 12,765 12,531
Other........................................................ 7,733 4,711
-------- --------
783,080 520,063
Less accumulated depreciation, depletion and amortization.... 205,334 153,398
-------- --------
577,746 366,665
-------- --------
OTHER ASSETS, net............................................. 10,711 1,837
-------- --------
$647,539 $407,752
======== ========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES:
Revenue payable.............................................. $ 16,855 $ 12,926
Accounts payable--trade...................................... 15,514 6,559
Other payables and accrued liabilities....................... 18,697 7,222
Current portion of long-term debt............................ 7,930 7,316
-------- --------
Total current liabilities................................. 58,996 34,023
-------- --------
LONG-TERM DEBT, less current portion above.................... 315,846 186,548
-------- --------
DEFERRED INCOME TAXES......................................... 37,753 31,188
-------- --------
OTHER LONG-TERM LIABILITIES................................... 3,922 --
-------- --------
MINORITY INTEREST IN SUBSIDIARY............................... 7,062 --
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 4)
</TABLE>
<TABLE>
<S> <C> <C>
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,
23,661,162 and 20,162,756 shares issued and outstanding.... 118 101
Capital in excess of par value.............................. 149,725 91,201
Retained earnings........................................... 74,117 64,691
-------- --------
223,960 155,993
-------- --------
$647,539 $407,752
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Oil and gas sales................................ $160,254 $141,357 $113,259
Oil and gas gathering............................ 12,380 14,635 7,861
Gas marketing.................................... 20,912 27,285 36,175
Other income..................................... 1,251 2,375 2,732
-------- -------- --------
194,797 185,652 160,027
-------- -------- --------
COSTS AND EXPENSES:
Lease operating, including production taxes...... 66,771 59,292 44,930
Oil and gas gathering............................ 9,511 12,294 5,869
Gas marketing.................................... 18,839 24,963 34,406
General and administrative....................... 11,601 8,889 6,066
Depreciation, depletion and amortization......... 52,257 45,774 33,335
Interest......................................... 20,178 12,002 6,943
-------- -------- --------
179,157 163,214 131,549
-------- -------- --------
Income before provision for income taxes,
minority interest and cumulative effect of
accounting change............................. 15,640 22,438 28,478
PROVISION FOR INCOME TAXES:
Current.......................................... (955) 1,576 3,962
Deferred......................................... 6,034 6,933 7,727
MINORITY INTEREST IN LOSS OF SUBSIDIARY............ 800 -- --
-------- -------- --------
Income before cumulative effect of accounting
change........................................ 11,361 13,929 16,789
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
INCOME TAXES...................................... -- -- 1,725
-------- -------- --------
NET INCOME......................................... $ 11,361 $ 13,929 $ 18,514
======== ======== ========
EARNINGS PER SHARE:
Income before cumulative effect of accounting
change.......................................... $ .53 $ .66 $ .81
Cumulative effect of accounting change........... -- -- .08
-------- -------- --------
Net income....................................... $ .53 $ .66 $ .89
======== ======== ========
Weighted average common shares and common
equivalent shares outstanding................... 21,276 21,174 20,830
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN EXCESS
------------- OF PAR RETAINED
SHARES AMOUNT VALUE EARNINGS TOTAL
------ ------ --------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992........ 16,392 $ 82 $ 43,955 $34,659 $ 78,696
Net income........................ -- -- -- 18,514 18,514
Issuance of common stock.......... 3,623 18 46,754 -- 46,772
Exercise of stock options and
resulting tax effects............ 138 1 409 -- 410
Cash dividends declared ($.05 per
share)........................... -- -- -- (1,000) (1,000)
------ ---- -------- ------- --------
BALANCE AT DECEMBER 31, 1993........ 20,153 101 91,118 52,173 143,392
Net income........................ -- -- -- 13,929 13,929
Exercise of stock options and
resulting tax effects............ 10 -- 83 -- 83
Cash dividends declared ($.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
====== ==== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 11,361 $ 13,929 $ 18,514
Adjustments to reconcile net income to
cash provided by operating activities--
Cumulative effect of change in
accounting for income taxes........... -- -- (1,725)
Depreciation, depletion and
amortization.......................... 52,257 45,774 33,335
Minority interest in loss of
subsidiary............................ (800) -- --
Provision for deferred income taxes.... 6,034 6,933 7,727
----------- ---------- -----------
68,852 66,636 57,851
Decrease (increase) in receivables..... (11,836) 3,005 (9,056)
(Decrease) increase in payables and
accrued liabilities................... (1,012) (9,487) 3,879
Other.................................. (1,805) (1,484) (455)
----------- ---------- -----------
Cash provided by operating
activities.......................... 54,199 58,670 52,219
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment--
Oil and gas properties................. (141,490) (65,136) (140,864)
Gathering systems and other............ (3,256) (1,832) (4,162)
Proceeds from sale of oil and gas
properties............................. 604 711 1,006
Purchase of companies, net of cash
acquired............................... (45,886) -- --
Other................................... 2,777 (4,411) (2,106)
----------- ---------- -----------
Cash used by investing activities.... (187,251) (70,668) (146,126)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock.................... 51,191 -- 44,772
Sale of 9% Senior Subordinated Notes Due
2005................................... 145,137 -- --
Advances on revolving credit facility
and other borrowings................... 178,264 51,134 220,878
Payments on revolving credit facility
and other borrowings................... (237,679) (37,959) (170,885)
Dividends paid.......................... (1,747) (1,308) (865)
----------- ---------- -----------
Cash provided by financing
activities.......................... 135,166 11,867 93,900
----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH.......... 2,114 (131) (7)
CASH AND CASH EQUIVALENTS, beginning of
year.................................... 431 562 569
----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of year... $ 2,545 $ 431 $ 562
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
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 90 percent of the
Company's operations are within the exploration and production segment based
on 1995 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 6.
The consolidated financial statements include the accounts of Vintage
Petroleum, Inc. and its wholly- and majority-owned subsidiaries,
(collectively, the "Company"). In addition, the Company's interests in various
partnerships and joint ventures have been proportionately consolidated,
whereby the Company's proportionate share of each partnership or joint
venture's assets, liabilities, revenues and expenses is included in the
appropriate accounts in the consolidated financial statements. 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 $4.4 million, $2.3 million and $2.1
million of internal costs in 1995, 1994 and 1993, 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, 1995,
1994 and 1993, 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 $3.89, $3.82 and $3.71 for the years
ended December 31, 1995, 1994 and 1993, respectively. Amortization per
equivalent barrel of the Company's Argentina oil and gas properties for the
year ended December 31, 1995, was $4.28. 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
F-7
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 and 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.
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 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
During the years ended December 31, 1995, 1994 and 1993, the Company made
cash payments for interest totaling $21.6 million, $11.3 million and $6.0
million, respectively, and cash payments for U.S. income taxes of $0.5
million, $3.1 million and $4.1 million, respectively. No cash payments were
made during 1995 for foreign income taxes and the Company had no foreign
operations prior to 1995.
In late 1993, the Company increased its ownership in certain oil and gas
properties and gathering systems by acquiring 100 percent of its partners'
interests in the Vintage/P Acquisition Limited Partnership and a joint
venture. Total consideration included cash, common stock, a stock subscription
warrant and the assumption of certain net liabilities. The value of the non-
cash consideration was $6.4 million and is not reflected in the Company's 1993
Consolidated Statement of Cash Flows.
During 1995, the Company purchased a majority interest in Cadipsa S.A.
("Cadipsa"--see Note 6). 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 6) for $32.8 million cash and deferred payments valued at $5.1
million. The $5.1 million of deferred payments represent non-cash
consideration and are not reflected in the Company's 1995 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).
F-8
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $2.9 million, $2.3
million and $2.9 million in 1995, 1994 and 1993, 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. The Company's other
accounts receivable at December 31, 1994, represents funds in escrow at year
end relating to a potential acquisition. These funds were returned to the
Company during 1995.
2. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994, consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
9% Senior Subordinated Notes Due 2005, net of discount.... $149,592 $ --
Revolving credit facility................................. 74,300 172,600
Bank term loan............................................ 36,736 --
5.92% Senior note......................................... 9,948 13,264
11% Subordinated note..................................... -- 8,000
Subsidiary debt--
International Finance Corporation notes................. 28,000 --
Bank of Boston senior note.............................. 20,000 --
Other subsidiary debt................................... 5,200 --
-------- --------
323,776 193,864
Less--Current portion of long-term debt................... 7,930 7,316
-------- --------
$315,846 $186,548
======== ========
</TABLE>
Subsidiary debt relates to borrowings of the Company's foreign subsidiaries,
the recourse of which is solely to such subsidiaries, except for $9.2 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, 1996, through December 31, 2000, are $7.9 million, $29.9 million, $25.9
million, $59.3 million and $22.6 million, with $178.2 million thereafter.
F-9
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9% Senior Subordinated Notes
On December 20, 1995, the Company issued $150 million of its 9% Senior
Subordinated Notes Due 2005 (the "Notes"). The 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
Notes may require the Company to purchase all or a portion of the Notes at a
purchase price equal to 101 percent of the principal amount thereof, plus
accrued and unpaid interest. The Notes mature on December 15, 2005, with
interest payable semiannually on June 15 and December 15 of each year.
The Notes are unsecured senior subordinated obligations of the Company and
rank subordinate in right of payment to all senior indebtedness (as defined).
The indenture for the 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. The net
proceeds to the Company from the sale of the Notes of approximately $145.1
million were used to reduce a portion of the outstanding balance under the
Company's revolving credit facility and to repay a short-term note payable
used to retire the 11% Subordinated Note.
Revolving Credit Facility
The Company has available an unsecured revolving credit facility under the
Credit Agreement dated November 3, 1993, as amended (the "Credit Agreement"),
among the Company, and certain banks. The Credit Agreement establishes a
borrowing base (currently $230 million) based on the banks' evaluation of the
Company's U.S. oil and gas reserves. On February 1, 1996, the Company elected
to set the banks' commitment at $180 million in order to reduce fees charged
by the banks.
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 borrowing base at
the time. In addition, the Company must pay a commitment fee of 0.375 percent
per annum on the unused portion of the banks' commitment. Total outstanding
advances at December 31, 1995, were $74.3 million at an average interest rate
of approximately 7.8 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. oil and gas reserves. If
the sum of outstanding senior debt exceeds the borrowing base, as
redetermined, the Company must repay such excess. Any principal advances
outstanding at October 31, 1997, will be payable in 16 equal consecutive
quarterly installments commencing January 31, 1998, with maturity at October
31, 2001.
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 $164 million
plus 75 percent of the net proceeds of any future equity offerings.
Bank Term Loan
On January 12, 1995, the Company refinanced with certain banks $36.7 million
of outstanding advances under the revolving credit facility with an unsecured
term loan maturing November 30, 1999.
F-10
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The term loan bears interest at a floating rate (plus a fixed increment) 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 LIBOR. The Company has
currently elected a fixed rate based on LIBOR, which on December 31, 1995, was
6.7 percent. The terms and restrictions under the bank term loan are generally
the same as those provided in the Credit Agreement.
International Finance Corporation Notes
Under an Amended and Restated Investment Agreement dated April 28, 1994, as
amended (the "Investment Agreement"), between the International Finance
Corporation ("IFC") and Cadipsa, the Company's majority-owned subsidiary,
outstanding advances were $28.0 million at December 31, 1995. These borrowings
consist of three separate loans having principal payments beginning on
September 15, 1996, with maturity on March 15, 2003. The Investment Agreement
is recourse solely to Cadipsa except for a guarantee of $9.2 million of
principal, plus interest thereon, provided by the Company on behalf of Cadipsa
to the IFC. The guarantee can be released and dividends may be paid out of
profits of Cadipsa once certain conditions and financial ratios are met by
Cadipsa.
Bank of Boston Senior Note
In connection with the BG Acquisition (see Note 6), the Company, through its
wholly-owned subsidiary, Vintage Oil Argentina, Inc. (formerly BG Argentina,
S.A.), entered into a non-recourse $20 Million Credit Agreement dated
September 28, 1995, with the Buenos Aires Branch of The First National Bank of
Boston. This loan is secured by all of the common stock of Vintage Oil
Argentina, Inc. and, upon government approval of the fiduciary assignment
agreement, substantially all of its assets. The Company expects to receive
such government approval, however, a default occurs if such approval is not
received by May 25, 1996. The borrowing limit under the $20 Million Credit
Agreement (currently $20.0 million) is redetermined semiannually by the bank,
beginning September 30, 1996, based on a review of Vintage Oil Argentina,
Inc.'s oil and gas reserves. Such reviews may result in a required repayment
of the amount in excess of the borrowing limit prior to maturity of the loan
on September 29, 1997. Vintage Oil Argentina, Inc. dividends are permitted to
the extent its tangible net worth (as defined) exceeds $14.0 million.
Fair Value of Long-term Debt
Based on the estimated borrowing rates currently available to the Company
for the long-term loans with similar terms and average maturities, the
aggregate fair value at December 31, 1995, of the Company's long-term debt is
approximately $323.2 million compared to the aggregate carrying amount of
$323.8 million.
3. CAPITAL STOCK
Public Offerings and Other Issuances
In January 1993, the Company completed a public offering of 3,910,000 shares
of common stock of which 3,510,000 shares were sold by the Company and 400,000
shares were sold by a stockholder. Net proceeds to the Company were
approximately $44.8 million and were used to reduce a portion of the
indebtedness incurred under the Company's revolving credit facility to acquire
certain oil and gas properties on December 30, 1992.
In December 1993, the Company issued 112,756 shares of common stock valued
at $2.0 million as partial consideration to acquire the sole limited
partnership interest in the Vintage/P Acquisition Limited Partnership.
F-11
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 6).
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 6) and to finance a substantial portion
of the acquisition of the remaining portion of the Astra/Shell Properties.
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.
Stock Plans and Warrants
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, 1995, 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
1,500,000 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, 1995, awards for a total of
339,000 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 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.
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.
In 1993, the Non-Management Director Stock Option Plan (the "Director Plan")
was approved by the Company's stockholders. Under 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 and the option exercise
price is equal to the fair market value of the common stock on the date of
grant.
F-12
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is an analysis of all option activity under the 1983 Plan, the
1990 Plan and the Director Plan for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Beginning stock options outstanding...... 1,457,000 1,193,000 988,000
Stock options granted.................. 98,000 274,000 343,000
Stock options cancelled................ (20,000) -- --
Stock options exercised................ (401,898) (10,000) (138,000)
---------- ---------- ----------
Ending stock options outstanding......... 1,133,102 1,457,000 1,193,000
========== ========== ==========
Ending stock options exercisable......... 336,701 338,018 224,832
========== ========== ==========
Weighted average exercise price of:
Options exercised during the year...... $ 4.47 $ 4.89 $ 2.02
Ending stock options outstanding....... 14.81 11.64 10.34
Ending stock options exercisable....... 11.04 4.74 4.09
</TABLE>
All of the outstanding options are exercisable at various times in years
1996 through 2005. All incentive stock options and non-qualified options were
granted at fair market value on the date of grant. As of December 31, 1995, no
awards other than incentive and non-qualified stock options have been granted
under the 1990 Plan.
At December 31, 1995, stock subscription warrants (the "Warrants") for the
purchase of 316,300 shares of the Company's common stock at an average
exercise price of $5.42 per share were outstanding. In January 1996, a Warrant
for 306,300 shares of the Company's common stock was exercised at a price of
$5.00 per share and the remaining Warrant for 10,000 shares was cancelled.
At December 31, 1995, a total of 1,804,402 shares of the Company's common
stock are reserved for issuance pursuant to the 1983 Plan, the 1990 Plan and
the Director Plan and upon the exercise of the Warrants.
Preferred Stock
Preferred stock at December 31, 1995, 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 $0.8 million, $0.5 million and $0.4 million for 1995, 1994
and 1993, respectively. The future minimum commitments under long-term
noncancellable leases for office space are $0.9 million and $0.5 million for
1996 and 1997, respectively.
The Company has $10.1 million in letters of credit outstanding at December
31, 1995. 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 spend approximately $2.0 million per year for the project.
F-13
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is a defendant in various 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 pending lawsuits
and proceedings should have a material adverse effect upon the consolidated
financial statements of the Company.
5. INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"). SFAS 109 generally requires that deferred taxes be provided using a
liability approach at currently enacted income tax rates rather than the
deferred approach at historical rates which had previously been required. The
cumulative effect on prior years of adopting the change was recorded in the
quarter ended March 31, 1993, as provided by SFAS 109, and increased net
income by $1.7 million.
The provision for income taxes for the years ended December 31, 1995, 1994
and 1993, consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current............................................... $ (955) $1,576 $ 3,962
Deferred.............................................. 6,034 6,933 7,727
------ ------ -------
$5,079 $8,509 $11,689
====== ====== =======
</TABLE>
A reconciliation of the federal statutory income tax rate to the effective
rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<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................................ (7.4) -- --
Effect on prior years of increase in corporate income tax
rate..................................................... -- -- 2.0
All other, net............................................ 1.0 (1.0) 0.1
---- ---- ----
32.5% 37.9% 41.0%
==== ==== ====
</TABLE>
The components of the Company's net deferred tax liability as of December
31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Liabilities:
Differences between book and tax basis of property........ $41,699 $34,670
Other..................................................... -- 21
------- -------
41,699 34,691
------- -------
Deferred Tax Assets:
Alternative minimum tax credit carryforward............... 3,538 3,165
Other..................................................... 408 338
------- -------
3,946 3,503
------- -------
$37,753 $31,188
======= =======
</TABLE>
F-14
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings of the Company's foreign subsidiaries, Cadipsa and Vintage Oil
Argentina, Inc., 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 the near future. 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, 1995, the Company has an alternative minimum tax ("AMT")
credit carryforward of approximately $3.5 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.
6. 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 $12.3 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. Subsequent to December 31, 1995, the Company purchased an
additional 9.3 percent of Cadipsa for $2.3 million cash. The Company is
pursuing additional purchases of shares of Cadipsa.
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. ("Astra") 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.
("Shell") 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 and has not completed its evaluations of the
purchased assets and assumed liabilities; therefore, it has not completed the
final purchase price allocations for these acquisitions. 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 net income per
share for the years ended December 31, 1995 and 1994, presented below have
been prepared assuming the Common
F-15
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
Net income per share...................................... .78 .37
</TABLE>
F-16
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. 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. The following is industry
segment data for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Exploration and production--
U.S.......................................... $146,819 $141,357 $113,259
Argentina.................................... 13,435 -- --
Gas marketing................................. 49,775 61,480 70,705
Gathering..................................... 22,289 17,630 9,445
Other income.................................. 1,251 2,375 2,732
Elimination of intersegment sales............. (38,772) (37,190) (36,114)
-------- -------- --------
$194,797 $185,652 $160,027
======== ======== ========
OPERATING INCOME:
Exploration and production--
U.S.......................................... $ 39,524 $ 38,234 $ 36,634
Argentina.................................... 4,114 -- --
Gas marketing................................. 2,073 2,322 1,769
Gathering..................................... 1,568 1,058 990
Other income.................................. 1,251 2,375 2,732
Corporate expenses............................ (12,712) (9,549) (6,704)
Interest expense.............................. (20,178) (12,002) (6,943)
-------- -------- --------
$ 15,640 $ 22,438 $ 28,478
======== ======== ========
IDENTIFIABLE ASSETS:
Exploration and production--
U.S.......................................... $431,391 $386,824 $363,456
Argentina.................................... 180,488 -- --
Other international.......................... 1,269 -- --
Gas marketing................................. 5,431 5,850 8,415
Gathering..................................... 11,084 8,918 8,728
Corporate..................................... 17,876 6,160 3,862
-------- -------- --------
$647,539 $407,752 $384,461
======== ======== ========
DEPRECIATION, DEPLETION AND AMORTIZATION:
Exploration and production--
U.S.......................................... $ 45,730 $ 43,831 $ 31,695
Argentina.................................... 4,115 -- --
Gathering..................................... 1,301 1,283 1,002
Corporate..................................... 1,111 660 638
-------- -------- --------
$ 52,257 $ 45,774 $ 33,335
======== ======== ========
CAPITAL ADDITIONS:
Exploration and production--
U.S.......................................... $ 88,149 $ 65,136 $147,252
Argentina.................................... 170,947 -- --
Other international.......................... 1,269 -- --
Gathering..................................... 234 632 3,319
Corporate..................................... 3,023 1,200 843
-------- -------- --------
$263,622 $ 66,968 $151,414
======== ======== ========
</TABLE>
F-17
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1995, 1994 and 1993, sales to one crude oil purchaser represented
approximately 17%, 14% and 11%, respectively, of the Company's total revenues.
8. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
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
Net income per share........... .08 .15 .13 .17
1994
Revenues....................... $ 44,635 $ 48,088 $ 48,246 $ 44,683
Operating income............... 8,591 11,583 12,885 10,930
Net income..................... 2,468 3,937 4,403 3,121
Net income per share........... .12 .19 .21 .15
</TABLE>
9. 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, 1995, 1994 and 1993. The Company began operations in
Argentina through various acquisitions in the last two quarters of 1995 (see
Note 6). Prior to 1995, all of the Company's oil and gas producing activities
were located in the United States.
<TABLE>
<CAPTION>
1995
---------------------------
U.S. ARGENTINA TOTAL 1994 1993
-------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues...................... $146,819 $13,435 $160,254 $141,357 $113,259
Production (lifting) costs.... 61,565 5,206 66,771 59,292 44,930
Depreciation, depletion and
amortization................. 45,730 4,115 49,845 43,831 31,695
-------- ------- -------- -------- --------
Results of operations before
income taxes................. 39,524 4,114 43,638 38,234 36,634
Income tax expense............ 12,332 -- 12,332 14,529 14,287
-------- ------- -------- -------- --------
Results of operations
(excluding corporate overhead
and interest costs).......... $ 27,192 $ 4,114 $ 31,306 $ 23,705 $ 22,347
======== ======= ======== ======== ========
</TABLE>
F-18
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capitalized Costs and Costs Incurred Relating to Oil and Gas Producing
Activities
Prior to 1995, the Company had not incurred any significant costs outside of
the United States. The Company's net investment in oil and gas properties at
December 31, 1995 and 1994, was as follows:
<TABLE>
<CAPTION>
1995
----------------------------------
U.S. ARGENTINA OTHER TOTAL 1994
-------- --------- ------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Unproved properties not being
amortized...................... $ 8,505 $ -- $1,269 $ 9,774 $ 6,073
Proved properties being
amortized...................... 581,861 170,947 -- 752,808 496,748
-------- -------- ------ -------- --------
Total capitalized costs....... 590,366 170,947 1,269 762,582 502,821
Less accumulated depreciation,
depletion and amortization..... 190,593 4,115 -- 194,708 144,863
-------- -------- ------ -------- --------
Net capitalized costs......... $399,773 $166,832 $1,269 $567,874 $357,958
======== ======== ====== ======== ========
</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 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995
---------------------------------
U.S. ARGENTINA OTHER TOTAL 1994 1993
------- --------- ------ -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Acquisition:
Undeveloped properties. $ 6,415 $ -- $1,269 $ 7,684 $ 1,869 $ 610
Producing properties... 38,896 168,762 -- 207,658 36,544 123,906
Costs incurred:
Exploratory............ 2,037 -- -- 2,037 3,349 5,217
Development............ 40,801 2,185 -- 42,986 23,374 17,519
------- -------- ------ -------- ------- --------
Total costs incurred. $88,149 $170,947 $1,269 $260,365 $65,136 $147,252
======= ======== ====== ======== ======= ========
</TABLE>
F-19
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
and Argentina (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 TOTAL
---------------- --------- ----------------
OIL GAS OIL OIL GAS
(MBBLS) (MMCF) (MBBLS) (MBBLS) (MMCF)
------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Proved reserves at December 31,
1992............................. 40,209 206,582 -- 40,209 206,582
Revisions of previous estimates... (10) 18,381 -- (10) 18,381
Extensions, discoveries and other
additions........................ 35 4,183 -- 35 4,183
Production........................ (4,785) (22,504) -- (4,785) (22,504)
Purchase of reserves-in-place..... 27,898 68,000 -- 27,898 68,000
Sales of reserves-in-place........ (70) (1,500) -- (70) (1,500)
------ ------- ------ ------- -------
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
====== ======= ====== ======= =======
Proved developed reserves at:
December 31, 1993............... 51,187 226,734 -- 51,187 226,734
====== ======= ====== ======= =======
December 31, 1994............... 55,037 220,112 -- 55,037 220,112
====== ======= ====== ======= =======
December 31, 1995............... 63,791 270,427 36,928 100,719 270,427
====== ======= ====== ======= =======
</TABLE>
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.
F-20
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Prior to 1995, the Company did not have any oil and gas producing activities
outside the United States. Set forth below is the Standardized Measure
relating to proved oil and gas reserves at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995
--------------------------------
U.S. ARGENTINA TOTAL 1994
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Future cash inflows............. $1,786,545 $1,083,551 $2,870,096 $1,483,854
Future production costs......... 751,312 409,734 1,161,046 620,615
Future development and
abandonment costs.............. 118,784 119,916 238,700 112,877
---------- ---------- ---------- ----------
Future net cash inflows before
income tax expense............. 916,449 553,901 1,470,350 750,362
Future income tax expense....... 232,036 86,162 318,198 173,875
---------- ---------- ---------- ----------
Future net cash flows........... 684,413 467,739 1,152,152 576,487
10 percent annual discount for
estimated timing of cash flows. 224,078 191,528 415,606 190,766
---------- ---------- ---------- ----------
Standardized Measure of
discounted future net cash
flows.......................... $ 460,335 $ 276,211 $ 736,546 $ 385,721
========== ========== ========== ==========
</TABLE>
F-21
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized Measure--Beginning of year....... $385,721 $339,701 $274,443
Increases (decreases)--
Sales, net of production costs.............. (93,483) (82,065) (68,328)
Net change in sales price, net of production
costs...................................... 131,697 54,864 (101,453)
Discoveries and extensions, net of related
future development and production costs.... 4,585 4,724 6,495
Changes in estimated future development
costs...................................... (31,210) (17,276) (4,709)
Development costs incurred.................. 37,600 20,228 10,195
Revisions of previous quantity estimates.... 59,319 34,428 9,021
Accretion of discount....................... 44,699 35,078 33,594
Net change in income taxes.................. (86,296) (50,189) 50,421
Purchase of reserves-in-place............... 311,449 47,718 152,712
Sales of reserves-in-place.................. (661) (694) (1,838)
Timing of production of reserves and other.. (26,874) (796) (20,852)
-------- -------- --------
Standardized Measure--End of year............. $736,546 $385,721 $339,701
======== ======== ========
</TABLE>
F-22
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
(UNAUDITED)
A S S E T S
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 5,339
Accounts receivable--
Oil and gas sales................................................... 43,275
Joint operations.................................................... 5,360
Prepaids and other current assets.................................... 13,536
--------
Total current assets.............................................. 67,510
--------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, full cost method............................. 859,184
Oil and gas gathering systems........................................ 12,872
Other................................................................ 7,681
--------
879,737
Less accumulated depreciation, depletion and amortization............ 256,645
--------
623,092
--------
OTHER ASSETS, net..................................................... 10,756
--------
$701,358
========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES:
Revenue payable...................................................... $ 18,910
Accounts payable--trade.............................................. 14,702
Other payables and accrued liabilities............................... 21,103
Current portion of long-term debt.................................... 7,929
--------
Total current liabilities......................................... 62,644
--------
LONG-TERM DEBT, less current portion above............................ 336,380
--------
DEFERRED INCOME TAXES................................................. 45,735
--------
OTHER LONG-TERM LIABILITIES........................................... 3,081
--------
MINORITY INTEREST IN SUBSIDIARY....................................... 2,286
--------
STOCKHOLDERS' EQUITY, per accompanying statement:
Preferred stock, $.01 par, 5,000,000 shares authorized, zero shares
issued and outstanding.............................................. --
Common stock, $.005 par, 40,000,000 shares authorized, 24,062,462 and
23,661,162 shares issued and outstanding............................ 120
Capital in excess of par value....................................... 152,121
Retained earnings.................................................... 98,991
--------
251,232
--------
$701,358
========
</TABLE>
See notes to unaudited consolidated financial statements.
F-23
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
REVENUES:
Oil and gas sales.......................................... $185,847 $112,809
Oil and gas gathering...................................... 15,310 8,472
Gas marketing.............................................. 21,519 13,631
Other income............................................... 659 1,461
-------- --------
223,335 136,373
-------- --------
COSTS AND EXPENSES:
Lease operating, including production taxes................ 67,606 47,520
Oil and gas gathering...................................... 12,838 6,636
Gas marketing.............................................. 19,885 12,210
General and administrative................................. 12,026 8,258
Depreciation, depletion, and amortization.................. 51,313 36,875
Interest................................................... 22,467 13,379
-------- --------
186,135 124,878
-------- --------
Income before provision for income taxes and minority
interest................................................ 37,200 11,495
PROVISION FOR INCOME TAXES:
Current.................................................... 2,061 687
Deferred................................................... 7,982 3,895
MINORITY INTEREST IN (INCOME) LOSS OF SUBSIDIARY............. (361) 662
-------- --------
NET INCOME................................................... $ 26,796 $ 7,575
======== ========
NET INCOME PER SHARE......................................... $ 1.10 $ .36
======== ========
Weighted average common shares and common equivalent shares
outstanding................................................. 24,454 21,322
</TABLE>
See notes to unaudited consolidated financial statements.
F-24
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN EXCESS
------------- OF PAR RETAINED
SHARES AMOUNT VALUE EARNINGS TOTAL
------ ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995...... 23,661 $ 118 $ 149,725 $ 74,117 $ 223,960
Net income...................... -- -- -- 26,796 26,796
Exercise of warrants............ 306 2 1,530 -- 1,532
Exercise of stock options and
resulting tax effects.......... 96 -- 866 -- 866
Cash dividends declared
($.08 per share)............... -- -- -- (1,922) (1,922)
------ ----- --------- -------- ---------
BALANCE AT SEPTEMBER 30, 1996..... 24,063 $ 120 $ 152,121 $ 98,991 $ 251,232
====== ===== ========= ======== =========
</TABLE>
See notes to unaudited consolidated financial statements.
F-25
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 26,796 $ 7,575
Adjustments to reconcile net income to cash provided by
operating activities--
Depreciation, depletion and amortization............... 51,313 36,875
Minority interest in income (loss) of subsidiary....... 361 (662)
Provision for deferred income taxes.................... 7,982 3,895
--------- ---------
86,452 47,683
Decrease (increase) in receivables..................... (3,763) 3,953
Increase (decrease) in payables and accrued
liabilities........................................... 4,340 (1,531)
Other.................................................. (4,082) (1,201)
--------- ---------
Cash provided by operating activities................ 82,947 48,904
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment--
Oil and gas properties................................. (92,441) (78,427)
Other property and equipment........................... (1,567) (775)
Purchase of additional interest in subsidiary........... (5,213) (41,594)
Other................................................... (1,478) (129)
--------- ---------
Cash used by investing activities.................... (100,699) (120,925)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock.................................... 1,753 129
Advances on revolving credit facility and other
borrowings............................................. 108,048 88,410
Payments on revolving credit facility and other
borrowings............................................. (87,614) (14,061)
Dividends paid.......................................... (2,514) (1,344)
Other................................................... 873 --
--------- ---------
Cash provided by financing activities................ 20,546 73,134
--------- ---------
Net increase in cash and cash equivalents................ 2,794 1,113
Cash and cash equivalents, beginning of period.......... 2,545 431
--------- ---------
Cash and cash equivalents, end of period................ $ 5,339 $ 1,544
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
F-26
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1. GENERAL
The accompanying financial statements are unaudited. The consolidated
financial statements include the accounts of the Company and its wholly- and
majority-owned subsidiaries. Management believes that all material adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation have been made. These financial statements and notes should be
read in conjunction with the 1995 audited financial statements and related
notes included elsewhere in this Prospectus. Certain reclassifications have
been made to the prior year financial statements to conform to the 1996
presentations. These reclassifications had no effect on previously reported
net income or cash flow.
2. SIGNIFICANT ACCOUNTING POLICIES
Statements of Cash Flows
During the nine months ended September 30, 1996 and 1995, cash payments for
interest totaled $19,141,953 and $14,161,441, respectively. During the nine
months ended September 30, 1996 and 1995, cash payments for U.S. Federal and
state income taxes totaled $700,000 and $545,453, respectively. Cash payments
for Argentina withholding taxes totaling $64,949 were made during the nine
months ended September 30, 1996. No cash payments were made for the nine
months ended September 30, 1995, for foreign income taxes.
Depreciation, Depletion, and Amortization
Amortization per equivalent barrel of the Company's U.S. oil and gas
properties for the nine months ended September 30, 1996 and 1995, was $3.76
and $3.87, respectively. Amortization per equivalent barrel of the Company's
Argentina oil and gas properties for the nine months ended September 30, 1996
and 1995, was $4.18 and $4.29, respectively. The Company had no Argentina
operations prior to July 1995.
Income Taxes
Deferred income taxes are provided on transactions which are recognized in
different periods for financial and tax 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. The Company
follows the provisions of Statement of Financial Accounting Standards No. 109
when calculating the deferred income tax provision for financial purposes.
Earnings of the Company's foreign subsidiaries, Cadipsa S.A. and Vintage Oil
Argentina, Inc., 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 1996. No U.S. deferred tax liability has been recognized related to the
unremitted earnings of these foreign subsidiaries, as it is the Company's
intention, generally, to reinvest such earnings permanently.
F-27
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT
Long-term debt at September 30, 1996, and December 31, 1995, consists of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
9% Senior Subordinated Notes Due 2005, net of
discount....................................... $ 149,623 $ 149,592
Bank revolving credit facility.................. 164,800 74,300
Bank term loan.................................. -- 36,736
5.92% Senior note............................... -- 9,948
Subsidiary debt (a)--
International Finance Corporation Notes....... 25,986 28,000
Bank of Boston Senior note.................... -- 20,000
Other subsidiary debt......................... 3,900 5,200
--------- ---------
344,309 323,776
Less--Current portion of long-term debt......... 7,929 7,930
--------- ---------
$ 336,380 $ 315,846
========= =========
</TABLE>
- --------
(a) Subsidiary debt relates to borrowings of the Company's international
subsidiaries and is non-recourse to the Company except for $9.2 million
advanced by the International Finance Corporation.
Bank Revolving Credit Facility
The Company has available an unsecured revolving credit facility under the
Credit Agreement dated August 29, 1996, as amended (the "Bank Facility"),
among the Company and certain banks. The Bank Facility establishes a borrowing
base (currently $305 million) based on the banks' evaluation of the Company's
U.S. and certain Argentina oil and gas reserves.
Outstanding advances under the Bank 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 0.250 to 0.375 percent per annum on the unused portion of the
banks' commitment. Total outstanding advances at September 30, 1996, were
$164.8 million at an average interest rate of approximately 6.5 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 Bank Facility 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 Bank Facility requires the maintenance of a minimum current
F-28
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ratio (as defined) and tangible net worth (as defined) of $200 million plus 75
percent of net proceeds of any future equity offerings.
4. SUBSEQUENT EVENTS
On November 5, 1996, the Province of Santa Cruz, Argentina brought suit
against Cadipsa S.A. 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.
On November 20, 1996, the Company purchased from Exxon Company, U.S.A.
certain producing oil and gas properties and facilities located in south
Alabama for approximately $28.2 million in cash, subject to post-closing
adjustments. Funds for this acquisition were provided by advances under the
Company's Bank Facility. The properties consist of all of Exxon's interests in
two fields totaling approximately 5,000 net acres located in Escambia County
in south Alabama and are now operated by the Company. Current net daily
production from the properties averages approximately 1,450 barrels of oil and
liquids and 2,800 Mcf of gas.
Also during November 1996, the Company agreed to purchase 100% of the
outstanding common stock of Shamrock Ventures Boliviana Ltd. ("Shamrock") from
affiliates of Ultramar Diamond Shamrock Corporation for $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 Bank Facility. Shamrock's assets include (i) oil and gas
properties valued at $35.5 million (including the effect of approximately $6.6
million of deferred income taxes recorded under the purchase method of
accounting), and (ii) inventory, receivables, cash and other assets net of
liabilities (other than bank debt repaid at closing) of approximately $9.3
million. The Company has not completed its evaluations of the purchased assets
and assumed liabilities; therefore, it has not completed the final purchase
price allocation. The transaction is subject to government approval. The oil
and gas properties of Shamrock consist of three blocks in the Chaco Plains
area of southern Bolivia. The acquisition of Shamrock represents an extension
to the Company's South American operating area that was initially established
through a series of acquisitions in Argentina during 1995.
F-29
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Definitions....................................................... 2
Incorporation of Documents by Reference................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 13
Forward-Looking Statements................................................ 17
Common Stock Offering..................................................... 18
Use of Proceeds........................................................... 18
Capitalization............................................................ 19
Selected Financial and Operating Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Recent Acquisitions....................................................... 31
Business.................................................................. 33
Management................................................................ 52
Description of Certain Indebtedness....................................... 55
Description of Notes...................................................... 57
Certain U.S. Federal Income Tax Considerations............................ 85
Underwriting.............................................................. 88
Legal Matters............................................................. 89
Experts................................................................... 89
Available Information..................................................... 90
Index to Financial Statements............................................. F-1
</TABLE>
$100,000,000
VINTAGE
PETROLEUM, INC.
% SENIOR SUBORDINATED
NOTES DUE 2009
[LOGO OF VINTAGE PETROLEUM, INC. APPEARS HERE]
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
LEHMAN BROTHERS
NESBITT BURNS SECURITIES INC.
PROSPECTUS
DATED , 1997
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 28, 1997
1,500,000 SHARES
[LOGO OF VINTAGE VINTAGE PETROLEUM, INC.
PETROLEUM, INC.
APPEARS HERE] COMMON STOCK
The 1,500,000 shares of Common Stock, par value $.005 per share (the "Common
Stock"), offered hereby (this "Offering" or the "Common Stock Offering") are
being offered by Vintage Petroleum, Inc. (the "Company"). The Common Stock is
listed on the New York Stock Exchange under the symbol "VPI." On January 24,
1997, the last reported sales price of the Common Stock on the New York Stock
Exchange was $33 5/8 per share. See "Price Range of Common Stock and
Dividends."
Concurrent with this Offering, the Company is offering $100 million aggregate
principal amount of its % Senior Subordinated Notes Due 2009 (the "Notes") to
the public (the "Note Offering"). See "Note Offering." Consummation of this
Offering is not contingent upon consummation of the Note Offering, and there
can be no assurance that the Note Offering will be consummated.
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 11-14.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions* Company+
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total ++..................................... $ $ $
</TABLE>
- -----
* The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
+ Before deducting expenses payable by the Company estimated to be $ .
++The Company has granted the Underwriters a 30-day option to purchase up to
225,000 additional shares of Common Stock on the same terms per share solely
to cover over-allotments, if any. If such option is exercised in full, the
total price to public will be $ , the total underwriting discounts and
commissions will be $ and the total proceeds to the Company will be $ .
See "Underwriting."
-----------
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that delivery of the certificates
therefor will be made at the offices of Dillon, Read & Co. Inc., New York, New
York, on or about , 1997, against payment therefor. The Underwriters
include:
DILLON, READ & CO. INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
JOHNSON RICE & COMPANY L.L.C.
The date of this Prospectus is , 1997
<PAGE>
CERTAIN DEFINITIONS
Unless the context requires otherwise, all references in this Prospectus to
"Vintage" or the "Company" include Vintage Petroleum, Inc., its consolidated
subsidiaries and its proportionately consolidated general partner interests in
various limited partnerships and joint ventures.
As used in this Prospectus, "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 Prospectus, 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. ("Cadipsa") and do not
reflect reductions for minority interest ownership. The term "oil" includes
crude oil, condensate and natural gas liquids. "Finding cost" means an amount
per BOE equal to the sum of all costs incurred relating to oil and gas
property acquisition, exploration and development activities divided by the
sum of all additions and revisions to estimated proved reserves, including
reserve purchases.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Securities
and Exchange Commission (the "Commission") (File No. 1-10578) are hereby
incorporated by reference in this Prospectus: (a) the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995; (b) the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June 30,
1996, and September 30, 1996; (c) the Company's Current Report on Form 8-K
dated July 5, 1995, and Amendment No. 1 thereto dated September 18, 1995; (d)
the Company's Current Report on Form 8-K dated December 28, 1995; (e) the
Company's Current Report on Form 8-K dated January 10, 1997; and (f) the
description of the Common Stock contained in the Company's registration
statement on Form 8-A, dated July 18, 1990, including any amendment or report
heretofore or hereafter filed for the purpose of updating the description of
the Common Stock contained therein.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
subsequent to the date of this Prospectus and prior to the termination of this
Offering shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the date of filing of such document. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained in this Prospectus or
in any other subsequently filed document which also is or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus has been delivered, on written or oral request of such person, a
copy (without exhibits, unless such exhibits are specifically incorporated by
reference into such documents) of any or all documents incorporated by
reference in this Prospectus. Requests for such copies should be directed to
William C. Barnes, Secretary, at the Company's principal executive offices,
4200 One Williams Center, Tulsa, Oklahoma 74172, telephone number (918) 592-
0101.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) included
elsewhere in this Prospectus or incorporated by reference herein. Unless
otherwise indicated, all data in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. Certain terms used herein are defined
under "Certain Definitions."
THE COMPANY
Vintage Petroleum, Inc. ("Vintage" or 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 September 30, 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 net acres in the Chaco Plains area
of southern Bolivia. See "Recent Acquisitions."
Vintage owned interests in 3,053 gross (1,934 net) producing wells in the
United States as of September 30, 1996, of which approximately 81 percent are
operated by the Company. Vintage owned interests in 610 gross (597 net)
producing wells in Argentina as of September 30, 1996, of which approximately
97 percent are operated by the Company. As of December 31, 1995, the Company's
properties had proved reserves of 199.7 MMBOE, comprised of 147.9 MMBbls of oil
and 310.8 Bcf of gas, with a present value of estimated future net revenues
before income taxes (utilizing a 10 percent discount rate) of $894 million and
a standardized measure of discounted future net cash flows of $737 million.
Since that date, acquisitions have added 28.4 MMBOE of proved reserves, as
estimated by the Company as of the date of each acquisition.
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 1993 through the third quarter of 1996, the
Company increased its average net daily production from 11,200 Bbls of oil to
32,900 Bbls of oil and from 60,000 Mcf of gas to 86,300 Mcf of gas. For the
year ended December 31, 1995, the Company generated revenues of $195 million
and EBITDA (as defined herein) of $88 million. For the nine months ended
September 30, 1996, the Company generated revenues of $223 million and EBITDA
of $111 million.
BUSINESS STRATEGY
Vintage'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,
3
<PAGE>
(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, 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, 1993, through
September 30, 1996, the Company acquired 140.1 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 3.1 times its production of 45.5 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, 1993, through December 31,
1995, the Company spent approximately $83.9 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 75 percent of these operations, and the
result of all of its exploitation activities, including development and
infill drilling, succeeded in replacing more than 78 percent of
production during this period. The Company has an extensive inventory of
exploitation and development opportunities including identified projects
which represent approximately a 10 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, 1993, through September 30, 1996, the Company spent
approximately $39.8 million on exploration activities including the
drilling of 75 gross (32.65 net) exploration wells, of which
approximately 69 percent gross (58 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 Vintage operations. The lower cost
structure has generally allowed the Company to substantially improve the
cash flow of newly acquired properties.
4
<PAGE>
. 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. Upon consummation of the Common Stock
Offering and the Note Offering and the application of the net proceeds
therefrom, and after giving effect to the related borrowing base
reduction, the unused portion of the Company's revolving credit facility
as of January 9, 1997, would have been approximately $158.7 million
($96.4 million if only the Common Stock Offering is consummated).
RECENT ACQUISITIONS
Since December 31, 1995, the Company has acquired, through several
transactions, oil and gas properties for an aggregate purchase price of
approximately $89.7 million. Most of these properties were acquired subsequent
to September 30, 1996. Based on estimates prepared by the Company, proved
reserves as of the dates of the various acquisitions aggregated 16.0 MMBbls of
oil and 74.0 Bcf of gas, or a total of 28.4 MMBOE. These reserves were acquired
at an average cost of $3.16 per BOE.
The two most significant acquisitions made subsequent to September 30, 1996,
are described below. If these properties had been acquired on January 1, 1996,
these properties would have increased the Company's revenues by approximately
$13.5 million, EBITDA by approximately $8.5 million and production by
approximately 302 MBbls of oil and 4.0 Bcf of gas for the nine months ended
September 30, 1996.
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 $28.2 million in cash (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.
Also during 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 $35.5 million (including the effect of
approximately $6.6 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 $9.3 million. The oil and gas properties of Shamrock
consist of three blocks, totaling approximately 570,000 net acres, in the Chaco
Plains area of southern Bolivia. 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 the
Company, were 53.2 Bcf of gas and 5.1 MMBbls of oil. Current net daily
production is approximately 14,500 Mcf of gas and 230 Bbls of condensate.
Recent realized prices on the properties were $1.23 per Mcf of gas and $21.00
per Bbl of condensate. 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. The
Company believes that the Shamrock properties contain substantial upside
potential which may be realized through exploitation and future exploration.
See "Recent Acquisitions."
5
<PAGE>
THE OFFERING
Common Stock offered........ 1,500,000 shares
Common Stock to be
outstanding after this
Offering.................... 25,600,502 shares(1)
Use of proceeds............. The net proceeds to the Company from the sale of
the Common Stock offered hereby are estimated to
be approximately $48.0 million. Such net proceeds
will be used to repay a portion of existing
indebtedness under the Company's revolving credit
facility (the "Bank Facility"). See "Use of
Proceeds."
New York Stock Exchange
Symbol...................... VPI
Note Offering............... Concurrent with this Offering, the Company is
offering $100 million aggregate principal amount
of Notes to the public. This Offering is not
contingent upon consummation of the Note
Offering, and there can be no assurance that the
Note Offering will be consummated. See "Note
Offering."
- --------
(1) Does not include (a) 225,000 shares of Common Stock that may be sold by the
Company upon exercise of the Underwriters' over-allotment option and (b)
1,304,102 shares of Common Stock reserved for issuance pursuant to
outstanding stock options.
6
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents summary financial information for the periods
indicated and should be read in conjunction with the Company's consolidated
financial statements and the notes thereto included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Significant acquisitions of producing oil and gas
properties affect the comparability of the financial data for the periods
presented below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and gas sales...... $ 185,847 $ 112,809 $ 160,254 $ 141,357 $ 113,259
Oil and gas gathering.. 15,310 8,472 12,380 14,635 7,861
Gas marketing.......... 21,519 13,631 20,912 27,285 36,175
Other income........... 659 1,461 1,251 2,375 2,732
---------- ---------- ---------- ---------- ----------
223,335 136,373 194,797 185,652 160,027
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Lease operating,
including production
taxes................. 67,606 47,520 66,771 59,292 44,930
Oil and gas gathering.. 12,838 6,636 9,511 12,294 5,869
Gas marketing.......... 19,885 12,210 18,839 24,963 34,406
General and
administrative........ 12,026 8,258 11,601 8,889 6,066
Depreciation, depletion
and amortization...... 51,313 36,875 52,257 45,774 33,335
Interest............... 22,467 13,379 20,178 12,002 6,943
---------- ---------- ---------- ---------- ----------
186,135 124,878 179,157 163,214 131,549
---------- ---------- ---------- ---------- ----------
Income before income
taxes, minority
interest and cumulative
effect of accounting
change................. 37,200 11,495 15,640 22,438 28,478
Provision (benefit) for
income taxes:
Current................ 2,061 687 (955) 1,576 3,962
Deferred............... 7,982 3,895 6,034 6,933 7,727
Minority interest in
(income) loss of
subsidiary(a).......... (361) 662 800 -- --
---------- ---------- ---------- ---------- ----------
Income before cumulative
effect of accounting
change................. 26,796 7,575 11,361 13,929 16,789
Cumulative effect of
accounting change(b)... -- -- -- -- 1,725
---------- ---------- ---------- ---------- ----------
Net income.............. $ 26,796 $ 7,575 $ 11,361 $ 13,929 $ 18,514
========== ========== ========== ========== ==========
Weighted average common
shares outstanding..... 24,454 21,322 21,276 21,174 20,830
EARNINGS PER SHARE:
Income before cumulative
effect of accounting
change................. $ 1.10 $ .36 $ .53 $ .66 $ .81
Net income.............. 1.10 .36 .53 .66 .89
CASH FLOW DATA:
Cash provided (used) by:
Operating activities... $ 82,947 $ 48,904 $ 54,199 $ 58,670 $ 52,219
Investing activities... (100,699) (120,925) (187,251) (70,668) (146,126)
Financing activities... 20,546 73,134 135,166 11,867 93,900
BALANCE SHEET DATA (end
of period):
Property, plant and
equipment, net......... $ 623,092 $ 521,751 $ 577,746 $ 366,665 $ 346,034
Total assets............ 701,358 572,143 647,539 407,752 384,461
Total debt.............. 344,309 309,140 323,776 193,864 181,480
Minority interest(a).... 2,286 11,618 3,922 -- --
Stockholders' equity.... 251,232 169,702 223,960 155,993 143,392
OTHER FINANCIAL DATA:
Dividends declared per
share.................. $ .08 $ .07 $ .09 $ .07 $ .05
EBITDA(c)............... 110,980 61,749 88,075 80,214 68,756
Ratio of EBITDA to
interest expense....... 4.9x 4.6x 4.4x 6.7x 9.9x
Ratio of earnings to
fixed charges(d)....... 2.7x 1.9x 1.8x 2.9x 5.0x
</TABLE>
(see notes on following page)
7
<PAGE>
- --------
(a) Reflects the minority interest in Cadipsa S.A. See consolidated financial
statements and the notes thereto of the Company included elsewhere in this
Prospectus.
(b) Represents the cumulative effect on prior years of adopting Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
(c) EBITDA is presented herein as defined in the Indenture governing the Notes
wherein EBITDA is generally defined as income before cumulative effect of
accounting change, provision for income taxes, interest, depreciation,
depletion, amortization and certain other non-cash charges. EBITDA is
included as a supplemental disclosure because it is commonly accepted as
providing useful information regarding a company's ability to service and
incur debt. EBITDA, however, should not be considered in isolation or as a
substitute for net income, cash flow provided by operating activities or
other income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity. If the Exxon Properties and Shamrock had been acquired on
January 1, 1996, these properties would have increased the Company's EBITDA
by approximately $8.5 million for the nine months ended September 30, 1996.
See "Recent Acquisitions."
(d) For purposes of calculating the ratio of earnings to fixed charges,
earnings are defined as income of the Company and its subsidiaries before
income taxes and fixed charges. Fixed charges consist of interest expense,
including amortization of financing costs and any discount or premium
related to any indebtedness.
8
<PAGE>
SUMMARY OPERATING AND RESERVE DATA (A)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- ----------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)................ 8,649 5,310 7,608 6,657 4,785
Gas (MMcf)................. 24,535 22,489 30,610 28,884 22,504
Oil equivalent (MBOE)...... 12,738 9,058 12,710 11,471 8,536
Average sales prices:
Oil (per Bbl).............. $ 16.66(b) $ 15.33 $15.26 $13.53 $14.14
Gas (per Mcf).............. 1.70 1.42 1.46 1.78 2.03
Production costs (per
BOE)(c).................... 5.31 5.25 5.25 5.17 5.26
Three-year average finding
cost (per BOE)(d).......... N/A N/A 2.98 3.23 3.34
Proved reserves (end of
period):
Oil (MBbls)................ N/A N/A 147,871 70,789 63,277
Gas (MMcf)................. N/A N/A 310,762 281,638 273,142
Total proved reserves
(MBOE).................... N/A N/A 199,665 117,729 108,801
Proved developed reserves
(MBOE).................... N/A N/A 145,790 91,722 88,976
Annual reserve replacement
ratio(e)................... N/A N/A 747% 179% 504%
Estimated reserve life (in
years)(f).................. N/A N/A 15.7 10.3 12.7
Present value of estimated
future net revenues before
income taxes (discounted at
10%) (in thousands)........ N/A N/A $894,249 $446,987 $359,978
Standardized measure of
discounted future net cash
flows (in thousands)....... N/A N/A 736,546 385,721 339,701
</TABLE>
- --------
(a) Significant acquisitions of producing oil and gas properties affect the
comparability of the operating data for the periods presented.
(b) During the first nine months of 1996, the impact of oil hedges reduced the
Company's overall average oil price $1.17 to $16.66 per Bbl.
(c) Includes lease operating costs and production and ad valorem taxes.
(d) Represents the average finding cost per BOE during the three years ended
December 31 of the year shown in the column. See "Certain Definitions."
(e) The annual reserve replacement ratio is a percentage determined on a BOE
basis by dividing the estimated reserves added during a year from
exploitation, development and exploration activities, acquisitions of
proved reserves and revisions of previous estimates, excluding property
sales, by the oil and gas volumes produced during that year.
(f) Estimated reserve life is calculated on a BOE basis by dividing the total
estimated proved reserves at year-end by the total production during the
year. This calculation can be affected by the timing of major acquisitions.
For example, major acquisitions were made during the second half of 1995
which resulted in an estimated reserve life of 15.7 years for 1995. This
compares to an estimated reserve life of 12.0 years for 1995 based on
annualized first quarter 1996 production.
9
<PAGE>
SUMMARY OIL AND GAS RESERVE DATA
The following table sets forth summary information with respect to the
estimates of the Company's proved oil and gas reserves at December 31, 1995, as
evaluated by Netherland, Sewell & Associates, Inc. For additional information
relating to the Company's oil and gas reserves, see "Business--Reserves,"
"Recent Acquisitions" and Note 9 "Supplementary Financial Information for Oil
and Gas Producing Activities" to the Company's consolidated financial
statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PROVED RESERVES AT
DECEMBER 31, 1995
-----------------------------
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- -------
<S> <C> <C> <C>
United States:
Oil (MBbls)..................................... 63,791 16,436 80,227
Gas (MMcf)...................................... 270,427 40,335 310,762
MBOE............................................ 108,862 23,159 132,021
Argentina:
Oil (MBbls)..................................... 36,928 30,716 67,644
Total:
Oil (MBbls)..................................... 100,719 47,152 147,871
Gas (MMcf)...................................... 270,427 40,335 310,762
MBOE............................................ 145,790 53,875 199,665
</TABLE>
10
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should carefully
consider the following risk factors, as well as the other information set
forth in this Prospectus.
INDUSTRY CONDITIONS; IMPACT ON COMPANY'S OPERATING RESULTS
The Company's revenues, operating results and future rate of growth are
substantially dependent upon prevailing prices for oil and gas. Historically,
oil and gas prices and markets have been volatile, and they are likely to
continue to be volatile in the future. Prices for oil and gas are subject to
wide fluctuations in response to relatively minor changes in the supply of and
demand for oil and gas, market uncertainty and a variety of additional factors
that are beyond the control of the Company. These factors include political
conditions in oil producing regions, including the Middle East, the domestic
and foreign supply of oil and gas, the level of consumer demand, weather
conditions, domestic and foreign government regulations, the price and
availability of alternative fuels and overall economic conditions. In
addition, various factors, including the capacity and availability of oil and
gas gathering systems and pipelines, the effect of federal and state
regulation of production and transportation, general economic conditions,
changes in supply due to drilling by other producers and changes in demand,
may adversely affect the Company's ability to market its oil and gas
production.
SUBSTANTIAL LEVERAGE
At September 30, 1996, on an as adjusted combined basis, the Company would
have had long-term debt of $357.5 million as compared to stockholders' equity
of $299.2 million ($354.8 million and $299.2 million, respectively, if the
Note Offering is not consummated) resulting in a long-term debt to total
capitalization ratio of 54 percent (54 percent if the Note Offering is not
consummated). See "Capitalization." Following the completion of the Note
Offering, the Company will have the ability to incur additional indebtedness
under the indenture governing the Notes and the indenture governing the
Company's 9% Senior Subordinated Notes Due 2005 (the "9% Notes") and will have
significant borrowing capacity under its revolving credit facility (the "Bank
Facility"). The Company's ability to meet its debt service obligations and
reduce total indebtedness will be dependent not only upon its future drilling
and production performance, but also on oil and gas prices, general economic
conditions and financial, business and other factors affecting its operations,
many of which are beyond its control. The Company's historical focus has been
and is expected to continue to be the acquisition, exploitation, development
and exploration of producing oil and gas properties. Each of these activities
requires substantial capital. The Company may finance such capital
expenditures in the future through the incurrence of additional indebtedness.
The degree to which the Company is leveraged could have important consequences
to the holders of Common Stock including (a) the ability of the Company to
obtain any necessary financing in the future for working capital, capital
expenditures, acquisitions, debt service requirements or other purposes may be
limited; (b) a portion of the Company's cash flow from operations must be
dedicated to the payment of interest on its indebtedness and will not be
available for other purposes; (c) the Company's level of indebtedness could
limit its flexibility in planning for, or reacting to changes in, its
business; (d) the Company is more highly leveraged than some of its
competitors, which may place it at a competitive disadvantage; (e) the
Company's level of indebtedness may make it more vulnerable in the event of a
downturn in its business; and (f) the terms of certain of the Company's
indebtedness permit its creditors to accelerate payments upon certain events
of default or a change of control of the Company. Currently, an instrument of
indebtedness of one of the Company's foreign subsidiaries restricts its
ability to pay dividends and other distributions to the Company, and the
respective indentures governing the Notes and the 9% Notes permit foreign
subsidiaries of the Company to agree to similar restrictions in the future.
RELIANCE ON DEVELOPMENT OF ADDITIONAL RESERVES; ACQUISITION RISKS
The Company's future performance is dependent upon its ability to find or
acquire additional oil and gas reserves that are economically recoverable.
Unless the Company successfully replaces the reserves that
11
<PAGE>
it produces, the Company's reserves will decline, resulting eventually in a
decrease in oil and gas production and lower revenues and cash flow from
operations.
The Company in the past has focused, and expects to continue to focus, on
acquiring producing oil and gas properties to replace reserves. Although the
Company performs a review of the acquired properties that it believes is
consistent with industry practice, such reviews are inherently incomplete. In
general, it is not feasible to review in-depth each individual property being
acquired. Ordinarily, the Company will focus its review efforts on the higher-
valued properties and will sample the remainder. However, even an in-depth
review of all properties and records may not necessarily reveal existing or
potential problems nor will it permit the Company to become sufficiently
familiar with the properties to assess fully their deficiencies and
capabilities. Inspections may not always be performed on each well included in
an acquisition, and environmental problems, such as ground water
contamination, are not necessarily observable even when an inspection is
performed. In addition, competition for producing oil and gas properties is
intense and many of the Company's competitors have financial and other
resources substantially in excess of those available to the Company.
Therefore, no assurance can be given that the Company will be able to acquire
producing oil and gas properties that contain economically recoverable
reserves or that it will make such acquisitions at acceptable prices.
The Company historically has succeeded in replacing reserves through
exploitation, development and exploration. The Company has conducted such
activities on its existing oil and gas properties as well as on newly acquired
properties. However, no assurance can be given that the Company will continue
to replace reserves from such activities at acceptable costs. In addition,
exploitation, development and exploration involve numerous risks, including
depositional or trapping uncertainties or other conditions that may result in
dry holes, the failure to produce oil and gas in commercial quantities and the
inability to fully produce discovered reserves.
UNCERTAINTIES IN ESTIMATING RESERVES AND FUTURE NET REVENUES; IMPAIRMENT OF
OIL AND GAS ASSETS
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing of
developmental expenditures, including many factors beyond the control of the
producer. The reserve data set forth in this Prospectus or incorporated by
reference herein represent only estimates. In addition, the estimates of
future net revenues from proved reserves of the Company and the present value
thereof are based upon certain assumptions about future production levels,
prices and costs that may not prove to be correct over time. The level of
future oil and gas production is subject to a number of uncertainties
including the degree to which the Company is successful in acquiring or
developing additional reserves. See "--Reliance on Development of Additional
Reserves; Acquisition Risks."
The Company accounts for its oil and gas producing activities under the full
cost method. This method imposes certain limitations on the carrying (book)
value of proved oil and gas properties and requires a writedown of such assets
for accounting purposes if such limits are exceeded. The risk that the Company
will be required to write down the carrying value of its oil and gas
properties increases as oil and gas prices decline or remain depressed. If a
writedown is required, it would result in a non-cash charge to earnings. If
declines in oil and gas prices are severe, the Company's borrowing base under
the Bank Facility may be reduced. In the event debt outstanding under the Bank
Facility exceeds the amount of the revised borrowing base, the Company would
be required to make a principal repayment to bring the total amount of debt
outstanding in compliance with the revised borrowing base. In the past, the
Company has not been required to writedown its oil and gas properties or make
a mandatory prepayment under the Bank Facility. However, no assurance can be
given that the Company will not be required to make such a writedown or make
such a mandatory prepayment in the future.
12
<PAGE>
RISKS OF INTERNATIONAL OPERATIONS
International investments represent approximately 34 percent of the
Company's total proved reserves at December 31, 1995, 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 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.
RISKS OF HEDGING TRANSACTIONS
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. Currently, oil hedges for the
calendar year 1997 cover 2.738 MMBbls at an average NYMEX reference price of
$19.26. 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. These hedging arrangements may
limit potential gains by the Company if the market prices for oil and gas were
to rise substantially over the price established by the hedge. In addition,
the Company's hedging arrangements expose the Company to the risk of financial
loss in certain circumstances, including instances in which (a) production is
less than expected, (b) there is a widening of price differentials between
delivery points for the Company's production and the NYMEX reference price, or
(c) the counterparties to the Company's hedging arrangements fail to honor
their financial commitments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."
RISKS RELATING TO A CHANGE OF CONTROL
In the event of a Change of Control (as defined in the respective indentures
governing the Notes and the 9% Notes), holders of the Notes, the 9% Notes and
all then outstanding indebtedness pari passu with the Notes that contains
similar change of control provisions will have the right to require the
Company, subject to certain conditions, to repurchase all or any part of such
holders' notes at a price equal to 101 percent of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
Existing senior indebtedness and existing senior subordinated indebtedness
includes, and future indebtedness may include, change of control provisions
pursuant to which the Company would be required to repurchase, or the lender
could demand repayment of, upon a change of control (as defined thereunder),
the indebtedness due thereunder. Upon such an occurrence, the Company would be
required to redeem or repay such senior indebtedness before repurchasing the
Notes, the 9% Notes and all then outstanding indebtedness pari passu with the
Notes that contains similar change of control provisions. Furthermore, no
assurance can be given that the Company would have sufficient funds available
or could obtain the financing required to repurchase the Notes, the 9% Notes
and such other outstanding indebtedness that is pari passu with the Notes
tendered by holders following a Change of Control. If a Change of Control
occurred and the Company had inadequate funds or financing available to pay
for Notes, 9% Notes and such other outstanding indebtedness that is pari passu
with the Notes tendered for repurchase, an event of default would be triggered
under the indenture governing the Notes and under the indentures governing the
9% Notes and such other outstanding indebtedness that is pari passu with the
Notes, each of which could have adverse consequences for the Company.
13
<PAGE>
OPERATING HAZARDS; UNINSURED RISKS
The Company's operations are subject to all of the risks and hazards
typically associated with the exploitation, development and exploration for,
the production of, and the transportation of oil and gas. Operating risks
include but are not limited to fires, explosions, formations with abnormal
pressures, blowouts, cratering and oil spills and other natural disasters, any
of which could result in loss to human life, significant damage to property,
environmental pollution, impairment of the Company's operations and
substantial losses to the Company. In accordance with customary industry
practice, the Company maintains insurance against some, but not all, of such
risks and some, but not all, of such losses. The occurrence of such an event
not fully covered by insurance could have a material adverse effect on the
financial position and operations of the Company.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company's business is subject to certain foreign, federal, state and
local laws and regulations relating to the exploration for and development,
production and marketing of oil and gas, including environmental and safety
matters. Such laws and regulations have generally become more stringent in
recent years, often imposing greater liability on a larger number of
potentially responsible parties. Such laws and regulations have increased the
costs of planning, designing, drilling, installing, operating and abandoning
the Company's oil and gas wells and other facilities.
The Company has expended significant resources to comply with certain laws
and environmental regulations and anticipates that it will continue to do so
in the future. Because the requirements imposed by such laws and regulations
are frequently changed, the Company is unable to predict the ultimate cost of
compliance with such requirements. There can be no assurance given that laws
and regulations enacted in the future, including changes to existing laws and
regulations, will not adversely affect the Company's business.
COMPETITION
The oil and gas industry is highly competitive. The Company competes in the
areas of property acquisitions and the development, production and marketing
of oil and natural gas with major oil companies, other independent oil and
natural gas concerns and individual producers and operators. The Company also
competes with major and independent oil and natural gas concerns in recruiting
and retaining qualified employees. Many of these competitors have
substantially greater financial and other resources than the Company.
CONTROL BY CERTAIN STOCKHOLDERS
Upon the completion of this Offering, the current officers and directors of
the Company as a group will own at least 32 percent of the outstanding Common
Stock. Consequently, these stockholders may be in a position to effectively
control the affairs of the Company, including the election of all of the
Company's directors and the approval or prevention of certain corporate
transactions which require majority stockholder approval.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation and Restated By-laws and
the Delaware General Corporation Law contain provisions that may have the
effect of discouraging unsolicited takeover proposals for the Company that a
stockholder might consider to be in that stockholder's best interest. These
provisions, among other things, provide for a classified board of directors,
restrict the ability of stockholders to take action by written consent,
authorize the board of directors to designate the terms of and issue new
series of preferred stock, limit the personal liability of directors, require
the Company to indemnify directors and officers to the fullest extent
permitted by applicable law and impose restrictions on business combinations
with certain interested parties. See "Description of Capital Stock--Possible
Anti-takeover Provisions." In addition, certain provisions included in the
Bank Facility, the Notes and the 9% Notes will require the Company to prepay
indebtedness outstanding thereunder upon a change of control (as defined
therein) of the Company.
14
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Prospectus which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things
as future capital expenditures (including the amount and nature thereof),
wells to be drilled or reworked, oil and gas prices and demand, exploitation
and exploration prospects, development and infill potential, drilling
prospects, expansion and other development trends of the oil and gas industry,
business strategy, production of oil and gas reserves, expansion and growth of
the Company's business and operations, and other such matters are forward-
looking statements. These statements are based on certain assumptions and
analyses made by the Company in light of its experience and its perception of
historical trends, current conditions and expected future developments as well
as other factors it believes are appropriate in the circumstances. However,
whether actual results and developments will conform with the Company's
expectations and predictions is subject to a number of risks and
uncertainties, including the risk factors discussed in this Prospectus;
general economic, market or business conditions; the business opportunities
(or lack thereof) that may be presented to and pursued by the Company; changes
in laws or regulations; and other factors, most of which are beyond the
control of the Company. Consequently, all of the forward-looking statements
made in this Prospectus are qualified by these cautionary statements and there
can be no assurance that the actual results or developments anticipated by the
Company will be realized or, even if substantially realized, that they will
have the expected consequences to or effects on the Company or its business or
operations. The Company assumes no obligation to update any such forward-
looking statements.
NOTE OFFERING
Concurrent with this Offering, the Company is offering $100 million
aggregate principal amount of its Senior Subordinated Notes Due 2009 (the
"Notes"). This Offering and the Note Offering are not contingent upon each
other and there can be no assurance that the Note Offering will be
consummated.
The Indenture for the Notes contains limitations on, among other things, (a)
the ability of the Company to incur additional indebtedness, (b) the payment
of dividends and other distributions with respect to the capital stock of the
Company and the purchase, redemption or retirement of capital stock of the
Company, (c) the making of certain investments, (d) the incurrence of certain
liens, (e) asset sales, (f) the issuance and sale of capital stock of
restricted subsidiaries, (g) transactions with affiliates, (h) payment
restrictions affecting restricted subsidiaries, and (i) certain
consolidations, mergers and transfers of assets.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $48.0 million. Such net proceeds will
be used to reduce a portion of existing indebtedness under the Company's Bank
Facility. At January 9, 1997, the outstanding balance under the Bank Facility
totaled approximately $248.7 million, with an average interest rate of
approximately 6.8 percent. The Company's indebtedness under the Bank Facility
was incurred, in part, to finance the Company's acquisitions of oil and gas
reserves, including the acquisitions of Shamrock and the Exxon Properties. For
additional information regarding the term and the interest rate of the
indebtedness under the Bank Facility, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity."
If the concurrent Note Offering is consummated, the net proceeds from that
offering to the Company are estimated to be approximately $97.3 million. Such
net proceeds will also be used to reduce a portion of existing indebtedness
under the Bank Facility.
15
<PAGE>
CAPITALIZATION
The following table sets forth at September 30, 1996: (a) the historical
capitalization of the Company, (b) the as adjusted capitalization of the
Company after giving effect to the debt incurred to purchase the Exxon
Properties and the acquisition of Shamrock (see "Recent Acquisitions"), and
the Common Stock Offering and the application of the estimated net proceeds
therefrom as set forth in "Use of Proceeds," and (c) the as adjusted combined
capitalization of the Company after giving effect to (b) above and the Note
Offering and the application of the estimated net proceeds therefrom as set
forth in "Use of Proceeds." This table should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------
AS ADJUSTED
COMMON STOCK
OFFERING AND AS ADJUSTED
HISTORICAL ACQUISITIONS COMBINED
---------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt..... $ 7,929 $ 7,929 $ 7,929
========= ========= ========
Long-term debt:
Bank Revolving Loan Facility........ $ 164,800 $ 183,207(a)(b) $ 85,957(c)
9% Senior Subordinated Notes Due
2005, net of discount.............. 149,623 149,623 149,623
Note Offering Notes................. -- -- 100,000
International Finance Corporation
Note............................... 21,957 21,957 21,957
--------- --------- --------
Total long-term debt.............. 336,380 354,787 357,537
--------- --------- --------
Minority interest..................... 2,286 2,286 2,286
--------- --------- --------
Stockholders' equity:
Common stock(d)..................... 120 128(b) 128
Capital in excess of par value...... 152,121 200,107(b) 200,107
Retained earnings................... 98,991 98,991 98,991
--------- --------- --------
Total stockholders' equity........ 251,232 299,226 299,226
--------- --------- --------
Total capitalization.................. $ 589,898 $ 656,299 $659,049
========= ========= ========
</TABLE>
- --------
(a) Reflects additional borrowings of $66.4 million to fund the acquisitions
of the Exxon Properties and Shamrock.
(b) Reflects the issuance of 1,500,000 shares of Common Stock by the Company
at an assumed public offering price of $33.75 per share, resulting in
estimated net proceeds of $48.0 million, of which $7,500 (equal to the par
value of the shares issued) is reflected in Common stock and $48.0 million
is reflected in Capital in excess of par value. Net proceeds from the
Common Stock Offering are applied to reduce borrowings under the Bank
Facility. See "Use of Proceeds."
(c) Reflects the reduction in borrowings resulting from the application of the
estimated $97.3 million net proceeds from the Note Offering.
(d) There were 24,100,502 shares of Common Stock issued and outstanding prior
to the Common Stock Offering, and 25,600,502 shares outstanding after
giving effect to the Common Stock Offering. The number of shares of Common
Stock outstanding excludes (a) 225,000 shares of Common Stock that may be
sold by the Company upon exercise of the Underwriters' over-allotment
option, and (b) 1,304,102 shares of Common Stock reserved for issuance
upon exercise of outstanding options granted under the Company's 1983
Stock Option Plan, 1990 Stock Plan and Non-Management Director Stock
Option Plan, at an average exercise price of $16.45 per share. In
addition, an aggregate of 778,000 shares are available to be granted under
these Plans.
16
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock commenced trading on the New York Stock Exchange on August
3, 1990, under the symbol "VPI." The following table sets forth the high and
low sale prices per share of Common Stock, as reported in the New York Stock
Exchange composite transactions, and the cash dividends paid per share of
Common Stock, for the periods indicated:
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PAID
---- --- ---------
<S> <C> <C> <C>
1995:
First quarter........................................ $20 $16 $.02
Second quarter....................................... 21 5/8 18 1/4 .02
Third quarter........................................ 21 3/4 17 .02
Fourth quarter....................................... 22 1/2 19 1/8 .025
1996:
First quarter........................................ 22 1/2 19 1/8 .025
Second quarter....................................... 26 3/4 19 .025
Third quarter........................................ 29 7/8 22 3/8 .025
Fourth quarter....................................... 34 3/4 28 3/4 .03
1997:
First quarter (through January 24)................... 37 3/8 33 .03
</TABLE>
On January 24, 1997, the last reported sales price of the Common Stock on
the New York Stock Exchange was $33 5/8 per share. Substantially all of the
Company's stockholders maintain their shares in "street name" accounts and are
not, individually, stockholders of record. As of December 31, 1996, the Common
Stock was held by approximately 82 holders of record and approximately 2,500
beneficial owners.
The Company began paying a quarterly dividend in the fourth quarter of 1992
and expects to continue paying a regular quarterly cash dividend. The
determination of the amount of future cash dividends, if any, to be declared
and paid, however, will depend upon, among other things, the Company's
financial condition, funds from operations, the level of its capital
expenditures and its future business prospects. The Company's credit
arrangements (including the Notes in the event the Note Offering is
consummated and the 9% Notes), contain certain restrictions on the payment of
dividends, the most restrictive of which prohibit the payment of dividends if
such payments would reduce Net Worth, as defined in the Bank Facility, below
the sum of $200 million plus 75 percent of net proceeds of any future equity
offerings ($236.0 million based on estimated net proceeds from this Offering).
Net Worth was approximately $251.2 million at September 30, 1996 ($299.2
million as adjusted for the estimated net proceeds from this Offering).
17
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The financial data presented in the table below for and at the end of each
of the years in the five-year period ended December 31, 1995, are derived from
the consolidated financial statements of the Company audited by Arthur
Andersen LLP, independent public accountants. The financial data presented in
the table below for and at the end of each of the nine-month periods ended
September 30, 1996 and 1995, are derived from the unaudited consolidated
financial statements of the Company. In the opinion of management of the
Company, such unaudited consolidated financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial data for such periods. The results for the
nine months ended September 30, 1996, are not necessarily indicative of the
results to be achieved for the full year.
The data presented below should be read in conjunction with the Company's
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Significant acquisitions of producing
oil and gas properties affect the comparability of the financial and operating
data for the periods presented below.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- ------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS, OPERATING DATA AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and gas sales...... $ 185,847 $ 112,809 $ 160,254 $ 141,357 $ 113,259 $ 61,194 $ 43,392
Oil and gas gathering.. 15,310 8,472 12,380 14,635 7,861 7,775 9,013
Gas marketing.......... 21,519 13,631 20,912 27,285 36,175 31,097 17,221
Other income........... 659 1,461 1,251 2,375 2,732 1,384 4,353
--------- --------- --------- --------- --------- -------- --------
223,335 136,373 194,797 185,652 160,027 101,450 73,979
--------- --------- --------- --------- --------- -------- --------
Costs and expenses:
Lease operating,
including production
taxes................. 67,606 47,520 66,771 59,292 44,930 26,334 19,146
Oil and gas gathering.. 12,838 6,636 9,511 12,294 5,869 5,901 6,894
Gas marketing.......... 19,885 12,210 18,839 24,963 34,406 29,536 16,652
General and
administrative........ 12,026 8,258 11,601 8,889 6,066 4,064 3,168
Depreciation, depletion
and amortization...... 51,313 36,875 52,257 45,774 33,335 17,374 12,927
Interest............... 22,467 13,379 20,178 12,002 6,943 4,497 4,244
--------- --------- --------- --------- --------- -------- --------
186,135 124,878 179,157 163,214 131,549 87,706 63,031
--------- --------- --------- --------- --------- -------- --------
Income before income
taxes, minority
interest and cumulative
effect of accounting
change................. 37,200 11,495 15,640 22,438 28,478 13,744 10,948
Provision (benefit) for
income taxes:
Current................ 2,061 687 (955) 1,576 3,962 1,650 2,367
Deferred............... 7,982 3,895 6,034 6,933 7,727 3,441 1,793
Minority interest in
(income) loss of
subsidiary(a).......... (361) 662 800 -- -- -- --
--------- --------- --------- --------- --------- -------- --------
Income before cumulative
effect of accounting
change................. 26,796 7,575 11,361 13,929 16,789 8,653 6,788
Cumulative effect of
accounting change(b)... -- -- -- -- 1,725 -- --
--------- --------- --------- --------- --------- -------- --------
Net income.............. $ 26,796 $ 7,575 $ 11,361 $ 13,929 $ 18,514 $ 8,653 $ 6,788
========= ========= ========= ========= ========= ======== ========
Weighted average common
shares outstanding..... 24,454 21,322 21,276 21,174 20,830 16,861 16,720
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS, OPERATING DATA AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS PER SHARE:
Income before cumulative
effect of accounting
change................. $ 1.10 $ .36 $ .53 $ .66 $ .81 $ .51 $ .41
Net income.............. 1.10 .36 .53 .66 .89 .51 .41
CASH FLOW DATA:
Cash provided (used) by:
Operating activities... $ 82,947 $ 48,904 $ 54,199 $ 58,670 $ 52,219 $ 28,949 $ 19,393
Investing activities... (100,699) (120,925) (187,251) (70,668) (146,126) (122,637) (30,882)
Financing activities... 20,546 73,134 135,166 11,867 93,900 93,923 11,345
BALANCE SHEET DATA (end
of period):
Property, plant and
equipment, net......... $ 623,092 $ 521,751 $ 577,746 $ 366,665 $ 346,034 $ 228,778 $ 126,286
Total assets............ 701,358 572,143 647,539 407,752 384,461 259,887 143,897
Total debt.............. 344,309 309,140 323,776 193,864 181,480 133,375 41,957
Minority interest(a).... 2,286 11,618 3,922 -- -- -- --
Stockholders' equity.... 251,232 169,702 223,960 155,993 143,392 78,696 69,828
OTHER FINANCIAL DATA:
Dividends declared per
share.................. $ .08 $ .07 $ .09 $ .07 $ .05 $ .02 $ --
EBITDA(c)............... 110,980 61,749 88,075 80,214 68,756 35,615 28,119
Ratio of EBITDA to
interest expense....... 4.9x 4.6x 4.4x 6.7x 9.9x 7.9x 6.6x
Ratio of earnings to
fixed charges(d)....... 2.7x 1.9x 1.8x 2.9x 5.0x 4.0x 3.6x
SELECTED OPERATING DATA
(Unaudited):
Production:
Oil (MBbls)............ 8,649 5,310 7,608 6,657 4,785 1,978 1,388
Gas (MMcf)............. 24,535 22,489 30,610 28,884 22,504 14,592 11,411
Oil equivalent (MBOE).. 12,738 9,058 12,710 11,471 8,536 4,410 3,290
Average sales prices:
Oil (per Bbl).......... $ 16.66(e) $ 15.33 $ 15.26 $ 13.53 $ 14.14 $ 17.88 $ 19.39
Gas (per Mcf).......... 1.70 1.42 1.46 1.78 2.03 1.77 1.44
Production costs (per
BOE)(f)................ 5.31 5.25 5.25 5.17 5.26 5.97 5.82
Three-year average
finding cost
(per BOE)(g)........... N/A N/A 2.98 3.23 3.34 3.39 4.06
Proved reserves (end of
period):
Oil (MBbls)............ N/A N/A 147,871 70,789 63,277 40,209 17,061
Gas (MMcf)............. N/A N/A 310,762 281,638 273,142 206,582 137,712
Total proved reserves
(MBOE)................ N/A N/A 199,665 117,729 108,801 74,639 40,013
Proved developed
reserves (MBOE)....... N/A N/A 145,790 91,722 88,976 61,581 31,620
Annual reserve
replacement ratio(h)... N/A N/A 747% 179% 504% 891% 215%
Estimated reserve life
(in years)(i).......... N/A N/A 15.7 10.3 12.7 11.5 12.2
Present value of
estimated future net
revenues before income
taxes (discounted at
10%)
(in thousands)......... N/A N/A $ 894,249 $ 446,987 $ 359,978 $ 335,941 $ 160,021
Standardized measure of
discounted future net
cash flows
(in thousands)......... N/A N/A 736,546 385,721 339,701 274,443 131,533
</TABLE>
- --------
(a) Reflects the minority interest in Cadipsa. See the consolidated financial
statements and the notes thereto of the Company included elsewhere in this
Prospectus.
(b) Represents the cumulative effect on prior years of adopting Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
(c) EBITDA is presented herein as defined in the Indenture governing the Notes
wherein EBITDA is generally defined as income before cumulative effect of
accounting change, provision for income taxes, interest, depreciation,
depletion, amortization and certain other non-cash charges. EBITDA is
included as a supplemental disclosure because it is commonly accepted as
providing useful information regarding a company's ability to service and
incur debt. EBITDA, however, should not
19
<PAGE>
be considered in isolation or as a substitute for net income, cash flow
provided by operating activities or other income or cash flow data prepared
in accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity. If the Exxon Properties and
Shamrock had been acquired on January 1, 1996, these properties would have
increased the Company's EBITDA by approximately $8.5 million for the nine
months ended September 30, 1996. See "Recent Acquisitions."
(d) For purposes of calculating the ratio of earnings to fixed charges,
earnings are defined as income of the Company and its subsidiaries before
income taxes and fixed charges. Fixed charges consist of interest expense,
including amortization of financing costs and any discount or premium
related to any indebtedness.
(e) During the first nine months of 1996, the impact of oil hedges reduced the
Company's overall average oil price $1.17 to $16.66 per Bbl.
(f) Includes lease operating costs and production and ad valorem taxes.
(g) Represents the average finding cost per BOE during the three years ended
December 31 of the year shown in the column. See "Certain Definitions."
(h) The annual reserve replacement ratio is a percentage determined on a BOE
basis by dividing the estimated reserves added during a year from
exploitation, development and exploration activities, acquisitions of
proved reserves and revisions of previous estimates, excluding property
sales, by the oil and gas volumes produced during that year.
(i) Estimated reserve life is calculated on a BOE basis by dividing the total
estimated proved reserves at year-end by the total production during the
year. This calculation can be affected by the timing of major acquisitions.
For example, major acquisitions were made during the second half of 1995
which resulted in an estimated reserve life of 15.7 years for 1995. This
compares to an estimated reserve life of 12.0 years for 1995 based on
annualized first quarter 1996 production.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 average oil and gas prices and its oil and gas
production for the periods presented:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------- --------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average prices:
Oil (per Bbl)--
U.S.............................. $ 17.08 $ 15.42 $ 15.44 $ 13.53 $ 14.14
Argentina........................ 15.87 14.20 13.98 -- --
Total............................ 16.66 15.33 15.26 13.53 14.14
Gas, all U.S. (per Mcf)........... $ 1.70 $ 1.42 $ 1.46 $ 1.78 $ 2.03
Production:
Oil (MBbls)--
U.S.............................. 5,683 4,933 6,647 6,657 4,785
Argentina........................ 2,966 377 961 -- --
Total............................ 8,649 5,310 7,608 6,657 4,785
Gas, all U.S. (MMcf).............. 24,535 22,489 30,610 28,884 22,504
</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 nine percent increase in its average
oil price in the first nine months of 1996 compared to the same period in
1995. During the first nine months of 1996, the impact of oil hedges reduced
the Company's overall average oil price $1.17 to $16.66 per Bbl. The Company's
average U.S. oil price was reduced 79 cents to $17.08 per Bbl while its
average Argentina oil price was reduced $1.89 to $15.87 per Bbl. Approximately
58 percent of the Company's Argentina oil production and 32 percent of its
U.S. oil production (a combined 3.561 MMBbls) were covered by oil hedges in
the first nine months of 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
declined four percent in 1994 compared to 1993. The Company's average realized
oil price has increased from 84 percent of WTI posted prices in 1993 to 91
percent for the first nine months of 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 the first nine months of 1996, including the
impact of hedging, was 20 percent higher than the same period of 1995. For the
first nine months of 1996, the average gas price was negatively impacted by
six 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 and a 12 percent decline in 1994 compared to 1993.
21
<PAGE>
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. The Company had oil hedges
(swap agreements) in place for the fourth quarter of 1996 covering 2.204
MMBbls at an average NYMEX reference price of $18.27 per Bbl. Before the
impact of oil hedges, the Company's average realized oil price for the first
nine months of 1996 was $17.83 per Bbl, or approximately 84 percent of the
average NYMEX reference price. The actual NYMEX reference price in the fourth
quarter of 1996 was $24.52 per Bbl. Currently, oil hedges for the calendar
year 1997 cover 2.738 MMBbls at an average NYMEX reference price of $19.26.
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 first nine months oil and gas production, a
change in the average oil price realized by the Company of $1.00 per Bbl would
result in a change in net income and cash flow before income taxes on a nine
month basis of approximately $6.3 million and $8.5 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 on a nine
month basis of approximately $1.4 million and $2.4 million, respectively.
PERIOD TO PERIOD COMPARISONS
During 1995, the Company made various acquisitions which significantly
impacted the period to period comparison for the first nine months of 1996.
These acquisitions (the "1995 Acquisitions") include the purchase of certain
oil and gas properties from Texaco Exploration and Production, Inc. ("Texaco")
(the "Texaco Properties") in May 1995, the acquisition of a controlling
interest in Cadipsa in July 1995, 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. (collectively, the "Astra/Shell Properties") 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 nine months ended September 30, 1996 and 1995,
and the year ended December 31, 1995. At September 30, 1996, the Company owned
95.7 percent of Cadipsa.
Nine Months Ended September 30, 1996, Compared to Nine Months Ended September
30, 1995
Net income was $26.8 million for the first nine months of 1996, up 253
percent from $7.6 million for the same period in 1995. Increases in the
Company's oil and gas production of 41 percent on an equivalent barrel basis,
an increase of 20 percent in natural gas prices, and an increase of nine
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 $73.0 million (65 percent), to $185.8 million
for the first nine months of 1996 from $112.8 million for the first nine
months of 1995. A 63 percent increase in oil production and a nine percent
increase in average oil prices combined to account for $62.7 million of the
increase. A nine percent increase in gas production and a 20 percent increase
in average gas prices contributed to an additional $10.3 million increase.
Oil and gas gathering net margins (revenue less expenses) increased $700,000
(39 percent), to $2.5 million for the first nine months of 1996 from $1.8
million for the first nine months of 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.
22
<PAGE>
Gas marketing net margins (revenue less expenses) increased $200,000 (14
percent), to $1.6 million for the first nine months of 1996 from $1.4 million
for the first nine months of 1995, due primarily to an increase in the reserve
for doubtful accounts associated with gas sales in the first nine months of
1995 with no similar increase in 1996.
Lease operating expenses, including production taxes, increased $20.1
million (42 percent), to $67.6 million for the first nine months of 1996 from
$47.5 million for the first nine months of 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 $5.31 in the
first nine months of 1996 from $5.25 for the same period in 1995.
General and administrative expenses increased $3.7 million (45 percent), to
$12.0 million for the first nine months of 1996 from $8.3 million for the
first nine months of 1995, due primarily to the acquisitions of Cadipsa and
Vintage Argentina in the last half of 1995.
Depreciation, depletion and amortization increased $14.4 million (39
percent), to $51.3 million for the first nine months of 1996 from $36.9
million for the first nine months of 1995, due primarily to the 41 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
$3.76 in the first nine months of 1996 from $3.87 in 1995. Amortization per
equivalent barrel of the Company's Argentina oil and gas properties for the
first nine months of 1996 was $4.18 as compared to $4.29 in the same period
for 1995.
Interest expense increased $9.1 million (68 percent), to $22.5 million for
the first nine months of 1996 from $13.4 million for the first nine months of
1995, due primarily to a 46 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.
During the last half of 1995, the Company purchased a 71.6 percent
controlling interest in Cadipsa, a publicly-traded Argentine oil and gas
exploration and production company. The Company's consolidated revenues and
expenses for the year ended December 31, 1995, include the consolidation of
100 percent of Cadipsa for the last half of 1995 under the purchase method of
accounting. The minority interest in loss of subsidiary of $0.8 million
reflects the portion of Cadipsa's loss attributable to the minority ownership
during the last half of 1995.
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 related to the Texaco
Properties purchased in May 1995, the acquisition of a controlling interest in
Cadipsa in July 1995, and the acquisition of Vintage Argentina in September
1995. However, 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.
23
<PAGE>
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 on 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
qualify 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 acquisitions of
Cadipsa and Vintage Argentina and the Texaco Properties. Lease operating
expenses per equivalent barrel produced increased 2 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 1994 acquisitions 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 increased 2 percent to $3.89 in 1995 from
$3.82 in 1994 on the Company's U.S. oil and gas properties. 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.
Year Ended December 31, 1994, Compared to Year Ended December 31, 1993
Income before the cumulative effect of the change in accounting for income
taxes was $13.9 million for the year ended December 31, 1994, down 17 percent
from $16.8 million in 1993. Significantly lower gas prices combined with lower
oil prices more than offset the impact on net income of a 34 percent increase
in oil and gas production on an equivalent barrel basis. The production
increases related primarily to production from certain oil and gas properties
acquired through various acquisitions in 1993 and 1994. Net income for the
year ended December 31, 1993, of $18.5 million included $1.7 million related
to the cumulative effect on prior years of adopting Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109").
Oil and gas sales increased $28.1 million (25 percent), to $141.4 million in
1994 from $113.3 million in 1993 due primarily to a 39 percent increase in oil
production and a 28 percent increase in gas production. The production
increases related primarily to production from certain oil and gas properties
acquired from Conoco Inc. ("Conoco") in June 1993, Santa Fe Energy Resources,
Inc. ("Santa Fe") in November 1993 and various smaller acquisitions made
throughout 1994. The production increases were partially offset by a 4 percent
decrease in the Company's average oil price and a 12 percent decrease in the
Company's average gas price for the period.
24
<PAGE>
Oil and gas gathering net margins (revenues less expenses) increased
$300,000 (15 percent) to $2.3 million in 1994 from $2.0 million in 1993 due
primarily to the acquisition of the remaining interests in certain gathering
systems located in Oklahoma and Kansas by acquiring the Vintage/P Acquisition
Limited Partnership in November 1993 and the acquisition and construction of
certain smaller gathering systems located in Texas in 1994.
Gas marketing net margins (revenues less expenses) increased $500,000 (28
percent) to $2.3 million in 1994 from $1.8 million in 1993 due primarily to a
3 percent increase in gas volumes marketed and a $300,000 nonrecurring charge
in 1993 with no similar charge in 1994.
Other income decreased $300,000 (11 percent) to $2.4 million in 1994 from
$2.7 million in 1993 due primarily to the receipt in 1993 of $865,000 related
to gas contract settlements with no similar settlements in 1994 partially
offset by an increase in rental income from Company owned equipment.
Lease operating expenses, including production taxes, increased $14.4
million (32 percent) to $59.3 million in 1994 from $44.9 million in 1993 due
primarily to the 34 percent increase in oil and gas production (on an
equivalent barrel basis) resulting from the acquisitions discussed above.
Lease operating expenses per equivalent barrel produced decreased 2 percent to
$5.17 in 1994 from $5.26 in 1993.
General and administrative expenses increased $2.8 million (46 percent) to
$8.9 million in 1994 from $6.1 million in 1993 due primarily to the addition
of personnel in 1994 associated with the Company's significant acquisitions in
late 1993.
Depreciation, depletion and amortization increased $12.5 million (38
percent) to $45.8 million in 1994 from $33.3 million in 1993 due primarily to
the 34 percent increase in oil and gas production on an equivalent barrel
basis. Amortization per equivalent barrel produced increased only 3 percent to
$3.82 in 1994 from $3.71 in 1993.
Interest expense increased $5.1 million (74 percent) to $12.0 million in
1994 from $6.9 million in 1993 due primarily to an increase in the average
outstanding advances under the Company's revolving credit facility and an
increase in the average annual interest rate paid under this facility to 5.8
percent in 1994 from 4.5 percent in 1993.
CAPITAL EXPENDITURES
During the first nine months of 1996, the Company's domestic capital
expenditures totaled $58.6 million of which $18.0 million were for
acquisitions of domestic producing oil and gas properties. The largest of
these acquisitions was approximately $13.9 million for certain oil and gas
properties from Conoco. Subsequent to September 30, 1996, the Company
purchased the Exxon Properties for approximately $28.2 million. Funds for
these acquisitions were provided by advances under the Bank Facility. See
"Recent Acquisitions."
During the nine months ended September 30, 1996, the Company's international
capital expenditures of $38.9 million included $35.1 million in Argentina. In
November 1996, the Company agreed to purchase all the outstanding stock of
Shamrock 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 Bank Facility.
Shamrock's assets include (a) oil and gas properties valued at $35.5 million
(including the effect of approximately $6.6 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 $9.3 million. See "Recent Acquisitions."
25
<PAGE>
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
obligations, will be sufficient to fund its planned $117 million of non-
acquisition capital expenditures during 1997. Approximately $74 million of the
Company's planned 1997 non-acquisition capital expenditure budget is devoted
to reserve exploitation activities, including development and infill drilling,
and approximately $43 million is devoted to exploration activities. 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 Bank 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 as follows (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------
1996 1995 1994 1993
------------- -------- ------- --------
<S> <C> <C> <C> <C>
Acquisition of oil and gas reserves.... $21,712 $207,658 $36,544 $123,906
Workovers and recompletions............ 24,949 18,313 13,984 12,915
Drilling............................... 29,223 21,343 9,593 6,750
Acquisition and construction of gather-
ing systems........................... 107 234 632 3,319
Acquisition of undeveloped acreage and
seismic............................... 12,611 7,684 1,869 610
Other.................................. 8,876 5,367 3,146 3,071
------- -------- ------- --------
Total................................ $97,478 $260,599 $65,768 $150,571
======= ======== ======= ========
</TABLE>
LIQUIDITY
The $97.3 million of estimated net proceeds from the sale of the Notes under
the Note Offering will be used to repay a portion of existing indebtedness
outstanding under the Company's Bank Facility. In addition, the estimated
proceeds of $48.0 million from the Common Stock Offering will be used to repay
a portion of existing indebtedness outstanding under the Company's Bank
Facility. The Company may issue additional equity and debt securities in the
future in connection with any future major acquisitions and to maintain its
financial flexibility.
During 1990, early 1993 and late 1995, the Company completed public
offerings of Common Stock to finance certain acquisitions and provide
liquidity for its future activities. Simultaneous with the 1995 common stock
offering, the Company completed a public debt offering to provide liquidity
for its future activities.
In August 1990, the Company sold 3.4 million shares of its Common Stock for
net proceeds of approximately $32.8 million which were used to fund an
acquisition of oil and gas properties and reduce indebtedness under the
Company's revolving credit facility. In January 1993, the Company sold 3.9
million shares of its Common Stock for net proceeds of approximately $44.8
million which were used to reduce indebtedness under the Company's revolving
credit facility.
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, after
underwriting commission and other expenses, were approximately $49.5 million
and were used to fund a substantial portion of the purchase of the Astra/Shell
Properties.
26
<PAGE>
Also on December 20, 1995, the Company issued $150 million of its 9% Senior
Subordinated Notes Due 2005 (the "9% Notes"). The net proceeds to the Company
from the sale of the 9% Notes of approximately $145.1 million were used
principally to reduce a portion of the outstanding balance under the Company's
revolving credit facility. 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 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 will mature on December 15, 2005, with interest payable
semiannually on June 15 and December 15 of each year.
Internally generated cash flow and the borrowing capacity under the Bank
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 through internally generated cash flows from operations. Any
excess cash flow is used to reduce outstanding advances under the Bank
Facility and other indebtedness.
Under its Credit Agreement dated August 29, 1996, as amended, certain banks
have provided to the Company an unsecured Bank Facility. The Bank Facility
establishes a borrowing base (currently $305 million) determined by the banks'
evaluation of the Company's U.S. and certain Argentina oil and gas reserves.
Outstanding advances under the Bank 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
U.S. reserves at the time. As of January 9, 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 6.8
percent. 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 under
the Bank Facility 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 Bank Facility was approximately $48.4 million at
January 9, 1997. The Company has entered into an amendment to its Bank
Facility in connection with the proposed Note Offering which provides that the
borrowing base will be reduced to approximately $270 million if such offering
is consummated. After giving effect to the application of the net proceeds
from the Note Offering and the Common Stock Offering as set forth in "Use of
Proceeds" and the related reduction in the borrowing base, the unused portion
of the Bank Facility would be approximately $158.7 million ($110.7 million if
only the Note Offering is consummated or $96.4 million if only the Common
Stock Offering is consummated). The unused portion of the Bank 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 commitments may be increased.
INFLATION
In recent years inflation has not had a significant impact on the Company's
operations or financial condition.
27
<PAGE>
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued SFAS 109.
The Company adopted SFAS 109 in 1993. An analysis of income taxes and a
discussion of the impact on the Company of adopting SFAS 109 is presented in
Notes 1 and 5 to the Company's December 31, 1995, consolidated financial
statements included elsewhere in this Prospectus.
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 benefit for income taxes of
approximately $1.0 million during 1995, and a current provision for income
taxes of $1.6 million and $4.0 million for 1994 and 1993, respectively. During
the first nine months of 1996 and 1995, the Company incurred a current
provision for income taxes of approximately $2.1 million and $0.7 million,
respectively.
The Company has a $5.4 million U.S. Alternative Minimum Tax ("AMT") 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. AMT in such years.
Earnings of the Company's 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 1996. Earnings of the
Company's subsidiary, Shamrock, are subject to Bolivia income taxes. 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
0.4 percent as of November 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.
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<PAGE>
RECENT ACQUISITIONS
Since December 31, 1995, the Company has acquired, through several
transactions, oil and gas properties for an aggregate purchase price of
approximately $89.7 million. Most of these properties were acquired subsequent
to September 30, 1996. Based on estimates prepared by the Company, proved
reserves as of the dates of the various acquisitions aggregated 16.0 MMBbls of
oil and 74.0 Bcf of gas, or a total of 28.4 MMBOE. These reserves were
acquired at an average cost of $3.16 per BOE.
The two most significant acquisitions made subsequent to September 30, 1996,
are described below. If these properties had been acquired on January 1, 1996,
these properties would have increased the Company's revenues by approximately
$13.5 million, EBITDA by approximately $8.5 million and production by
approximately 302 MBbls of oil and 4.0 Bcf of gas for the nine months ended
September 30, 1996.
EXXON PROPERTIES (GULF COAST)
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 $28.2 million in cash, subject to post-closing adjustments
(the "Exxon Properties"). Funds were provided by advances under the Company's
Bank 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.
SHAMROCK (BOLIVIA)
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 Bank Facility. Shamrock's assets include (a) oil
and gas properties valued at $35.5 million (including the effect of
approximately $6.6 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 $9.3 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 net 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 the Company,
were 53.2 Bcf of gas and 5.1 MMBbls of oil. Current net daily production is
approximately 14,500 Mcf of gas and 230 Bbls of condensate. Recent realized
prices on the properties were $1.23 per Mcf of gas and $21.00 per Bbl of
condensate. 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.
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<PAGE>
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.
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<PAGE>
BUSINESS
GENERAL
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 September 30, 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 the Exxon Properties and the Conoco Properties. 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 which owns and operates three blocks covering approximately 570,000
net acres in the Chaco Plains area of southern Bolivia. See "Recent
Acquisitions."
The Company owned interests in 3,053 gross (1,934 net) producing wells in
the United States as of September 30, 1996, of which approximately 81 percent
are operated by the Company. The Company owned interests in 610 gross (597
net) producing wells in Argentina as of September 30, 1996, of which
approximately 97 percent are operated by the Company. As of December 31, 1995,
the Company's properties had proved reserves of 199.7 MMBOE, comprised of
147.9 MMBbls of oil and 310.8 Bcf of gas, with a present value of estimated
future net revenues before income taxes (utilizing a 10 percent discount rate)
of $894 million and a standardized measure of discounted future net cash flows
of $737 million. Since that date, acquisitions have added 28.4 MMBOE of proved
reserves, as estimated by the Company as of the date of each acquisition.
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 1993 through the third quarter of 1996, the
Company increased its average net daily production from 11,200 Bbls of oil to
32,900 Bbls of oil and from 60,000 Mcf of gas to 86,300 Mcf of gas. For the
year ended December 31, 1995, the Company generated revenues of $195 million
and EBITDA (as defined herein) of $88 million. For the nine months ended
September 30, 1996, the Company generated revenues of $223 million and EBITDA
of $111 million. (EBITDA is presented herein as defined in the Indenture
governing the Notes wherein EBITDA is generally defined as income before
cumulative effect of accounting change, provision for income taxes, interest,
depreciation, depletion, amortization and certain other non-cash charges.
EBITDA is included as a supplemental disclosure because it is commonly
accepted as providing useful information regarding a company's ability to
service and incur debt. EBITDA, however, should not be considered in isolation
or as a substitute for net income, cash flow provided by operating activities
or other income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability or
liquidity.)
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
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<PAGE>
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, 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, 1993, through
September 30, 1996, the Company acquired 140.1 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 3.1 times its production of 45.5 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, 1993, through December 31,
1995, the Company spent approximately $83.9 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 75 percent of these operations, and the
result of all of its exploitation activities, including development and
infill drilling, succeeded in replacing more than 78 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, 1993, through September 30, 1996, the Company spent
approximately $39.8 million on exploration activities including the
drilling of 75 gross (32.65 net) exploration wells, of which
approximately 69 percent gross (58 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,
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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. Upon consummation of the Common Stock
Offering and the Note Offering and the application of the net proceeds
therefrom, and after giving effect to the related borrowing base
reduction, the unused portion of the Bank Facility as of January 9,
1997, would have been approximately $158.7 milllion ($96.4 million if
only the Common Stock Offering is consummated).
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, 1993, through September 30, 1996, the Company made oil and
gas property acquisitions involving total costs of approximately $390 million.
As a result of these acquisitions, the Company acquired approximately 140.1
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
1993.................... $123,906 27,898 68,000 39,231 $3.16
1994.................... 36,544 5,645 29,655 10,588 3.45
1995.................... 38,896 8,840 39,486 15,421 2.52
1996 (through September
30, 1996).............. 17,958 4,650 10,112 6,335 2.83
-------- --------- --------- ---------
Total U.S. Acquisi-
tions................ 217,304 47,033 147,253 71,575 3.04
-------- --------- --------- ---------
Argentina Acquisitions
1995.................... 168,762 65,653 -- 65,653 2.57
1996 (through September
30, 1996).............. 3,754 2,849 -- 2,849 1.32
-------- --------- --------- ---------
Total Argentina Acqui-
sitions.............. 172,516 68,502 -- 68,502 2.52
-------- --------- --------- ---------
Total U.S. and Argen-
tina Acquisitions.... $389,820 115,535 147,253 140,077 $2.78
======== ========= ========= =========
</TABLE>
The following is a brief discussion of significant acquisitions in recent
years:
1993 Acquisitions. In June 1993, the Company acquired the interest of Conoco
in certain oil and gas properties for approximately $38.1 million. The
properties, now operated by the Company, are located in the San Miguelito,
Rincon and Ventura fields in Ventura County, California. Proved reserves
totaled approximately 11.7 MMBbls of oil and 5.8 Bcf of gas at the time of
acquisition. Exploitation potential identified at the time of acquisition
included the adding of additional productive intervals in existing producing
wells, recompletion of inactive wells and expansion of an existing waterflood
operation to include an additional zone.
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<PAGE>
In November 1993, the Company acquired certain oil and gas properties from
Santa Fe and its affiliates for approximately $43.4 million. The properties
are located primarily in the Ventura Basin of California and the Gulf Coast
areas of Texas, Louisiana and Mississippi. Substantially all of the properties
acquired are now operated by the Company and are adjacent or in close
proximity to Company-operated fields or increased the Company's ownership in
its existing fields. Proved reserves totaled approximately 11.6 MMBbls of oil
and 22.4 Bcf of gas at the time of acquisition. The major fields acquired
included the Sespe, Rincon, Santa Fe Springs, San Miguelito and Ojai-
Silverthread fields in California and the Gwinville field in Mississippi.
Included in this acquisition was an additional interest in the properties
acquired from Conoco in June 1993. In addition to cost efficiencies resulting
from consolidation with other Company operations, exploitation potential
identified in the properties at the time of acquisition included adding
productive intervals and stimulations of existing producing wells,
recompletions of inactive wells and development drilling.
The Company spent a total of approximately $27.7 million in several other
transactions throughout 1993 to increase its ownership in Company-owned
properties located primarily in the Mid-Continent and California areas.
Purchases of additional interests in currently owned properties enable the
Company to increase reserves, production and cash flow with little or no
incremental administrative costs.
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 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. 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 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 43.9 percent of
Cadipsa which increases its total ownership to approximately 95.7 percent.
On September 29, 1995, the Company purchased 100 percent of the outstanding
common stock of Vintage Argentina from British Gas plc, for $37 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
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<PAGE>
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
Bank 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.
For additional 1996 acquisitions, see "Recent Acquisitions."
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 will be available to fund the Company's
desired acquisitions.
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.
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 78 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 1995 totaled 13.2 MMBOE, or 104
percent of the Company's production of 12.7 MMBOE.
From January 1, 1993, through September 30, 1996, the Company spent
approximately $70.2 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.
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<PAGE>
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, 1993, through September 30, 1996, the Company participated
in the drilling of 122 gross (69.36 net) development wells, of which
approximately 90 percent gross (89 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 1995, the Company participated in the drilling of 41 gross (22.75
net) development wells. At December 31, 1995, the Company's proved reserves
included approximately 135 development or infill drilling locations on its
U.S. acreage and 181 locations on its Argentine acreage. In addition, the
Company has an extensive inventory of development and infill drilling
locations on its existing properties which are not included in proved
reserves. During the nine-month period ended September 30, 1996, the Company
participated in the drilling of 31 gross (24.26 net) development wells. The
Company spent approximately $22.2 million on development/infill drilling
during the first nine months of 1996. The Company expects to spend
approximately $45 million on 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
during 1996 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
36
<PAGE>
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 barrels of oil per day
to a current rate of approximately 2,300 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, pending Texas Railroad Commission approval, 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.
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.
37
<PAGE>
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, 1993, through September 30,
1996, the Company spent $39.8 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:
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 extentional 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
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 extentional 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 extentional 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
38
<PAGE>
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 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 September 30, 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 September 30, 1996, the Company operated
approximately 3,076 productive wells and also owned non-operating interests in
587 productive wells. 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.
39
<PAGE>
The following table summarizes the Company's proved reserves in its 30
largest fields in the U.S. and its five largest concessions in Argentina at
December 31, 1995, as estimated by Netherland, Sewell. These fields and
concessions represent approximately 80 percent of the Company's proved
reserves on such date.
<TABLE>
<CAPTION>
LOCATION (COUNTY NET NET
OR PARISH, STATE OIL GAS
AREA FIELD/CONCESSION NAME OR PROVINCE) (MBBLS) (MMCF) MBOE
---- ----------------------------- ------------------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
West Coast.............. San Miguelito Ventura, CA 15,432 3,491 16,013
South Mountain Ventura, CA 5,498 6,975 6,660
Rincon Ventura, CA 4,371 4,094 5,053
Ojai-Silverthread Ventura, CA 2,961 12,230 5,000
North Tejon Kern, CA 1,746 9,540 3,336
Santa Maria Valley/Cat Canyon Santa Barbara, CA 3,294 0 3,294
Pleito Ranch Kern, CA 2,905 692 3,021
Canfield Ranch Kern, CA 2,700 508 2,784
Sespe Ventura, CA 2,311 1,915 2,630
Buena Vista Hills Kern, CA 2,065 3,348 2,623
Lathrop San Joaquin, CA 0 12,135 2,022
Antelope Hills Kern, CA 1,797 0 1,797
Zaca Santa Barbara, CA 1,693 0 1,693
Wheeler Ridge Kern, CA 1,235 2,497 1,651
Tejon Kern, CA 1,618 181 1,649
Landslide Kern, CA 1,251 182 1,282
Timber Canyon Ventura, CA 769 2,410 1,171
Gulf Coast.............. Waveland Hancock, MS 323 14,930 2,811
South Pass 24 Plaquemines, LA 1,200 3,142 1,724
Little Lake/Temple Jefferson, LA 1,190 2,740 1,647
Panther Reef Calhoun, TX 298 6,122 1,319
Trinity Bay Chambers, TX 1,114 804 1,248
Vacherie St. James, LA 39 7,016 1,209
East Texas.............. South Gilmer Upshur, TX 523 31,088 5,704
Southern Pine Cherokee, TX 0 25,128 4,188
Fruitvale Van Zandt, TX 0 23,384 3,897
Colgrade Winn, LA 3,393 0 3,393
Mid-Continent........... Shawnee Pottawatomie, OK 2,820 230 2,858
Booker Ochiltree, TX 1,848 171 1,877
Strong City Roger Mills, OK 59 9,867 1,703
San Jorge Basin,
Argentina.............. Canadon Minerales Santa Cruz Province 18,768 0 18,768
Las Heras/Piedra Clavada Santa Cruz Province 14,958 0 14,958
Canadon Seco Santa Cruz Province 11,103 0 11,103
Cerro Wenceslao Santa Cruz Province 9,477 0 9,477
Meseta Espinosa Santa Cruz Province 7,749 0 7,749
</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, 1995, the area comprised 35 percent
of the Company's total proved reserves and 54 percent of the Company's U.S.
proved reserves. The Company currently operates 1,158 productive wells with
daily gross production of approximately 11,700 Bbls of mid-gravity oil, 2,600
Bbls of heavy oil and 30,300 Mcf of gas. In addition, the Company owns an
interest in 72 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 underway in three of the producing zones. With the field still
producing in excess of 3,400 gross Bbls of oil per day, the Company believes
additional waterflood potential exists in lower sands currently producing on
primary
40
<PAGE>
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. Gross daily production of 1,150 Bbls of oil and 2,000
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 1,030 Bbls of oil and 1,100 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 daily gross production exceeds 800 Bbls of oil and
3,500 Mcf of gas.
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. 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.
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 is
in excess of 1,400 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.
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.
41
<PAGE>
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 gross production of approximately 600
Bbls of oil per day.
Gulf Coast Area. The Gulf Coast Area comprised approximately 12 percent of
the Company's December 31, 1995, 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 232 productive wells and owns
interests in an additional 166 productive wells in this area. Daily gross
production from the operated wells averages 7,600 Bbls of oil and 52,400 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.
Waveland. The Company's largest field in the Gulf Coast Area is the
--------
Waveland field. 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 3,250 Mcf of gas. This 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.
South Pass 24. The South Pass 24 field is located in state waters of
-------------
Plaquemines Parish, Louisiana, at shallow water depths averaging 10 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.
East Texas Area. The East Texas Area comprised approximately 11 percent of
the Company's December 31, 1995, 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 1,150 Bbls of oil and 30,500 Mcf of gas from 594 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.
Southern Pine. The Southern Pine field is located in Cherokee County,
-------------
Texas, and produces from the Travis Peak formation with gross daily production
of 7,900 Mcf of gas. 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 7,900 Mcf of gas.
42
<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 seven percent of the Company's total proved reserves as of December
31, 1995. The Company currently operates daily gross production of 3,500 Bbls
of oil and 29,500 Mcf of gas from 373 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 34 percent of the Company's
December 31, 1995, total proved reserves. The Company currently operates 600
productive wells (100 percent working interest) with daily gross production of
16,200 Bbls of oil. In addition, the Company owns an interest in 17 productive
wells operated by others. At December 31, 1995, the Company's proved reserves
included approximately 181 development or infill drilling locations and 253
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 4,000 feet. This concession currently has 169 producing wells and 31 water
injection wells with daily gross production of approximately 6,850 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 development 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 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 82 producing wells and three water injection wells with daily gross
production of approximately 1,160 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 have been
tested. The proved undeveloped locations are generally infill development
locations in areas offsetting existing production.
43
<PAGE>
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 74 producing wells and eight water injection wells with a daily
gross production of approximately 3,200 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 10
water injection wells with daily gross production of approximately 1,520 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 101
producing wells and 10 water injection wells with a daily gross production of
approximately 2,250 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.
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.
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 1995 was Texaco
Trading and Transportation, Inc. Such oil purchases amounted to approximately
17 percent of the Company's total revenues for 1995. No other purchaser of the
Company's oil or gas during 1995 exceeded 10 percent of the Company's total
revenues.
44
<PAGE>
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
September 30, 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.
RESERVES
At December 31, 1995, the Company had proved reserves, as estimated by
Netherland, Sewell, of 199.7 MMBOE, comprised of 147.9 MMBbls of oil and 310.8
Bcf of gas. The following table sets forth, at December 31, 1995, 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>
<S> <C>
Proved Reserves:
Future net revenues............................................ $1,470,350
Present value of future net revenues before income taxes, dis-
counted at 10 percent......................................... 894,249
Standardized measure of discounted future net cash flows....... 736,546
Proved Developed Reserves:
Future net revenues............................................ 1,032,798
Present value of future net revenues before income taxes, dis-
counted at 10 percent......................................... 675,318
</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, 1995, economic
conditions. The estimated future production is priced at prices prevailing at
December 31, 1995, 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, 1995, 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 9 "Supplementary Financial Information for Oil and Gas
Producing Activities" to the Company's consolidated financial statements
included elsewhere in this Prospectus.
45
<PAGE>
The following table sets forth estimates of the proved oil and gas reserves
of the Company at December 31, 1995, 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)........... 45,947 10,204 56,151 79,514 7,388 86,902 70,635
Gulf Coast.............. 9,159 1,936 11,095 73,772 7,777 81,549 24,687
East Texas.............. 3,723 1,167 4,890 75,934 23,483 99,417 21,459
Mid-Continent........... 4,619 2,854 7,473 41,180 1,687 42,867 14,618
Other U.S............... 343 275 618 27 -- 27 622
------- ------ ------- ------- ------ ------- -------
Total U.S............. 63,791 16,436 80,227 270,427 40,335 310,762 132,021
Argentina............... 36,928 30,716 67,644 -- -- -- 67,644
------- ------ ------- ------- ------ ------- -------
Total Company(b)...... 100,719 47,152 147,871 270,427 40,335 310,762 199,665
======= ====== ======= ======= ====== ======= =======
</TABLE>
- --------
(a) Total proved oil reserves include 5.1 MMBbls of heavy oil located in the
Company's Santa Maria Valley/Cat Canyon and Antelope Hills fields in
California.
(b) Does not include acquisitions since December 31, 1995. See "Recent
Acquisitions."
Estimates of the Company's 1995 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 67 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 Prospectus or incorporated by reference
herein 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 9
"Supplementary Financial Information for Oil and Gas Producing Activities" to
the Company's consolidated financial statements included elsewhere in this
Prospectus.
PRODUCTIVE WELLS; DEVELOPED ACREAGE
The following table sets forth the Company's domestic and Argentina
productive wells and developed acreage assignable to such wells at September
30, 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....................... 585,106 309,322 2,108 1,583 945 358 3,053 1,941
Argentina................. 1,008,339 844,372 610 597 -- -- 610 597
--------- --------- ----- ----- --- --- ----- -----
Total................... 1,593,445 1,153,694 2,718 2,180 945 358 3,663 2,538
========= ========= ===== ===== === === ===== =====
</TABLE>
46
<PAGE>
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, two 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:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- ==========================
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)--
U.S......................... 5,683 4,933 6,647 6,657 4,785
Argentina................... 2,966 377 961 -- --
Total....................... 8,649 5,310 7,608 6,657 4,785
Gas, all U.S. (MMcf).......... 24,535 22,489 30,610 28,884 22,504
Average sales prices:
Oil (per Bbl)--
U.S. ....................... $ 17.08(a) $ 15.42 $ 15.44 $ 13.53 $ 14.14
Argentina................... 15.87(a) 14.20 13.98 -- --
Total....................... 16.66(a) 15.33 15.26 13.53 14.14
Gas, all U.S. (per Mcf)....... 1.70 1.42 1.46 1.78 2.03
Production costs (per BOE):
U.S........................... 5.38 5.27 5.24 5.17 5.26
Argentina..................... 5.07 4.62 5.42 -- --
Total......................... 5.31 5.25 5.25 5.17 5.26
</TABLE>
- --------
(a) The impact of oil hedges reduced the Company's 1996 U.S., Argentina and
total average oil prices per Bbl by $0.79, $1.89 and $1.17, 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.
47
<PAGE>
UNDEVELOPED ACREAGE
At September 30, 1996, the Company held the following undeveloped acres
located in the United States and Ecuador. With respect to such United States
acreage held under leases, 101,132 gross (38,363 net) acres are held under
leases with primary terms that expire at varying dates through December 31,
2000, unless commercial production is commenced. 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.
<TABLE>
<CAPTION>
STATE/COUNTRY GROSS ACRES NET ACRES
------------- ----------- ---------
<S> <C> <C>
California............................................. 6,698 5,910
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.................................................. 52,826 14,097
------- -------
Total U.S............................................ 102,879 39,310
Ecuador................................................ 494,226 148,268
------- -------
Total Company........................................ 597,105 187,578
======= =======
</TABLE>
DRILLING ACTIVITY
During the periods indicated, the Company drilled or participated in the
drilling of the following exploratory and development wells:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------------------
1996 1995 1994 1993
------------------ ----------- ----------- -----------
GROSS NET GROSS NET GROSS NET GROSS NET
------------------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Development:
United States--
Productive........... 11 5.69 36 19.26 31 18.75 16 2.12
Non-Productive....... 3 1.57 5 3.49 2 1.04 1 0.44
Argentina--
Productive........... 16 16.00 -- -- -- -- -- --
Non-Productive....... 1 1.00 -- -- -- -- -- --
------- --------- --- ----- --- ----- --- -----
Total.............. 31 24.26 41 22.75 33 19.79 17 2.56
======= ========= === ===== === ===== === =====
Exploratory:
United States--
Productive........... 4 2.25 13 9.84 12 2.82 21 2.01
Non-Productive....... 3 1.50 5 2.69 5 4.04 10 5.70
Argentina--
Productive........... 2 2.00 -- -- -- -- -- --
Non-Productive....... -- -- -- -- -- -- -- --
------- --------- --- ----- --- ----- --- -----
Total.............. 9 5.75 18 12.33 17 6.86 31 7.71
======= ========= === ===== === ===== === =====
Total:
Productive........... 33 25.94 49 29.10 43 21.58 37 4.13
Non-Productive....... 7 4.07 10 6.18 7 5.07 11 6.14
------- --------- --- ----- --- ----- --- -----
Total.............. 40 30.01 59 35.28 50 26.65 48 10.27
======= ========= === ===== === ===== === =====
</TABLE>
The above well information excludes wells in which the Company has only a
royalty interest.
48
<PAGE>
At September 30, 1996, the Company was a participant in the drilling or
completion of 18 gross (13.59 net) wells. All of the Company's drilling
activities are conducted with independent contractors. The Company owns no
drilling equipment.
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 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 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.
49
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the directors
and 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
Officer, Secretary and Treasurer
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.... 54 Vice President--Production
Larry W. Sheppard....... 42 Vice President--International
Bryan H. Lawrence....... 54 Director
John T. McNabb, II...... 52 Director
</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
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 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.
50
<PAGE>
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-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
51
<PAGE>
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.
Mr. Lawrence has been a Director of the Company since January 1987. He has
been employed by Dillon, Read & Co. Inc., an investment banking firm ("Dillon
Read"), since January 1966 and is currently a Managing Director. Mr. Lawrence
also serves as a Director of D & K Wholesale Drug, Inc., Hallador Petroleum
Company, TransMontaigne Oil Company and Willbros Group, Inc. (each a United
States public company), Benson Petroleum Ltd. and Cavell Energy Corp. (each a
Canadian public company) and certain non-public companies in which affiliates
of Dillon Read hold equity interests including Meenan Oil Co., Inc., Fintube
Limited Partnership, Interenergy Corporation, PetroSantander Inc., Strega
Energy, Inc. and Savoy Energy, L.P. Mr. Lawrence is a graduate of Hamilton
College and also has an M.B.A. from Columbia University.
Mr. McNabb has been a Director of the Company since October 1990. He has
been Chief Executive Officer of Growth Capital Partners, Inc., an investment
and advisory firm in Houston, Texas serving privately held and public middle
market companies based in the Southwest, since March 1992. From June 1990 to
January 1992, he was a Managing Director of Bankers Trust Company, managing
commercial banking, investment banking and financial advisory activities in
the Southwest for Bankers Trust Company, and head of BT Southwest, Inc., an
affiliate of Bankers Trust New York Corporation. From September 1984 to June
1990, Mr. McNabb was employed by investment affiliates of The Prudential
Insurance Company of America where he provided a wide range of investment
banking services and corporate finance expertise to corporate clients. Mr.
McNabb also serves as a Director of Hugoton Energy Corporation and several
non-public companies. He holds undergraduate and graduate (M.B.A.) degrees
from Duke University.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company has 45,000,000 authorized shares of stock, consisting of (a)
40,000,000 shares of Common Stock, having a par value of $.005 per share, and
(b) 5,000,000 shares of Preferred Stock, having a par value of $.01 per share.
COMMON STOCK
As of the date of this Prospectus, there were 24,100,502 shares of Common
Stock outstanding. All of such outstanding shares of Common Stock are fully
paid and nonassessable. Each share of Common Stock has an equal and ratable
right to receive dividends when, as and if declared by the Board of Directors
of the Company out of assets legally available therefor and subject to the
dividend obligations of the Company to the holders of any Preferred Stock then
outstanding. The Company is subject to certain restrictions on the payment of
dividends under the provisions of its credit arrangements. See "Price Range of
Common Stock and Dividends."
In the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share equally and ratably in the
assets available for distribution after payment of all liabilities, and
subject to any prior rights of any holders of Preferred Stock that at the time
may be outstanding.
The holders of Common Stock have no preemptive, subscription, conversion or
redemption rights, and are not subject to further calls or assessments of the
Company. There are no sinking fund provisions applicable to the Common Stock.
Each share of Common Stock is entitled to one vote in the election of
directors and on all other matters submitted to a vote of stockholders.
Holders of Common Stock have no right to cumulate their votes in the election
of directors.
PREFERRED STOCK
As of the date of this Prospectus, there were no shares of Preferred Stock
outstanding. 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. The purpose of authorizing the
Board of Directors to determine such rights, preferences, privileges and
restrictions is to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more
difficult for a third party to gain control of the Company.
POSSIBLE ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation (the "Company's
Charter") contains certain provisions that might be characterized as anti-
takeover provisions. Such provisions may render more difficult certain
possible takeover proposals to acquire control of the Company and make removal
of management of the Company more difficult.
The Company's Charter provides for the Board of Directors to be divided into
three classes of directors serving staggered three-year terms, with the number
of directors in each class to be as nearly equal as possible. Any director of
the Company may be removed from office, but only for cause and only by the
affirmative vote of a majority of the then outstanding shares of stock
entitled to vote on the matter. Any stockholder wishing to submit a nomination
to the Board of Directors must follow certain procedures outlined in the
Company's Charter.
53
<PAGE>
The Company's Charter also provides that stockholder action may be taken
only at an annual or special meeting of stockholders, and may not be taken by
written consent of the stockholders.
As described above, the Company's Charter authorizes a class of undesignated
Preferred Stock consisting of 5,000,000 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 rights,
preferences, privileges and restrictions applicable to each series of
Preferred Stock. The purpose of authorizing the Board of Directors to
determine such rights, preferences, privileges and restrictions is to
eliminate delays associated with a stockholder vote on specific issuances. The
issuance of Preferred Stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
adversely affect the voting power of the holders of Common Stock and, under
certain circumstances, make it more difficult for a third party to gain
control of the Company.
The Company's Charter also contains certain "fair price provisions" designed
to provide safeguards for stockholders when an "interested stockholder"
(defined as a stockholder owning 10 percent or more of the Company's voting
stock) attempts to effect a "business combination" with the Company. The term
"business combination" includes any merger or consolidation of the Company
involving the interested stockholder, certain dispositions of assets of the
Company, any issuance of securities of the Company, meeting certain threshold
amounts, to the interested stockholder, adoption of any plan of liquidation or
dissolution of the Company proposed by the interested stockholder and any
reclassification of securities of the Company having the effect of increasing
the proportionate share of ownership of the interested stockholder. In
general, a business combination between the Company and the interested
stockholder must be approved by the affirmative vote of two-thirds of the
outstanding voting stock, excluding voting stock owned by such interested
stockholder, unless the transaction is approved by a majority of the members
of the Board of Directors who are not affiliated with the interested
stockholder or certain minimum price and form of consideration requirements
are satisfied.
The Company is incorporated under the laws of the State of Delaware. Section
203 of the Delaware General Corporation Law prevents an "interested
stockholder" (defined as a stockholder owning 15 percent or more of a
corporation's voting stock) from engaging in a business combination with such
corporation for a period of three years from the date such stockholder became
an interested stockholder unless (a) the corporation's board of directors had
earlier approved either the business combination or the transaction by which
the stockholder became an interested stockholder, or (b) upon attaining that
status, the interested stockholder had acquired at least 85 percent of the
corporation's voting stock (not counting shares owned by persons who are
directors and also officers), or (c) the business combination is later
approved by the board of directors and authorized by a vote of two-thirds of
the stockholders (not including the shares held by the interested
stockholder). Since the Company has not amended its Charter or Restated By-
laws to exclude the application of Section 203, such section does apply to the
Company and thus may inhibit an interested stockholder's ability to acquire
additional shares of Common Stock or otherwise engage in a business
combination with the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
54
<PAGE>
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS OF COMMON STOCK
GENERAL
The following is a general discussion of United States Federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
holder who is not a United States person (a "Non-U.S. Holder"). This
discussion does not address all aspects of United States Federal income and
estate taxes and does not address any foreign, state or local tax
consequences. Furthermore, this discussion is based on provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing, temporary
and proposed regulations promulgated thereunder and administrative and
judicial interpretations thereof, all as in effect or proposed on the date
hereof and all of which are subject to change, possibly with retroactive
effect, or different interpretations. Each prospective purchaser of Common
Stock is advised to consult a tax advisor with respect to current and possible
future United States Federal income and estate tax consequences of holding and
disposing of Common Stock as well as any tax consequences that may arise under
the laws of any state, local, foreign or other taxing jurisdiction. For
purposes of this summary, a "U.S. Holder" with respect to the Common Stock is
(a) an individual who is a citizen or resident of the United States, (b) a
corporation or other entity taxable as a corporation created or organized in
the United States or under the laws of the United States or of any state
thereof (including the District of Columbia), (c) an estate or trust the
income of which is includable in gross income for United States Federal income
tax purposes regardless of its source, or (d) a person otherwise subject to
United States Federal income taxation with respect to income from the Common
Stock on a net income basis.
DISTRIBUTIONS
Distributions on the shares of Common Stock (other than distributions
subject to Sections 302(b) or 355 of the Code) will constitute dividends for
Federal income tax purposes to the extent paid from current or accumulated
earnings and profits of the Company (as determined under Federal income tax
principles). Dividends paid to a Non-U.S. Holder of Common Stock that are not
effectively connected with a U.S. trade or business of the Non-U.S. Holder
will be subject to withholding of United States Federal income tax at a 30
percent rate or such lower rate as may be specified by an applicable income
tax treaty. Under the terms of the tax treaty between Canada and the United
States (the "Treaty"), dividends paid to a Non-U.S. Holder owning less than 10
percent of the Common Stock is subject to such withholding at the reduced rate
of 15 percent, provided that such Non-U.S. Holder is entitled to the benefits
of the Treaty. Moreover, under United States Treasury regulations which are
currently in effect, withholding is generally imposed on the gross amount of
the distribution, without regard to whether the corporation has sufficient
earnings and profits to cause the distribution to be a dividend for Federal
income tax purposes. Dividends that are effectively connected with the conduct
of a trade or business within the United States or, if a tax treaty applies,
are attributable to a U.S. permanent establishment of the Non-U.S. Holder, are
exempt from withholding of United States Federal income tax but are subject to
United States Federal income tax on a net income basis at applicable graduated
individual or corporate rates. Any such dividends effectively connected with
the conduct of a trade or business within the U.S. or attributable to a U.S.
permanent establishment received by a foreign corporation may, under certain
circumstances, be subject to an additional "branch profits tax" at a 30
percent rate or such lower rate as may be specified by an applicable income
tax treaty. Certain certification and disclosure requirements must be met in
order to qualify for exemption from withholding under the effectively
connected income or permanent establishment exemptions.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of
such country for purposes of the withholding discussed above, and, under the
current interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed United
States Treasury regulations (the "Proposed Regulations") not currently in
effect, however, a Non-U.S. Holder would be required to satisfy applicable
certification and other requirements to qualify for withholding at an
applicable treaty rate. The
55
<PAGE>
Proposed Regulations would require a Non-U.S. Holder to file a beneficial
owner withholding certificate, for example, a Form W-8, to obtain the lower
treaty rate. If the Proposed Regulations become effective, they will apply to
dividends paid after December 31, 1997, subject to certain transitional rules.
A Non-U.S. Holder may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund with the Internal Revenue Service (the
"IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to United States Federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (a) the gain is effectively connected with a trade or
business of the Non-U.S. Holder in the United States, (b) in the case of an
individual who holds the Common Stock as a capital asset, such Non-U.S. Holder
is present in the United States for 183 or more days in the taxable year of
the sale or other disposition and certain other conditions are met, or (c) the
Company is or has been a "U.S. real property holding corporation" for United
States Federal income tax purposes. The Company believes that it is currently
a "U.S. real property holding corporation" for Federal income tax purposes.
Under the "U.S. real property holding corporation" rules, so long as the
Common Stock continues to be regularly traded on an established securities
market (such as the New York Stock Exchange) and the Company is a "U.S. real
property holding corporation," a Non-U.S. Holder who holds or held (at any
time during the shorter of the five-year period preceding the date of
disposition or the Non-U.S. Holder's holding period) more than five percent of
the Common Stock will be subject to U.S. Federal income tax on the disposition
of the Common Stock. Such Non-U.S. Holders should consult their tax advisors
concerning this and other tax effects of the ownership and disposition of
Common Stock.
FEDERAL ESTATE TAX
Common Stock held by an individual Non-U.S. Holder at the time of death will
be included in such Non-U.S. Holder's gross estate for United States Federal
estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under United States Treasury regulations, the Company must report annually
to the IRS and to each Non-U.S. Holder the amount of dividends paid to such
Non-U.S. Holder and the tax withheld with respect to such dividends. These
information reporting requirements apply even if withholding was not required
or withholding was reduced or eliminated by an applicable income tax treaty.
Copies of the information returns reporting such dividends and withholding may
also be made available to the tax authorities in the country in which the Non-
U.S. Holder resides under the provisions of an applicable income tax treaty.
Backup withholding of United States Federal income tax (which generally is
imposed at the rate of 31 percent on certain payments to persons that fail to
furnish certain information under the United States information reporting
requirements) will generally not apply to dividends paid to Non-U.S. Holders
that either are subject to the U.S. withholding of income tax, whether at 30
percent or a reduced treaty rate, or that are exempt from such withholding. As
a general matter, information reporting and backup withholding will not apply
to a payment by or through a foreign office of a foreign broker of the
proceeds of a sale of Common Stock effected outside the United States.
However, information reporting requirements (but not backup withholding) will
apply to a payment by or through a foreign office of a broker of the proceeds
of a sale of Common Stock effected outside the United States if that broker
(a) is a United States person, (b) is a foreign person that derives 50 percent
or more of its gross income for certain periods from the conduct of a trade or
business in the United States or (c) is a "controlled foreign corporation" as
defined in the Code (generally, a foreign corporation controlled by certain
United States stockholders), unless the broker has documentary evidence in its
records that the holder is a Non-U.S. Holder and certain conditions are met or
the holder otherwise establishes an exemption. Payment by a
56
<PAGE>
United States office of a broker of the proceeds of a sale of Common Stock is
subject to both backup withholding and information reporting unless the holder
certifies to the payor in the manner required as to its Non-U.S. Holder status
under penalties of perjury, or otherwise establishes an exemption.
Amounts withheld under the backup withholding rules do not constitute a
separate United States Federal income tax. Rather, any amounts withheld under
the backup withholding rules will be refunded or allowed as a credit against
the holder's United States Federal income tax liability, if any, provided the
required information or appropriate claim for refund is filed with the IRS.
THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL UNITED STATES FEDERAL
INCOME AND ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION
OF THE COMMON STOCK BY NON-U.S. HOLDERS. ACCORDINGLY, INVESTORS ARE URGED TO
CONSULT WITH THEIR TAX ADVISORS WITH RESPECT TO THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF THE COMMON STOCK
INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN
OR OTHER TAXING JURISDICTION.
57
<PAGE>
UNDERWRITING
The names of the underwriters of the shares of Common Stock offered hereby
(the "Underwriters") and the aggregate number of shares which each has
severally agreed to purchase from the Company (subject to the terms and
conditions specified in the Underwriting Agreement) are as follows:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Dillon, Read & Co. Inc..........................................
Salomon Brothers Inc............................................
Smith Barney Inc................................................
Johnson Rice & Company L.L.C....................................
---------
Total......................................................... 1,500,000
=========
</TABLE>
The Managing Underwriters are Dillon, Read & Co. Inc., Salomon Brothers Inc,
Smith Barney Inc. and Johnson Rice & Company L.L.C.
If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10 percent of the shares offered
hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The shares of Common Stock offered hereby are being offered severally by the
Underwriters for sale at the price set forth on the cover page hereof, or at
such price less a concession not to exceed $ per share on sales to certain
dealers. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $ per share on sales to certain dealers. The offering of the
shares of Common Stock is made for delivery when, as, and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale to the public, the public offering price, the concession and the
reallowance may be changed by the Managing Underwriters.
58
<PAGE>
The Company has granted to the Underwriters an option to purchase up to an
additional 225,000 shares of Common Stock on the same terms per share. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
proportion of the aggregate shares so purchased as the number of shares to be
purchased by it shown in the above table bears to the total number of shares in
such table. The Underwriters may exercise such option on or before the
thirtieth day from the date of the public offering of the shares offered hereby
and only to cover the over-allotments made of the shares in connection with
this Offering.
For a period of 90 days after the date of this Prospectus, the Company and
each director and executive officer of the Company have agreed not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock, any
other capital stock of the Company or any security convertible into or
exercisable or exchangeable for Common Stock or any such other capital stock
without the prior written consent of Dillon, Read & Co. Inc. ("Dillon Read"),
except (a) the Company may register the Common Stock and the Company may sell
the shares of Common Stock offered in this Offering, (b) the Company may
register and the Company may issue securities pursuant to the Company's stock
option or other benefit or incentive plans maintained for its officers,
directors or employees, and (c) officers of the Company may, without such
consent, sell up to 400,000 shares of Common Stock in the aggregate.
The Company has agreed in the Underwriting Agreement to indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"), or to payments that
the Underwriters may be required to make in respect thereof.
Each of Dillon Read and Salomon Brothers Inc has performed various investment
banking services for the Company from time to time, for which it has received
customary fees. As of the date of this Prospectus, certain Managing Directors
and Senior Vice Presidents of Dillon Read owned 120,248 shares of Common Stock
of the Company in the aggregate. Bryan H. Lawrence, a Managing Director of
Dillon Read, has been a member of the Board of Directors of the Company since
January 1987.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Conner & Winters, A Professional Corporation, Tulsa, Oklahoma.
Certain legal matters related to this Offering will be passed upon for the
Underwriters by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The audited financial statements of the Company included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The audited financial statements of Cadipsa as of, and for the year ended
June 30, 1995, included in the Company's Current Report on Form 8-K dated July
5, 1995 (as amended), which is incorporated herein by reference, have been
audited by Pistrelli, Diaz y Asociados and Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated herein in reliance upon the authority of said firms as experts in
giving said reports. Pistrelli, Diaz y Asociados is a member firm of Andersen
Worldwide SC.
The audited financial statements of Cadipsa as of June 30, 1994, and for the
years ended June 30, 1994 and 1993, included in the Company's Current Report on
Form 8-K dated July 5, 1995 (as amended), which is incorporated herein by
reference, have been audited by Deloitte & Touche, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
giving said reports.
59
<PAGE>
The estimated reserve evaluations and related calculations of Netherland,
Sewell set forth or incorporated by reference in this Prospectus have been
included or incorporated by reference herein in reliance upon the authority of
said firm as experts in petroleum engineering.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act,
and, in accordance therewith, files reports, proxy and information statements
and other information with the Commission. Copies of such material can be
obtained by mail from the Public Reference Section of the Commission, at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, such reports, proxy and information statements and other
information can be inspected and copied at the public reference facility
referenced above and at the Commission's regional offices at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511 and Seven World Trade Center, Suite 1300, New York, New York 10048. Such
reports, proxy statements and other information concerning the Company can also
be inspected and copied at the New York Stock Exchange, 20 Broad Street, New
York, New York 10005. In addition, the Commission maintains a site on the World
Wide Web that contains reports, proxy and information statements and other
information filed electronically by the Company with the Commission which can
be accessed over the Internet at http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form S-
3 (herein, together with all amendments, supplements and exhibits thereto,
referred to as the "Registration Statement") under the Securities Act with
respect to the shares of Common Stock offered hereby. This Prospectus, which
forms a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS OF VINTAGE PETROLEUM, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994............ F-3
Consolidated Statements of Income for the years ended December 31, 1995,
1994 and 1993.......................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................... F-6
Notes to Consolidated Financial Statements for the years ended December
31, 1995, 1994 and 1993................................................ F-7
INTERIM FINANCIAL STATEMENTS OF VINTAGE PETROLEUM, INC. AND SUBSIDIARIES:
Consolidated Balance Sheet as of September 30, 1996 (Unaudited)......... F-22
Consolidated Statements of Income for the nine months ended September
30, 1996 and 1995 (Unaudited).......................................... F-23
Consolidated Statement of Changes in Stockholders' Equity for the nine
months ended September 30, 1996 (Unaudited)............................ F-24
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 (Unaudited)................................ F-25
Notes to Consolidated Financial Statements for the nine months ended
September 30, 1996 and 1995 (Unaudited)................................ F-26
</TABLE>
F-1
<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,
1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 5 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 109, effective January
1, 1993.
Arthur Andersen LLP
Tulsa, Oklahoma
February 22, 1996
F-2
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
A S S E T S
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................... $ 2,545 $ 431
Accounts receivable--
Oil and gas sales.......................................... 40,256 26,278
Joint operations........................................... 4,616 4,205
Other...................................................... -- 4,300
Prepaids and other current assets........................... 11,665 4,036
-------- --------
Total current assets..................................... 59,082 39,250
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, full cost method.................... 762,582 502,821
Oil and gas gathering systems............................... 12,765 12,531
Other....................................................... 7,733 4,711
-------- --------
783,080 520,063
Less accumulated depreciation, depletion and amortization... 205,334 153,398
-------- --------
577,746 366,665
-------- --------
OTHER ASSETS, net............................................ 10,711 1,837
-------- --------
$647,539 $407,752
======== ========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES:
Revenue payable............................................. $ 16,855 $ 12,926
Accounts payable--trade..................................... 15,514 6,559
Other payables and accrued liabilities...................... 18,697 7,222
Current portion of long-term debt........................... 7,930 7,316
-------- --------
Total current liabilities................................ 58,996 34,023
-------- --------
LONG-TERM DEBT, less current portion above................... 315,846 186,548
-------- --------
DEFERRED INCOME TAXES........................................ 37,753 31,188
-------- --------
OTHER LONG-TERM LIABILITIES.................................. 3,922 --
-------- --------
MINORITY INTEREST IN SUBSIDIARY.............................. 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,
23,661,162 and 20,162,756 shares issued and outstanding.... 118 101
Capital in excess of par value.............................. 149,725 91,201
Retained earnings........................................... 74,117 64,691
-------- --------
223,960 155,993
-------- --------
$647,539 $407,752
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Oil and gas sales................................ $160,254 $141,357 $113,259
Oil and gas gathering............................ 12,380 14,635 7,861
Gas marketing.................................... 20,912 27,285 36,175
Other income..................................... 1,251 2,375 2,732
-------- -------- --------
194,797 185,652 160,027
-------- -------- --------
COSTS AND EXPENSES:
Lease operating, including production taxes...... 66,771 59,292 44,930
Oil and gas gathering............................ 9,511 12,294 5,869
Gas marketing.................................... 18,839 24,963 34,406
General and administrative....................... 11,601 8,889 6,066
Depreciation, depletion and amortization......... 52,257 45,774 33,335
Interest......................................... 20,178 12,002 6,943
-------- -------- --------
179,157 163,214 131,549
-------- -------- --------
Income before provision for income taxes,
minority interest and cumulative effect of
accounting change............................. 15,640 22,438 28,478
PROVISION FOR INCOME TAXES:
Current.......................................... (955) 1,576 3,962
Deferred......................................... 6,034 6,933 7,727
MINORITY INTEREST IN LOSS OF SUBSIDIARY............ 800 -- --
-------- -------- --------
Income before cumulative effect of accounting
change........................................ 11,361 13,929 16,789
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
INCOME TAXES...................................... -- -- 1,725
-------- -------- --------
NET INCOME......................................... $ 11,361 $ 13,929 $ 18,514
======== ======== ========
EARNINGS PER SHARE:
Income before cumulative effect of accounting
change.......................................... $ .53 $ .66 $ .81
Cumulative effect of accounting change........... -- -- .08
-------- -------- --------
Net income....................................... $ .53 $ .66 $ .89
======== ======== ========
Weighted average common shares and common
equivalent shares outstanding................... 21,276 21,174 20,830
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN EXCESS
------------- OF PAR RETAINED
SHARES AMOUNT VALUE EARNINGS TOTAL
------ ------ --------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992........ 16,392 $ 82 $ 43,955 $34,659 $ 78,696
Net income........................ -- -- -- 18,514 18,514
Issuance of common stock.......... 3,623 18 46,754 -- 46,772
Exercise of stock options and
resulting tax effects............ 138 1 409 -- 410
Cash dividends declared ($.05 per
share)........................... -- -- -- (1,000) (1,000)
------ ---- -------- ------- --------
BALANCE AT DECEMBER 31, 1993........ 20,153 101 91,118 52,173 143,392
Net income........................ -- -- -- 13,929 13,929
Exercise of stock options and
resulting tax effects............ 10 -- 83 -- 83
Cash dividends declared ($.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
====== ==== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 11,361 $ 13,929 $ 18,514
Adjustments to reconcile net income to
cash provided by operating activities--
Cumulative effect of change in
accounting for income taxes........... -- -- (1,725)
Depreciation, depletion and
amortization.......................... 52,257 45,774 33,335
Minority interest in loss of
subsidiary............................ (800) -- --
Provision for deferred income taxes.... 6,034 6,933 7,727
----------- ---------- -----------
68,852 66,636 57,851
Decrease (increase) in receivables..... (11,836) 3,005 (9,056)
(Decrease) increase in payables and
accrued liabilities................... (1,012) (9,487) 3,879
Other.................................. (1,805) (1,484) (455)
----------- ---------- -----------
Cash provided by operating
activities.......................... 54,199 58,670 52,219
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment--
Oil and gas properties................. (141,490) (65,136) (140,864)
Gathering systems and other............ (3,256) (1,832) (4,162)
Proceeds from sale of oil and gas
properties............................. 604 711 1,006
Purchase of companies, net of cash
acquired............................... (45,886) -- --
Other................................... 2,777 (4,411) (2,106)
----------- ---------- -----------
Cash used by investing activities.... (187,251) (70,668) (146,126)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock.................... 51,191 -- 44,772
Sale of 9% Senior Subordinated Notes Due
2005................................... 145,137 -- --
Advances on revolving credit facility
and other borrowings................... 178,264 51,134 220,878
Payments on revolving credit facility
and other borrowings................... (237,679) (37,959) (170,885)
Dividends paid.......................... (1,747) (1,308) (865)
----------- ---------- -----------
Cash provided by financing
activities.......................... 135,166 11,867 93,900
----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH.......... 2,114 (131) (7)
CASH AND CASH EQUIVALENTS, beginning of
year.................................... 431 562 569
----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of year... $ 2,545 $ 431 $ 562
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
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 90 percent of the
Company's operations are within the exploration and production segment based
on 1995 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 6.
The consolidated financial statements include the accounts of Vintage
Petroleum, Inc. and its wholly- and majority-owned subsidiaries,
(collectively, the "Company"). In addition, the Company's interests in various
partnerships and joint ventures have been proportionately consolidated,
whereby the Company's proportionate share of each partnership or joint
venture's assets, liabilities, revenues and expenses is included in the
appropriate accounts in the consolidated financial statements. 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 $4.4 million, $2.3 million and $2.1
million of internal costs in 1995, 1994 and 1993, 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, 1995,
1994 and 1993, 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 $3.89, $3.82 and $3.71 for the years
ended December 31, 1995, 1994 and 1993, respectively. Amortization per
equivalent barrel of the Company's Argentina oil and gas properties for the
year ended December 31, 1995, was $4.28. 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.
F-7
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Hedging Policy
The Company periodically uses hedges (swap agreements) to reduce the impact
of oil and natural gas price fluctuations. Gains and 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.
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 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
During the years ended December 31, 1995, 1994 and 1993, the Company made
cash payments for interest totaling $21.6 million, $11.3 million and $6.0
million, respectively, and cash payments for U.S. income taxes of $0.5
million, $3.1 million and $4.1 million, respectively. No cash payments were
made during 1995 for foreign income taxes and the Company had no foreign
operations prior to 1995.
In late 1993, the Company increased its ownership in certain oil and gas
properties and gathering systems by acquiring 100 percent of its partners'
interests in the Vintage/P Acquisition Limited Partnership and a joint
venture. Total consideration included cash, common stock, a stock subscription
warrant and the assumption of certain net liabilities. The value of the non-
cash consideration was $6.4 million and is not reflected in the Company's 1993
Consolidated Statement of Cash Flows.
During 1995, the Company purchased a majority interest in Cadipsa S.A.
("Cadipsa"--see Note 6). 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 6) for $32.8 million cash and deferred payments valued at $5.1
million. The $5.1 million of deferred payments represent non-cash
consideration and are not reflected in the Company's 1995 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 $2.9 million, $2.3
million and $2.9 million in 1995, 1994 and 1993, respectively.
F-8
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. The Company's other
accounts receivable at December 31, 1994, represents funds in escrow at year
end relating to a potential acquisition. These funds were returned to the
Company during 1995.
2. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994, consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
9% Senior Subordinated Notes Due 2005, net of discount.... $149,592 $ --
Revolving credit facility................................. 74,300 172,600
Bank term loan............................................ 36,736 --
5.92% Senior note......................................... 9,948 13,264
11% Subordinated note..................................... -- 8,000
Subsidiary debt--
International Finance Corporation notes................. 28,000 --
Bank of Boston senior note.............................. 20,000 --
Other subsidiary debt................................... 5,200 --
-------- --------
323,776 193,864
Less--Current portion of long-term debt................... 7,930 7,316
-------- --------
$315,846 $186,548
======== ========
</TABLE>
Subsidiary debt relates to borrowings of the Company's foreign subsidiaries,
the recourse of which is solely to such subsidiaries, except for $9.2 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, 1996, through December 31, 2000, are $7.9 million, $29.9 million, $25.9
million, $59.3 million and $22.6 million, with $178.2 million thereafter.
9% Senior Subordinated Notes
On December 20, 1995, the Company issued $150 million of its 9% Senior
Subordinated Notes Due 2005 (the "Notes"). The 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
Notes may require the Company to purchase all or a portion of the Notes at a
purchase price equal to 101 percent of the principal amount thereof, plus
accrued and unpaid interest. The Notes mature on December 15, 2005, with
interest payable semiannually on June 15 and December 15 of each year.
F-9
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Notes are unsecured senior subordinated obligations of the Company and
rank subordinate in right of payment to all senior indebtedness (as defined).
The indenture for the 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. The net
proceeds to the Company from the sale of the Notes of approximately $145.1
million were used to reduce a portion of the outstanding balance under the
Company's revolving credit facility and to repay a short-term note payable
used to retire the 11% Subordinated Note.
Revolving Credit Facility
The Company has available an unsecured revolving credit facility under the
Credit Agreement dated November 3, 1993, as amended (the "Credit Agreement"),
among the Company, and certain banks. The Credit Agreement establishes a
borrowing base (currently $230 million) based on the banks' evaluation of the
Company's U.S. oil and gas reserves. On February 1, 1996, the Company elected
to set the banks' commitment at $180 million in order to reduce fees charged
by the banks.
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 borrowing base at
the time. In addition, the Company must pay a commitment fee of 0.375 percent
per annum on the unused portion of the banks' commitment. Total outstanding
advances at December 31, 1995, were $74.3 million at an average interest rate
of approximately 7.8 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. oil and gas reserves. If
the sum of outstanding senior debt exceeds the borrowing base, as
redetermined, the Company must repay such excess. Any principal advances
outstanding at October 31, 1997, will be payable in 16 equal consecutive
quarterly installments commencing January 31, 1998, with maturity at October
31, 2001.
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 $164 million
plus 75 percent of the net proceeds of any future equity offerings.
Bank Term Loan
On January 12, 1995, the Company refinanced with certain banks $36.7 million
of outstanding advances under the revolving credit facility with an unsecured
term loan maturing November 30, 1999. The term loan bears interest at a
floating rate (plus a fixed increment) 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 LIBOR. The Company has currently elected a fixed rate
based on LIBOR, which on December 31, 1995, was 6.7 percent. The terms and
restrictions under the bank term loan are generally the same as those provided
in the Credit Agreement.
International Finance Corporation Notes
Under an Amended and Restated Investment Agreement dated April 28, 1994, as
amended (the "Investment Agreement"), between the International Finance
Corporation ("IFC") and Cadipsa, the Company's majority-owned subsidiary,
outstanding advances were $28.0 million at December 31, 1995.
F-10
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
These borrowings consist of three separate loans having principal payments
beginning on September 15, 1996, with maturity on March 15, 2003. The
Investment Agreement is recourse solely to Cadipsa except for a guarantee of
$9.2 million of principal, plus interest thereon, provided by the Company on
behalf of Cadipsa to the IFC. The guarantee can be released and dividends may
be paid out of profits of Cadipsa once certain conditions and financial ratios
are met by Cadipsa.
Bank of Boston Senior Note
In connection with the BG Acquisition (see Note 6), the Company, through its
wholly-owned subsidiary, Vintage Oil Argentina, Inc. (formerly BG Argentina,
S.A.), entered into a non-recourse $20 Million Credit Agreement dated
September 28, 1995, with the Buenos Aires Branch of The First National Bank of
Boston. This loan is secured by all of the common stock of Vintage Oil
Argentina, Inc. and, upon government approval of the fiduciary assignment
agreement, substantially all of its assets. The Company expects to receive
such government approval, however, a default occurs if such approval is not
received by May 25, 1996. The borrowing limit under the $20 Million Credit
Agreement (currently $20.0 million) is redetermined semiannually by the bank,
beginning September 30, 1996, based on a review of Vintage Oil Argentina,
Inc.'s oil and gas reserves. Such reviews may result in a required repayment
of the amount in excess of the borrowing limit prior to maturity of the loan
on September 29, 1997. Vintage Oil Argentina, Inc. dividends are permitted to
the extent its tangible net worth (as defined) exceeds $14.0 million.
Fair Value of Long-term Debt
Based on the estimated borrowing rates currently available to the Company
for the long-term loans with similar terms and average maturities, the
aggregate fair value at December 31, 1995, of the Company's long-term debt is
approximately $323.2 million compared to the aggregate carrying amount of
$323.8 million.
3. CAPITAL STOCK
Public Offerings and Other Issuances
In January 1993, the Company completed a public offering of 3,910,000 shares
of common stock of which 3,510,000 shares were sold by the Company and 400,000
shares were sold by a stockholder. Net proceeds to the Company were
approximately $44.8 million and were used to reduce a portion of the
indebtedness incurred under the Company's revolving credit facility to acquire
certain oil and gas properties on December 30, 1992.
In December 1993, the Company issued 112,756 shares of common stock valued
at $2.0 million as partial consideration to acquire the sole limited
partnership interest in the Vintage/P Acquisition Limited Partnership.
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 6).
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 6) and to finance a substantial portion
of the acquisition of the remaining portion of the Astra/Shell Properties.
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.
F-11
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Plans and Warrants
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, 1995, 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
1,500,000 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, 1995, awards for a total of
339,000 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 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.
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.
In 1993, the Non-Management Director Stock Option Plan (the "Director Plan")
was approved by the Company's stockholders. Under 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 and the option exercise
price is equal to the fair market value of the common stock on the date of
grant.
The following is an analysis of all option activity under the 1983 Plan, the
1990 Plan and the Director Plan for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Beginning stock options outstanding...... 1,457,000 1,193,000 988,000
Stock options granted.................. 98,000 274,000 343,000
Stock options cancelled................ (20,000) -- --
Stock options exercised................ (401,898) (10,000) (138,000)
---------- ---------- ----------
Ending stock options outstanding......... 1,133,102 1,457,000 1,193,000
========== ========== ==========
Ending stock options exercisable......... 336,701 338,018 224,832
========== ========== ==========
Weighted average exercise price of:
Options exercised during the year...... $ 4.47 $ 4.89 $ 2.02
Ending stock options outstanding....... 14.81 11.64 10.34
Ending stock options exercisable....... 11.04 4.74 4.09
</TABLE>
F-12
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
All of the outstanding options are exercisable at various times in years
1996 through 2005. All incentive stock options and non-qualified options were
granted at fair market value on the date of grant. As of December 31, 1995, no
awards other than incentive and non-qualified stock options have been granted
under the 1990 Plan.
At December 31, 1995, stock subscription warrants (the "Warrants") for the
purchase of 316,300 shares of the Company's common stock at an average
exercise price of $5.42 per share were outstanding. In January 1996, a Warrant
for 306,300 shares of the Company's common stock was exercised at a price of
$5.00 per share and the remaining Warrant for 10,000 shares was cancelled.
At December 31, 1995, a total of 1,804,402 shares of the Company's common
stock are reserved for issuance pursuant to the 1983 Plan, the 1990 Plan and
the Director Plan and upon the exercise of the Warrants.
Preferred Stock
Preferred stock at December 31, 1995, 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 $0.8 million, $0.5 million and $0.4 million for 1995, 1994
and 1993, respectively. The future minimum commitments under long-term
noncancellable leases for office space are $0.9 million and $0.5 million for
1996 and 1997, respectively.
The Company has $10.1 million in letters of credit outstanding at December
31, 1995. 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 spend approximately $2.0 million per year for the project.
The Company is a defendant in various 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 pending lawsuits
and proceedings should have a material adverse effect upon the consolidated
financial statements of the Company.
5. INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"). SFAS 109 generally requires that deferred taxes be provided using a
liability approach at currently enacted income tax rates rather than the
deferred approach at historical rates which had previously been required. The
cumulative effect on prior years of adopting the change was recorded in the
quarter ended March 31, 1993, as provided by SFAS 109, and increased net
income by $1.7 million.
F-13
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes for the years ended December 31, 1995, 1994
and 1993, consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current............................................... $ (955) $1,576 $ 3,962
Deferred.............................................. 6,034 6,933 7,727
------ ------ -------
$5,079 $8,509 $11,689
====== ====== =======
</TABLE>
A reconciliation of the federal statutory income tax rate to the effective
rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<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................................ (7.4) -- --
Effect on prior years of increase in corporate income tax
rate..................................................... -- -- 2.0
All other, net............................................ 1.0 (1.0) 0.1
---- ---- ----
32.5% 37.9% 41.0%
==== ==== ====
</TABLE>
The components of the Company's net deferred tax liability as of December
31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Liabilities:
Differences between book and tax basis of property........ $41,699 $34,670
Other..................................................... -- 21
------- -------
41,699 34,691
------- -------
Deferred Tax Assets:
Alternative minimum tax credit carryforward............... 3,538 3,165
Other..................................................... 408 338
------- -------
3,946 3,503
------- -------
$37,753 $31,188
======= =======
</TABLE>
Earnings of the Company's foreign subsidiaries, Cadipsa and Vintage Oil
Argentina, Inc., 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 the near future. 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, 1995, the Company has an alternative minimum tax ("AMT")
credit carryforward of approximately $3.5 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.
F-14
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. 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 $12.3 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. Subsequent to December 31, 1995, the Company purchased an
additional 9.3 percent of Cadipsa for $2.3 million cash. The Company is
pursuing additional purchases of shares of Cadipsa.
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. ("Astra") 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.
("Shell") 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 and has not completed its evaluations of the
purchased assets and assumed liabilities; therefore, it has not completed the
final purchase price allocations for these acquisitions. 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 net income 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
Net income per share...................................... .78 .37
</TABLE>
F-15
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. 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. The following is industry
segment data for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Exploration and production--
U.S.......................................... $146,819 $141,357 $113,259
Argentina.................................... 13,435 -- --
Gas marketing................................. 49,775 61,480 70,705
Gathering..................................... 22,289 17,630 9,445
Other income.................................. 1,251 2,375 2,732
Elimination of intersegment sales............. (38,772) (37,190) (36,114)
-------- -------- --------
$194,797 $185,652 $160,027
======== ======== ========
OPERATING INCOME:
Exploration and production--
U.S.......................................... $ 39,524 $ 38,234 $ 36,634
Argentina.................................... 4,114 -- --
Gas marketing................................. 2,073 2,322 1,769
Gathering..................................... 1,568 1,058 990
Other income.................................. 1,251 2,375 2,732
Corporate expenses............................ (12,712) (9,549) (6,704)
Interest expense.............................. (20,178) (12,002) (6,943)
-------- -------- --------
$ 15,640 $ 22,438 $ 28,478
======== ======== ========
IDENTIFIABLE ASSETS:
Exploration and production--
U.S.......................................... $431,391 $386,824 $363,456
Argentina.................................... 180,488 -- --
Other international.......................... 1,269 -- --
Gas marketing................................. 5,431 5,850 8,415
Gathering..................................... 11,084 8,918 8,728
Corporate..................................... 17,876 6,160 3,862
-------- -------- --------
$647,539 $407,752 $384,461
======== ======== ========
DEPRECIATION, DEPLETION AND AMORTIZATION:
Exploration and production--
U.S.......................................... $ 45,730 $ 43,831 $ 31,695
Argentina.................................... 4,115 -- --
Gathering..................................... 1,301 1,283 1,002
Corporate..................................... 1,111 660 638
-------- -------- --------
$ 52,257 $ 45,774 $ 33,335
======== ======== ========
CAPITAL ADDITIONS:
Exploration and production--
U.S.......................................... $ 88,149 $ 65,136 $147,252
Argentina.................................... 170,947 -- --
Other international.......................... 1,269 -- --
Gathering..................................... 234 632 3,319
Corporate..................................... 3,023 1,200 843
-------- -------- --------
$263,622 $ 66,968 $151,414
======== ======== ========
</TABLE>
F-16
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1995, 1994 and 1993, sales to one crude oil purchaser represented
approximately 17%, 14% and 11%, respectively, of the Company's total revenues.
8. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
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
Net income per share........... .08 .15 .13 .17
1994
Revenues....................... $ 44,635 $ 48,088 $ 48,246 $ 44,683
Operating income............... 8,591 11,583 12,885 10,930
Net income..................... 2,468 3,937 4,403 3,121
Net income per share........... .12 .19 .21 .15
</TABLE>
9. 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, 1995, 1994 and 1993. The Company began operations in
Argentina through various acquisitions in the last two quarters of 1995 (see
Note 6). Prior to 1995, all of the Company's oil and gas producing activities
were located in the United States.
<TABLE>
<CAPTION>
1995
---------------------------
U.S. ARGENTINA TOTAL 1994 1993
-------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues...................... $146,819 $13,435 $160,254 $141,357 $113,259
Production (lifting) costs.... 61,565 5,206 66,771 59,292 44,930
Depreciation, depletion and
amortization................. 45,730 4,115 49,845 43,831 31,695
-------- ------- -------- -------- --------
Results of operations before
income taxes................. 39,524 4,114 43,638 38,234 36,634
Income tax expense............ 12,332 -- 12,332 14,529 14,287
-------- ------- -------- -------- --------
Results of operations
(excluding corporate overhead
and interest costs).......... $ 27,192 $ 4,114 $ 31,306 $ 23,705 $ 22,347
======== ======= ======== ======== ========
</TABLE>
F-17
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capitalized Costs and Costs Incurred Relating to Oil and Gas Producing
Activities
Prior to 1995, the Company had not incurred any significant costs outside of
the United States. The Company's net investment in oil and gas properties at
December 31, 1995 and 1994, was as follows:
<TABLE>
<CAPTION>
1995
----------------------------------
U.S. ARGENTINA OTHER TOTAL 1994
-------- --------- ------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Unproved properties not being
amortized...................... $ 8,505 $ -- $1,269 $ 9,774 $ 6,073
Proved properties being
amortized...................... 581,861 170,947 -- 752,808 496,748
-------- -------- ------ -------- --------
Total capitalized costs....... 590,366 170,947 1,269 762,582 502,821
Less accumulated depreciation,
depletion and amortization..... 190,593 4,115 -- 194,708 144,863
-------- -------- ------ -------- --------
Net capitalized costs......... $399,773 $166,832 $1,269 $567,874 $357,958
======== ======== ====== ======== ========
</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 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995
---------------------------------
U.S. ARGENTINA OTHER TOTAL 1994 1993
------- --------- ------ -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Acquisition:
Undeveloped properties. $ 6,415 $ -- $1,269 $ 7,684 $ 1,869 $ 610
Producing properties... 38,896 168,762 -- 207,658 36,544 123,906
Costs incurred:
Exploratory............ 2,037 -- -- 2,037 3,349 5,217
Development............ 40,801 2,185 -- 42,986 23,374 17,519
------- -------- ------ -------- ------- --------
Total costs incurred. $88,149 $170,947 $1,269 $260,365 $65,136 $147,252
======= ======== ====== ======== ======= ========
</TABLE>
F-18
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
and Argentina (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 TOTAL
---------------- --------- ----------------
OIL GAS OIL OIL GAS
(MBBLS) (MMCF) (MBBLS) (MBBLS) (MMCF)
------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Proved reserves at December 31,
1992............................. 40,209 206,582 -- 40,209 206,582
Revisions of previous estimates... (10) 18,381 -- (10) 18,381
Extensions, discoveries and other
additions........................ 35 4,183 -- 35 4,183
Production........................ (4,785) (22,504) -- (4,785) (22,504)
Purchase of reserves-in-place..... 27,898 68,000 -- 27,898 68,000
Sales of reserves-in-place........ (70) (1,500) -- (70) (1,500)
------ ------- ------ ------- -------
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
====== ======= ====== ======= =======
Proved developed reserves at:
December 31, 1993............... 51,187 226,734 -- 51,187 226,734
====== ======= ====== ======= =======
December 31, 1994............... 55,037 220,112 -- 55,037 220,112
====== ======= ====== ======= =======
December 31, 1995............... 63,791 270,427 36,928 100,719 270,427
====== ======= ====== ======= =======
</TABLE>
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.
F-19
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Prior to 1995, the Company did not have any oil and gas producing activities
outside the United States. Set forth below is the Standardized Measure
relating to proved oil and gas reserves at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995
--------------------------------
U.S. ARGENTINA TOTAL 1994
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Future cash inflows............. $1,786,545 $1,083,551 $2,870,096 $1,483,854
Future production costs......... 751,312 409,734 1,161,046 620,615
Future development and
abandonment costs.............. 118,784 119,916 238,700 112,877
---------- ---------- ---------- ----------
Future net cash inflows before
income tax expense............. 916,449 553,901 1,470,350 750,362
Future income tax expense....... 232,036 86,162 318,198 173,875
---------- ---------- ---------- ----------
Future net cash flows........... 684,413 467,739 1,152,152 576,487
10 percent annual discount for
estimated timing of cash flows. 224,078 191,528 415,606 190,766
---------- ---------- ---------- ----------
Standardized Measure of
discounted future net cash
flows.......................... $ 460,335 $ 276,211 $ 736,546 $ 385,721
========== ========== ========== ==========
</TABLE>
F-20
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized Measure--Beginning of year....... $385,721 $339,701 $274,443
Increases (decreases)--
Sales, net of production costs.............. (93,483) (82,065) (68,328)
Net change in sales price, net of production
costs...................................... 131,697 54,864 (101,453)
Discoveries and extensions, net of related
future development and production costs.... 4,585 4,724 6,495
Changes in estimated future development
costs...................................... (31,210) (17,276) (4,709)
Development costs incurred.................. 37,600 20,228 10,195
Revisions of previous quantity estimates.... 59,319 34,428 9,021
Accretion of discount....................... 44,699 35,078 33,594
Net change in income taxes.................. (86,296) (50,189) 50,421
Purchase of reserves-in-place............... 311,449 47,718 152,712
Sales of reserves-in-place.................. (661) (694) (1,838)
Timing of production of reserves and other.. (26,874) (796) (20,852)
-------- -------- --------
Standardized Measure--End of year............. $736,546 $385,721 $339,701
======== ======== ========
</TABLE>
F-21
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
(UNAUDITED)
A S S E T S
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 5,339
Accounts receivable--
Oil and gas sales................................................... 43,275
Joint operations.................................................... 5,360
Prepaids and other current assets.................................... 13,536
--------
Total current assets.............................................. 67,510
--------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, full cost method............................. 859,184
Oil and gas gathering systems........................................ 12,872
Other................................................................ 7,681
--------
879,737
Less accumulated depreciation, depletion and amortization............ 256,645
--------
623,092
--------
OTHER ASSETS, net..................................................... 10,756
--------
$701,358
========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES:
Revenue payable...................................................... $ 18,910
Accounts payable--trade.............................................. 14,702
Other payables and accrued liabilities............................... 21,103
Current portion of long-term debt.................................... 7,929
--------
Total current liabilities......................................... 62,644
--------
LONG-TERM DEBT, less current portion above............................ 336,380
--------
DEFERRED INCOME TAXES................................................. 45,735
--------
OTHER LONG-TERM LIABILITIES........................................... 3,081
--------
MINORITY INTEREST IN SUBSIDIARY....................................... 2,286
--------
STOCKHOLDERS' EQUITY, per accompanying statement:
Preferred stock, $.01 par, 5,000,000 shares authorized, zero shares
issued and outstanding.............................................. --
Common stock, $.005 par, 40,000,000 shares authorized, 24,062,462 and
23,661,162 shares issued and outstanding............................ 120
Capital in excess of par value....................................... 152,121
Retained earnings.................................................... 98,991
--------
251,232
--------
$701,358
========
</TABLE>
See notes to unaudited consolidated financial statements.
F-22
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
REVENUES:
Oil and gas sales.......................................... $185,847 $112,809
Oil and gas gathering...................................... 15,310 8,472
Gas marketing.............................................. 21,519 13,631
Other income............................................... 659 1,461
-------- --------
223,335 136,373
-------- --------
COSTS AND EXPENSES:
Lease operating, including production taxes................ 67,606 47,520
Oil and gas gathering...................................... 12,838 6,636
Gas marketing.............................................. 19,885 12,210
General and administrative................................. 12,026 8,258
Depreciation, depletion, and amortization.................. 51,313 36,875
Interest................................................... 22,467 13,379
-------- --------
186,135 124,878
-------- --------
Income before provision for income taxes and minority
interest................................................ 37,200 11,495
PROVISION FOR INCOME TAXES:
Current.................................................... 2,061 687
Deferred................................................... 7,982 3,895
MINORITY INTEREST IN (INCOME) LOSS OF SUBSIDIARY............. (361) 662
-------- --------
NET INCOME................................................... $ 26,796 $ 7,575
======== ========
NET INCOME PER SHARE......................................... $ 1.10 $ .36
======== ========
Weighted average common shares and common equivalent shares
outstanding................................................. 24,454 21,322
</TABLE>
See notes to unaudited consolidated financial statements.
F-23
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN EXCESS
------------- OF PAR RETAINED
SHARES AMOUNT VALUE EARNINGS TOTAL
------ ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995...... 23,661 $ 118 $ 149,725 $ 74,117 $ 223,960
Net income...................... -- -- -- 26,796 26,796
Exercise of warrants............ 306 2 1,530 -- 1,532
Exercise of stock options and
resulting tax effects.......... 96 -- 866 -- 866
Cash dividends declared
($.08 per share)............... -- -- -- (1,922) (1,922)
------ ----- --------- -------- ---------
BALANCE AT SEPTEMBER 30, 1996..... 24,063 $ 120 $ 152,121 $ 98,991 $ 251,232
====== ===== ========= ======== =========
</TABLE>
See notes to unaudited consolidated financial statements.
F-24
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 26,796 $ 7,575
Adjustments to reconcile net income to cash provided by
operating activities--
Depreciation, depletion and amortization............... 51,313 36,875
Minority interest in income (loss) of subsidiary....... 361 (662)
Provision for deferred income taxes.................... 7,982 3,895
--------- ---------
86,452 47,683
Decrease (increase) in receivables..................... (3,763) 3,953
Increase (decrease) in payables and accrued
liabilities........................................... 4,340 (1,531)
Other.................................................. (4,082) (1,201)
--------- ---------
Cash provided by operating activities................ 82,947 48,904
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment--
Oil and gas properties................................. (92,441) (78,427)
Other property and equipment........................... (1,567) (775)
Purchase of additional interest in subsidiary........... (5,213) (41,594)
Other................................................... (1,478) (129)
--------- ---------
Cash used by investing activities.................... (100,699) (120,925)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock.................................... 1,753 129
Advances on revolving credit facility and other
borrowings............................................. 108,048 88,410
Payments on revolving credit facility and other
borrowings............................................. (87,614) (14,061)
Dividends paid.......................................... (2,514) (1,344)
Other................................................... 873 --
--------- ---------
Cash provided by financing activities................ 20,546 73,134
--------- ---------
Net increase in cash and cash equivalents................ 2,794 1,113
Cash and cash equivalents, beginning of period.......... 2,545 431
--------- ---------
Cash and cash equivalents, end of period................ $ 5,339 $ 1,544
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
F-25
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1. GENERAL
The accompanying financial statements are unaudited. The consolidated
financial statements include the accounts of the Company and its wholly- and
majority-owned subsidiaries. Management believes that all material adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation have been made. These financial statements and notes should be
read in conjunction with the 1995 audited financial statements and related
notes included elsewhere in this Prospectus. Certain reclassifications have
been made to the prior year financial statements to conform to the 1996
presentations. These reclassifications had no effect on previously reported
net income or cash flow.
2. SIGNIFICANT ACCOUNTING POLICIES
Statements of Cash Flows
During the nine months ended September 30, 1996 and 1995, cash payments for
interest totaled $19,141,953 and $14,161,441, respectively. During the nine
months ended September 30, 1996 and 1995, cash payments for U.S. Federal and
state income taxes totaled $700,000 and $545,453, respectively. Cash payments
for Argentina withholding taxes totaling $64,949 were made during the nine
months ended September 30, 1996. No cash payments were made for the nine
months ended September 30, 1995, for foreign income taxes.
Depreciation, Depletion, and Amortization
Amortization per equivalent barrel of the Company's U.S. oil and gas
properties for the nine months ended September 30, 1996 and 1995, was $3.76
and $3.87, respectively. Amortization per equivalent barrel of the Company's
Argentina oil and gas properties for the nine months ended September 30, 1996
and 1995, was $4.18 and $4.29, respectively. The Company had no Argentina
operations prior to July 1995.
Income Taxes
Deferred income taxes are provided on transactions which are recognized in
different periods for financial and tax 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. The Company
follows the provisions of Statement of Financial Accounting Standards No. 109
when calculating the deferred income tax provision for financial purposes.
Earnings of the Company's foreign subsidiaries, Cadipsa S.A. and Vintage Oil
Argentina, Inc., 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 1996. No U.S. deferred tax liability has been recognized related to the
unremitted earnings of these foreign subsidiaries, as it is the Company's
intention, generally, to reinvest such earnings permanently.
F-26
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT
Long-term debt at September 30, 1996, and December 31, 1995, consists of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
9% Senior Subordinated Notes Due 2005, net of
discount....................................... $ 149,623 $ 149,592
Bank revolving credit facility.................. 164,800 74,300
Bank term loan.................................. -- 36,736
5.92% Senior note............................... -- 9,948
Subsidiary debt (a)--
International Finance Corporation Notes....... 25,986 28,000
Bank of Boston Senior note.................... -- 20,000
Other subsidiary debt......................... 3,900 5,200
--------- ---------
344,309 323,776
Less--Current portion of long-term debt......... 7,929 7,930
--------- ---------
$ 336,380 $ 315,846
========= =========
</TABLE>
- --------
(a) Subsidiary debt relates to borrowings of the Company's international
subsidiaries and is non-recourse to the Company except for $9.2 million
advanced by the International Finance Corporation.
Bank Revolving Credit Facility
The Company has available an unsecured revolving credit facility under the
Credit Agreement dated August 29, 1996, as amended (the "Bank Facility"),
among the Company and certain banks. The Bank Facility establishes a borrowing
base (currently $305 million) based on the banks' evaluation of the Company's
U.S. and certain Argentina oil and gas reserves.
Outstanding advances under the Bank 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 0.250 to 0.375 percent per annum on the unused portion of the
banks' commitment. Total outstanding advances at September 30, 1996, were
$164.8 million at an average interest rate of approximately 6.5 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 Bank Facility 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 Bank Facility requires the maintenance of a minimum current
ratio (as defined) and tangible net worth (as defined) of $200 million plus 75
percent of net proceeds of any future equity offerings.
F-27
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. SUBSEQUENT EVENTS
On November 5, 1996, the Province of Santa Cruz, Argentina brought suit
against Cadipsa S.A. 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.
On November 20, 1996, the Company purchased from Exxon Company, U.S.A.
certain producing oil and gas properties and facilities located in south
Alabama for approximately $28.2 million in cash, subject to post-closing
adjustments. Funds for this acquisition were provided by advances under the
Company's Bank Facility. The properties consist of all of Exxon's interests in
two fields totaling approximately 5,000 net acres located in Escambia County
in south Alabama and are now operated by the Company. Current net daily
production from the properties averages approximately 1,450 barrels of oil and
liquids and 2,800 Mcf of gas.
Also during November 1996, the Company agreed to purchase 100% of the
outstanding common stock of Shamrock Ventures Boliviana Ltd. ("Shamrock") from
affiliates of Ultramar Diamond Shamrock Corporation for $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 Bank Facility. Shamrock's assets include (i) oil and gas
properties valued at $35.5 million (including the effect of approximately $6.6
million of deferred income taxes recorded under the purchase method of
accounting), and (ii) inventory, receivables, cash and other assets net of
liabilities (other than bank debt repaid at closing) of approximately $9.3
million. The Company has not completed its evaluations of the purchased assets
and assumed liabilities; therefore, it has not completed the final purchase
price allocation. The transaction is subject to government approval. The oil
and gas properties of Shamrock consist of three blocks in the Chaco Plains
area of southern Bolivia. The acquisition of Shamrock represents an extension
to the Company's South American operating area that was initially established
through a series of acquisitions in Argentina during 1995.
F-28
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SHARES OF
COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PER-
SON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Definitions....................................................... 2
Incorporation of Documents by Reference................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
Forward-Looking Statements................................................ 15
Note Offering............................................................. 15
Use of Proceeds........................................................... 15
Capitalization............................................................ 16
Price Range of Common Stock and Dividends................................. 17
Selected Financial and Operating Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Recent Acquisitions....................................................... 29
Business.................................................................. 31
Management................................................................ 50
Description of Capital Stock.............................................. 53
Certain U.S. Tax Consequences to Non-U.S. Holders of Common Stock......... 55
Underwriting.............................................................. 58
Legal Matters............................................................. 59
Experts................................................................... 59
Available Information..................................................... 60
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF VINTAGE PETROLEUM, INC. APPEARS HERE]
VINTAGE PETROLEUM, INC.
---------------
1,500,000 SHARES
COMMON STOCK
PROSPECTUS
, 1997
---------------
DILLON, READ & CO. INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
JOHNSON RICE & COMPANY L.L.C.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
All amounts, which are payable by the Registrant, except SEC, NASD and New
York Stock Exchange fees, are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 47,737
NASD filing fee................................................... 16,253
New York Stock Exchange additional listing fee.................... 6,038
Transfer agent fees and expenses.................................. 1,500
Printing and shipping expenses.................................... 150,000
Legal fees and expenses........................................... 75,000
Accounting fees and expenses...................................... 75,000
Trustee's fees and expenses....................................... 3,500
Rating agency fees................................................ 15,000
Miscellaneous..................................................... 34,972
---------
Total........................................................... $ 425,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware provides
generally that a corporation may indemnify any person who was or is a party to
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative in nature, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, in a proceeding not by or in
the right of the corporation, judgments, fines, and amounts paid in
settlement, actually and reasonably incurred by him in connection with such
suit or proceeding, if he acted in good faith and in a manner believed to be
in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reason to believe his conduct was
unlawful. Delaware law further provides that a corporation may not indemnify
any person against expenses incurred in connection with an action by or in the
right of the corporation if such person shall have been adjudged to be liable
in the performance of his duty to the corporation unless and only to the
extent that the court in which such action or suit was brought shall determine
that, despite the adjudication of liability but in the view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for the expenses which such court shall deem proper. The Restated
By-laws of the Registrant provide that the Registrant shall indemnify an
officer or director against liability incurred by such person as authorized
under the General Corporation Law of the State of Delaware. In addition, the
Registrant has entered into specific agreements with the directors and
officers of the Registrant providing for indemnification of such persons under
certain circumstances. The Registrant's Restated Certificate of Incorporation
also eliminates the liability of the Registrant's directors for monetary
damages for breach of their fiduciary duty as directors. This provision,
however, does not eliminate a director's liability (a) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) in respect of certain unlawful dividend payments
or stock redemptions or repurchases, or (d) for any transaction from which a
director derived an improper personal benefit.
II-1
<PAGE>
The forms of Underwriting Agreement included as Exhibit 1.1 and Exhibit 1.2
provide for indemnification of the Registrant and certain controlling persons
under certain circumstances, including liabilities under the Securities Act of
1933.
ITEM 16. EXHIBITS.
The following is a list of all exhibits filed as a part of this Registration
Statement on Form S-3, including those incorporated by reference herein.
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement relating to the Notes.
1.2* Form of Underwriting Agreement relating to the Common Stock.
4.1* Indenture dated as of , 1997, between The Chase Manhattan
Bank, as trustee, and the Registrant.
4.2** Restated Certificate of Incorporation of the Registrant.
4.3** Restated By-laws of the Registrant.
4.4** Form of stock certificate for Common Stock, par value $.005 per
share.
5.1* Opinion of Conner & Winters, A Professional Corporation, re. legality
of the Notes.
5.2* Opinion of Conner & Winters, A Professional Corporation, re. legality
of the Common Stock.
12.*** Statement re. Computation of Ratios.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Pistrelli, Diaz y Asociados and Arthur Andersen LLP.
23.3* Consent of Deloitte & Touche.
23.4* Consent of Netherland, Sewell & Associates, Inc.
23.5* Consent of Conner & Winters, A Professional Corporation (included in
Exhibits 5.1 and 5.2).
24.*** Power of Attorney.
25.*** Statement of eligibility of trustee.
27.*** Financial Data Schedule.
99.* Second Amendment to Credit Agreement dated as of January 9, 1997,
among the Registrant, as borrower, certain commercial lending
institutions, as lenders, and Bank of Montreal, as agent.
</TABLE>
- --------
* Filed herewith.
** Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (No. 33-35289) and incorporated by reference herein.
*** Previously filed with this Registration Statement on January 10, 1997.
ITEM 17. UNDERTAKINGS.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 15 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
II-2
<PAGE>
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(i) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
THE REGISTRANT. Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Tulsa, State of
Oklahoma, on the 27th day of January, 1997.
VINTAGE PETROLEUM, INC.
By: /s/ C. C. Stephenson, Jr.
---------------------------------
C. C. Stephenson, Jr.
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons 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 January 27, 1997
- ------------------------------------ Board
C. C. Stephenson, Jr.
/s/ Jo Bob Hille Director, Vice Chairman of January 27, 1997
- ------------------------------------ the Board and Chief
Jo Bob Hille Executive Officer
(Principal Executive
Officer)
/s/ S. Craig George Director, President and January 27, 1997
- ------------------------------------ Chief Operating Officer
S. Craig George
/s/ William C. Barnes Director, Executive Vice January 27, 1997
- ------------------------------------ President, Chief Financial
William C. Barnes Officer and Treasurer
(Principal Financial Officer)
Bryan H. Lawrence* Director January 27, 1997
- ------------------------------------
Bryan H. Lawrence
John T. McNabb, II* Director January 27, 1997
- ------------------------------------
John T. McNabb, II
/s/ Michael F. Meimerstorf Vice President and January 27, 1997
- ------------------------------------ Controller (Principal
Michael F. Meimerstorf Accounting Officer)
</TABLE>
/s/ C. C. Stephenson, Jr.
*By:
--------------------------------
C. C. Stephenson, Jr.
Attorney-in-Fact
II-4
<PAGE>
Exhibit 1.1
[Draft--1/21/97]
VINTAGE PETROLEUM, INC.
$100,000,000
% Senior Subordinated Notes Due 2009
Underwriting Agreement
New York, New York
, 1997
Salomon Brothers Inc
Dillon, Read & Co. Inc.
Lehman Brothers Inc.
Nesbitt Burns Securities Inc.
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Vintage Petroleum, Inc., a Delaware corporation (the "Company"),
proposes to sell to the underwriters named in Schedule I hereto (the
"Underwriters"), for whom you (the "Representatives") are acting as
representatives, $100,000,000 aggregate principal amount of its % Senior
Subordinated Notes Due 2009 (the "Securities"), to be issued under an indenture
(the "Indenture") to be dated as of , 1997, between the Company and The
Chase Manhattan Bank, as trustee (the "Trustee").
1. Representations and Warranties. The Company represents and
-------------------------------
warrants to, and agrees with, each Underwriter as set forth below in this
Section 1. Certain terms used in this Section 1 are defined in paragraph (c)
hereof.
(a) The Company meets the requirements for use of Form S-3 under the
Securities Act of 1933 (the "Act") and has filed with the Securities and
Exchange Commission (the "Commission") a registration statement
(registration number 333-19569) on such Form, including a related
preliminary prospectus relating to the
<PAGE>
2
Securities, for the registration under the Act of the offering and sale of
the Securities. The Company may have filed one or more amendments thereto,
including the related preliminary prospectus relating to the Securities,
each of which has previously been furnished to you. The Company will next
file with the Commission one of the following: (i) prior to effectiveness
of such registration statement, a further amendment to such registration
statement, including the form of final prospectus relating to the
Securities, (ii) a final prospectus relating to the Securities in
accordance with Rules 430A and 424(b)(1) or (4), or (iii) a final
prospectus relating to the Securities in accordance with Rules 415 and
424(b)(2) or (5). In the case of clause (ii), the Company has included in
such registration statement, as amended at the Effective Date, all
information (other than Rule 430A Information) required by the Act and the
rules thereunder to be included in the Prospectus with respect to the
Securities and the offering thereof. As filed, such amendment and form of
final prospectus, or such final prospectus, shall contain all Rule 430A
Information, together with all other such required information, with
respect to the Securities and the offering thereof and, except to the
extent the Representatives shall agree in writing to a modification, shall
be in all substantive respects in the form furnished to you prior to the
Execution Time or, to the extent not completed at the Execution Time, shall
contain only such specific additional information and other changes (beyond
that contained in the latest Preliminary Prospectus) as the Company has
advised you, prior to the Execution Time, will be included or made therein.
The Company agrees that it will not, without your agreement, file a Rule
462(b) Registration Statement.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectus is first filed (if required) in accordance with
Rule 424(b) and on the Closing Date, the Prospectus (and any supplements
thereto) will, comply in all material respects with the applicable
requirements of the Act, the Securities Exchange Act of 1934 (the "Exchange
Act") and the Trust Indenture Act of 1939 (the "Trust Indenture Act") and
the respective rules thereunder; on the Effective Date, the Registration
Statement did not or will not contain any untrue statement of a material
fact or omit to state any material fact required to be
<PAGE>
3
stated therein or necessary in order to make the statements therein not
misleading; on the Effective Date and on the Closing Date the Indenture did
or will comply in all material respects with the requirements of the Trust
Indenture Act and the rules thereunder; and, on the Effective Date, the
Prospectus, if not filed pursuant to Rule 424(b), did not or will not, and
on the date of any filing pursuant to Rule 424(b) and on the Closing Date,
the Prospectus (together with any supplement thereto) will not, include any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
--------
however, that the Company makes no representations or warranties as to (i)
-------
that part of the Registration Statement which shall constitute the
Statement of Eligibility and Qualification (Form T-1) under the Trust
Indenture Act of the Trustee or (ii) the information contained in or
omitted from the Registration Statement or the Pros pectus (or any
supplement thereto) in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Underwriter
through the Representatives specifically for inclusion in the Registration
Statement or the Prospectus (or any supplement thereto).
(c) The terms which follow, when used in this Agreement, shall have
the meanings indicated. The term "the Effective Date" shall mean each date
that the Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective and each date after the date hereof on which a document
incorporated by reference in the Registration Statement is filed.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto. "Preliminary Prospectus"
shall mean any preliminary prospectus referred to in paragraph (a) above
and any preliminary prospectus relating to the Securities included in the
Registration Statement at the Effective Date that omits Rule 430A
Information. "Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the Execution
Time or, if no filing pursuant to Rule 424(b) is required, shall mean the
form of final prospectus relating to the Securities included in the
Registration Statement at the Effective Date. "Regis-
<PAGE>
4
tration Statement" shall mean the registration statement referred to in
paragraph (a) above, including incorporated documents, exhibits and
financial statements, as amended at the Execution Time (or, if not
effective at the Execution Time, in the form in which it shall become
effective) and, in the event any post-effective amendment thereto or any
Rule 462(b) Registration Statement becomes effective prior to the Closing
Date (as hereinafter defined), shall also mean such registration statement
as so amended or such Rule 462(b) Registration Statement, as the case may
be. Such term shall include any Rule 430A Information deemed to be
included therein at the Effective Date as provided by Rule 430A. "Rule
415", "Rule 424", "Rule 430A", "Rule 462" and "Regulation S-K" refer to
such rules or regulation under the Act. "Rule 430A Information" means
information with respect to the Securities and the offering thereof
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A. "Rule 462(b) Registration Statement"
shall mean a registration statement and any amendments thereto filed
pursuant to Rule 462(b) relating to the offering covered by the initial
registration statement (file number 333-___________). Any reference herein
to the Registration Statement, a Preliminary Prospectus or the Prospectus
shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 which were filed under
the Exchange Act on or before the Effective Date of the Registration
Statement or the issue date of such Preliminary Prospectus or the
Prospectus, as the case may be; and any reference herein to the terms
"amend", "amendment" or "supplement" with respect to the Registration
Statement, any Preliminary Prospectus or the Prospectus shall be deemed to
refer to and include the filing of any document under the Exchange Act
after the Effective Date of the Registration Statement, or the issue date
of any Preliminary Prospectus or the Prospectus, as the case may be, deemed
to be incorporated therein by reference.
2. Purchase and Sale. Subject to the terms and conditions and in
------------------
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Company, at a purchase price of % of the
principal amount thereof, plus
<PAGE>
5
accrued interest, if any, on the Securities from , 1997, to the
Closing Date, the principal amount of the Securities set forth opposite such
Underwriter's name in Schedule I hereto.
3. Delivery and Payment. Delivery of and payment for the Securities
---------------------
shall be made at 10:00 AM, New York City time, on , 1997, or such
later date (not later than , 1997) as the Representatives shall
designate, which date and time may be postponed by agreement between the
Representatives and the Company or as provided in Section 9 hereof (such date
and time of delivery and payment for the Securities being herein called the
"Closing Date"). Delivery of the Securities shall be made to the
Representatives for the respective accounts of the several Underwriters against
payment by the several Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company by wire transfer drawn and
payable in same day funds; provided that the Company shall reimburse the
--------
Representatives for the cost of making such payment in same-day funds. Delivery
of the Securities shall be made at such location as the Representatives shall
reasonably designate at least one business day in advance of the Closing Date
and payment for the Securities shall be made at the office of Cravath, Swaine &
Moore, New York, New York. Certificates for the Securities shall be registered
in such names and in such denominations as the Representatives may request not
less than two full business days in advance of the Closing Date.
The Company agrees to have the Securities available for inspection,
checking and packaging by the Representatives in New York, New York, not later
than 1:00 PM on the business day prior to the Closing Date.
4. Offering by Underwriters. It is understood that the several
-------------------------
Underwriters propose to offer the Securities for sale to the public as set
forth in the Prospectus.
5. Agreements. The Company agrees with the several Underwriters
-----------
that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supple-
<PAGE>
6
ment to the Prospectus or any Rule 462(b) Registration Statement unless the
Company has furnished the Representatives a copy for their review prior to
filing and will not file any such proposed amendment or supplement to which
the Representatives reasonably object. Subject to the foregoing sentence,
if the Registration Statement has become or becomes effective pursuant to
Rule 430A, or filing of the Prospectus is otherwise required under Rule
424(b), the Company will cause the Prospectus, properly completed, and any
supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed and
will provide evidence satisfactory to the Representatives of such timely
filing. The Company will promptly advise the Representatives (i) when the
Registration Statement, if not effective at the Execution Time, and any
amendment thereto, shall have become effective, (ii) when the Prospectus,
and any supplement thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration
Statement shall have been filed with the Commission, (iii) when, prior to
termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective, (iv) of
any request by the Commission for any amendment of the Registration
Statement, or any Rule 462(b) Registration Statement, or supplement to the
Prospectus or for any additional information, (v) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any proceeding
for that purpose and (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose. The Company will use its best efforts to prevent the
issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were
<PAGE>
7
made not misleading, or if it shall be necessary to amend the Registration
Statement or supplement the Prospectus to comply with the Act or the
Exchange Act or the respective rules thereunder, the Company promptly will
(i) prepare and file with the Commission, subject to the second sentence of
paragraph (a) of this Section 5, an amendment or supplement which will
correct such statement or omission or effect such compliance and (ii)
supply any supplemented Prospectus to the Representatives in such
quantities as they may reasonably request.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the Representatives an earnings statement or
statements of the Company and its subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for
the Underwriters, without charge, signed copies of the Registration
Statement (including exhibits thereto) and to each other Underwriter a copy
of the Registration Statement (without exhibits there to) and, so long as
delivery of a prospectus by an Underwriter or dealer may be required by the
Act, as many copies of each Preliminary Prospectus and the Prospectus and
any supplement thereto as the Representatives may reasonably request. The
Company will pay the expenses of printing or other production of all
documents relating to the offering.
(e) The Company will arrange, if necessary, for the qualification of
the Securities for sale under the laws of such jurisdictions as the
Representatives may designate, will maintain such qualifications in effect
so long as required for the distribution of the Securities, will arrange
for the determination of the legality of the Securities for purchase by
institutional investors and will pay the fee of the National Association of
Securities Dealers, Inc., in connection with its review of the offering.
(f) The Company will not offer, sell, contract to sell or otherwise
dispose of any debt securities of the Company in an offering to the public
(or in a private offering where holders of the debt securities are granted
rights to have such debt securities registered
<PAGE>
8
under the Act or to exchange such debt securities for other debt securities
that are so registered) for a period of 120 days from the date of the
Prospectus without the prior consent of Salomon Brothers Inc.
6. Conditions to the Obligations of the Underwriters. The
--------------------------------------------------
obligations of the Underwriters to purchase the Securities shall be subject to
the accuracy of the representations and warranties on the part of the Company
contained herein as of the Execution Time and the Closing Date, to the accuracy
of the statements of the Company made in any certificates pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 PM New York City time, on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date or (ii) 12:00 Noon on the business day
following the day on which the public offering price was determined, if
such determination occurred after 3:00 PM New York City time on such date;
if filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b), the Prospectus, and any such supplement, will be
filed in the manner and within the time period required by Rule 424(b); and
no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Company shall have furnished to the Representatives the
opinion of Conner & Winters, A Professional Corporation, counsel for the
Company, dated the Closing Date, to the effect that:
(i) each of the Company, Vintage Marketing, Inc., Vintage
Pipeline, Inc., Vintage Gas, Inc., Vintage Petroleum International,
Inc., Vintage Petroleum Ecuador, Inc., Vintage Petroleum Argentina,
Inc., Cadipsa S.A. and Vintage Oil Argentina, Inc. (individually a
"Subsidiary" and collectively the "Subsidiaries") has been duly
incorporated and is validly existing as a
<PAGE>
9
corporation in good standing under the laws of the jurisdiction in
which it is chartered or organized, with full corporate power and
authority to own its properties and conduct its business as described
in the Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns or
leases material properties or conducts material business;
(ii) all the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in
the Prospectus, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company either directly or through
wholly owned subsidiaries free and clear of any perfected security
interest and, to the knowledge of such counsel, any other security
interests, claims, liens or encumbrances;
(iii) the Securities conform in all material respects to the
description thereof contained in the Prospectus;
(iv) the Indenture has been duly authorized, executed and
delivered by the Company, has been duly qualified under the Trust
Indenture Act, and constitutes a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its
terms (subject to applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws affecting
creditors' rights generally from time to time in effect); the
enforceability of the obligations of the Company is also subject to
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law); and
the Securities have been duly authorized and, when executed and
authenticated in accordance with the terms of the Indenture and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be entitled to the benefits of the Indenture and will
constitute legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with its terms (subject
to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws affecting creditors' rights
generally from time to time in effect); the enforceability of the
obligations of the Company is also subject to general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(v) to the knowledge of such counsel, (1) there is no pending
or threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator
<PAGE>
10
involving the Company or any of its subsidiaries of a character
required to be disclosed in the Registration Statement which is not
adequately disclosed in the Prospectus, and (2) there is no franchise,
contract or other document of a character required to be described in
the Registration Statement or Prospectus, or to be filed as an exhibit
thereto, which is not described or filed as required; and the
statements in the Prospectus under the headings "Business--Legal
Proceedings", "Description of Certain Indebtedness" and "Description
of Notes" fairly summarize the matters therein described;
(vi) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the knowledge of
such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened and the Registration
Statement and the Prospectus (other than the financial statements and
other financial and statistical information contained therein, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act, the
Exchange Act and the Trust Indenture Act and the respective rules
thereunder; and although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus, except as otherwise specifically dealt with in their
opinion, and relying as to materiality to a large extent upon the
opinions of officers and other representatives of the Company, no
facts have come to the attention of such counsel that have caused such
counsel to believe that at the Effective Date the Registration
Statement contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus
as of its date or the Closing Date includes any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading (in each case, other than the financial
statements and other financial and statistical information contained
therein, as to which such counsel need express no opinion);
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) no consent, approval, authorization or order of any court
or governmental agency or body
<PAGE>
11
is required for the consummation of the transactions contemplated
herein, except such as have been obtained under the Act and such as
may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities by
the Underwriters and such other approvals (specified in such opinion)
as have been obtained;
(ix) neither the execution and delivery of the Indenture, the
issue and sale of the Securities, nor the consummation of any other of
the transactions herein contemplated nor the fulfillment of the terms
hereof will conflict with, result in a breach or violation of, or
constitute a default under any law or the charter or by-laws of the
Company or the terms of any indenture or other agreement or instrument
known to such counsel and to which the Company or any of its
subsidiaries is a party or bound or any judgment, order or decree
known to such counsel to be applicable to the Company or any of its
subsidiaries of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the Company
or any of its subsidiaries; and
(x) no holders of securities of the Company have rights to the
registration of such securities under the Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of Oklahoma, the General Corporation Law of the State of Delaware or the
United States, to the extent they deem proper and specified in such
opinion, upon the opinion of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the
Underwriters and (B) as to matters of fact, to the extent they deem proper,
on certificates of responsible officers of the Company and public
officials. References to the Prospectus in this paragraph (b) include any
supplements thereto at the Closing Date.
(c) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date, with respect to the issuance and sale of the Securities, the
<PAGE>
12
Indenture, the Registration Statement, the Prospectus (together with any
supplement thereto) and other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass
upon such matters.
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board, the Vice
Chairman of the Board or the President and the principal financial or
accounting officer of the Company, dated the Closing Date, to the effect
that the signers of such certificate have carefully examined the
Registration Statement, the Prospectus, any supplement to the Prospectus
and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement that are qualified as to materiality are true and correct,
and such representations and warranties that are not so qualified are
true and correct in all material respects, on and as of the Closing
Date with the same effect as if made on the Closing Date and the
Company has complied in all material respects with all the agreements
and satisfied in all material respects all the conditions on its part
to be performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened by appropriate governmental authorities; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto),
there has been no material adverse change in the condition (financial
or other), earnings, business or properties of the Company and its
subsidiaries considered as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectus (exclusive of any supplement
thereto).
<PAGE>
13
(e) At the Execution Time and at the Closing Date, Arthur Andersen
LLP shall have furnished to the Representatives a letter or letters, dated
respectively as of the Execution Time and as of the Closing Date (which may
be in the form of a "bring down" letter), in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants within the meaning of the Act and the Exchange Act and the
respective applicable published rules and regulations thereunder and that
they have performed a review of the unaudited interim financial information
of the Company for the nine-month period ended September 30, 1996 and the
nine-month period ended September 30, 1995 in accordance with Statement of
Auditing Standards No. 71 and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules and pro forma financial statements
included or incorporated in the Registration Statement and the
Prospectus and reported on by them comply in form in all material
respects with the applicable accounting requirements of the Act and
the Ex change Act and the related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company and its
subsidiaries; their limited review in accordance with standards
established by the American Institute of Certified Public Accountants
under Statement of Auditing Standards No. 71 of the unaudited interim
financial information of the Company for the nine-month period ended
September 30, 1996 and the nine-month period ended September 30, 1995,
carrying out certain specified procedures (but not an examination in
accordance with generally accepted auditing standards) which would
not necessarily reveal matters of significance with respect to the
comments set forth in such letter; a reading of the minutes of the
meetings of the stockholders, directors and the compensation and audit
committees of the Company and the subsidiaries; and inquiries of
certain officials of the Company who have responsibility for financial
and accounting matters of the Company and its subsidiaries as to
transactions and events subsequent to
<PAGE>
14
December 31, 1995, nothing came to their attention which caused them
to believe that:
(1) any unaudited financial statements included or
incorporated in the Registration Statement and the Prospectus do
not comply in form in all material respects with applicable
accounting requirements and with the published rules and
regulations of the Commission with respect to financial
statements included or incorporated in quarterly reports on Form
10-Q under the Exchange Act; and said unaudited financial
statements are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent
with that of the audited financial statements included or
incorporated in the Registration Statement and the Prospectus; or
(2) with respect to the period subsequent to September 30,
1996, there were any changes, at a specified date not more than
five business days prior to the date of the letter, in the long-
term debt of the Company and its subsidiaries or capital stock of
the Company or decreases in the stockholders' equity of the
Company as compared with the amounts shown on the September 30,
1996, consolidated balance sheet included or incorporated in the
Registration Statement and the Prospectus, or for the period from
October 1, 1996 to such specified date there were any decreases,
as compared with the corresponding period in the preceding year
or the corresponding portion of the preceding fiscal quarter in
net revenues or income before income taxes or in total or per
share amounts of net income of the Company and its subsidiaries,
except in all instances for changes or decreases set forth in
such letter, in which case the letter shall be accompanied by an
explanation by the Company as to the significance thereof unless
said explanation is not deemed necessary by the Representatives;
(3) the information included in the Registration Statement
and Prospectus in
<PAGE>
15
response to Regulation S-K, Item 301 (Selected Financial Data),
Item 302 (Supplementary Financial Information), Item 402
(Executive Compensation) and Item 503(d) (Ratio of Earnings to
Fixed Charges) is not in conformity with the applicable
disclosure requirements of Regulation S-X;
(iii) they have performed certain other specified procedures as
a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in the Registration Statement and the Prospectus and in Exhibit
12 to the Registration Statement, including the information set forth
under the captions "Summary Financial Data" and "Selected Financial
and Operating Data" in the Prospectus, the information included or
incorporated in Items 1, 2, 6, 7 and 11 of the Company's Annual Report
on Form 10-K, incorporated in the Registration Statement and the
Prospectus, the information included in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included or
incorporated in the Company's Quarterly Reports on Form 10-Q,
incorporated in the Registration Statement and the Prospectus, and the
information included or incorporated in Items 5 and 7 of the Company's
Current Reports on Form 8-K and all amendments thereto, incorporated
in the Registration Statement and the Prospectus, agrees with the
accounting records of the Company and its subsidiaries, excluding any
questions of legal interpretation; and
(iv) on the basis of a reading of the unaudited pro forma
financial statements included or incorporated in the Registration
Statement and the Prospectus (the "pro forma financial statements");
carrying out certain specified procedures; inquiries of certain
officials of the Company who have responsibility for financial and
accounting matters; and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in
the pro
<PAGE>
16
forma financial statements, nothing came to their attention which
caused them to believe that the pro forma financial statements do not
comply in form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts
in the compilation of such statements.
References to the Prospectus in this paragraph (e) include any
supplement thereto at the date of the letter.
(f) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (e) of this Section 6 (other
than any change or decrease specified in such letter or letters delivered
at the Execution Time) or (ii) any change, or any development involving a
prospective change, in or affecting the business or properties of the
Company and its subsidiaries taken as a whole the effect of which, in any
case referred to in clause (i) or (ii) above, is, in the judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any amendment
thereof) and the Prospectus (exclusive of any supplement thereto).
(g) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act) or any notice given of any intended
or potential decrease in any such rating or of a possible change in any
such rating that does not indicate the direction of the possible change.
(h) Prior to the Closing Date, the Company shall have furnished to
the Representatives such further information, certificates and documents as
the Representatives may reasonably request.
<PAGE>
17
(i) On the Closing Date, the Company shall have furnished to the
Representatives evidence satisfactory to the Representatives of the payment
of at least $ million of the principal amount outstanding under Bank
Credit Facilities (as defined in the Indenture).
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of
such cancellation shall be given to the Company in writing or by telephone or
telefax confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore at Worldwide Plaza, 825
Eighth Avenue, New York, New York, on the Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
----------------------------------------
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally through the Representatives upon demand for all reasonable out-of-
pocket expenses (including reasonable fees and disbursements of one
Underwriters' counsel) approved by the Representatives that shall have been
incurred by them in connection with the proposed purchase and sale of the
Securities.
8. Indemnification and Contribution. (a) The Company agrees to
---------------------------------
indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of each Underwriter and each person who controls any
Underwriter within the meaning of either Section 15 of the Act or Section 20 of
the Exchange Act against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the Act,
the
<PAGE>
18
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the registration
statement for the registration of the Securities as originally filed or in any
amendment thereof, or in any Preliminary Prospectus or the Prospectus, or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
-------- -------
that (i) the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion therein and (ii) with respect to any
untrue statement or omission of a material fact made in any Preliminary
Prospectus, the indemnity agreement contained in this Section 8(a) shall not
inure to the benefit of any Underwriter (or any of the directors, officers,
employees and agents of such Underwriter or any controlling person of such
Underwriter) from whom the person asserting any such loss, claim, damage or
liability purchased the Securities concerned, to the extent that any such loss,
claim, damage or liability of such Underwriter occurs under the circumstances
where (x) the Company had previously furnished copies of the Prospectus to the
Representatives, (y) the untrue statement or omission of a material fact
contained in the Preliminary Prospectus was corrected in the Prospectus and (z)
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Securities to such person, a copy of the
Prospectus.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act, to
the same extent as the foregoing
<PAGE>
19
indemnity from the Company to each Underwriter, but only with reference to
written information relating to such Underwriter furnished to the Company by or
on behalf of such Underwriter through the Representatives specifically for
inclusion in the documents referred to in the foregoing indemnity, and will
reimburse the Company and such other persons for any legal or other expenses
reasonably incurred by the Company or such other persons in connection with
investigating or defending any such action or claim as such expenses are
incurred. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company acknowledges that the only
information furnished in writing by or on behalf of the several Underwriters to
the Company, expressly for inclusion in any Preliminary Prospectus and the
Prospectus, is that information contained (i) in the table and the first
paragraph following the table in the section of any Preliminary Prospectus and
the Prospectus entitled "Underwriting" and (ii) in the last paragraph of the
cover page of any Preliminary Prospectus and the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof; but the failure so to notify the indemnifying party (i) will not
relieve it from liability under paragraph (a) or (b) above unless and to the
extent it did not otherwise learn of such action and such failure results in the
forfeiture by the indemnifying party of substantial rights and defenses and (ii)
will not, in any event, relieve the indemnifying party from any obligations to
any indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint
counsel of the indemnifying party's choice at the indemnifying party's expense
to represent the indemnified party in any action for which indemnification is
sought (in which case the indemnifying party shall not thereafter be
responsible for the fees and expenses of any separate counsel retained by the
indemnified party or parties except as set forth below); provided, however,
-------- -------
that such counsel shall be satisfactory to the indemnified party.
Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees,
<PAGE>
20
costs and expenses of such separate counsel if (i) the use of counsel chosen by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential defendants in,
or targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding. An indemnifying party shall not be liable under this
Section 8 to any indemnified party regarding any settlement or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent is consented to by such indemnifying party, which consent
shall not be unreasonably withheld.
(d) In the event that the indemnity provided in paragraph (a), (b) or
(e) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriters agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and one or more of
the Underwriters may be subject in such proportion as is appropriate to reflect
the relative benefits received by the Company and by the Underwriters from the
offering of the
<PAGE>
21
Securities; provided, however, that in no case shall (i) any Underwriter (except
-------- -------
as may be provided in any agreement among underwriters relating to the offering
of the Securities) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by such
Underwriter hereunder or (ii) Salomon Brothers Inc in its capacity as "qualified
independent underwriter" (within the meaning of National Association of
Securities Dealers, Inc. Conduct Rule 2720) be responsible for any amount in
excess of the compensation received by Salomon Brothers Inc for acting in such
capacity. If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company and the Underwriters shall contribute in
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company and of the Underwriters in connection
with the statements or omissions which resulted in such Losses as well as any
other relevant equitable considerations. Benefits received by the Company shall
be deemed to be equal to the total net proceeds from the offering (before
deducting expenses) received by it, and benefits received by the Underwriters
shall be deemed to be equal to the total underwriting discounts and commissions,
in each case as set forth on the cover page of the Prospectus. Benefits
received by Salomon Brothers Inc in its capacity as "qualified independent
underwriter" shall be deemed to be equal to the compensation received by Salomon
Brothers Inc for acting in such capacity. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the Company or the Underwriters. The Company and the
Underwriters agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and
each director of the Company shall have the same
<PAGE>
22
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (d).
(e) Without limitation and in addition to its obligations under the
other paragraphs of this Section 8, the Company agrees to indemnify and hold
harmless Salomon Brothers Inc, its directors, officers, employees and agents and
each person who controls Salomon Brothers Inc within the meaning of either the
Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject,
insofar as such losses, claims, damages or liabilities (or action in respect
thereof) arise out of or are based upon Salomon Brothers Inc's acting as a
"qualified independent underwriter" (within the meaning of National Association
of Securities Dealers, Inc. Conduct Rule 2720) in connection with the offering
contemplated by this Agreement, and agrees to reimburse each such indemnified
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
-------- -------
any such case to the extent that any such loss, claim, damage or liability
results from the gross negligence or willful misconduct of Salomon Brothers Inc.
9. Default by an Underwriter. If any one or more Underwriters shall
--------------------------
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the principal amount of
Securities set forth opposite their names in Schedule I hereto bears to the
aggregate principal amount of Securities set forth opposite the names of all the
remaining Underwriters) the Securities which the defaulting Underwriter or
Under writers agreed but failed to purchase; provided, however, that in the
-------- -------
event that the aggregate principal amount of Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of
the aggregate principal amount of Securities set forth in Schedule I hereto, the
remaining Underwriters shall have the right to purchase all, but shall not be
under any obligation to purchase any, of the Securities, and if such
nondefaulting Underwriters do not purchase all the Securi-
<PAGE>
23
ties, this Agreement will terminate without liability to any nondefaulting
Underwriter or the Company. In the event of a default by any Underwriter as set
forth in this Section 9, the Closing Date shall be postponed for such period,
not exceeding seven days, as the Representatives shall determine in order that
the required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Company and any nondefaulting Underwriter for damages occasioned by its
default hereunder.
10. Termination. This Agreement shall be subject to termination in
------------
the absolute discretion of the Representatives, by notice given to the Company
prior to delivery of and payment for the Securities, if prior to such time (i)
trading in the Company's Common Stock shall have been suspended by the
Commission or the New York Stock Exchange or trading in securities generally on
the New York Stock Exchange shall have been suspended or limited or minimum
prices shall have been established on such Exchange, (ii) a banking moratorium
shall have been declared either by Federal or New York State authorities or
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the judgment of the Representatives, impracticable or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
-------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. Notices. All communications hereunder will be in writing and
--------
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed and confirmed to them, care of Salomon Brothers Inc, at
<PAGE>
24
Seven World Trade Center, New York, New York, 10048; or, if sent to the Company,
will be mailed, delivered or telefaxed and confirmed to it at 4200 One Williams
Center, Tulsa, OK, 74172, attention of the legal department.
13. Successors. This Agreement will inure to the benefit of and be
-----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND
---------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
15. Counterparts. This Agreement may be signed in one or more
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Canada. Each of the Underwriters hereby covenants and agrees
-------
that it will not distribute the Securities in such a manner as to require the
filing of a prospectus or similar document (excluding a private placement
offering memorandum) with respect to the Securities under the laws of any
Province or Territory in Canada.
<PAGE>
25
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
Vintage Petroleum, Inc.
By: ________________________
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
Salomon Brothers Inc
Dillon, Read & Co. Inc.
Lehman Brothers Inc.
Nesbitt Burns Securities Inc.
By: Salomon Brothers Inc
By:
____________________________
Vice President
For themselves and the other several Underwriters named in Schedule I to the
foregoing Agreement.
<PAGE>
Schedule I
Principal Amount
of Securities
Underwriters to be Purchased
------------ ----------------
Salomon Brothers Inc ................... $
Dillon, Read & Co. Inc. ................
Lehman Brothers Inc. ...................
Nesbitt Burns Securities Inc. .......... _______________
Total: $100,000,000
=================
<PAGE>
Exhibit 1.2
[Draft--01/26/97]
Vintage Petroleum, Inc.
1,500,000 Shares */
-
Common Stock
($.005 par value)
Underwriting Agreement
New York, New York
, 1997
Dillon, Read & Co. Inc.
Salomon Brothers Inc
Smith Barney Inc.
Johnson Rice & Company L.L.C.
As Representatives of the several Underwriters,
c/o Dillon, Read & Co. Inc.
535 Madison Avenue
New York, New York 10022
Dear Sirs:
Vintage Petroleum, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to the underwriters named in Schedule I hereto (the
"Underwriters"), for whom you (the "Representatives") are acting as
representatives, 1,500,000 shares of Common Stock, $.005 par value ("Common
Stock") of the Company (said shares to be issued and sold by the Company being
hereinafter called the "Underwritten Securities"). The Company also proposes to
grant to the Underwriters an option to purchase up to 225,000 additional shares
of Common Stock (the "Option Securities"; the Option Securities, together with
the Underwritten Securities, being hereinafter called the "Securities").
1. Representations and Warranties. The Company represents and warrants to,
------------------------------
and agrees with, each Underwriter as set forth below in this Section 1. Certain
terms used in this Section 1 are defined in paragraph (c) hereof.
- ---------------------
*/Plus an option to purchase up to 225,000 additional shares to cover over-
allotments.
<PAGE>
2
(a) The Company meets the requirements for use of Form S-3 under the
Securities Act of 1933 (the "Act") and has filed with the Securities and
Exchange Commission (the "Commission") a registration statement (file
number 333-19569) on such Form, including a related preliminary prospectus,
for the registration under the Act of the offering and sale of the
Securities. The Company may have filed one or more amendments thereto,
including the related preliminary prospectus, each of which has previously
been furnished to you. The Company will next file with the Commission one
of the following: (i) prior to effectiveness of such registration
statement, a further amendment to such registration statement, including
the form of final prospectus, (ii) a final prospectus in accordance with
Rules 430A and 424(b)(1) or (4), or (iii) a final prospectus in accordance
with Rules 415 and 424(b)(2) or (5). In the case of clause (ii), the
Company has included in such registration statement, as amended at the
Effective Date, all information (other than Rule 430A Information) required
by the Act and the rules thereunder to be included in the Prospectus with
respect to the Securities and the offering thereof. As filed, such
amendment and form of final prospectus, or such final prospectus, shall
contain all Rule 430A Information, together with all other such required
information, with respect to the Securities and the offering thereof and,
except to the extent the Representatives shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to
you prior to the Execution Time or, to the extent not completed at the
Execution Time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary Prospectus)
as the Company has advised you, prior to the Execution Time, will be
included or made therein. The Company agrees that it will not, without
your agreement, file a Rule 462(b) Registration Statement.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectus is first filed (if required) in accordance with
Rule 424(b) and on the Closing Date, the Prospectus (and any supplements
thereto) will, comply in all material respects with the applicable
requirements of the Act and the Securities Exchange Act of 1934 (the
"Exchange Act") and the respective rules thereunder; on the Effective
<PAGE>
3
Date, the Registration Statement did not or will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), did not or will not, and on the date of any filing
pursuant to Rule 424(b) and on the Closing Date, the Prospectus (together
with any supplement thereto) will not, include any untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
-------- --------
representations or warranties as to the information contained in or omitted
from the Registration Statement or the Prospectus (or any supplement
thereto) in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration Statement or
the Prospectus (or any supplement thereto).
(c) The terms which follow, when used in this Agreement, shall have
the meanings indicated. The term the "Effective Date" shall mean each date
that the Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective. "Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto. "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in paragraph
(a) above and any preliminary prospectus included in the Registration
Statement at the Effective Date that omits Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the Securities that is
first filed pursuant to Rule 424(b) after the Execution Time or, if no
filing pursuant to Rule 424(b) is required, shall mean the form of final
prospectus relating to the Securities included in the Registration
Statement at the Effective Date. "Registration Statement" shall mean the
registration statement referred to in paragraph (a) above, including
incorporated documents, exhibits and financial statements, as amended at
the Execution Time (or, if not effective at the Execution Time, in the form
in which it shall become effective) and, in the event any post-effective
amendment thereto or any
<PAGE>
4
Rule 462(b) Registration Statement becomes effective prior to the Closing
Date (as hereinafter defined), shall also mean such registration statement
as so amended or such Rule 462(b) Registration Statement, as the case may
be. Such term shall include any Rule 430A Information deemed to be
included therein at the Effective Date as provided by Rule 430A. "Rule
415", "Rule 424", "Rule 430A", "Rule 462" and "Regulation S-K" refer to
such rules or regulation under the Act. "Rule 430A Information" means
information with respect to the Securities and the offering thereof
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A. "Rule 462(b) Registration Statement"
shall mean a registration statement and any amendments thereto filed
pursuant to Rule 462(b) relating to the offering covered by the initial
registration statement (file number 333-___). Any reference herein to the
Registration Statement, a Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 which were filed under the Exchange
Act on or before the Effective Date of the Registration Statement or the
issue date of such Preliminary Prospectus or the Prospectus, as the case
may be; and any reference herein to the terms "amend", "amendment" or
"supplement" with respect to the Registration Statement, any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include the
filing of any document under the Exchange Act after the Effective Date of
the Registration Statement, or the issue date of any Preliminary Prospectus
or the Prospectus, as the case may be, deemed to be incorporated therein by
reference.
Any certificate signed by any officer of the Company and delivered to the
Representatives or counsel for the Underwriters in connection with the offering
of the Securities shall be deemed a representation and warranty by the Company,
as to matters covered thereby, to each Underwriter.
2. Purchase and Sale. (a) Subject to the terms and conditions and
------------------
in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from the Company, at a purchase
<PAGE>
5
price of $ per share, the amount of the Underwritten Securities set forth
opposite such Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up to
225,000 shares of Option Securities at the same purchase price per share as the
Underwriters shall pay for the Underwritten Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
the Prospectus upon written or telegraphic notice by the Representatives to the
Company setting forth the number of shares of the Option Securities as to which
the several Underwriters are exercising the option and the settlement date.
Delivery of certificates for the shares of Option Securities, and payment
therefor, shall be made as provided in Section 3 hereof. The number of shares of
the Option Securities to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the Underwritten
--------------------
Securities and the Option Securities (if the option provided for in Section 2(b)
hereof shall have been exercised on or before the third business day prior to
the Closing Date) shall be made at 10:00 AM, New York City time, on ,
1997, or such later date (not later than , 1997) as the
Representatives shall designate, which date and time may be postponed by
agreement between the Representatives and the Company or as provided in Section
9 hereof (such date and time of delivery and payment for the Securities being
herein called the "Closing Date"). Delivery of the Securities shall be made to
the Representatives for the respective accounts of the several Underwriters
against payment by the several Underwriters through the Representatives of the
purchase price thereof to or upon the order of the Company by wire transfer
payable in same-day funds; provided, that the Company shall reimburse the
--------
Representatives for the cost to
<PAGE>
6
the Representatives of providing such funds in same-day funds. Delivery of the
Underwritten Securities and the Option Securities shall be made at such location
as the Representatives shall reasonably designate at least one business day in
advance of the Closing Date and payment for such Securities shall be made at the
office of Cravath, Swaine & Moore, New York, New York. Certificates for the
Securities shall be registered in such names and in such denominations as the
Representatives may request not less than two full business days in advance of
the Closing Date.
The Company agrees to have the Securities available for inspection,
checking and packaging by the Representatives in New York, New York, not later
than 1:00 PM on the business day prior to the Closing Date.
If the option provided for in Section 2(b) hereof is exercised after
the third business day prior to the Closing Date, the Company will deliver (at
the expense of the Company) to the Representatives on the date specified by the
Representatives (which shall be within three business days after exercise of
said option), certificates for the Option Securities in such names and
denominations as the Representatives shall have requested against payment of the
purchase price thereof to or upon the order of the Company by wire transfer
payable in same-day funds; provided that the Company shall reimburse the
--------
Representatives for the cost to the Representatives of providing such funds in
same-day funds. If settlement for the Option Securities occurs after the
Closing Date, the Company will deliver to the Representatives on the settlement
date for the Option Securities, and the obligation of the Underwriters to
purchase the Option Securities shall be conditioned upon receipt of,
supplemental opinions, certificates and letters confirming as of such date the
opinions, certificates and letters delivered on the Closing Date pursuant to
Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
------------------------
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Agreements. The Company agrees with the several Underwriters that:
----------
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to
<PAGE>
7
become effective. Prior to the termination of the offering of the
Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectus or any Rule 462(b) Registration
Statement unless the Company has furnished you a copy for your review prior
to filing and will not file any such proposed amendment or supplement to
which you reasonably object. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule 424(b),
the Company will cause the Prospectus, properly completed, and any
supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed and
will provide evidence satisfactory to the Representatives of such timely
filing. The Company will promptly advise the Representatives (i) when the
Registration Statement, if not effective at the Execution Time, and any
amendment thereto, shall have become effective, (ii) when the Prospectus,
and any supplement thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration
Statement shall have been filed with the Commission, (iii) when, prior to
termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective, (iv) of
any request by the Commission for any amendment of the Registration
Statement, or any Rule 462(b) Registration Statement, or supplement to the
Prospectus or for any additional information, (v) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any proceeding
for that purpose and (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose. The Company will use its best efforts to prevent the
issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any
<PAGE>
8
material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall be
necessary to amend the Registration Statement or supplement the Prospectus
to comply with the Act or the Exchange Act or the respective rules
thereunder, the Company promptly will (i) prepare and file with the
Commission, subject to the second sentence of paragraph (a) of this Section
5, an amendment or supplement which will correct such statement or omission
or effect such compliance and (ii) supply any supplemented Prospectus to
the Representatives in such quantities as they may reasonably request.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the Representatives an earnings statement or
statements of the Company and its subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for
the Underwriters, without charge, signed copies of the Registration
Statement (including exhibits thereto) and to each other Underwriter a copy
of the Registration Statement (without exhibits thereto) and, so long as
delivery of a prospectus by an Underwriter or dealer may be required by the
Act, as many copies of each Preliminary Prospectus and the Prospectus and
any supplement thereto as the Representatives may reasonably request. The
Company will pay the expenses of printing or other production of all
documents relating to the offering.
(e) The Company will arrange, if necessary, for the qualification of
the Securities for sale under the laws of such jurisdictions as the
Representatives may designate, will maintain such qualifications in effect
so long as required for the distribution of the Securities and will pay the
fee of the National Association of Securities Dealers, Inc., in connection
with its review of the offering.
(f) The Company will not, for a period of 90 days following the
Execution Time, without the prior written consent of Dillon, Read & Co.
Inc., offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock, any other
<PAGE>
9
capital stock of the Company or any security convertible into or
exercisable or exchangeable for Common Stock or any such other capital
stock; provided, however, that the Company may (i) register the Securities
-------- -------
and the Company may sell the shares of the Securities offered in this
Offering and (ii) the Company may register and the Company may issue
securities pursuant to the Company's stock option or other benefit or
incentive plans maintained for its officers, directors or employees.
6. Conditions to the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date and any settlement date pursuant to Section
3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 PM New York City time, on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date or (ii) 12:00 Noon on the business day
following the day on which the public offering price was determined, if
such determination occurred after 3:00 PM New York City time on such date;
if filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b), the Prospectus, and any such supplement, will be
filed in the manner and within the time period required by Rule 424(b); and
no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Company shall have furnished to the Representatives the
opinion of Conner & Winters, A
<PAGE>
10
Professional Corporation, counsel for the Company, dated the Closing Date,
to the effect that:
(i) each of the Company, Vintage Marketing, Inc., Vintage
Pipeline, Inc., Vintage Gas, Inc., Vintage Petroleum International,
Inc., Vintage Petroleum Ecuador, Inc., Vintage Petroleum Argentina,
Inc., Cadipsa S.A. and Vintage Oil Argentina, Inc. (individually a
"Subsidiary" and collectively the "Subsidiaries" ) has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or
organized, with full corporate power and authority to own its properties
and conduct its business as described in the Prospectus, and is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification wherein it owns or leases material properties or conducts
material business;
(ii) all the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the Subsidiaries
are owned by the Company either directly or through wholly owned
subsidiaries free and clear of any perfected security interest and, to
the knowledge of such counsel, any other security interests, claims,
liens or encumbrances;
(iii) the Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable; the
Securities have been duly and validly authorized, and, when issued and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be fully paid and nonassessable; the Securities have
been duly authorized for listing, subject to official notice of
issuance, on the New York Stock Exchange; the
<PAGE>
11
certificates for the Securities are in valid and sufficient form; and
the holders of outstanding shares of capital stock of the Company are
not entitled to preemptive or other rights to subscribe for the
Securities;
(iv) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator involving the Company or any
of its subsidiaries of a character required to be disclosed in the
Registration Statement which is not adequately disclosed in the
Prospectus, and there is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit, which is not described or
filed as required; and the statements in the Prospectus under the
headings "Business--Legal Proceedings" and "Description of Capital
Stock" fairly summarize the matters therein described;
(v) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements thereto,
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); to the knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement
has been issued, no proceedings for that purpose have been instituted or
threatened and the Registration Statement and the Prospectus (other than
the financial statements and other financial and statistical information
contained therein as to which such counsel need express no opinion)
comply as to form in all material respects with the applicable
requirements of the Act and the Exchange Act and the respective rules
thereunder; and although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the
Prospectus, except as otherwise specifically dealt with in their
opinion, and relying as to materiality to a large extent upon the
opinions of officers and other representatives of the Company, no facts
have come
<PAGE>
12
to the attention of such counsel that have caused such counsel to
believe that at the Effective Date the Registration Statement contained
any untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus as of its date or the
Closing Date includes any untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading (in each case, other than the financial statements and other
financial and statistical information contained therein, as to which
such counsel need express no opinion);
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated herein, except such as have been obtained
under the Act and such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters and such other approvals (specified in
such opinion) as have been obtained;
(viii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of, or constitute a default under any law or the
charter or by-laws of the Company or the terms of any indenture or other
agreement or instrument known to such counsel and to which the Company
or any of its subsidiaries is a party or bound or any judgment, order or
decree known to such counsel to be applicable to the Company or any of
its subsidiaries of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the Company or
any of its subsidiaries; and
<PAGE>
13
(ix) no holders of securities of the Company have rights to the
registration of such securities under the Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of Delaware, the State of Oklahoma or the Federal laws of the United
States, to the extent they deem proper and specified in such opinion, upon
the opinion of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters and (B)
as to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. References to
the Prospectus in this paragraph (b) include any supplements thereto at the
Closing Date.
(c) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date, with respect to the issuance and sale of the Securities, the
Registration Statement, the Prospectus (together with any supplement
thereto) and other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon
such matters.
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board, the Vice
Chairman of the Board or the President and the principal financial or
accounting officer of the Company, dated the Closing Date, to the effect
that the signers of such certificate have carefully examined the
Registration Statement, the Prospectus, any supplements to the Prospectus
and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement that are qualified as to materially are true and correct, and
such representations and warranties that are not so qualified are true
and correct in all material respects, on and as of the Closing Date with
the same effect as if made on the Closing Date and the Company has
complied in all material respects with all the agreements and satisfied
in all material
<PAGE>
14
respects all the conditions on its part to be performed or satisfied at
or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge, threatened
by appropriate governmental authorities; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), there
has been no material adverse change in the condition (financial or
other), earnings, business or properties of the Company and its
subsidiaries considered as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement thereto).
(e) At the Execution Time and at the Closing Date, Arthur Andersen
LLP shall have furnished to the Representatives a letter or letters (which
may be in the form of a "bring down" letter), dated respectively as of the
Execution Time and as of the Closing Date, in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants within the meaning of the Act and the Exchange Act and the
respective applicable published rules and regulations thereunder and that
they have performed a review of the unaudited interim financial information
of the Company for the nine-month period ended September 30, 1996, and the
nine-month period ended September 30, 1995, in accordance with Statement of
Accounting Standards No. 71 and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules and pro forma financial statements
included or incorporated in the Registration Statement and the
Prospectus and reported on by them comply in form in all material
respects with the applicable accounting requirements of the Act and the
Exchange Act and the related published rules and regulations;
<PAGE>
15
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its subsidiaries; their
limited review, in accordance with standards established by the American
Institute of Certified Public Accountants under Statement of Auditing
Standards No. 71, of the unaudited interim financial information of the
Company for the nine-month period ended September 30, 1996, and the
nine-month period ended September 30, 1995, carrying out certain
specified procedures (but not an examination in accordance with
generally accepted auditing standards) which would not necessarily
reveal matters of significance with respect to the comments set forth in
such letter; a reading of the minutes of the meetings of the
stockholders, directors and the compensation and audit committees of the
Company and the subsidiaries; and inquiries of certain officials of the
Company who have responsibility for financial and accounting matters of
the Company and its subsidiaries as to transactions and events
subsequent to December 31, 1995, nothing came to their attention which
caused them to believe that:
(1) any unaudited financial statements included or
incorporated in the Registration Statement and the Prospectus do not
comply in form in all material respects with applicable accounting
requirements and with the published rules and regulations of the
Commission with respect to financial statements included or
incorporated in quarterly reports on Form 10-Q under the Exchange
Act; and said unaudited financial statements are not in conformity
with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included or incorporated in the Registration Statement
and the Prospectus;
(2) with respect to the period subsequent to September 30,
1996, there were any changes, at a specified date not more than five
business days prior to the date of the letter, in the long-term debt
of the Company and its subsidiaries or capital stock of the Company
or decreases in the stockholders'
<PAGE>
16
equity of the Company as compared with the amounts shown on the
September 30, 1996 consolidated balance sheet included or
incorporated in the Registration Statement and the Prospectus, or
for the period from October 1, 1996 to such specified date there
were any decreases, as compared with (i) the corresponding period in
the preceding year and (ii) the period July 1, 1996, through
September 30, 1996, in net revenues or income before income taxes or
in total or per share amounts of net income of the Company and its
subsidiaries, except in all instances for changes or decreases set
forth in such letter, in which case the letter shall be accompanied
by an explanation by the Company as to the significance thereof
unless said explanation is not deemed necessary by the
Representatives;
(3) the information included in the Registration Statement
and Prospectus in response to Regulation S-K, Item 301 (Selected
Financial Data), Item 302 (Supplementary Financial Information) and
Item 402 (Executive Compensation) is not in conformity with the
applicable disclosure requirements of Regulation S-K;
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in the Registration Statement and the Prospectus and in Exhibit 12
to the Registration Statement, including the information set forth under
the captions "Summary Financial Data" and "Selected Financial and
Operating Data" in the Prospectus, the information included or
incorporated in Items 1, 2, 6, 7 and 11 of the Company's Annual Report
on Form 10-K, incorporated in the Registration Statement and the
Prospectus, the information included in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included or
incorporated in
<PAGE>
17
the Company's Quarterly Reports on Form 10-Q, incorporated in the
Registration Statement and the Prospectus, and the information included
or incorporated in Items 5 and 7 of the Company's Current Reports on
Form 8-K and all amendments thereto, incorporated in the Registration
Statement and the Prospectus, agrees with the accounting records of the
Company and its subsidiaries, excluding any questions of legal
interpretation; and
(iv) on the basis of a reading of the unaudited pro forma
financial statements incorporated in the Registration Statement and the
Prospectus (the "pro forma financial statements"); carrying out certain
specified procedures; inquiries of certain officials of the Company who
have responsibility for financial and accounting matters; and proving
the arithmetic accuracy of the application of the pro forma adjustments
to the historical amounts in the pro forma financial statements, nothing
came to their attention which caused them to believe that the pro forma
financial statements do not comply in form in all material respects with
the applicable accounting requirements of Rule 11-02 of Regulation S-X
or that the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of such statements.
References to the Prospectus in this paragraph (e) include any
supplement thereto at the date of the letter.
(f) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (e) of this Section 6 or
(ii) any change, or any development involving a prospective change, in or
affecting the business or properties of the Company and its subsidiaries
the effect of which, in any case referred to in clause (i) or (ii) above,
is, in the judgment of the Representatives, so material and adverse as to
make it impractical or inadvisable to proceed with the offering or delivery
of the Securities
<PAGE>
18
as contemplated by the Registration Statement (exclusive of any amendment
thereof) and the Prospectus (exclusive of any supplement thereto).
(g) At the Execution Time, the Company shall have furnished to the
Representatives a letter substantially in the form of Exhibit A hereto from
each executive officer and director of the Company and addressed to the
Representatives, in which each such person agrees not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock, any
other capital stock of the Company or any security convertible into or
exercisable or exchangeable for Common Stock or any such other capital
stock for a period of 90 days following the Execution Time without the
prior written consent of Dillon, Read & Co. Inc., other than as set forth
in Exhibit A hereto.
(h) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act) or any notice given of any intended
or potential decrease in any such rating or of a possible change in any
such rating that does not indicate the direction of the possible change.
(i) Prior to the Closing Date, the Company shall have furnished to
the Representatives such further information, certificates and documents as
the Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of
such cancellation shall be given to the Company in writing or by telephone or
facsimile confirmed in writing.
<PAGE>
19
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore at Worldwide Plaza, 825
Eighth Avenue, New York, New York, on the Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
---------------------------------------
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally through the Representatives upon demand for all reasonable out-of-
pocket expenses (including reasonable fees and disbursements of one
Underwriters' counsel) approved by the Representatives that shall have been
incurred by them in connection with the proposed purchase and sale of the
Securities.
8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each Underwriter,
the directors, officers, employees and agents of each Underwriter and each
person who controls any Underwriter within the meaning of either Section 15
of the Act or Section 20 of the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of
them may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for
the registration of the Securities as originally filed or in any amendment
thereof, or in any Preliminary Prospectus or the Prospectus, or in any
amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that (i) the Company will not be
-------- -------
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or
<PAGE>
20
alleged omission made therein in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any
Underwriter through the Representatives specifically for inclusion therein
and (ii) with respect to any untrue statement or omission of a material
fact made in any Preliminary Prospectus, the indemnity agreement contained
in this Section 8(a) shall not inure to the benefit of any Underwriter (or
any of the directors, officers, employees and agents of such Underwriter or
any controlling person of such Underwriter) from whom the person asserting
any such loss, claim, damage or liability purchased the Securities
concerned, to the extent that any such loss, claim, damage or liability of
such Underwriter occurs under the circumstances where (x) the Company had
previously furnished copies of the Prospectus to the Representatives, (y)
the untrue statement or omission of a material fact contained in the
Preliminary Prospectus was corrected in the Prospectus and (z) there was
not sent or given to such person, at or prior to the written confirmation
of the sale of such Securities to such person, a copy of the Prospectus.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act,
to the same extent as the foregoing indemnity from the Company to each
Underwriter, but only with reference to written information relating to
such Underwriter furnished to the Company by or on behalf of such
Underwriter through the Representatives specifically for inclusion in the
documents referred to in the foregoing indemnity, and will reimburse the
Company and such other persons for any legal or other expenses reasonably
incurred by the Company or such other persons in connection with
investigating or defending any such action or claim as such expenses are
incurred. This indemnity agreement will be in addition to any liability
which any Underwriter may otherwise have. The Company acknowledges that the
only information furnished in writing by or on behalf of the several
Underwriters to the Company, expressly for inclusion in any Preliminary
Prospectus and the Prospectus, is that information contained (i) in the
table and the third paragraph following the table in the section of any
Preliminary Prospectus and the Prospectus entitled "Underwriting" and (ii)
in the last paragraph of the cover page of any Preliminary Prospectus and
the Prospectus.
<PAGE>
21
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party
(i) will not relieve it from liability under paragraph (a) or (b) above
unless and to the extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than
the indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for
the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); provided, however, that such
-------- -------
counsel shall be satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall have the right
to employ separate counsel (including local counsel), and the indemnifying
party shall bear the reasonable fees, costs and expenses of such separate
counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict
of interest, (ii) the actual or potential defendants in, or targets of, any
such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
(iii) the indemnifying party shall not have employed counsel satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party
will not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect
to any pending or threatened claim, action, suit or proceeding in respect
of which indemnification or contribution may be
<PAGE>
22
sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or
proceeding. An indemnifying party shall not be liable under this Section 8
to any indemnified party regarding any settlement or compromise or consent
to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified
parties are actual or potential parties to such claim or action) unless
such settlement, compromise or consent is consented to by such indemnifying
party, which consent shall not be unreasonably withheld.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriters agree to
contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the
Company and one or more of the Underwriters may be subject in such
proportion as is appropriate to reflect the relative benefits received by
the Company and by the Underwriters from the offering of the Securities;
provided, however, that in no case shall any Underwriter (except as may be
-------- -------
provided in any agreement among underwriters relating to the offering of
the Securities) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by such
Underwriter hereunder. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the Company and the
Underwriters shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and of the Underwriters in connection with the statements or
omissions which resulted in such Losses as well as any other relevant
equitable considerations. Benefits received by the Company shall be deemed
to be equal to the total net proceeds from the offering (before deducting
expenses) received by it, and benefits received by the Underwriters shall
be deemed to be equal to the total underwriting discounts and commissions,
in each case as set forth on the cover page of the Prospectus. Relative
fault shall be determined by reference
<PAGE>
23
to whether any alleged untrue statement or omission relates to information
provided by the Company or the Underwriters. The Company and the
Underwriters agree that it would not be just and equitable if contribution
were determined by pro rata allocation or any other method of allocation
which does not take account of the equitable considerations referred to
above. Notwithstanding the provisions of this paragraph (d), no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section
8, each person who controls an Underwriter within the meaning of either the
Act or the Exchange Act and each director, officer, employee and agent of
an Underwriter shall have the same rights to contribution as such
Underwriter, and each person who controls the Company within the meaning of
either the Act or the Exchange Act, each officer of the Company who shall
have signed the Registration Statement and each director of the Company
shall have the same rights to contribution as the Company, subject in each
case to the applicable terms and conditions of this paragraph (d).
9. Default by an Underwriter. If any one or more Underwriters shall
-------------------------
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
-------- -------
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
seven days, as the Representatives shall determine
<PAGE>
24
in order that the required changes in the Registration Statement and the
Prospectus or in any other documents or arrangements may be effected. Nothing
contained in this Agreement shall relieve any defaulting Underwriter of its
liability, if any, to the Company and any nondefaulting Underwriter for damages
occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in
-----------
the absolute discretion of the Representatives, by notice given to the Company
prior to delivery of and payment for the Securities, if prior to such time (i)
trading in the Company's Common Stock shall have been suspended by the
Commission or the New York Stock Exchange or trading in securities generally on
the New York Stock Exchange shall have been suspended or limited or minimum
prices shall have been established on such Exchange, (ii) a banking moratorium
shall have been declared either by Federal or New York State authorities or
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the judgment of the Representatives, impracticable or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective agreements,
------------------------------------------
representations, warranties, indemnities and other statements of the Company or
its officers and of the Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter or the Company or any of the officers,
directors or controlling persons referred to in Section 8 hereof, and will
survive delivery of and payment for the Securities. The provisions of Sections 7
and 8 hereof shall survive the termination or cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing and
-------
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed and confirmed to them, care of Dillon, Read & Co. Inc.,
at 535 Madison Avenue, New York, New York, 10022; or, if sent to the Company,
will be mailed, delivered or telefaxed and confirmed to it at 4200 One Williams
Center, Tulsa, Oklahoma 74172, attention of the legal department.
<PAGE>
25
13. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
--------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
15. Counterparts. This Agreement may be signed in one or more
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Canada. Each of the Underwriters hereby covenants and agrees
-------
that it will not distribute the Securities in such a manner as to require the
filing of a prospectus or similar document (excluding a private placement
offering memorandum) with respect to the Securities under the laws of any
Province or Territory in Canada.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the
<PAGE>
26
enclosed duplicate hereof, whereupon this letter and your acceptance shall
represent a binding agreement among the Company and the several Underwriters.
Very truly yours,
Vintage Petroleum, Inc.
By:
-------------------------------
(Title)
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Dillon, Read & Co. Inc.
Salomon Brothers Inc
Smith Barney Inc.
Johnson Rice & Company L.L.C.
By: Dillon, Read & Co. Inc.
By:
-----------------------------
Senior Vice President
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
<PAGE>
27
SCHEDULE I
----------
NUMBER OF SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ ----------------
Dillon, Read & Co. Inc.
Salomon Brothers Inc
Smith Barney Inc.
Johnson Rice & Company L.L.C.
------------
Total 1,500,000
============
<PAGE>
EXHIBIT 4.1
================================================================================
VINTAGE PETROLEUM, INC.
TO
THE CHASE MANHATTAN BANK
Trustee
INDENTURE
Dated as of , 1997
================================================================================
<PAGE>
CERTAIN SECTIONS OF THIS INDENTURE RELATING TO SECTIONS 310 THROUGH 318,
INCLUSIVE OF THE TRUST INDENTURE ACT OF 1939:
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE SECTION
ACT 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
----
<S> <C>
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
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
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Guarantee.................................................................... 10
Hedging Agreements........................................................... 11
Holder....................................................................... 11
Incur........................................................................ 11
Indebtedness................................................................. 11
Indenture.................................................................... 12
Interest Payment Date........................................................ 12
Interest Rate Protection Agreement........................................... 12
Investment................................................................... 12
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
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
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.......................................................... 26
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.................................................................... 27
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................................................ 28
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.............................................................. 33
SECTION 110. Separability Clause................................................................. 33
SECTION 111. Benefits of Indenture............................................................... 33
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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
ARTICLE THREE
THE SECURITIES
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
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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
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
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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
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
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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
ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES
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
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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
TESTIMONIUM..................................................................................... 104
SIGNATURE AND SEALS............................................................................. 104
ACKNOWLEDGMENT...............................................................................105,106
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<PAGE>
INDENTURE, dated as of , 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 [ ]% 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 in
the event that there is a Material Change as a result of such acquisitions,
dispositions or revisions, then 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 (i) the net book value on a date no earlier than the date of the Company's
latest annual or quarterly financial statements or (ii) 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 course of
<PAGE>
4
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 stockholders of the Company was approved by a
vote of a majority of the directors
<PAGE>
6
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 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
<PAGE>
7
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
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,
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8
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.
"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.
<PAGE>
9
"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.
"Event of Default" has the meaning specified in Section 501.
"Excess Proceeds" shall have the meaning specified in Section 1012.
<PAGE>
10
"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 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
<PAGE>
11
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 facilities issued for the
account of such Person, (iv) any
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12
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
<PAGE>
13
terms in accordance with normal trade practices and any increase in the equity
ownership in any Person resulting from retained earnings of such Person.
"Issue Date" means the date 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
<PAGE>
14
discounted future net revenues from proved oil and gas reserves 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 and Reserve Sales; and (v) Liens on
pipelines or pipeline facilities that arise by operation of law.
<PAGE>
16
"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 Securities and that
the
<PAGE>
17
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).
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18
"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 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 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
<PAGE>
19
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 million at any one time
outstanding; (g) loans made (i) to officers, directors
<PAGE>
20
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
<PAGE>
22
to withdraw an election to tender 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
<PAGE>
23
(10) 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.
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
<PAGE>
24
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 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.
<PAGE>
27
"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 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
<PAGE>
28
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 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.
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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
.....................................
[ ]% 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 [ ], 2009, and to pay interest thereon
from [ ], 1997, or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semiannually in arrears on [
] and [ ] in each year, commencing [ ], 1997, at the rate of [
]% 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 [ ] or [
] (whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for 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
[ ], 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 [ ], 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 [ ] of the years indicated:
Redemption
Year Price
---- -----------------
2002 [ ]%
2003 [ ]%
2004 [ ]%
2005 [ ]%
and thereafter, beginning [ ], 2006, at a Redemption Price equal to
100% of the principal amount, together, in the case of any such redemption, with
accrued and
<PAGE>
37
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 Indenture and their
<PAGE>
38
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 [ ]% 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,
<PAGE>
40
together with any one of the Treasurer, any Assistant 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
<PAGE>
41
surrender of the temporary Securities at the office or agency of the Company
maintained for that purpose, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor 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
<PAGE>
42
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.
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
<PAGE>
43
of a sum sufficient to cover any tax or governmental charge imposed in
connection therewith.
(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. Notwithstanding 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 therefor a
new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
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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 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 therewith.
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
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45
the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Security and the
date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal 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
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46
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.
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 convenience 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.
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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 theretofore
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
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(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
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49
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, 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 discharged 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 consecutive 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
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(D) makes a general assignment for the benefit of its creditors;
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, the
Holders of a majority
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51
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
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52
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
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.
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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;
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54
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, 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.
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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.
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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.
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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,
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notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may 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.
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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
permitted by the Trust Indenture Act, the
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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,
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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
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such successor Trustee all the rights, powers and trusts of the retiring Trustee
and shall duly assign, transfer and deliver to such successor Trustee all
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
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authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the 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.
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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 [ ]% 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 [ ] and [ ] 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 [ ] or
[ ], 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.
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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.
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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
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Worth of the Company immediately prior to the transaction or series of
transactions; and
(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
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(3) to add any additional Events of Default for the benefit of the Holders
of the Securities; or
(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,
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(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, 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.
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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
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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 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.
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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
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interest has become due and payable may be paid to the Company on Company
Request, or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, 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
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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 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 "Permitted Liens":
(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
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such transaction), provided that such Liens are not extended to other Property
of the Company;
(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;
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(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
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 refinancing
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
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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 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
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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.
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
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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
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
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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 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
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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 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
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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, (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.
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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.
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(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.
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(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
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more than 60 days prior to the Redemption Date by the Trustee, 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,
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(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.
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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.
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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
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tax law, in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Holders of 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
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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 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.
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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"):
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(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
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
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not pay the Securities for a period (a "Payment Blockage Period") commencing
upon the receipt by the Company and the Trustee of written notice of such
default from the Representative of the holders of any 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.
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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 under Article
Four
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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
<PAGE>
99
aggregate principal amount of the Securities specified in this 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 the date fixed for
the meeting (or, in the case of a meeting of Holders
<PAGE>
100
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
the right to vote, and such
<PAGE>
101
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 ...........................
By ...........................
[SEAL]
Attest:
......................................
THE CHASE MANHATTAN BANK,
as Trustee,
By ...........................
[SEAL]
Attest:
......................................
<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 [ ]th day of [ ] 1997, within my
jurisdiction, the within named __________________ who acknowledged that he is a
______________________ of Vintage Petroleum, Inc. 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.
___________________________________
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 [ ] day of [ ] 1997, within my
jurisdiction, the within named __________________ who acknowledged that he is a
_________________________ 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.
___________________________________
NOTARY PUBLIC
<PAGE>
Exhibit 5.1
[CONNER & WINTERS LETTERHEAD APPEARS HERE]
January 27, 1997
Vintage Petroleum, Inc.
4200 One Williams Center
Tulsa, Oklahoma 74172
Re: Vintage Petroleum, Inc.
Registration Statement on Form S-3
(File No. 333-19569) (the "Registration Statement")
----------------------------------------------------
Gentlemen:
We have acted as counsel for Vintage Petroleum, Inc., a Delaware
corporation (the "Company"), in connection with the proposed public offering of
up to $100,000,000 in aggregate principal amount of Senior Subordinated Notes of
the Company (the "Notes") to be issued under an Indenture to be entered into
between the Company and The Chase Manhattan Bank, as Trustee (the "Indenture").
As described in the Registration Statement, the Company is selling the Notes
pursuant to an Underwriting Agreement to be entered into between the Company and
Salomon Brothers Inc, Dillon, Read & Co. Inc., Lehman Brothers Inc. and Nesbitt
Burns Securities Inc.
In reaching the conclusions expressed in this opinion, we have (a) examined
such certificates of public officials and of corporate officers and directors
and such other documents and matters as we have deemed necessary or appropriate,
(b) relied upon the accuracy of facts and information set forth in all such
documents, and (c) assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as copies, and the authenticity of
the originals from which all such copies were made.
<PAGE>
CONNER & WINTERS
Village Petroleum, Inc.
January 27, 1997
Page 2
Based on the foregoing, we are of the opinion that the sale of the Notes
has been duly authorized and, when executed and authenticated as specified in
the Indenture and delivered to the purchasers thereof against payment of the
purchase price therefor as described in the Registration Statement, the Notes
will be validly issued and binding obligations of the Company except as limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity or
at law).
We are members of the bar of the State of Oklahoma. Our opinion expressed
above is limited to the laws of the State of Oklahoma, the corporate laws of the
State of Delaware, and the federal laws of the United States of America, and we
do not express any opinion herein concerning the laws of any other jurisdiction.
To the extent that the opinion expressed herein relates to matters governed by
the laws of the State of New York, we have assumed that the applicable law in
the State of New York is the same as the applicable law in the State of Oklahoma
in all relevant respects.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our firm in the Registration Statement and the
Prospectus covering the Notes constituting a part thereof under the caption
"Legal Matters."
Yours very truly,
CONNER & WINTERS,
A Professional Corporation
<PAGE>
Exhibit 5.2
[CONNER & WINTERS LETTERHEAD APPEARS HERE]
January 27, 1997
Vintage Petroleum, Inc.
4200 One Williams Center
Tulsa, Oklahoma 74172
Re: Vintage Petroleum, Inc.
Registration Statement on Form S-3
(File No. 333-19569) (the "Registration Statement")
---------------------------------------------------
Gentlemen:
We have acted as counsel for Vintage Petroleum, Inc., a Delaware
corporation (the "Company"), in connection with the proposed public offering of
up to one million seven hundred twenty-five thousand (1,725,000) shares of the
Company's Common Stock, $.005 par value per share (the "Shares"), to be sold by
the Company (including up to two hundred twenty-five thousand (225,000) shares
subject to an over-allotment option granted by the Company to the underwriters
offering the Shares). As described in the Registration Statement, the Company
is selling the Shares pursuant to an Underwriting Agreement (the "Underwriting
Agreement") to be entered into between the Company and Dillon, Read & Co. Inc.,
Salomon Brothers Inc, Smith Barney Inc. and Johnson Rice & Company L.L.C., as
representatives of the underwriters.
In reaching the conclusions expressed in this opinion, we have (a) examined
such certificates of public officials and of corporate officers and directors
and such other documents and matters as we have deemed necessary or appropriate,
(b) relied upon the accuracy of facts and information set forth in all such
documents, and (c) assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as copies, and the authenticity of
the originals from which all such copies were made.
<PAGE>
CONNER & WINTERS
Village Petroleum, Inc.
January 27, 1997
Page 2
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized and, when issued, delivered and paid for in accordance with the
terms and conditions of the Underwriting Agreement, will be validly issued,
fully paid and non-assessable shares of Common Stock of the Company.
We are members of the bar of the State of Oklahoma. Our opinion expressed
above is limited to the laws of the State of Oklahoma, the corporate laws of the
State of Delaware, and the federal laws of the United States of America, and we
do not express any opinion herein concerning the laws of any other jurisdiction.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our firm in the Registration Statement and the
Prospectus covering the Shares constituting a part thereof under the caption
"Legal Matters."
Yours very truly,
CONNER & WINTERS,
A Professional Corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
January 27, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated September 14,
1995, on the financial statements of CADIPSA SOCIEDAD ANONIMA as of and for
the year ended June 30, 1995, included in VINTAGE PETROLEUM, INC.'s Form 8-
K/A1 dated September 18, 1995, and to all references to our Firm included in
this registration statement.
Buenos Aires
January 27, 1997
PISTRELLI, DIAZ Y ASOCIADOS
Tulsa, Oklahoma
January 27, 1997
ARTHUR ANDERSEN LLP
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Vintage Petroleum Inc.
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated September 14,
1995, on the financial statements of CADIPSA S.A. included in VINTAGE
PETROLEUM INC.'s Form 8-K/A1 filed on September 18, 1995, and to all
references to our Firm included in this registration statement.
DELOITTE & TOUCHE
Omar R. Rolotti
Partner
Buenos Aires, Argentina
January 27, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
As Petroleum Engineers, we hereby consent to the inclusion of the
information included or incorporated by reference in this Form S-3
Registration Statement with respect to (a) the oil and gas reserves of Vintage
Petroleum, Inc., the future net revenues from such reserves, and the present
value thereof, (b) the oil reserves of Cadipsa S.A., the future net revenues
from such reserves, and the present value thereof, (c) the oil reserves of
Vintage Oil Argentina, Inc., the future net revenues from such reserves, and
the present value thereof, and (d) the oil and gas reserves of certain oil and
gas properties acquired by Vintage Petroleum, Inc. from Texaco Exploration and
Production, Inc. as described in this Form S-3 Registration Statement, the
future net revenues from such reserves, and the present value thereof, which
information has been included or incorporated by reference in this Form S-3
Registration Statement 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 S-3 Registration
Statement.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ Clarence M. Netherland
--------------------------------------
Clarence M. Netherland
Chairman
Dallas, Texas
January 27, 1997
<PAGE>
Exhibit 99
SECOND AMENDMENT TO CREDIT AGREEMENT
dated as of January 9, 1997
among
VINTAGE PETROLEUM, INC.,
as the Borrower,
and
BANK OF MONTREAL,
acting through certain U.S. branches or agencies,
as the Agent for the Lenders
and
CERTAIN COMMERCIAL LENDING INSTITUTIONS,
as the Lenders
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of January 9, 1997 (as
may be amended, restated, supplemented or otherwise modified from time to time,
this "Second Amendment"), is among VINTAGE PETROLEUM, INC., a Delaware
----------------
corporation (the "Borrower"), the various financial institutions as are or may
--------
become parties hereto (collectively, the "Lenders"), and BANK OF MONTREAL,
-------
acting through certain of its U.S. branches or agencies ("Bank of Montreal"), as
----------------
agent (the "Agent") for the Lenders.
-----
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower and Bank of Montreal (in its capacity as Agent and as
Lender) have heretofore entered into that certain Credit Agreement, dated as of
August 29, 1996, as amended (as amended, the "Credit Agreement"); and
----------------
WHEREAS, the Borrower, the Agent and the Lenders now intend to amend the
Credit Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, each of the Borrower, the Agent and the Lenders
agree as follows:
SECTION 1. Defined Terms. Terms defined in the Credit Agreement are used
-------------
in this Second Amendment with the same meaning, unless otherwise indicated.
SECTION 2. Amendment to Credit Agreement.
-----------------------------
A. Section 7.2.2 is hereby amended by adding the following clause (r) at
the end of such Section before the period:
"; and (r) Indebtedness of the Borrower in an aggregate outstanding amount
not to exceed $150,000,000 in the aggregate, plus premium and interest to
be issued on or before March 31, 1997; provided such Indebtedness is
--------
subordinated, upon terms satisfactory to the Agent and the Required
Lenders, in right of payment to the payment in full in cash of all
Obligations".
B. Section 7.2.11 is hereby amended (i) by replacing the reference to
"clause (b) of Section 7.2.2" with "clauses (b) or (r) of Section 7.2.2" and
---------- ------------- ----------- --- -------------
(ii) by replacing each reference to "clause (p) of Section 7.2.2" with "clauses
---------- ------------- -------
(p) or (r) of Section 7.2.2".
- --- --- -------------
SECTION 3. The Borrowing Base. As of the date of the issuance of the
------------------
subordinated Indebtedness referred to in Section 7.2.2(r), (i) the U.S.
Borrowing Base shall be $225,000,000, (ii) the Argentina Borrowing Base shall be
$45,000,000, and (iii) the Aggregate Borrowing Base shall be $270,000,000;
provided that the U.S. Borrowing Base and the Aggregate Borrowing Base
- --------
established pursuant to the foregoing (i) and (iii) shall each be reduced as of
the issuance of such subordinated Indebtedness by an amount equal to the amount,
if any, by which the principal amount of such subordinated Indebtedness is in
excess of $100,000,000.
<PAGE>
SECTION 4. Reaffirmation of Credit Agreement. This Second Amendment shall
---------------------------------
be deemed to be an amendment to the Credit Agreement, and the Credit Agreement,
as amended hereby, is hereby ratified, approved and confirmed in each and every
respect. All references to the Credit Agreement in any other document,
instrument, agreement or writing shall hereafter be deemed to refer to the
Credit Agreement as amended hereby.
SECTION 5. Severability. Any provision of this Second Amendment, the
------------
Credit Agreement as amended by this Second Amendment or any other Loan Document
which is prohibited or unenforceable in any jurisdiction shall, as to such
provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Second Amendment, the Credit Agreement as amended by this Second Amendment
or such Loan Document or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 6. Headings. The various headings of this Second Amendment are
--------
inserted for convenience only and shall not affect the meaning or interpretation
of this Second Amendment or any provisions hereof or thereof.
SECTION 7. Execution in Counterparts, Effectiveness, etc. This Second
----------------------------------------------
Amendment may be executed by the parties hereto in several counterparts, each of
which shall be executed by the different parties on different counterparts and
be deemed to be an original and all of which shall constitute together but one
and the same Second Amendment.
SECTION 8. Governing Law; Entire Agreement. THIS SECOND AMENDMENT SHALL
-------------------------------
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF ILLINOIS. This Second Amendment constitutes the entire understanding
among the parties hereto with respect to the subject matter hereof and
supersedes any prior agreements, written or oral, with respect thereto.
THIS WRITTEN SECOND AMENDMENT REPRESENTS THE FINAL AGREEMENT AMONG THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
SECTION 9. Successors and Assigns. This Second Amendment shall be binding
----------------------
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that (i) the Borrower may not assign
-------- -------
or transfer its rights or obligations hereunder without the prior written
consent of the Agent and all Lenders; and (ii) the rights of sale, assignment
and transfer of the Lenders are subject to Section 10.11 of the Credit
-------------
Agreement.
SECTION 10. Forum Selection and Consent to Jurisdiction. ANY LITIGATION
-------------------------------------------
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS SECOND
AMENDMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS SECOND AMENDMENT OR ANY OTHER
LOAN DOCUMENT, OR ANY COURSE OF
2
<PAGE>
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE AGENT, THE LENDERS OR THE BORROWER MAY BE BROUGHT AND MAINTAINED IN THE
COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE
PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE
BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED
MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF
ILLINOIS. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE
TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED
TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN
AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE
BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS
UNDER THIS SECOND AMENDMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS SECOND
AMENDMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 11. Waiver of Jury Trial. THE AGENT, THE LENDERS AND THE
--------------------
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS SECOND AMENDMENT, THE CREDIT
AGREEMENT AS AMENDED BY THIS SECOND AMENDMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER. THE BORROWER ACKNOWLEDGES
AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS
PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A
PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE
LENDERS ENTERING INTO THIS SECOND AMENDMENT, THE CREDIT AGREEMENT AS AMENDED BY
THIS SECOND AMENDMENT AND EACH SUCH OTHER LOAN DOCUMENT.
3
<PAGE>
IN WITNESS WHEREOF, the requisite parties hereto have caused this Second
Amendment to be executed by their respective officers thereunto duly authorized
as of the day and year first above written and shall be effective as of such
date.
VINTAGE PETROLEUM, INC.,
as Borrower
By: /s/ William C. Barnes
-----------------------------------------------
William C. Barnes,
Executive Vice President and
Chief Financial Officer
BANK OF MONTREAL
acting through its U.S. branches
and agencies, including initially
its Chicago, Illinois branch,
as Agent
By: /s/ Michael P. Stuckey
-----------------------------------------------
Name: Michael P. Stuckey
Title: Managing Director, U.S. Corporate Banking
LENDERS
-------
BANK OF MONTREAL, as Lender
By: /s/ Michael P. Stuckey
-----------------------------------------------
Name: Michael P. Stuckey
Title: Managing Director, U.S. Corporate Banking
THE CHASE MANHATTAN BANK,
as Lender and Lead Manager
By: /s/ Ronald Potter
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Name: Ronald Potter
Title: Managing Director
4
<PAGE>
NATIONSBANK OF TEXAS, N.A.,
as Lender and Lead Manager
By: /s/ Denise Ashford Smith
-----------------------------------------------
Name: Denise Ashford Smith
Title: SVP
SOCIETE GENERALE, SOUTHWEST AGENCY,
as Lender and Lead Manager
By: /s/ Richard A. Erbert
-----------------------------------------------
Name: Richard A. Erbert
Title: Vice President
MELLON BANK, N.A.,
as Lender
By: /s/ Marc Cuenod, Jr.
-----------------------------------------------
Name: Marc Cuenod, Jr.
Title: First Vice President
ABN AMRO BANK, N.V.,
as Lender
By: /s/ Mike Oakes
-----------------------------------------------
Name: Mike Oakes
Title: Vice President
By: /s/ N. Gene Shiels
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Name: N. Gene Shiels
Title: Vice President
5
<PAGE>
BANK OF OKLAHOMA,
NATIONAL ASSOCIATION
as Lender
By: /s/ Michael M. Coats
-----------------------------------------------
Name: Michael M. Coats
Title: Vice President
BANQUE PARIBAS,
as Lender
By: /s/ Barton D. Schouest
-----------------------------------------------
Name: Barton D. Schouest
Title: Group Vice President
By: /s/ Brian Malone
-----------------------------------------------
Name: Brian Malone
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Lender
By: /s/ Dixon Schultz
-----------------------------------------------
Name: Dixon Schultz
Title: Vice President
UNION BANK OF CALIFORNIA,
as Lender
By: /s/ Katie Murray
-----------------------------------------------
Name: Katie Murray
Title: Vice President
6
