<PAGE> 1
BENTON OIL AND GAS COMPANY
OFFER TO EXCHANGE ITS 11 5/8% SENIOR NOTES DUE 2003
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 FOR ANY AND ALL OF
ITS OUTSTANDING 11 5/8% SENIOR NOTES DUE 2003
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON AUGUST 23, 1996, UNLESS EXTENDED.
Benton Oil and Gas Company, a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange up to $125 million aggregate
principal amount of its 11 5/8% Senior Notes due 2003 (the "New Notes"),
pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like principal amount of its outstanding
11 5/8% Senior Notes due 2003 (the "Old Notes"), issued on May 2, 1996, of which
$125 million aggregate principal amount is outstanding.
The terms of the New Notes are identical in all material respects to the terms
of the Old Notes, except that (i) the New Notes have been registered under the
Securities Act of 1933, as amended (the "Securities Act") and therefore will not
be subject to certain restrictions on transfer applicable to the Old Notes, will
not contain certain legends relating thereto and will not be entitled to
registration rights, and (ii) the New Notes will not provide for any increase in
the interest rate thereon. In that regard, the Old Notes provide that if (i) a
registration statement relating to the Exchange Offer is not filed with the
Securities and Exchange Commission on or prior to July 1, 1996, (ii) the
registration statement for the Exchange Offer is not declared effective on or
prior to July 31, 1996, or (iii) the Exchange Offer is not consummated or a
registration statement with respect to resale of the Old Notes is not declared
effective on or prior to August 30, 1996, then additional interest (in addition
to the interest otherwise due on the Old Notes) will accrue at an annual rate of
0.50% on the Old Notes from May 1, 1996. See "Description of the Old Notes." The
New Notes are being offered for exchange in order to satisfy certain obligations
of the Company under the Registration Rights Agreement dated as of May 2, 1996
(the "Registration Rights Agreement") between the Company and the Initial
Purchaser (as defined herein) of the Old Notes. The New Notes will be issued
under the same Indenture (as defined herein) as the Old Notes and the New Notes
and the Old Notes will constitute a single series of debt securities under the
Indenture. In the event that the Exchange Offer is consummated, any Old Notes
which remain outstanding after consummation of the Exchange Offer and the New
Notes issued in the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding principal amount of Notes (as defined herein) have taken certain
actions or exercise certain rights under the Indenture. The New Notes and the
Old Notes are collectively referred to herein as the "Notes" See "Description of
the New Notes" and "Description of the Old Notes."
Interest on the New Notes is payable semi-annually on May 1 and November 1 of
each year, (each, an "Interest Payment Date"), commencing on the first such date
following the original issuance date of the New Notes. The New Notes will mature
on May 1, 2003. The New Notes are not entitled to any sinking fund. The New
Notes will be redeemable at the option of the Company, in whole or in part, at
any time on or after May 1, 2000, at the redemption prices set forth herein,
together with accrued and unpaid interest to the redemption date. The Company
may also redeem at its option at any time prior to May 1, 1999 up to 25% of the
aggregate principal amount of the Notes then outstanding with the proceeds of
one or more public offerings of certain equity securities at a redemption price
equal to 111.625% of the principal amount of such Notes, plus accrued and unpaid
interest to the redemption date; provided that at least $93.75 million in
aggregate principal amount of Notes remains outstanding immediately after giving
effect to such redemption.
The New Notes will be senior unsecured obligations of the Company and will rank
senior in right of payment to all existing and future Subordinated Indebtedness
(as defined) and pari passu with all other Senior Indebtedness (as defined) of
the Company. The New Notes will be effectively subordinated to all liabilities
of the Company's subsidiaries and all secured indebtedness of the Company.
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN RISK FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE
EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is July 12, 1996.
<PAGE> 2
(Cover page continued)
At March 31, 1996, $37.2 million of consolidated indebtedness and trade payables
would have been liabilities of the Company's subsidiaries or secured
indebtedness of the Company and ranked effectively senior to the Notes and the
Company would have had $6.4 million of outstanding indebtedness and trade
payables that would have ranked pari passu with the Notes. See "Capitalization"
and "Description of the New Notes -Ranking."
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Securities and Exchange
Commission (the "Commission") as set forth in certain interpretive letters
addressed to third parties in other transactions. However, the Company has not
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance, and subject to the two immediately following
sentences, the Company believes that the New Notes issued pursuant to this
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business and that such holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Notes. However, any holder of Old Notes who is an "affiliate" of the
Company or who intends to participate in the Exchange Offer for the purpose of
distributing New Notes, or any broker-dealer who purchased Old Notes from the
Company to resell pursuant to Rule 144A under the Securities Act ("Rule 144A")
or any other available exemption under the Securities Act, (a) will not be able
to rely on the interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in the above-mentioned interpretive letters,
(b) will not be permitted or entitled to tender such Old Notes in the Exchange
Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Notes unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer holds Old
Notes acquired for its own account as a result of market-making or other trading
activities and exchanges such Old Notes for New Notes, then such broker-dealer
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in the
Exchange Offer will be required to represent that (i) it is not an "affiliate"
of the Company, (ii) any New Notes to be received by it are being acquired in
the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company believes that broker-dealers who acquired Old
Notes for their own accounts, as a result of market-making activities or other
trading activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
New Notes received in exchange for Old Notes where such Old Notes were acquired
by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New Notes
for a period ending 180 days after the Expiration Date referred to below
(subject to extension under certain limited circumstances described below) or,
if earlier, when all such New Notes have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." Any Participating Broker-Dealer who
is an "affiliate" of the Company may not rely on such interpretive letters and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. See "The Exchange
Offer -- Resales of New Notes."
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of
2
<PAGE> 3
(Cover page continued)
New Notes pursuant to this Prospectus until the Company has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be. If the Company gives such notice to suspend the
sale of the New Notes, it shall extend the 180-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Notes by the number of days during the period
from and including the date of the giving of such notice to and including the
date when Participating Broker-Dealers shall have received copies of the amended
or supplemented Prospectus necessary to permit resales of the New Notes or to
and including the date on which the Company has given notice that the sale of
New Notes may be resumed, as the case may be.
The New Notes will be a new issue of securities for which there currently is no
market. Although the Initial Purchaser has informed the Company that it
currently intends to make a market in the New Notes, it is not obligated to do
so, and any such market making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the New Notes. The Company currently does not intend to apply for
listing of the New Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject to
the same limitations applicable thereto under the Indenture (except for those
rights which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the holders of Old Notes will continue to be
subject to the existing restrictions upon transfer thereof and the Company will
have no further obligation to such holders to provide for registration under the
Securities Act of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Notes could be adversely affected. See "Summary -- Certain
Consequences of a Failure to Exchange Old Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
Old Notes may be tendered for exchange on or prior to 5:00 p.m., New York City
time, on August 23, 1996 (such time on such date being hereinafter called the
"Expiration Date"), unless the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended). Tenders of Old Notes may be withdrawn at
any time on or prior to the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain events and
conditions which may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement. Old Notes may be tendered in whole or in part
in a principal amount of $1,000 and integral multiples thereof. The Company has
agreed to pay all expenses of the Exchange Offer. See "The Exchange
Offer -- Fees and Expenses." Each New Note will bear interest from the most
recent date to which interest has been paid or duly provided for on the Old Note
surrendered in exchange for such New Note or, if no such interest has been paid
or duly provided for on such Old Note, from May 1, 1996. Holders of the Old
Notes whose Old Notes are accepted for exchange will not receive accrued
interest on such Old Notes for any period from and after the last Interest
Payment Date to which interest has been paid or duly provided for on such Old
Notes prior to the original issue date of the New Notes or, if no such interest
has been paid or duly provided for, will not receive any accrued interest on
such Old Notes, and will be deemed to have waived the right to receive any
interest on such Old Notes accrued from and after such Interest Payment Date or,
if no such interest has been paid or duly provided for, from and after May 1,
1996.
Any waiver, extension or termination of the Exchange Offer will be publicly
announced by the Company through a release to the Dow Jones News Service and as
otherwise required by applicable law or regulations.
This Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders of Old Notes as of July 23, 1996.
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. No dealer-manager is being used in connection with this
Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
3
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Summary ... 5
Risk Factors ... 16
Use of Proceeds ... 20
Capitalization ... 21
Selected Consolidated Financial Data... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ... 23
Business ... 30
Management ... 41
Exchange Offer ... 44
Description of Outstanding
Indebtedness ................. 50
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Description of the New Notes ... 52
Description of the Old Notes ... 71
Certain United States Federal Income
Tax Considerations ... 71
Plan of Distribution ... 72
Legal Matters ... 72
Experts ... 73
Available Information ... 73
Incorporation of Certain Documents by
Reference ... 73
Glossary ... 74
</TABLE>
4
<PAGE> 5
SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere, or
incorporated by reference, in this Prospectus. Unless the context requires
otherwise, "Benton" or the "Company" refers to Benton Oil and Gas Company and
its subsidiaries. Capitalized terms in this summary under the caption "The
Exchange Offer" and "The New Notes" and not otherwise defined are defined under
the caption "Description of the New Notes -- Certain Definitions." See
"Glossary" for the definition of certain oil and gas terms used herein.
THE COMPANY
GENERAL
Benton Oil and Gas Company is an independent energy company which has been
engaged in the development and production of oil and gas properties since 1989.
Although originally active only in the United States, the Company has developed
significant interests in Venezuela and Russia, and recently sold substantially
all of its remaining United States oil and gas interests. The Company's
operations are conducted principally through its 80%-owned Venezuelan
subsidiary, Benton-Vinccler, C.A. ("Benton-Vinccler"), which operates in the
South Monagas Unit in Venezuela, and its 34%-owned Russian joint venture,
GEOILBENT, which operates in the North Gubkinskoye Field in Siberia, Russia.
As of December 31, 1995, the Company had total assets of $214.8 million ($234.9
million at March 31, 1996), total estimated proved reserves of 96,212 MBOE, and
a standardized measure of discounted future net cash flow, before income taxes,
for total proved reserves of $372.3 million. For the year ended December 31,
1995 and the three months ended March 31, 1996, the Company had total revenues
of $65.1 million and $32.9 million, respectively and net income of $10.6 million
and $6.3 million, respectively.
The Company has been successful in increasing reserves, production, revenues and
earnings during the last two years. From year-end 1993 through 1995, estimated
proved reserves increased from 42,785 MBOE to 96,212 MBOE, and net production
increased from a total of 519 MBOE in 1993 to 6,647 MBOE in 1995. As production
has increased over this period, average lifting costs per Bbl have declined from
$7.26 to $1.19 in Venezuela, and from $16.22 to $5.63 in Russia. Between 1993
and 1995, the Company's annual revenues increased from $7.5 million to $65.1
million. During the same period, the Company's EBITDA (as defined in the
Indenture) increased from $0.5 million to $32.4 million. See "--Summary
Consolidated Financial Information."
The following table summarizes the Company's financial operating data, proved
reserves and production activity in Venezuela and Russia for each of the three
years ended December 31:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
VENEZUELA(1) RUSSIA(2)
--------------------------------- ---------------------------------
Dollars in thousands 1993 1994 1995 1993 1994 1995(3)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Oil and Gas Revenues $ 1,333 $21,472 $49,174 $ 324 $ 3,513 $6,016
Expenses(4) 1,394 8,806 17,876 558 3,670 4,276
------- ------- ------- ------- ------- -------
Results of Operations from Oil
and Gas Producing Activities $ (61) $12,666 $31,298 $ (234) $ (157) $1,740
======= ======= ======= ======= ======= ========
Proved Reserves (MBOE) 19,389 60,707 73,593 10,121 17,540 22,618
Average Daily Production (BOE) 440 6,902 14,949 77 806 1,345
</TABLE>
- ---------------
(1) Includes 100% of the reserve information, production activity and financial
data, without deduction for minority interest. All Venezuelan reserves are
attributable to an operating service agreement between Benton-Vinccler and
Lagoven, S.A. ("Lagoven") an affiliate of the national oil company,
Petroleos de Venezuela, S.A. ("PdVSA"), under which all mineral rights are
owned by the Government of Venezuela. See "Business -- South Monagas Unit,
Venezuela" and "-- Reserves."
(2) The Company's Russian operations are conducted through GEOILBENT, which is
only 34%-owned by the Company and, consequently, does not qualify as a
Restricted Subsidiary as defined in the Indenture. Accordingly, for purposes
of the Indenture, the Company's Russian operations will be excluded from the
calculation of covenants and Oil and Gas Reserve Estimate, as defined. See
"Description of the New Notes -- Certain Covenants."
(3) The financial information related to Russia and included in the 1995
presentation contains information for the nine months ended September 30,
1995, the end of the fiscal period for GEOILBENT. See Note 15 to the
Company's Consolidated Financial Statements.
(4) Expenses include lease operating costs and production taxes and depletion.
5
<PAGE> 6
BUSINESS STRATEGY
The Company's business strategy is to identify and exploit new oil and gas
reserves in under-developed areas while seeking to minimize the associated risk
of such activities. Specifically, the Company endeavors to minimize risk by
employing the following strategies in its business activities: (i) seek new
reserves in areas of low geologic risk; (ii) use proven advanced technology in
both exploration and development to maximize recovery; (iii) establish a local
presence through joint venture partners and the use of local personnel; (iv)
commit capital in a phased manner to limit total commitments at any one time;
and (v) reduce foreign exchange risks through receipt of revenues in U.S.
currency.
- - SEEK NEW RESERVES IN AREAS OF LOW GEOLOGIC RISK. The Company has had
significant success in identifying under-developed reserves in the U.S. and
internationally. In particular, the Company has notable experience and expertise
in seeking and developing new reserves in countries where perceived potential
political and operating difficulties have sometimes discouraged other energy
companies from competing. As a result, the Company has established operations in
Venezuela and Russia which have significant reserves that have been acquired and
developed at relatively low costs. The Company is seeking similar opportunities
in other countries and areas which it believes have high potential.
- - USE OF PROVEN ADVANCED TECHNOLOGY IN BOTH EXPLORATION AND DEVELOPMENT. The
Company's use of 3-D seismic technology, in which a three dimensional image of
the earth's subsurface is created through the computer interpretation of seismic
data, combined with its experience in designing the seismic surveys and
interpreting and analyzing the resulting data, allow for a more detailed
understanding of the subsurface than do conventional surveys. Such technology
contributes significantly to field appraisal, development and production. The
3-D seismic information, in conjunction with subsurface geologic data from
previously drilled wells, is used by the Company's experienced in-house
technical team to identify previously undetected reserves. The 3-D seismic
information can also be used to guide drilling on a real-time basis, and has
been especially helpful in the horizontal drilling done in Venezuela in order to
take advantage of oil-trapping faults.
- - ESTABLISH A LOCAL PRESENCE THROUGH JOINT VENTURE PARTNERS AND THE USE OF LOCAL
PERSONNEL. The Company has sought to establish a local presence where it does
business to facilitate stronger relationships with local government and labor
through joint venture arrangements with local partners. Moreover, the Company
employs almost exclusively local personnel to run foreign operations both to
take advantage of local knowledge and experience and to minimize cost. These
efforts have created an expertise within Company management in forming effective
foreign partnerships and operating abroad. The Company believes that it has
gained access to new development opportunities as a result of its reputation as
a dependable partner.
- - COMMIT CAPITAL IN A PHASED MANNER TO LIMIT TOTAL COMMITMENTS AT ANY ONE
TIME. While the Company typically has agreed to a minimum capital expenditure or
development commitment at the outset of new projects, expenditures to fulfill
these commitments are phased over time. In addition, the Company seeks, where
possible, to use internally generated funds for further capital expenditures and
to invest in projects which provide the potential for an early return to the
Company.
- - REDUCE FOREIGN EXCHANGE RISKS. The Company seeks to reduce foreign currency
exchange risks by providing for the receipt of revenues by the Company in U.S.
dollars while most operating costs are incurred in local currency. Pursuant to
the operating agreement between the Company's Venezuelan subsidiary and the
state oil company, the operating fees earned by the Company are paid directly to
the Company's bank account in the U.S. in U.S. dollars. GEOILBENT receives
revenues from export sales in U.S. dollars paid to its account in Moscow. As the
Company expands internationally, it will seek to establish similar arrangements
for new operations.
THE VENEZUELAN OPERATIONS
South Monagas Unit
In July 1992, the Company and Venezolana de Inversiones y Construcciones
Clerico, C.A. ("Vinccler"), a Venezuelan construction and engineering company,
signed a 20-year operating service agreement with Lagoven to reactivate and
further develop the Uracoa, Tucupita and Bombal Fields, which are a part of the
South Monagas Unit. The oil and gas operations are conducted by Benton-Vinccler,
the Company's 80%-owned subsidiary. Under the terms of the operating service
agreement, Benton-Vinccler is a contractor for Lagoven and is responsible for
overall operations of the South Monagas Unit. Benton-Vinccler invoices Lagoven
each quarter based on Bbls of oil accepted by Lagoven during the quarter, using
quarterly adjusted contract service fees per Bbl, and receives payments from
Lagoven in U.S. dollars deposited directly into a U.S. bank account.
During March 1996, a total of approximately 50 wells were producing an average
of approximately 31.5 MBbls of oil per day in the Uracoa Field. Since 1992, 14
previously drilled wells have been reactivated and 42 new wells have been
drilled in the Uracoa Field, with 41, or 98%, completed and placed on
production. At December 31, 1995, proved reserves attributable to the Company's
Venezuelan operations were 73,593 MBOE, which represented approximately 76% of
the Company's proved reserves. During 1996, Benton-Vinccler plans to drill
approximately 7 vertical and 26 horizontal wells, 2 injection wells and one
6
<PAGE> 7
step-out well adjacent to the Uracoa Field at an anticipated cost of $40-45
million. In addition, Benton-Vinccler intends to expand the capacity of its
production facilities during 1996 at an anticipated cost of $21 million.
Before becoming inactive, Tucupita had been substantially developed and
produced; relatively few wells had been drilled at Uracoa and Bombal.
Benton-Vinccler intends to evaluate the potential of the Tucupita Field in 1996
by drilling a pilot oil well. Benton-Vinccler currently plans to reactivate and
develop the Bombal Field beginning in 1998.
Delta Centro Block
In January 1996, the Company and its bidding partners, Louisiana Land and
Exploration ("LL&E") and Norcen Energy Company ("Norcen"), were awarded the
right to explore and develop the Delta Centro Block in Venezuela. The Delta
Centro Block consists of approximately 2,100 square kilometers (526,000 acres)
located in the delta of the Orinoco River in the eastern part of Venezuela.
Although no significant exploratory activity has been conducted in the block,
PdVSA has estimated that the area may contain recoverable reserves of as much as
820 MMBbls, and may be capable of producing up to 160 MBbls of oil per day. The
general area of Venezuela in which the Delta Centro Block is located is known to
be a significant source of hydrocarbons, evidenced by the Orinoco tar sands to
the south and the recently discovered El Furrial light oil trend to the north.
The contract requires a minimum exploration work program consisting of
completing a 1,300 kilometer seismic survey and drilling three wells to depths
of 12,000 to 18,000 feet within five years. The Company will have a 30% interest
in the exploration venture, with LL&E and Norcen each owning a 35% interest,
with possible subsequent significant participation in development by an
affiliate of PdVSA. See "Business -- Delta Centro Block, Venezuela -- General."
THE RUSSIAN OPERATIONS
The Company operates in Russia through its 34% interest in the GEOILBENT joint
venture. The Company's partners in this venture are the local exploration
company, Purneftegasgeologia, and the local production company, Purneftegas,
each of which owns a 33% interest. GEOILBENT develops, produces and markets oil
from the North Gubkinskoye Field in the West Siberia region of Russia, located
approximately 2,000 miles northeast of Moscow. Before GEOILBENT commenced its
operations, North Gubkinskoye was one of the largest oil and gas fields in the
region not under commercial production.
Production from the field is delivered via the pipeline network owned by
Transneft, the state oil pipeline monopoly, to various points on the western
border of Russia. During 1995, the majority of GEOILBENT's crude sales were made
to purchasers in Germany. All export sales are paid in U.S. dollars directly
into GEOILBENT's account in Moscow. During March 1996, approximately 40 wells
were producing an average of approximately 8.4 MBbls of oil per day.
RECENT DEVELOPMENTS
On April 12, 1996, the Company sold to Shell Offshore Inc. ("Shell")
substantially all of its U.S. properties, including its interests in the West
Cote Blanche Bay, Rabbit Island and Belle Isle Fields in Louisiana, for a
purchase price of $35.4 million, with the sale effective as of December 31, 1995
(the "U.S. Property Sale"). The 1995 and 1996 consolidated financial data set
forth herein includes the results of operations from these properties. See Note
14 to the Company's Consolidated Financial Statements. Because the properties
were held for sale at December 31, 1995, the Company's reserve report excludes
all reserves attributable to these properties.
On April 22, 1996, the Venezuelan government announced the lifting of controls
on foreign exchange transactions, having announced the lifting of controls on
interest rates one week earlier. The Venezuelan government also announced a $1.4
billion preliminary loan accord with the International Monetary Fund. Although
these actions have led to the devaluation of the bolivar and a rise in interest
rates and are likely to lead to temporary increases in inflation, they are
generally viewed as likely to have a positive effect in the long term. Upon the
announcement, both the Venezuelan stock and bond markets showed strong gains and
it is expected that additional funds will be made available soon by the World
Bank and the Inter-American Development Bank.
7
<PAGE> 8
THE EXCHANGE OFFER
<TABLE>
<S> <C>
THE EXCHANGE OFFER........................... Up to $125 million aggregate principal amount of New
Notes are being offered in exchange for a like
aggregate principal amount of Old Notes. The Company
is making the Exchange Offer in order to satisfy its
obligations under the Registration Rights Agreement
relating to the Old Notes. For a description of the
procedures for tendering Old Notes, see "The Exchange
Offer -- Procedures for Tendering Old Notes."
EXPIRATION DATE.............................. 5:00 p.m., New York City time, on August 23, 1996
(such time on such date being hereinafter called the
"Expiration Date") unless the Exchange Offer is
extended by the Company (in which case the term
"Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended). Any waiver,
extension or termination of the Exchange Offer will be
publicly announced by the Company through a release to
the Dow Jones News Service and as otherwise required
by applicable law or regulations. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
CERTAIN CONDITIONS TO THE EXCHANGE OFFER..... The Exchange Offer is subject to certain conditions.
The Company reserves the right in its sole and
absolute discretion, subject to applicable law, at any
time and from time to time, (i) to delay the
acceptance of the Old Notes for exchange, (ii) to
terminate the Exchange Offer if certain specified
conditions have not been satisfied, (iii) to extend
the Expiration Date of the Exchange Offer and retain
all Old Notes tendered pursuant to the Exchange Offer,
subject, however, to the right of holders of Old Notes
to withdraw their tendered Old Notes, or (iv) to waive
any condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments" and
"-- Certain Conditions to the Exchange Offer."
WITHDRAWAL RIGHTS............................ Tenders of Old Notes may be withdrawn at any time on
or prior to 5:00 p.m., New York City time on the
Expiration Date by delivering a written notice of such
withdrawal to the Exchange Agent in conformity with
certain procedures set forth below under "The Exchange
Offer -- Withdrawal Rights."
PROCEDURES FOR TENDERING OLD NOTES........... Tendering holders of Old Notes must complete and sign
a Letter of Transmittal in accordance with the
instructions contained therein and forward the same by
mail, facsimile or hand delivery, together with any
other required documents, to the Exchange Agent (as
defined below) at the address set forth herein by 5:00
p.m. New York City time on the Expiration Date, either
with the Old Notes to be tendered or in compliance
with the specified procedures for guaranteed delivery
of Old Notes. Certain brokers, dealers, commercial
banks, trust companies and other nominees may also
effect tenders by book-entry transfer. Holders of Old
Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish to
tender Old Notes pursuant to the Exchange Offer. See
"The Exchange Offer -- Procedures for Tendering Old
Notes." Letters of Transmittal and certificates
representing Old Notes should not be sent to the
Company. Such documents should only be sent to the
Exchange Agent. Questions regarding how to tender and
requests for information should be directed to the
Exchange Agent. See "The Exchange Offer -- Exchange
Agent."
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C>
GUARANTEED DELIVERY PROCEDURES............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes, a
Letter of Transmittal or any other document required
by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Procedures for
Tendering Old Notes -- Guaranteed Delivery."
RESALES OF NEW NOTES......................... The Company is making the Exchange Offer in reliance
on the position of the staff of the Division of
Corporation Finance of the Commission as set forth in
certain interpretive letters addressed to third
parties in other transactions. However, the Company
has not sought its own interpretive letter and there
can be no assurance that the staff of the Division of
Corporation Finance of the Commission would make a
similar determination with respect to the Exchange
Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff
of the Division of Corporation Finance, and subject to
the two immediately following sentences, the Company
believes that New Notes issued pursuant to this
Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred
by a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the
registration and prospectus delivery requirements of
the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's
business and that such holder is not participating,
and has no arrangement or understanding with any
person to participate, in a distribution (within the
meaning of the Securities Act) of such New Notes.
However, any holder of Old Notes who is an "affiliate"
of the Company or who intends to participate in the
Exchange Offer for the purpose of distributing the New
Notes, or any broker-dealer who purchased the Old
Notes from the Company to resell pursuant to Rule 144A
or any other available exemption under the Securities
Act, (a) will not be able to rely on the
interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (b) will not be
permitted or entitled to tender such Old Notes in the
Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of
the Securities Act in connection with any sale or
other transfer of such Old Notes unless such sale is
made pursuant to an exemption from such requirements.
In addition, as described below, if any broker-dealer
holds Old Notes acquired for its own account as a
result of market-making or other trading activities
and exchanges such Old Notes for New Notes, then such
broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with
any resales of such New Notes.
Each holder of Old Notes who wishes to exchange Old
Notes for New Notes in the Exchange Offer will be
required to represent that (i) it is not an
"affiliate" of the Company within the meaning of Rule
405 under the Securities Act, (ii) any New Notes to be
received by it are being acquired in the ordinary
course of its business, (iii) it has no arrangement or
understanding with any person to participate in a
distribution (within the meaning of the Securities
Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and
does not intend to engage in, a distribution (within
the meaning of the Securities
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C>
Act) of such New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the
Old Notes for its own account as the result of
market-making activities or other trading activities
and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of
Corporation Finance of the Commission in the
interpretive letters referred to above, the Company
believes that broker-dealers who acquired Old Notes
for their own accounts as a result of market-making
activities or other trading activities ("Participating
Broker-Dealers") may fulfill their prospectus delivery
requirements with respect to the New Notes received
upon exchange of such Old Notes with a prospectus
meeting the requirements of the Securities Act, which
may be the prospectus prepared for an exchange offer
so long as it contains a description of the plan of
distribution with respect to the resale of such New
Notes. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with
resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such
Participating Broker-Dealer for its own account as a
result of market-making or other trading activities.
Subject to certain provisions set forth in the
Registration Rights Agreement and to the limitations
described below under "The Exchange Offer -- Resale of
New Notes," the Company has agreed that this
Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating
Broker-Dealer in connection with resales of such New
Notes for a period ending 180 days after the
Expiration Date (subject to extension under certain
limited circumstances) or, if earlier, when all such
New Notes have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." Any
Participating Broker-Dealer who is an "affiliate" of
the Company may not rely on such interpretive letters
and must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. See "The
Exchange Offer -- Resales of New Notes."
ACCEPTANCE OF OLD NOTES AND Subject to the terms and conditions of the Exchange
DELIVERY OF NEW NOTES...................... Offer, including the reservation of certain rights by
the Company, the Company will accept for exchange any
and all Old Notes which are properly tendered in the
Exchange Offer, and not withdrawn, prior to 5:00 p.m.
New York City time, on the Expiration Date. Subject to
such terms and conditions, the New Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Acceptance for Exchange and Issuance
of New Notes."
EXCHANGE AGENT............................... The exchange agent with respect to the Exchange Offer
is First Trust of New York, National Association (the
"Exchange Agent"). The addresses, and telephone and
facsimile numbers of the Exchange Agent are set forth
in "The Exchange Offer -- Exchange Agent" and in the
Letter of Transmittal.
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C>
USE OF PROCEEDS.............................. The Company will not receive any cash proceeds from
the issuance of the New Notes offered hereby. See "Use
of Proceeds."
CERTAIN UNITED STATES FEDERAL INCOME TAX Holders of Old Notes should review the information set
CONSIDERATIONS............................. forth under "Certain United States Federal Income Tax
Considerations" prior to tendering Old Notes in the
Exchange Offer.
</TABLE>
THE NEW NOTES
<TABLE>
<S> <C>
SECURITIES OFFERED........................... Up to $125 million aggregate principal amount of the
Company's 11 5/8% Senior Notes due 2003. The New Notes
will be issued and the Old Notes were issued under an
Indenture dated as of May 2, 1996 (the "Indenture")
between the Company and First Trust of New York,
National Association (the "Trustee"). The New Notes
and any Old Notes which remain outstanding after
consummation of the Exchange Offer will constitute a
single series of debt securities under the Indenture
and, accordingly, will vote together as a single class
for purposes of determining whether holders of the
requisite percentage in outstanding principal amount
thereof have taken certain actions or exercised
certain rights under the Indenture. See "Description
of the New Notes -- General." The terms of the New
Notes are identical in all material respects to the
terms of the Old Notes, except that (i) the offer and
sale of the New Notes have been registered under the
Securities Act and therefore the New Notes are not
subject to certain restrictions on transfer applicable
to the Old Notes, will not contain legends relating
thereto and will not be entitled to registration
rights or other rights under the Registration Rights
Agreement, and (ii) the New Notes will not provide for
any increase in the interest rate thereon. See "The
Exchange Offer -- Purpose of the Exchange Offer,"
"Description of the New Notes" and "Description of the
Old Notes."
MATURITY DATE................................ May 1, 2003.
INTEREST PAYMENT DATES....................... May 1 and November 1, commencing on November 1, 1996.
OPTIONAL REDEMPTION.......................... The New Notes will be redeemable, at the Company's
option, in whole or in part, at any time on or after
May 1, 2000 at the redemption prices set forth herein
plus accrued and unpaid interest, if any, to the date
of redemption. The Company may also redeem at its
option at any time prior to May 1, 1999 up to 25% of
the aggregate principal amount of the New Notes and
Old Notes then outstanding with the proceeds of one or
more public offerings of certain equity securities at
a redemption price equal to 111.625% of the principal
amount of such New Notes and Old Notes, plus accrued
and unpaid interest to the redemption date; provided
that at least $93.75 million in aggregate principal
amount of New Notes and old Notes remains outstanding
immediately after giving effect to such redemption.
See "Description of the New Notes -- Optional
Redemption."
CHANGE IN CONTROL............................ Upon a Change in Control, each holder of the New Notes
may require the Company to repurchase such holder's
New Notes, in whole or in part, at a purchase price in
cash equal to 101% of the principal amount thereof,
plus accrued and unpaid interest. See "Description of
the New Notes -- Change in Control."
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
RANKING...................................... The New Notes will constitute senior unsecured debt
obligations of the Company and will rank senior in
right of payment to all existing and future
Subordinated Indebtedness and pari passu with all
other Senior Indebtedness. The New Notes will be
effectively subordinated to secured indebtedness of
the Company and all liabilities of the Company's
subsidiaries, except to the extent that the Company is
itself recognized as a creditor to such subsidiary, in
which case the claims of the Company would still be
subordinate to any security interest in the assets of
such subsidiary, and indebtedness of such subsidiary
senior to that held by the Company. At March 31, 1996,
after giving pro forma effect to the U.S. Property
Sale and the issuance of the Old Notes and the use of
proceeds received from each transaction as set forth
in "Capitalization," $37.2 million of consolidated
indebtedness and trade payables would have been
liabilities of the Company's subsidiaries or secured
indebtedness of the Company and ranked effectively
senior to the New Notes and the Company would have had
$6.4 million of outstanding indebtedness and trade
payables that would have ranked pari passu with the
New Notes. In addition, the Company could have
incurred up to $38.0 million of secured indebtedness
under its revolving letter of credit and loan facility
which would have ranked effectively senior to the New
Notes. See "Description of the New Notes -- Ranking."
CERTAIN COVENANTS............................ The Indenture contains certain covenants that, among
other restrictions, limit the ability of the Company
and its Restricted Subsidiaries to incur additional
indebtedness, pay dividends and make certain
investments, engage in transactions with its
affiliates, sell assets, incur or suffer to exist
certain liens securing indebtedness unless the New
Notes are equally and ratably secured, and engage in
mergers and consolidations. The Indenture will also
limit the amount of indebtedness the Company's
Restricted Subsidiaries may assume or the amount of
indebtedness of the Company they may guarantee unless
such Restricted Subsidiaries simultaneously guarantee
the payment of the New Notes. See "Description of the
New Notes -- Certain Covenants."
USE OF PROCEEDS.............................. The Company will receive no proceeds from this
Exchange Offer.
ABSENCE OF MARKET FOR THE NEW NOTES.......... The New Notes will be a new issue of securities for
which there currently is no market. Although J.P.
Morgan Securities Inc., the initial purchaser of the
Old Notes (the "Initial Purchaser"), has informed the
Company that it currently intends to make a market in
the New Notes, it is not obligated to do so, and any
such market making may be discontinued at any time
without notice. Accordingly, there can be no assurance
as to the development or liquidity of any market for
the New Notes. The Company currently does not intend
to apply for listing of the New Notes on any
securities exchange or for quotation through the
National Association of Securities Dealers Automated
Quotation System.
</TABLE>
12
<PAGE> 13
CERTAIN CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES
The sale of the Old Notes was not registered under the Securities Act or any
state securities laws and therefore the Old Notes may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions, including the
Company's and the Trustee's right in certain cases to require the delivery of
opinions of counsel, certifications and other information prior to any such
transfer. Old Notes which remain outstanding after consummation of the Exchange
Offer will continue to bear a legend reflecting such restrictions on transfer.
In addition, upon consummation of the Exchange Offer, holders of Old Notes which
remain outstanding will not be entitled to any rights to have the resale of such
Old Notes registered under the Securities Act or to any similar rights under the
Registration Rights Agreement. The Company currently does not intend to register
under the Securities Act the resale of any Old Notes which remain outstanding
after consummation of the Exchange Offer.
To the extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected. In
addition, although the Old Notes are eligible for trading in the Private
Offerings, Resale and Trading through Automatic Linkages ("PORTAL") market, to
the extent that Old Notes are tendered and accepted in connection with the
Exchange Offer, any trading market for Old Notes which remain outstanding after
the Exchange Offer could be adversely affected.
The New Notes and any Old Notes which remain outstanding after consummation of
the Exchange Offer will constitute a single series of debt securities under the
Indenture and, accordingly, will vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding principal
amount thereof have taken certain actions or exercised certain rights under the
Indenture. See "Description of the New Notes -- General."
The Old Notes provide that, if the Exchange Offer is not consummated by August
31, 1996, the interest rate borne by the Old Notes will increase by 0.50% per
annum from May 1, 1996 until the Exchange Offer is consummated. See "Description
of the Old Notes." Following consummation of the Exchange Offer, the Old Notes
will not be entitled to any increase in the interest rate thereon. The New Notes
will not be entitled to any such increase in the interest rate thereon.
13
<PAGE> 14
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary consolidated financial information for
the Company and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements, related notes and other financial data
included elsewhere herein or incorporated herein by reference.
<TABLE>
<CAPTION>
-----------------------
---------------------------------------
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31
In thousands, except ratios 1993 1994 1995(1) 1995 1996(1)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Total revenues(2) $ 7,503 $34,705 $65,068 $12,661 $32,939
Lease operating costs and production
taxes(2) 5,110 9,531 10,703 2,246 4,073
Depletion, depreciation and
amortization(2) 2,633 10,298 17,411 3,145 7,733
General and administrative expense 2,631 5,242 9,411 1,668 3,647
Interest expense(2) 1,958 3,888 7,497 1,619 2,260
Litigation settlement and partnership
exchange expenses -- -- 1,673 -- 2,140
------- ------- ------- ------- -------
Income (loss) before income taxes and
minority interest (4,829) 5,746 18,373 3,983 13,086
Income tax expense -- 698 2,478 1,079 4,449
------- ------- ------- ------- -------
Income (loss) before minority interest (4,829) 5,048 15,895 2,904 8,637
Minority interest -- 2,094 5,304 863 2,327
------- ------- ------- ------- -------
Net income (loss) $(4,829) $ 2,954 $10,591 $ 2,041 $ 6,310
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
-----------------------
---------------------------------------
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31
1993 1994 1995(1) 1995 1996(1)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(3) $ 598 $15,603 $32,396 $ 5,964 $20,512
Net cash provided by (used in) operating
activities (1,790) 13,463 32,349 5,389 15,776
Net cash provided by (used in) investing
activities (18,619) (55,078) (53,644) 3,584 (14,949)
Net cash provided by (used in) financing
activities 43,044 19,500 13,282 (1,956) 797
Capital expenditures 26,249 55,711 78,727 11,130 15,384
EBITDA/Interest Ratio(3)(4) 0.23 3.51 4.21 3.47 9.41
Ratio of earnings to fixed charges(5) -- 2.45 3.25 3.24 6.40
</TABLE>
<TABLE>
<CAPTION>
------------------------------
AT MARCH 31, 1996
ACTUAL PRO FORMA(6)
-------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital $ 2,726 $ 13,115
Total assets 234,893 222,183
Long-term obligations, net of current portion 46,050 33,442
Stockholders' equity(7) 117,996 117,895
</TABLE>
- ------------------------
(1) The financial information related to Russia and included in the year end
1995 presentation contains information for the nine months ended September
30, 1995, the end of the fiscal period for GEOILBENT. Similarly, the 1996
presentation contains information at, and for the three months ended
December 31, 1995. See Note 15 to the Company's Consolidated Financial
Statements.
(2) Assuming the U.S. Property Sale had occurred on January 1, 1995, pro forma
effects on the consolidated statement of operations for the year ended
December 31, 1995 would include reductions in oil and gas revenues, lease
operating costs and production taxes, depletion and interest expense of $7.4
million, $1.0 million, $4.0 million and $2.7 million, respectively. The pro
forma effects on the consolidated statement of operations for the three
months ended March 31, 1996 would include reductions in oil and gas
revenues, lease operating costs and production taxes, depletion and interest
expense of $4.1 million, $0.2 million, $1.4 million and $0.6 million,
respectively.
(3) EBITDA has been calculated as defined in the Indenture and has been included
solely to facilitate consideration of the covenants in the Indenture that
are based, in part, on EBITDA. See "Description of the New Notes -- Certain
Definitions." EBITDA is not intended to represent cash flow from operations
as defined by generally accepted accounting principles ("GAAP") and should
not be considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flow as a measure of liquidity.
(4) EBITDA/Interest Ratio has been calculated as defined in the Indenture. See
"Description of the New Notes -- Certain Definitions."
(5) For purposes of determining the ratio of earnings to fixed charges,
"earnings" represents income (loss) before income taxes plus fixed charges
exclusive of capitalized interest, and "fixed charges" consists of interest,
whether expensed or capitalized, amortization of debt expense and an
estimated portion of rent expense representing interest costs. As a result
of the losses incurred by the Company for the year ended December 31, 1993,
earnings were insufficient to cover fixed charges by $4.8 million. After
giving effect to the sale of the Old Notes, to the extent proceeds will be
used to retire presently outstanding indebtedness, the pro forma ratio of
earnings to fixed charges would have been 2.60 for the year ended December
31, 1995 and 6.03 for the three months ended March 31, 1996.
(6) Pro forma for the U.S. Property Sale, as if such sale had occurred on March
31, 1996.
(7) No cash dividends were paid during the periods presented.
14
<PAGE> 15
SUMMARY OIL AND GAS RESERVE INFORMATION
The following sets forth summary information with respect to the estimates of
the Company's proved oil and gas reserves at December 31, 1993, 1994 and 1995,
prepared by the Company and audited by Huddleston & Co., Inc., independent
petroleum engineers.
<TABLE>
<CAPTION>
---------------------------------------
YEARS ENDED DECEMBER 31
Dollars in thousands 1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
VENEZUELA(1):
Crude oil and condensate (MBbl) 19,389 60,707 73,593
Natural gas (Mmcf) -- -- --
Oil equivalent (MBOE) 19,389 60,707 73,593
RUSSIA:
Crude oil and condensate (MBbl) 10,121 17,540 22,618
Natural gas (Mmcf) -- -- --
Oil equivalent (MBOE) 10,121 17,540 22,618
UNITED STATES(2):
Crude oil and condensate (MBbl) 10,258 233 --
Natural gas (Mmcf) 18,099 16,077 6
Oil equivalent (MBOE) 13,275 2,913 1
TOTAL(1):
Crude oil and condensate (MBbl) 39,768 78,480 96,211
Natural gas (Mmcf) 18,099 16,077 6
Oil equivalent (MBOE) 42,785 81,160 96,212
Standardized measure of discounted future net cash flows before
provision for income taxes(1)(3) $ 131,413 $ 336,320 $ 372,293
</TABLE>
- ---------------
(1) Includes 100% of the reserve information, without deduction for minority
interest. All Venezuelan reserves are attributable to an operating service
agreement between Benton-Vinccler and Lagoven under which all mineral rights
are owned by the Government of Venezuela.
(2) At December 31, 1995, substantially all of the Company's U.S. reserves and
acreage positions were held for sale pursuant to the U.S. Property Sale, and
accordingly all such reserves were excluded.
(3) The Company values its reserves as of December 31 of each year, based on oil
and natural gas prices as of that date. Market prices for both oil and
natural gas are subject to a significant degree of variation both in
domestic and international markets, and this variation will affect the
calculation of future net cash flows reported by the Company at any specific
date.
15
<PAGE> 16
RISK FACTORS
Prospective purchasers of the New Notes should read this entire Prospectus
carefully. Ownership of the Notes involves certain risks. In addition to the
other information contained in this Prospectus, investors should carefully
consider the following factors in connection with an investment in the Notes.
RISKS RELATED TO THE COMPANY
Risk from Substantial Concentration of Operations
The Company's cash flow-generating operations are substantially concentrated in
Venezuela. For 1995, the Company derived approximately 78% of its consolidated
oil and gas revenues and approximately 76% of its proved reserves from its
Venezuelan operations. If the Venezuelan operations are adversely effected, the
Company, due to its concentration in and reliance on the Venezuelan operations,
will experience an adverse impact on its financial condition and operations.
There are significant operating and economic risks associated with conducting
business in Venezuela. See "-- Risks Related to the Company -- Political and
Economic Risks of International Operations -- Venezuela."
Political and Economic Risks of International Operations -- General
Substantially all of the Company's oil and gas producing operations and
non-financial assets are in Venezuela and Russia and all operating income is
expected to be generated from these countries (absent any new investments). As a
result, the Company is subject to certain political, economic and other
uncertainties including risks of war, civil disturbance, expropriation,
nationalization, renegotiation or modification of existing contracts, taxation
policies, foreign exchange restrictions, international monetary fluctuations and
other hazards arising out of foreign governmental sovereignty over the Company's
operations.
Political and Economic Risks of International Operations -- Venezuela
The Company began to operate in Venezuela in 1992. For 1995, the Company derived
approximately 78% of its consolidated oil and gas revenues and approximately 76%
of its proved reserves from its Venezuelan operations. The petroleum industry in
Venezuela is highly regulated by the government with respect to such matters as
maximum daily production, methods of production and environmental matters, both
directly and indirectly through PdVSA. In addition, the timing and extent of the
Company's development activities are subject to the approval of Lagoven and the
Ministry of Energy and Mines. There can be no assurance that the government or
PdVSA will not impose significant new regulations regarding the petroleum
industry generally or that the development activities proposed by
Benton-Vinccler will receive the necessary approval. The Company also expects to
increase its exposure to Venezuela through the continued investment in
Benton-Vinccler and the Delta Centro consortium. While Benton-Vinccler has never
had a material dispute or payment interruption with Lagoven, PdVSA or the
Venezuelan government, the country of Venezuela has experienced significant
political and economic instability, high inflation, and shortages of foreign
currency.
Political and Economic Situation. In May 1993, the Venezuelan Senate voted to
authorize the impeachment of President Carlos Andres Perez. Subsequently, Rafael
Caldera was elected president and took office in February 1994. Upon assuming
the presidency, President Caldera was immediately faced with a solvency crisis
in the banking system which necessitated a government takeover of nine financial
institutions, including Banco Latino, one of the largest Venezuelan banks.
Consequently, the bolivar devalued sharply, inflation rose and gross domestic
product ("GDP") contracted. Though Venezuela experienced positive GDP growth for
1995, it was the first increase in three years, and the 1995 GDP figures did not
reflect the full effects of a currency devaluation at year end. Many independent
sources are predicting another GDP contraction in 1996. On April 22, 1996, the
Venezuelan government announced the lifting of controls on foreign exchange
transactions, having announced the lifting of controls on interest rates one
week earlier. The Venezuelan government also announced a $1.4 billion
preliminary loan accord with the International Monetary Fund. Although these
actions have led to the devaluation of the bolivar and a rise in interest rates
and are likely to lead to temporary increases in inflation, they are generally
viewed as likely to have a positive effect in the long term. There can be no
assurance, however, that such actions will be successful in resolving
Venezuela's economic difficulties.
Inflation and Currency Controls. Venezuela has experienced high levels of
inflation over the past decade. The consumer price inflation rate was
approximately 38% for calendar year 1993, 61% for 1994, and 60% for 1995. In
addition to increasing the Company's bolivar-denominated expenses with respect
to its Venezuelan operations, these high rates of inflation led the Venezuelan
government to devalue the bolivar by 41% on December 11, 1995. In July 1994, the
Venezuelan government imposed a program of currency exchange controls that was
lifted in April 1996. Pursuant to its agreement with Lagoven, Benton-Vinccler
receives its payments from Lagoven in U.S. dollars deposited directly into a
U.S. bank account. Although the lifting of currency controls is expected to lead
to increased economic stability in the long term, it is likely to lead to a
temporary rise in
16
<PAGE> 17
inflation in Venezuela. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Effects of Changing Prices, Foreign
Exchange Rates and Inflation."
Oil Production and OPEC. News reports speculate that Venezuela is currently
producing oil in excess of the output quota established by OPEC. While Venezuela
remains a member of OPEC and has yet to face any sanctions, there is a risk that
pressure from OPEC could cause Venezuela to cut oil production voluntarily to
comply with the established quotas or take action that could depress world oil
prices. Such compliance could require a significant reduction in Venezuelan oil
production and could have a material adverse impact on Benton-Vinccler.
Political and Economic Risks of International Operations -- Russia
Since the dissolution of the Soviet Union in 1991, Russia has experienced
periods of political unrest and instability, high inflation, wide currency
exchange rate swings, contractions in GDP, volatile tariff and taxation
policies, and the lack of a clear and stable legal and administrative
environment governing oil and gas licensing and operations. There can be no
assurance that any of these factors in addition to other factors may not persist
or worsen and therefore negatively effect the Company's operations in Russia.
In addition to the factors discussed above, Russia has established an export
tariff on all oil produced in and exported from Russia which, as imposed, has
the effect of reducing the potential profits to the Company and could render its
proved reserves attributable to Russia uneconomic. Russia has recently announced
that effective in July 1996, oil export tariffs will be terminated in accordance
with an IMF loan condition. However, Russia has proposed that such tariffs be
replaced by an excise, pipeline or other tax on producers which may equal or
exceed the export tariff, but it is unclear how such other tax rates and regimes
will be set and administered. The legislative and regulatory environment in
Russia continues to be subject to frequent change and uncertainty.
The Company believes it will not receive any significant distributions from
GEOILBENT for several years because substantially all of the money received by
GEOILBENT from the North Gubkinskoye Field will be reinvested to fund
development activities.
Properties Under Development
As of December 31, 1995, approximately 65% of the Company's proved reserves were
undeveloped and required development activities, consisting primarily of
development drilling and construction of production facilities. As a result, the
Company will require substantial capital expenditures to develop all of its
proved reserves. At December 31, 1995, the anticipated future development costs
for proved reserves in Venezuela and Russia were $76.4 million and $36.7
million, respectively. The Company does not currently have the capital to
develop all of these reserves, and if such capital does not otherwise become
available, the Company will either enter into joint ventures to develop the
projects, which will result in the Company retaining a smaller interest, or not
develop the reserves. There can be no certainty regarding the commercial
feasibility of developing these reserves, the availability of financing, or the
timing or costs associated therewith. If such capital is available, there can be
no assurance that the Company will be able to develop and produce sufficient
reserves to recover the costs expended and operate the wells profitably. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity."
Engineers' Estimates of Reserves and Future Net Revenue
Estimates of economically recoverable oil and gas reserves and of future net
cash flows are based upon a number of variable factors and assumptions, all of
which are to some degree speculative and may vary considerably from actual
results. Therefore, actual production, revenues, taxes, and development and
operating expenditures may not occur as estimated. Future results of operations
of the Company will depend upon its ability to develop, produce and sell its oil
and gas reserves. The reserve data included herein are estimates only and are
subject to many uncertainties. Actual quantities of oil and gas may differ
considerably from the amounts set forth herein. In addition, different reserve
engineers may make different estimates of reserve quantities and cash flows
based upon the same available data. See "Business -- Reserves."
Development of Additional Reserves
The Company's future success may also depend upon its ability to find or acquire
additional oil and gas reserves that are economically recoverable. Except to the
extent that the Company conducts successful exploration or development
activities or acquires properties containing proved reserves, the proved
reserves of the Company will generally decline as reserves are produced. There
can be no assurance that the Company will be able to discover additional
commercial quantities of oil and gas, or that the Company will be able to
continue to acquire interests in under-developed oil and gas fields and enhance
production and reserves by drilling replacement wells and drilling development
wells, or that the Company will have continuing success drilling productive
wells and acquiring under-developed properties at low finding costs.
17
<PAGE> 18
Retention and Attraction of Key Personnel
The Company depends to a large extent on the abilities and continued
participation of certain key employees, the loss of whose services could have a
material adverse effect on the Company's business. In an effort to minimize the
risk, the Company has entered into employment agreements with certain key
employees, and has purchased a $5.0 million key-man life insurance policy on the
life of A.E. Benton. There can be no assurance that the Company will be able to
attract and retain such personnel on acceptable terms and the failure to do so
could have a material adverse effect on the Company.
RISKS RELATED TO THE OIL AND GAS INDUSTRY
Risk of Oil and Gas Operations
The Company's operations are subject to all of the risks normally incident to
the operation and development of oil and gas properties and the drilling of oil
and gas wells, including encountering unexpected formations or pressures,
blowouts, cratering and fires, and, in horizontal wellbores, the increased risk
of mechanical failure and collapsed holes, the occurrence of any of which could
result in personal injuries, loss of life, environmental damage and other damage
to the properties of the Company or others. In addition, because the Company
acquires interests in under-developed oil and gas fields that have been operated
by others for many years, the Company may be liable for any damage or pollution
caused by any prior operations of such oil and gas fields. In accordance with
customary industry practice, the Company is not fully insured against these
risks, nor are all such risks insurable. Accordingly, there can be no assurance
that such insurance as the Company does maintain will be adequate to cover any
losses or exposure for liability.
Current Oil and Gas Industry Conditions
Historically, the markets for oil and natural gas have been volatile and are
likely to continue to be volatile in the future. Prices for oil and natural gas
are subject to wide fluctuation in response to relatively minor changes in
supply of and demand for oil and natural gas, market uncertainty and a variety
of additional factors that are beyond the control of the Company. These factors
include political conditions in the Middle East, the foreign supply of oil and
natural gas, the price of foreign imports, the level of consumer product demand,
weather conditions, domestic and foreign government regulations, the price and
availability of alternative fuels and overall economic conditions. Lower oil
prices also may reduce the amount of the Company's oil that is economic to
produce. In addition, the marketability of the Company's production depends upon
the availability and capacity of gathering systems and pipelines.
Government Regulation; Environmental Risks
The Company's business is regulated by certain federal, state, local and foreign
laws and regulations relating to the development, production, marketing and
transmission of oil and gas, as well as environmental and safety matters. There
can be no assurance that laws and regulations enacted in the future will not
adversely affect the Company's exploration for, or the production and marketing
of, oil and gas.
Oil and gas operations are subject to extensive foreign, federal, state and
local laws regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. Numerous governmental
departments issue rules and regulations to implement and enforce such laws which
are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. The regulatory burden on the oil and gas
industry increases its cost of doing business and consequently affects its
profitability. These laws, rules and regulations affect the operations of the
Company. Compliance with environmental requirements generally could have a
material adverse effect upon the capital expenditures, earnings or competitive
position of the Company.
Competition
The oil and gas exploration and production business is highly competitive. A
large number of companies and individuals engage in the drilling for oil and
gas, and there is a high degree of competition for desirable oil and gas
properties suitable for drilling and for materials and third-party services
essential for their exploration and development. Many of the Company's
competitors have greater financial and other resources than does the Company.
RISKS RELATED TO AN INVESTMENT IN THE NOTES
Substantial Leverage
The Company will require substantial cash flow to meet its principal repayment
and interest obligations on the Notes. After giving effect to the sale of the
Old Notes and the U.S. Property Sale as if each had occurred on March 31, 1996,
the Company and its subsidiaries would have had total pro forma indebtedness of
approximately $154.0 million at such date. The Company expects to use a
substantial portion of the proceeds from the sale of the Old Notes for
development activities at its oil and gas properties which the Company
anticipates will increase oil and gas production and cash flow to enable the
Company to repay or refinance
18
<PAGE> 19
the Notes when due. However, there can be no assurance that expenditure of such
proceeds will result in sufficient increased cash flow to repay or refinance the
Notes when due. In addition, the Indenture will impose significant operating and
financial restrictions on the Company. Such restrictions will affect, and in
many respects limit or prohibit, among other things, the ability of the Company
and its Restricted Subsidiaries to incur additional indebtedness, pay dividends
and make certain investments, engage in transactions with affiliates, sell
assets, incur or suffer to exist certain liens securing indebtedness unless the
Notes are equally and ratably secured, and engage in mergers or consolidations.
The Indenture will also limit the amount of indebtedness the Company's
Restricted Subsidiaries may assume and the amount of indebtedness of the Company
they may guarantee unless such Restricted Subsidiaries simultaneously guarantee
the payment of the Notes. The leveraged position of the Company and the
restrictive covenants contained in the Indenture could significantly limit the
ability of the Company to respond to changing business or economic conditions or
to respond to substantial declines in operating results. See "Description of the
New Notes."
Liquidity Needs; Ability to Repay Notes
The Company may from time to time fund a portion of its working capital needs
and capital expenditure requirements from external financing. In addition, the
Company expects that in order to repay the principal amount of the Notes or to
purchase the Notes upon the occurrence of a Change in Control, it may be
required to seek additional financing or engage in asset sales or in similar
transactions. There can be no assurance that sufficient funds for any of the
foregoing purposes would be available to the Company at the time they were
required. See "Description of the New Notes."
Holding Company Structure
The New Notes will be and the Old Notes are obligations exclusively of the
Company. Because the Company's operations are conducted almost entirely through
its subsidiaries, the cash flow and the consequent ability of the Company to
service its debt, including the Notes, are dependent upon the earnings of the
Company's subsidiaries and the distribution of those earnings to the Company.
The subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Notes or to make funds available therefore, whether by dividends, loans or other
payments. In addition, the payment of dividends and the making of loans and
advances to the Company by its subsidiaries may be subject to statutory or
contractual restrictions and are contingent upon the earnings of those
subsidiaries and subject to various business considerations. Currently, the
Company only has one operating subsidiary, Benton-Vinccler, that may be expected
to make funds available to the Company to pay any amounts due pursuant to the
Notes.
Lack of a Public Market for the New Notes
The New Notes will be a new issue of securities, and the Company does not intend
to list them on any securities exchange. If the New Notes are traded after their
initial issuance, they may trade at a discount from their initial offering price
depending upon prevailing interest rates, the market for similar securities and
other factors. J. P. Morgan Securities Inc. has informed the Company that it
currently intends to make a market in the New Notes. However, it is not
obligated to do so, and any such market making may be discontinued at any time
without notice. See "Plan of Distribution." There can be no assurance that an
active trading market for the New Notes will develop. See "Description of the
New Notes."
19
<PAGE> 20
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes in exchange for
Old Notes as described in this Prospectus, the Company will receive Old Notes in
like principal amount. The Old Notes surrendered in exchange for the New Notes
will be retired and cancelled. Accordingly, the issuance of the New Notes will
not result in any change in the indebtedness of the Company.
The net proceeds to the Company from the sale of the Old Notes was approximately
$120.8 million. The Company has used or intends to use such net proceeds: (i) to
prepay in full the $20.0 million aggregate principal amount of its outstanding
13% Senior Notes due 2007 and accrued interest thereon, with a prepayment
premium of approximately $7.4 million; (ii) to repay approximately $6.5 million
in trade financings; and (iii) for general corporate purposes, including the
Company's ongoing exploration and development programs. See "Business -- South
Monagas Unit, Venezuela -- Drilling and Development Activity," "-- Delta Centro
Block, Venezuela -- Drilling and Development Activity" and "-- North
Gubkinskoye, Russia -- Drilling and Development Activity."
20
<PAGE> 21
CAPITALIZATION
The following table sets forth the short-term indebtedness and capitalization of
the Company (i) as of March 31, 1996, (ii) pro forma to reflect the U.S.
Property Sale and the use of proceeds therefrom to repay certain long-term debt,
and (iii) pro forma, as adjusted to reflect the use of proceeds from the U.S.
Property Sale and the sale of the Old Notes and the use of proceeds as described
herein.
<TABLE>
<CAPTION>
---------------------------------------
AS OF MARCH 31, 1996
PRO FORMA,
AS
Dollars in thousands ACTUAL PRO FORMA ADJUSTED
-------- --------- ----------
<S> <C> <C> <C>
SHORT-TERM INDEBTEDNESS
Current maturities of long-term indebtedness $ 8,138 $ 8,138 $ 2,429
Short-term indebtedness 21,307 21,307 20,610
-------- -------- --------
Total short-term indebtedness $ 29,445 $ 29,445 $ 23,039
======== ======== ========
LONG-TERM INDEBTEDNESS(1)
Old Notes $ -- $ -- $125,000
13% Senior unsecured notes due 2002 15,000 -- --
13% Senior unsecured notes due 2007 20,000 27,392 (2) --
Revolving secured credit facility 5,000 -- --
8% Convertible Subordinated Debentures due 2002 4,252 4,252 4,252
Other 1,798 1,798 1,666
-------- -------- --------
Total long-term indebtedness 46,050 33,442 130,918
-------- -------- --------
STOCKHOLDERS' EQUITY
Common Stock, $0.01 par value; authorized 40,000,000 shares;
issued and outstanding 26,092,559 shares 261 261 261
Additional paid-in capital 105,745 105,745 105,745
Retained earnings 11,990 11,889 11,889
-------- -------- --------
Total stockholders' equity 117,996 117,895 117,895
-------- -------- --------
Total capitalization $164,046 $151,337 $248,813
======== ======== ========
</TABLE>
- ---------------
(1) See "Description of Outstanding Indebtedness."
(2) Includes approximately $7.4 million accrued as a prepayment premium incurred
upon consummation of the U.S. Property Sale. The calculation was based upon
prevailing interest rates on May 2, 1996, the date the prepayment premium
was paid.
21
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the Company for each of
the five years in the period ended December 31, 1995, are derived from the
Company's audited consolidated financial statements. The selected consolidated
financial data for the three months ended March 31, 1995 and 1996 are derived
from the Company's unaudited consolidated financial statements. In the opinion
of management, such unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring accruals) necessary for a fair
presentation of the consolidated financial condition and results of operations
as of and for the periods presented. Operating results for the three months
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending December 31, 1996. The consolidated
financial data below should be read in conjunction with the Company's
Consolidated Financial Statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere herein or incorporated herein by reference.
<TABLE>
<CAPTION>
------------------
--------------------------------------------------------
Dollars in thousands, except THREE MONTHS ENDED
per share YEARS ENDED DECEMBER 31 MARCH 31
and ratio data 1991(1) 1992 1993 1994 1995(2) 1995 1996(2)
--------- -------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Total revenues (3) $ 11,513 $ 8,622 $ 7,503 $ 34,705 $ 65,068 $ 12,661 $ 32,939
Lease operating costs and
production taxes (3) 4,209 4,414 5,110 9,531 10,703 2,246 4,073
Depletion, depreciation and
amortization (3) 3,058 3,041 2,633 10,298 17,411 3,145 7,733
General and administrative
expense 1,998 2,245 2,631 5,242 9,411 1,668 3,647
Interest expense (3) 1,736 1,831 1,958 3,888 7,497 1,619 2,260
Litigation settlement and
partnership exchange
expenses -- -- -- -- 1,673 -- 2,140
--------- -------- --------- --------- --------- -------- --------
Income (loss) before income
taxes and minority interest 512 (2,909) (4,829) 5,746 18,373 3,983 13,086
Income tax expense -- -- -- 698 2,478 1,079 4,449
--------- -------- --------- --------- --------- -------- --------
Income (loss) before minority
interest 512 (2,909) (4,829) 5,048 15,895 2,904 8,637
Minority interest -- -- -- 2,094 5,304 863 2,327
--------- -------- --------- --------- --------- -------- --------
Net income (loss) $ 512 $ (2,909) $ (4,829) $ 2,954 $ 10,591 $ 2,041 $ 6,310
======== ======= ======== ======== ======== ======= =======
Net income (loss) per common
share $ 0.04 $ (0.22) $ (0.26) $ 0.12 $ 0.40 $ 0.08 $ 0.22
======== ======= ======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
--------------------
--------------------------------------------------------
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31 31
1991(1) 1992 1993 1994 1995(2) 1995 1996(2)
--------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (4) $ 5,974 $ 2,153 $ 598 $ 15,603 $ 32,396 $ 5,964 $ 20,512
Net cash provided by (used
in) operating activities 4,027 (648) (1,790) 13,463 32,349 5,389 15,776
Net cash provided by (used
in) investing activities (15,998) (10,944) (18,619) (55,078) (53,644) 3,584 (14,949)
Net cash provided by (used
in) financing activities 10,570 21,588 43,044 19,500 13,282 (1,956) 797
Capital expenditures 25,712 16,770 26,249 55,711 78,727 11,130 15,384
EBITDA/Interest Ratio (5) 3.60 1.48 0.23 3.51 4.21 3.47 9.41
Ratio of earnings to fixed
charges (6) 1.29 -- -- 2.45 3.25 3.24 6.40
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------- --------------------
AT DECEMBER 31 AT MARCH 31
1991(1) 1992 1993 1994 1995(2) 1995 1996(2)
--------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) $ (14,777) $ 10,486 $ 26,635 $ 21,785 $ (2,888) $ 13,479 $ 2,726
Total assets 49,386 68,217 108,635 162,561 214,750 166,525 234,893
Long-term obligations, net
of current portion 7,422 13,463 11,788 31,911 49,486 31,188 46,050
Stockholders' equity (7) 20,209 50,468 84,021 88,259 103,681 90,489 117,996
</TABLE>
- ---------------
(1) For the year ended December 31, 1991 the Company recorded income tax expense
of $174,000 and an extraordinary item for the utilization of loss
carryforward for the same amount.
(2) The financial information related to Russia and included in the year end
1995 presentation contains information at, and for the nine months ended,
September 30, 1995, the end of the fiscal period for GEOILBENT. See Note 15
to the Company's Consolidated Financial Statements. Similarly, the 1996
presentation contains information at, and for the three months ended
December 31, 1995.
(3) Assuming the U.S. Property Sale had occurred on January 1, 1995, pro forma
effects on the consolidated statement of operations for the year ended
December 31, 1995 would include reductions in oil and gas revenues, lease
operating costs and production taxes, depletion and interest expense of $7.4
million, $1.0 million, $4.0 million and $2.7 million respectively. The pro
forma effects on the consolidated statement of operations for the three
months ended March, 31, 1996 would include reductions in oil and gas
revenues, lease operating costs and production taxes, depletion and interest
expense of $4.1 million, $0.2 million, $1.4 million and $0.6 million,
respectively.
(4) EBITDA has been calculated as defined in the Indenture and has been included
solely to facilitate consideration of the covenants in the Indenture that
are based, in part, on EBITDA. See "Description of the New Notes -- Certain
Definitions." EBITDA is not intended to represent cash flow from operations
as defined by generally accepted accounting principles ("GAAP") and should
not be considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flow as a measure of liquidity.
(5) EBITDA/Interest Ratio has been calculated as defined in the Indenture. See
"Description of the New Notes -- Certain Definitions."
(6) For purposes of determining the ratio of earnings to fixed charges,
"earnings" represents income (loss) before income taxes plus fixed charges
exclusive of capitalized interest, and "fixed charges" consists of interest,
whether expensed or capitalized, amortization of debt expense and an
estimated portion of rent expense representing interest costs. As a result
of the losses incurred by the Company for the years ended December 31, 1992
and 1993, earnings were insufficient to cover fixed charges by $2.9 million
and $4.8 million, respectively. After giving effect to the sale of the Old
Notes, to the extent proceeds will be used to retire presently outstanding
indebtedness, the pro forma ratio of earnings to fixed charges would have
been 2.60 for the year ended December 31, 1995 and 6.03 for the three months
ended March 31, 1996.
(7) No cash dividends were paid during the periods presented.
22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Principles of Consolidation and Accounting Methods
The Company has included the results of operations of Benton-Vinccler in its
consolidated statement of operations since January 1, 1994 and has reflected the
50% ownership interest of Vinccler during January and February 1994 and the 20%
ownership interest of Vinccler subsequent thereto as a minority interest. Prior
to 1994, Benton-Vinccler was proportionately consolidated based on the Company's
50% ownership interest. Beginning in 1995, GEOILBENT has been included in the
consolidated financial statements based on a fiscal period ending September 30.
Results of operations in Russia reflect the twelve months ended December 31,
1993 and 1994, the nine months ended September 30, 1995 for 1995 and the three
months ended December 31, 1995 for the first quarter of 1996. The Company's
investment in GEOILBENT is proportionately consolidated based on the Company's
ownership interest, and for oil and gas reserve information, the Company reports
its 34% share of the reserves attributable to GEOILBENT.
The Company follows the full-cost method of accounting for its investments in
oil and gas properties. The Company capitalizes all acquisition, exploration,
and development costs incurred. The Company accounts for its oil and gas
properties using cost centers on a country by country basis. Proceeds from sales
of oil and gas properties are credited to the full-cost pools. Capitalized costs
of oil and gas properties are amortized within the cost centers on an overall
unit-of-production method using proved oil and gas reserves as audited by
independent petroleum engineers. Costs amortized include all capitalized costs
(less accumulated amortization), the estimated future expenditures (based on
current costs) to be incurred in developing proved reserves, and estimated
dismantlement, restoration and abandonment costs. See Note 1 to the Company's
Consolidated Financial Statements.
The following discussion of the financial condition and results of operations
for March 31, 1996, December 31, 1995 and 1994 and for each of the years in the
three year period ended December 31, 1995 and the three months ended March 31,
1996 and 1995, respectively, should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes thereto.
RESULTS OF OPERATIONS
The following table presents the Company's consolidated income statement items
as a percentage of total revenues:
<TABLE>
<CAPTION>
----------------
---------------------------
THREE MONTHS
YEARS ENDED DECEMBER 31 ENDED MARCH 31
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Oil and Gas Sales 96.3% 92.0% 95.5% 95.4% 95.0%
Net Gain (Loss) on Exchange Rates (2.8) 4.2 1.6 1.0 3.4
Investment Earnings and Other 6.5 3.8 2.9 3.6 1.6
----- ----- ----- ----- -----
Total Revenues 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Lease Operating Costs and Production Taxes 68.1 27.4 16.4 17.7 12.4
Depletion, Depreciation and Amortization 35.1 29.7 26.8 24.8 23.5
General and Administrative 35.0 15.1 14.5 13.2 11.0
Interest 26.1 11.2 11.5 12.8 6.9
Litigation Settlement and Partnership
Exchange Expenses -- -- 2.6 -- 6.5
----- ----- ----- ----- -----
Total Expenses 164.3 83.4 71.8 68.5 60.3
----- ----- ----- ----- -----
Income (Loss) Before Income Taxes and
Minority Interest (64.3) 16.6 28.2 31.5 39.7
Income Tax Expense -- 2.0 3.8 8.6 13.5
Minority Interest -- 6.1 8.1 6.8 7.0
----- ----- ----- ----- -----
Net Income (Loss) (64.3)% 8.5% 16.3% 16.1% 19.2%
===== ===== ===== ===== =====
</TABLE>
23
<PAGE> 24
Three Months ended March 31, 1996 and 1995
The Company had revenues of $32.9 million for the three months ended March 31,
1996. Expenses incurred during the period consisted of lease operating costs and
production taxes of $4.1 million, depletion, depreciation and amortization
expense of $7.7 million, general and administrative expense of $3.7 million,
interest expense of $2.3 million, partnership exchange expense of $2.1 million,
income tax expense of $4.4 million and a minority interest of $2.3 million. Net
income for the period was $6.3 million or $0.22 per share.
By comparison, the Company had revenues of $12.7 million for the three months
ended March 31, 1995. Expenses incurred during the period consisted of lease
operating costs and production taxes of $2.2 million, depletion, depreciation
and amortization expense of $3.1 million, general and administrative expense of
$1.7 million, interest expense of $1.6 million, income tax expense of $1.1
million and a minority interest of $0.9 million. Net income for the period was
$2.0 million or $0.08 per share.
Revenues increased $20.2 million, or 159%, during the three months ended March
31, 1996 compared to the corresponding period of 1995 primarily due to increased
oil sales in Venezuela. Sales quantities for the three months ended March 31,
1996 from Venezuela and Russia were 2,623,444 and 223,397 Bbl, respectively,
compared to 1,062,093 and 118,864 Bbl, respectively, for the three months ended
March 31, 1995. Prices for crude oil averaged $9.63 per Bbl (pursuant to terms
of an operating service agreement) from Venezuela and $10.32 per Bbl from Russia
for the three months ended March 31, 1996 compared to $9.02 per Bbl from
Venezuela and $13.12 per Bbl from Russia for the corresponding period of 1995.
Domestic sales quantities for the three months ended March 31, 1996 were 5,163
Bbl of crude oil and condensate and 1,249,128 Mcf of natural gas compared to
32,317 Bbl of crude oil and condensate and 346,548 Mcf of natural gas for the
three months ended March 31, 1995. Domestic prices for crude oil and natural gas
averaged $19.94 per Bbl and $3.26 per Mcf during the three months ended March
31, 1996 compared to $17.10 per Bbl and $1.62 per Mcf during the corresponding
period of 1995. Revenues for the three months ended March 31, 1996 were reduced
by a loss of $0.4 million related to a commodity hedge agreement compared to a
loss of $0.2 million during the corresponding period of 1995. Revenues for the
three months ended March 31, 1996 were increased by a foreign exchange gain of
$1.1 million compared to a gain of $0.1 million during the corresponding period
of 1995.
Lease operating costs and production taxes increased $1.9 million, or 86%,
during the three months ended March 31, 1996 compared to the three months ended
March 31, 1995 primarily due to the growth of the Company's Venezuelan
operations, but decreased as a percentage of total revenues. Depletion,
depreciation and amortization increased $4.6 million, or 148%, during the three
months ended March 31, 1996 compared to the corresponding period of 1995
primarily due to the increased oil production in Venezuela, but decreased as a
percentage of total revenues. Depletion expense per barrel of oil equivalent
produced from Venezuela, Russia and the United States during the three months
ended March 31, 1996 was $2.09, $3.52 and $6.47, respectively, compared to
$1.99, $2.76 and $6.97, respectively, during the corresponding period of the
previous year. General and administrative expenses increased $2.0 million, or
118%, during the three months ended March 31, 1996 compared to the corresponding
period of 1995 primarily due to the implementation of certain consulting and
related arrangements among Benton-Vinccler, the Company and Vinccler, Venezuelan
municipal taxes (which are a function of growing oil revenues) and the Company's
increased corporate activity associated with the growth of the Company's
business; but decreased slightly as a percentage of total revenues. Interest
expense increased $0.7 million, or 44%, during the three months ended March 31,
1996 compared to the three months ended March 31, 1995 primarily due to
increased borrowing to fund operations in Venezuela and Russia, but decreased
substantially as a percentage of total revenues. The Company incurred
partnership exchange expenses of $2.1 million during the three months ended
March 31, 1996 as a result of the completion of an exchange offer resulting in
the liquidation of three limited partnerships. Income tax expense increased $3.3
million, or 300%, during the three months ended March 31, 1996 compared to the
corresponding period of 1995 due primarily to increases in profitability in
Venezuela, the United States and Russia. The net income attributable to the
minority interest increased $1.4 million, or 156%, for the three months ended
March 31, 1996 compared to the three months ended March 31, 1995 as a result of
the increased profitability of Benton-Vinccler's operations in Venezuela.
Years Ended December 31, 1995 and 1994
The Company had revenues of $65.1 million for the year ended December 31, 1995.
Expenses incurred during the period consisted of lease operating costs and
production taxes of $10.7 million, depletion, depreciation and amortization
expense of $17.4 million, general and administrative expense of $9.4 million,
interest expense of $7.5 million, litigation settlement expenses of $1.7
million, income tax expense of $2.5 million and a minority interest of $5.3
million. Net income for the period was $10.6 million or $0.40 per share.
By comparison, the Company had revenues of $34.7 million for the year ended
December 31, 1994. Expenses incurred during the period consisted of lease
operating costs and production taxes of $9.5 million, depletion, depreciation
and amortization
24
<PAGE> 25
expense of $10.3 million, general and administrative expense of $5.2 million,
interest expense of $3.9 million, income tax expense of $0.7 million and a
minority interest of $2.1 million. The net income for the period was $3.0
million or $0.12 per share.
Revenues increased $30.4 million, or 87%, during the year ended December 31,
1995 compared to the corresponding period of 1994 primarily due to increased oil
sales in Venezuela. Sales quantities for the year ended December 31, 1995 from
Venezuela and Russia were 5,456,473 and 490,960 Bbls, respectively, compared to
2,519,514 and 294,364 Bbls, respectively, for the year ended December 31, 1994.
Prices per Bbl for crude oil averaged $9.01 (pursuant to terms of an operating
service agreement) from Venezuela and $12.25 from Russia for the year ended
December 31, 1995 compared to $8.52 and $11.93 from Venezuela and Russia,
respectively, for the year ended December 31, 1994. Domestic sales quantities
for the year ended December 31, 1995 were 68,975 Bbls of crude oil and
condensate and 3,784,830 Mcf of natural gas compared to 225,954 Bbls of crude
oil and condensate and 2,061,892 Mcf of natural gas for the year ended December
31, 1994. Domestic prices for crude oil and natural gas averaged $15.79 per Bbl
and $1.77 per Mcf during the year ended December 31, 1995 compared to $14.46 per
Bbl and $1.79 per Mcf during the year ended December 31, 1994. Revenues for the
year ended December 31, 1995 were reduced by a loss of $0.7 million related to a
commodity hedge agreement compared to a loss of $0.3 million in 1994. Revenues
for the year ended December 31, 1995 were increased by a foreign exchange gain
of $1.0 million compared to a gain of $1.4 million in 1994.
Lease operating costs and production taxes increased $1.2 million, or 12%,
during the year ended December 31, 1995 compared to 1994 primarily due to the
growth of the Company's Venezuelan operations, partially offset by the sale of
certain of the Company's interests in the West Cote Blanche Bay Field.
Depletion, depreciation and amortization increased $7.1 million, or 69%, during
the year ended December 31, 1995 compared to the corresponding period in 1994
primarily due to the increased oil production in Venezuela. Depletion expense
per BOE produced from Venezuela, United States and Russia during the year ended
December 31, 1995 was $2.09, $5.98 and $3.08, respectively, compared to $1.98,
$7.46 and $2.85, respectively, during the previous year. The increase in general
and administrative expenses of $4.2 million, or 80%, during the year ended
December 31, 1995 compared to 1994 was primarily due to the Company's increased
corporate activity associated with the growth of the Company's business. The
Company incurred litigation settlement expenses of $1.7 million during the year
ended December 31, 1995 as a result of a settlement agreement reached with
investors in partnerships which were sponsored by a third party. See Note 5 to
the Company's Consolidated Financial Statements. Interest expense increased $3.6
million, or 93%, in 1995 compared to 1994 primarily due to increased borrowing
to fund operations in Venezuela and Russia. Income tax expense increased $1.8
million, or 255%, during the year ended December 31, 1995 compared to 1994
primarily due to increased income taxes in Venezuela and Russia. The net income
attributable to the minority interest increased $3.2 million, or 153%, for 1995
compared to 1994 as a result of the increased profitability of Benton-Vinccler's
operations in Venezuela.
Years Ended December 31, 1994 and 1993
The Company had revenues of $34.7 million for the year ended December 31, 1994.
Expenses incurred during the period consisted of lease operating costs and
production taxes of $9.5 million, depletion, depreciation and amortization
expense of $10.3 million, general and administrative expense of $5.2 million,
interest expense of $3.9 million, income tax expense of $0.7 million, and a
minority interest of $2.1 million. The net income for the period was $3.0
million or $0.12 per share.
By comparison, the Company had revenues of $7.5 million for the year ended
December 31, 1993. Expenses incurred during the period consisted of lease
operating costs and production taxes of $5.1 million, depletion, depreciation
and amortization expense of $2.6 million, general and administrative expense of
$2.6 million and interest expense of $2.0 million. The net loss for the period
was $4.8 million or $0.26 per share.
Revenues increased $27.2 million, or 362%, during the year ended December 31,
1994 compared to the corresponding period of 1993 primarily due to increased
revenues from Benton-Vinccler's operations in Venezuela, the Company's increased
ownership of Benton-Vinccler, the initiation of oil sales in Russia in late
1993, gain on exchange rates in Venezuela and Russia, gas sales from the #831
well in the West Cote Blanche Bay Field and increased investment earnings. The
increase was partially offset by lower oil sales from the West Cote Blanche Bay
Field, lower sales prices and the sale of the Company's interest in the Pershing
property in 1993. Sales quantities for the year ended December 31, 1994 from
Venezuela and Russia were 2,519,514 and 294,364 Bbls, respectively, compared to
160,425 and 28,263 Bbls, respectively, for the year ended December 31, 1993.
Prices per Bbl for crude oil averaged $8.52 (pursuant to terms of an operating
service agreement) from Venezuela and $11.93 from Russia for the year ended
December 31, 1994 compared to $8.31 and $11.46 from Venezuela and Russia,
respectively, for the year ended December 31, 1993. Domestic sales quantities
for the year ended December 31, 1994 were 225,954 Bbls of crude oil and
condensate and 2,061,892 Mcf of natural gas compared to 292,266 Bbls of crude
oil and condensate and 232,677 Mcf of natural gas for the year ended December
31, 1993. Domestic prices for crude oil and natural gas averaged $14.46 per Bbl
and $1.79 per Mcf during the year ended December 31, 1994 compared to $17.30 per
25
<PAGE> 26
Bbl and $2.19 per Mcf during the year ended December 31,1993. The Company has
realized net foreign exchange gains during 1994 primarily as a result of the
decline in the value of the Venezuelan bolivar and Russian rouble during periods
when Benton-Vinccler and GEOILBENT had substantial net monetary liabilities
denominated in bolivares and roubles.
Lease operating costs and production taxes increased $4.4 million, or 87%,
during the year ended December 31, 1994 compared to 1993 primarily due to the
growth of the Company's Venezuelan and Russian operations and were partially
offset by the sale of the Company's interest in certain property in 1993 and
reduced operating costs at the West Cote Blanche Bay Field. Depletion,
depreciation and amortization increased $7.7 million, or 291%, during the year
ended December 31, 1994 compared to 1993 primarily due to increased oil
production in Venezuela, gas sales from the #831 well in the West Cote Blanche
Bay Field and the initiation of oil production in Russia. Depletion expense per
BOE produced from the United States, Venezuela and Russia during the year ended
December 31, 1994 was $7.46, $1.98 and $2.85, respectively, compared to $6.47,
$1.43 and $3.51 during 1993. The increase in general and administrative expense
of $2.6 million, or 99%, in 1994 compared to 1993 was primarily due to the
growth of and the Company's increased ownership of Benton-Vinccler, the
commencement of operations in Russia and increased corporate activity associated
with the growth of the Company's business. Interest expense increased $1.9
million, or 99%, in 1994 compared to 1993 primarily due to increased borrowing
to fund operations in Venezuela and Russia.
The Company has included the results of operations of Benton-Vinccler in its
consolidated statement of income since January 1, 1994 and has reflected the 50%
ownership interest of Vinccler during January and February and the 20% ownership
interest of Vinccler thereafter as a minority interest. For the year ended
December 31, 1994, net income attributable to the minority interest was $2.1
million.
INTERNATIONAL OPERATIONS
The Company's costs of operations in Venezuela and Russia in 1993, 1994 and 1995
include certain fixed or minimum office, administrative, legal and personnel
related costs and certain start up costs, including short term facilities
rentals, organizational costs, contract services and consultants. Such costs are
expected to grow over time as operations increase. In the last two years such
costs have become less significant on a unit of production basis, but such costs
can be expected to fluctuate in the future based upon a number of factors. In
Venezuela, for the year ended December 31, 1993, the operating costs and general
and administrative expenses were $7.26 and $2.25 per Bbl, respectively. For the
year ended December 31, 1995 the operating costs and general and administrative
expenses for Venezuela decreased to $1.19 and $0.63 per Bbl, respectively. The
Company's Venezuelan operations grew considerably during 1994 and 1995, and are
expected to continue to grow, and its operating costs and general and
administrative expenses are expected to increase both in the aggregate and on a
per unit basis. In Russia, for the year ended December 31, 1993, the operating
costs and general and administrative expenses were $16.22 and $12.96 per Bbl,
respectively, decreasing to $5.63 and $1.16 per Bbl, respectively, for the year
ended December 31, 1995. The Company's Russian operations grew less
significantly than the Venezuelan operations during 1994 and 1995. Capital
expenditures through 1993 in both Venezuela and Russia focused on start-up
infrastructure items such as roads, pipelines, and facilities rather than
drilling. Beginning in 1994, a higher proportion of capital expenditures have
been and will continue to be spent on drilling and production activities. See
"Business -- South Monagas Unit, Venezuela -- Drilling and Development Activity"
and "-- North Gubkinskoye, Russia -- Drilling and Development Activity."
As a private contractor, Benton-Vinccler is subject to a statutory income tax
rate of 34%. However, Benton-Vinccler reported significantly lower effective tax
rates for 1994 and 1995 due to significant non-cash tax deductible expenses
resulting from devaluations in Venezuela when Benton-Vinccler had net monetary
liabilities in U.S. dollars. The Company cannot predict the timing or impact of
future devaluations in Venezuela. Any Company operations related to Delta Centro
will be subject to profit sharing, royalties and oil and gas industry taxation.
See "Summary -- Recent Developments" and "Business -- Delta Centro Block,
Venezuela."
GEOILBENT is subject to a statutory income tax rate of 35%. GEOILBENT has also
been subject to various other tax burdens, including an oil export tariff. The
export tariff was 30 ECU's per ton through 1995, although GEOILBENT obtained an
exemption from such tariff for 1995. The tariff was reduced to 20 ECU's per ton
in January 1996, and Russia has recently announced that effective July 1996, oil
export tariffs will be terminated. The Company anticipates that the tariff on
oil exporters may be replaced by an excise, pipeline or other tax levied on all
oil producers, but it is currently unclear how such other tax rates and regimes
will be set and administered.
EFFECTS OF CHANGING PRICES, FOREIGN EXCHANGE RATES AND INFLATION
The Company's results of operations and cash flow are affected by changing oil
and gas prices. However, the Company's Venezuelan revenues are based on a fee
adjusted quarterly by the percentage change of a basket of crude oil prices
instead of by
26
<PAGE> 27
absolute dollar changes, which dampens both any upward and downward effects of
changing prices on the Company's Venezuelan revenues and cash flows. If the
price of oil and gas increases, there could be an increase in the cost to the
Company for drilling and related services because of increased demand, as well
as an increase in revenues. Fluctuations in oil and gas prices may affect the
Company's total planned development activities and capital expenditure program.
Effective May 1, 1994, the Company entered into a commodity hedge agreement with
Morgan Guaranty Trust Company of New York ("Morgan Guaranty") designed to reduce
a portion of the Company's risk from oil price movements. Pursuant to the hedge
agreement, with respect to the period from May 1, 1994 through the end of 1996,
the Company will receive from Morgan Guaranty $16.82 per Bbl and the Company
will pay to Morgan Guaranty the average price per Bbl of West Texas Intermediate
Light Sweet Crude Oil ("WTI") determined in the manner set forth in the hedge
agreement. Such payments will be made with respect to production of 1,000 Bbls
of oil per day for 1994, 1,250 Bbls of oil per day for 1995, and 1,500 Bbls of
oil per day for 1996. During the quarter ended March 31, 1996, the average price
per Bbl of WTI was $19.57 and the Company's net exposure for the quarter was
$0.4 million. The Company's total exposure for the year ended December 31, 1995,
under the hedge agreement was $0.7 million. The Company's oil production is not
materially affected by seasonality. The returns under the hedge agreement are
affected by world-wide crude oil prices, which are subject to wide fluctuation
in response to a variety of factors that are beyond the control of the Company.
There are presently no restrictions on conversion of currency in either
Venezuela or Russia. However, from June 1994 through April 1996, Venezuela
implemented exchange controls which significantly limited the ability to convert
local currency into U.S. dollars. Because payments made to Benton-Vinccler are
made in U.S. dollars into its United States bank account, and Benton-Vinccler is
not subject to regulations requiring the conversion or repatriation of those
dollars back into the country, the exchange controls did not have a material
adverse effect on Benton-Vinccler or the Company.
Within the United States, inflation has had a minimal effect on the Company, but
is potentially an important factor in results of operations in Venezuela and
Russia. With respect to Benton-Vinccler and GEOILBENT, substantially all of the
sources of funds, including the proceeds from oil sales, the Company's
contributions and credit financings, are denominated in U.S. dollars, while
local transactions in Russia and Venezuela are conducted in local currency.
Following the announcement of Venezuela's preliminary loan accord with the IMF
and the lifting of exchange controls, inflation will likely rise temporarily in
Venezuela and could be expected to have an adverse effect on Benton-Vinccler.
During the year ended December 31, 1995 and the three months ended March 31,
1996, the Company realized net foreign exchange gains, primarily as a result of
the decline in the value of the Venezuelan bolivar during periods when
Benton-Vinccler had substantial net monetary liabilities denominated in
bolivares. During the year ended December 31, 1995, the Company's net foreign
exchange gains attributable to its Venezuelan operations were $1.0 million and
net foreign exchange losses attributable to its Russian operations were $0.1
million. During the three months ended March 31, 1996, the Company's net foreign
exchange gains attributable to its Venezuelan and Russian operations were $1.0
million and $0.1 million, respectively. However, there are many factors
affecting foreign exchange rates and resulting exchange gains and losses, many
of which are beyond the influence of the Company. The Company has recognized
significant exchange gains and losses in the past, resulting from fluctuations
in the relationship of the Venezuelan and Russian currencies to the U.S. dollar.
It is not possible to predict the extent to which the Company may be affected by
future changes in exchange rates and exchange controls.
CAPITAL RESOURCES AND LIQUIDITY
The oil and gas industry is a highly capital intensive business. The Company
requires capital principally to fund the following costs: (i) drilling and
completion costs of wells and the cost of production and transportation
facilities; (ii) geological, geophysical and seismic costs; and (iii)
acquisition of interests in oil and gas properties. The amount of available
capital will affect the scope of the Company's operations and the rate of its
growth.
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<PAGE> 28
The net funds raised and/or used in each of the operating, investing and
financing activities for each of the years in the three year period ended
December 31, 1995 and the three months ended March 31, 1995 and 1996 are
summarized in the following table and discussed in further detail below:
<TABLE>
<CAPTION>
--------------------
---------------------------------
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31
1993 1994 1995 1995 1996
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Dollars in thousands
Net cash provided by (used in) operating
activities $ (1,790) $ 13,462 $ 32,349 $ 5,388 $ 15,776
Net cash provided by (used in) investing
activities (18,619) (55,078) (53,644) 3,584 (14,949)
Net cash provided by (used in) financing
activities 43,044 19,500 13,282 (1,956) 797
------------ ------------ ------------
Net increase (decrease) in cash $ 22,635 $ (22,116) $ (8,013) $ 7,016 $ 1,624
============ ============ ============
</TABLE>
At March 31, 1996, the Company had current assets of $64.2 million (including
$19.3 million and $2.0 million of cash restricted as collateral for loans to
Benton-Vinccler and GEOILBENT, respectively), and current liabilities of $61.5
million (including loans of $19.3 million and $0.6 million collateralized by
restricted cash), resulting in working capital of $2.7 million and a current
ratio of 1.04:1. This compares to the Company's working capital deficit of $2.9
million at December 31, 1995. The increase of $5.6 million was due primarily to
working capital generated from operations in excess of capital expenditures.
Cash Flow from Operating Activities
During the three months ended March 31, 1996 and the years ended December 31,
1995 and 1994, net cash provided by operating activities was approximately $15.8
million, $32.4 million and $13.5 million, respectively, and during 1993, net
cash used in operating activities was approximately $1.8 million. Cash flow from
operating activities increased by $18.9 million and $15.3 million in 1995 and
1994, respectively, over the prior year, and $10.4 million during the three
months ended March 31, 1996 compared to the corresponding period of the prior
year, due primarily to increased oil and gas production in Venezuela.
Cash Flow from Investing Activities
During the three months ended March 31, 1996, the Company had drilling and
production related capital expenditures of approximately $17.4 million, of which
$12.0 million was attributable to the development of the South Monagas Unit in
Venezuela, $1.8 million related to the development of the North Gubkinskoye
Field in Russia, $1.7 million related to drilling activity in the West Cote
Blanche Bay, Rabbit Island and Belle Isle Fields in Louisiana, and $1.9 million
was attributable to other projects. During 1995, 1994 and 1993, the Company had
drilling and production related capital expenditures of approximately $68.3
million, $39.6 million and $26.2 million, respectively. Of the 1995
expenditures, $49.0 million was attributable to the development of the South
Monagas Unit in Venezuela, $12.4 million related to the development of the North
Gubkinskoye Field in Russia, $6.0 million related to drilling activity in the
West Cote Blanche Bay, Rabbit Island and Belle Isle Fields in Louisiana, and
$0.9 million was attributable to other projects. The Company also sold certain
oil and gas properties for net proceeds of approximately $1.3 million, $15.4
million, $5.8 million and $7.8 million during the three months ended March 31,
1996 and the years ended December 31, 1995, 1994 and 1993, respectively.
In April 1996, the Company sold to Shell all of its interests in the West Cote
Blanche Bay, Rabbit Island and Belle Isle Fields for a purchase price of $35.4
million. Proceeds of the sale will be used to repay debt as described below and
for working capital purposes in Venezuela and other international activities.
Cash Flow from Financing Activities
In May 1996, the Company issued $125 million in aggregate principal amount of
Old Notes. A portion of the proceeds therefrom was used to repay certain long
term indebtedness and the remainder will be used for repayment of certain short
term obligations and for capital expenditure and working capital purposes.
On June 30, 1995, the Company issued $20 million in senior unsecured notes due
June 30, 2007, with interest at 13% per annum. The note agreement contained
financial covenants and provided for limitations on sales of assets. The Company
prepaid these senior unsecured notes from the proceeds of the sale of the Old
Notes and paid a prepayment premium of approximately $7.4 million. The holders
of the senior notes provided consent to the sale of the U.S. properties and such
consent requires payment of the notes on or before June 30, 1996.
On September 30, 1994, the Company issued $15 million in senior unsecured notes
due September 30, 2002, with interest at 13% per annum. The note agreement
contained financial covenants and provided for limitations on sales of assets.
Upon
28
<PAGE> 29
consummation of the U.S. Property Sale, the Company prepaid the outstanding
principal and accrued interest on these senior notes, with a prepayment premium
of approximately $3.2 million.
On December 27, 1994, the Company entered into a revolving secured credit
facility with a commercial bank. Under the terms of the credit agreement, the
Company could borrow up to $15 million, with the initial available principal
limited to $10 million. The credit facility was secured by the U.S. properties.
The Company repaid the principal outstanding of approximately $5 million, with
accrued interest, and made a payment for the net profits interest of $1.8
million upon closing the U.S. Property Sale.
In February 1994, the Company and Benton-Vinccler entered into a six month loan
arrangement with Morgan Guaranty to repay commercial paper and for working
capital requirements, which has subsequently been renewed on a monthly basis.
Under such arrangement, Benton-Vinccler may borrow up to $25 million, of which
$10 million may be borrowed on a revolving basis. Borrowings under this loan
arrangement are secured by cash collateral in the form of a time deposit from
the Company. The loan arrangement contains no restrictive covenants and no
financial ratio requirements. The principal amount of such loan outstanding at
December 31, 1995 was $19.3 million. Benton-Vinccler can borrow an additional
$5.7 million under the loan arrangement if the Company provides a time deposit
to secure such additional borrowings.
In October 1995, the Company and GEOILBENT entered into a loan arrangement with
Morgan Guaranty for working capital requirements. Under such arrangement,
GEOILBENT may borrow up to $10 million on a revolving basis. Borrowings under
this loan arrangement are secured by cash collateral in the form of a time
deposit by the Company. The loan arrangement contains no restrictive covenants
and no financial ratio requirements. The principal amount of such loan
outstanding at December 31, 1995 was $0.6 million.
On May 30, 1996, the Company entered into a Credit Agreement with Morgan
Guaranty. The Credit Agreement provides for the issuance of a letter of credit
in the amount of $18,000,000 to be used to secure the Company's performance
under its agreements related to the development of the Delta Centro Block in
Venezuela. The letter of credit will be secured by cash collateral in the form
of a time deposit from the Company. Morgan Guaranty will receive an arrangement
fee and will receive a fee of .25% per annum computed on the daily average
maximum available amount of the letter of credit. In addition, the Credit
Agreement provides for a $20,000,000 unsecured revolving credit facility which
must be repaid on or before March 14, 1998. Borrowings under such facility
accrue interest at per annum rate equal to the sum of the Euro-Dollar margin
plus the Adjusted London Interbank Offered Rate for such interest period. The
Euro-Dollar margin will be 3% until September 14, 1997 and 3.75% per annum
thereafter. The revolving credit facility is secured by a guarantee by the
Company's subsidiary Benton-Vinccler, C.A. and a security interest in all
payments made to Benton-Vinccler, C.A. under its Service Agreement with Fagoven,
S.A. The Credit Agreement contains covenants and restrictions that are
substantially the same as those provided in the Indenture.
The Company expects 1996 capital expenditures to be approximately $100 million,
including $12 million in expenditures for Russia (net to the Company's interest)
which is dependent on proposed EBRD or other financing, which may or may not be
obtained. See "Business -- North Gubkinskoye, Russia -- Drilling and Development
Activity." Funding is expected to come from the proceeds from the sale of the
Old Notes, cash flow from operations, sales of property interests, or project
and trade financing sources. There can be no assurance that such financing will
become available under terms and conditions acceptable to the Company, which may
result in reduced capital expenditures in the Company's principal areas of
operations.
29
<PAGE> 30
BUSINESS
INFORMATION INCORPORATED BY REFERENCE IN THIS PROSPECTUS
The following documents filed with the Commission by the Company 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, as amended on Form 10-K/A dated June 14, 1996.
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996.
(c) All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the Expiration
Date.
GENERAL
The Company is an independent energy company which has been engaged in the
development and production of oil and gas properties since 1989. Although
originally active only in the United States, the Company has developed
significant interests in Venezuela and Russia, and recently sold substantially
all of its remaining United States oil and gas interests. The Company's
operations are conducted principally through its 80%-owned Venezuelan
subsidiary, Benton-Vinccler which operates in the South Monagas Unit in
Venezuela, and its 34%-owned Russian joint venture, GEOILBENT, which operates in
the North Gubkinskoye Field in Siberia, Russia.
As of December 31, 1995, the Company had total assets of $214.8 million ($234.9
million at March 31, 1996), total estimated proved reserves of 96,212 MBOE, and
a standardized measure of discounted future net cash flow, before income taxes,
for total proved reserves of $372.3 million. For the year ended December 31,
1995 and the three months ended March 31, 1996, the Company had total revenues
of $65.1 million and $32.9 million, respectively and net income of $10.6 million
and $6.3 million, respectively.
The Company has been successful in increasing reserves, production, revenues and
earnings during the last two years. From year end 1993 through 1995, estimated
proved reserves increased from 42,785 MBOE to 96,212 MBOE and net production
increased from a total of 519 MBOE in 1993 to 6,647 MBOE in 1995. As production
has increased over this period, average lifting costs per Bbl have declined from
$7.26 to $1.19 in Venezuela, and from $16.22 to $5.63 in Russia. Over the same
period, earnings per share have increased from a loss of $0.26 per share in 1993
to income of $0.40 per share for the year ended December 31, 1995.
The Company was incorporated in Delaware in September 1988 and its principal
executive offices are located at 1145 Eugenia Place, Suite 200, Carpinteria,
California 93013, and its telephone number is (805) 566-5600.
BUSINESS STRATEGY
The Company's business strategy is to identify and exploit new oil and gas
reserves in under-developed areas while seeking to minimize the associated risk
of such activities. Specifically, the Company endeavors to minimize risk by
employing the following strategies in its business activities: (i) seek new
reserves in areas of low geologic risk; (ii) use proven advanced technology in
both exploration and development to maximize recovery; (iii) establish a local
presence through joint venture partners and the use of local personnel; (iv)
commit capital in a phased manner to limit total commitments at any one time;
and (v) reduce foreign exchange risks through receipt of revenues in U.S.
currency.
- - SEEK NEW RESERVES IN AREAS OF LOW GEOLOGIC RISK. The Company has had
significant success in identifying under-developed reserves in the U.S. and
internationally. In particular, the Company has notable experience and expertise
in seeking and developing new reserves in countries where perceived potential
political and operating difficulties have sometimes discouraged other energy
companies from competing. As a result, the Company has established operations in
Venezuela and Russia which have significant reserves that have been acquired and
developed at relatively low costs. The Company is seeking similar opportunities
in other countries and areas which it believes have high potential.
- - USE OF PROVEN ADVANCED TECHNOLOGY IN BOTH EXPLORATION AND DEVELOPMENT. The
Company's use of 3-D seismic technology, in which a three dimensional image of
the earth's subsurface is created through the computer interpretation of seismic
data, combined with its experience in designing the seismic surveys and
interpreting and analyzing the resulting data, allow for a more detailed
understanding of the subsurface than do conventional surveys. Such technology
contributes significantly to field appraisal, development and production. The
3-D seismic information, in conjunction with subsurface geologic data from
previously drilled wells, is used by the Company's experienced in-house
technical team to identify previously undetected reserves. The 3-D seismic
information can also be used to guide drilling on a real-time basis, and has
been especially helpful in the horizontal drilling done in Venezuela in order to
take advantage of oil-trapping faults.
- - ESTABLISH A LOCAL PRESENCE THROUGH JOINT VENTURE PARTNERS AND THE USE OF LOCAL
PERSONNEL. The Company has sought to establish a local presence where it does
business to facilitate stronger relationships with local government and labor
30
<PAGE> 31
through joint venture arrangements with local partners. Moreover, the Company
employs almost exclusively local personnel to run foreign operations both to
take advantage of local knowledge and experience and to minimize cost. These
efforts have created an expertise within Company management in forming effective
foreign partnerships and operating abroad. The Company believes that it has
gained access to new development opportunities as a result of its reputation as
a dependable partner.
- - COMMIT CAPITAL IN A PHASED MANNER TO LIMIT TOTAL COMMITMENTS AT ANY ONE
TIME. While the Company typically has agreed to a minimum capital expenditure or
development commitment at the outset of new projects, expenditures to fulfill
these commitments are phased over time. In addition, the Company seeks, where
possible, to use internally generated funds for further capital expenditures and
to invest in projects which provide the potential for an early return to the
Company.
- - REDUCE FOREIGN EXCHANGE RISKS. The Company seeks to reduce foreign currency
exchange risks by providing for the receipt of revenues by the Company in U.S.
dollars while most operating costs are incurred in local currency. Pursuant to
the operating agreement between Benton-Vinccler and Lagoven, the operating fees
earned by the Company are paid directly to the Company's bank account in the
U.S. in U.S. dollars. GEOILBENT receives revenues from export sales in U.S.
dollars paid to its account in Moscow. As the Company expands internationally,
it will seek to establish similar arrangements for new operations.
PRINCIPAL AREAS OF ACTIVITY
The following table summarizes the Company's proved reserves, drilling and
production activity, and financial operating data by principal geographic area
at and for each of the years ended December 31:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
VENEZUELA(1) RUSSIA UNITED STATES
--------------------------- ------------------------- -------------------------
Dollars in thousands 1993 1994 1995 1993 1994 1995(2) 1993 1994 1995(3)
------- -------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESERVE INFORMATION:
Proved Reserves (MBOE) 19,389 60,707 73,593 10,121 17,540 22,618 13,275 2,913 1
Discounted Future Net Cash Flows
Before Income Taxes $72,206 $268,830 $286,916 $24,237 $48,833 $85,361 $34,970 $18,657 $ 16
Standardized Measure of Future Net
Cash Flows $50,958 $172,703 $206,545 $19,512 $32,398 $55,434 $32,046 $18,286 $ 16
DRILLING AND PRODUCTION ACTIVITY:
Gross Wells Drilled 5 11 19 4 9 25 9 5 5
Average Daily Production (BOE) 440 6,902 14,949 77 806 1,345 907 1,561 1,917
FINANCIAL DATA:
Oil and Gas Revenues $ 1,333 $ 21,472 $ 49,174 $ 324 $ 3,513 $ 6,016 $ 5,565 $ 7,287 $ 7,683
Expenses:
Lease Operating Costs and
Production Taxes 1,165 3,808 6,483 458 2,832 2,764 3,487 2,891 1,456
Depletion 229 4,998 11,393 99 838 1,512 2,142 4,248 4,188
------- -------- -------- ------- ------- ------- ------- ------- -------
Total Expenses 1,394 8,806 17,876 557 3,670 4,276 5,629 7,139 5,644
------- -------- -------- ------- ------- ------- ------- ------- -------
Results of Operations from
Oil and Gas Producing
Activities $ (61) $ 12,666 $ 31,298 $ (233) $ (157) $ 1,740 $ (64) $ 148 $ 2,039
======== ========= ========= ======== ======== ======== ======== ======== ========
</TABLE>
- ------------------------
(1) Includes 100% of the reserve information, drilling and production activity
and financial data, without deduction for minority interest. All Venezuelan
reserves are attributable to an operating service agreement between
Benton-Vinccler and Lagoven under which all mineral rights are owned by the
Government of Venezuela. See "-- South Monagas Unit, Venezuela" and
"-- Reserves."
(2) The financial information for Russia for the 1995 presentation includes
information for the nine months ended September 30, 1995, the end of the
fiscal period for GEOILBENT. Results of operations in Russia reflect the
twelve months ended December 31, 1993 and 1994 and the nine months ended
September 30, 1995.
(3) In April 1996, the Company sold substantially all its U.S. reserves and
related acreage positions. See "-- Other Properties." The 1995 Reserve
Information excludes the reserves which were sold.
SOUTH MONAGAS UNIT, VENEZUELA
General
In July 1992, the Company and Vinccler, a Venezuelan construction and
engineering company, signed a 20-year operating service agreement with Lagoven,
an affiliate of the national oil company, PdVSA, to reactivate and further
develop the Uracoa, Tucupita and Bombal Fields, which are a part of the South
Monagas Unit (the "Unit"). At that time, the Company was one of three foreign
companies ultimately awarded an operating service agreement to reactivate
existing fields by PdVSA, and was the first U.S. company since 1976 to be
granted such an oil field development contract in Venezuela.
The oil and gas operations in the Unit are conducted by Benton-Vinccler, the
Company's 80%-owned subsidiary. The remaining 20% of the outstanding capital
stock of Benton-Vinccler is owned by Vinccler. The Company, through its majority
ownership of
31
<PAGE> 32
stock in Benton-Vinccler, makes all operational and corporate decisions related
to Benton-Vinccler, subject to certain super-majority provisions of
Benton-Vinccler's charter documents related to mergers, consolidations, sales of
substantially all of its corporate assets, change of business and similar major
corporate events. Vinccler has an extensive operating history in Venezuela. It
provided the Company with initial financial assistance and continues to provide
ongoing assistance with construction services and governmental and labor
relations.
Under the terms of the operating service agreement, Benton-Vinccler is a
contractor for Lagoven and is responsible for overall operations of the South
Monagas Unit, including all necessary investments to reactivate and develop the
fields comprising the Unit. The Venezuelan government maintains full ownership
of all hydrocarbons in the fields. In addition, Lagoven maintains full ownership
of equipment and capital infrastructure following its installation.
Benton-Vinccler invoices Lagoven each quarter based on Bbls of oil accepted by
Lagoven during the quarter, using quarterly adjusted contract service fees per
Bbl, and receives its payments from Lagoven in U.S. dollars deposited directly
into a U.S. bank account. The operating service agreement provides for
Benton-Vinccler to receive an operating fee for each Bbl of crude oil delivered
and a capital recovery fee for certain of its capital expenditures, provided
that such operating fee and capital recovery fee cannot exceed the maximum total
fee per Bbl set forth in the agreement. The operating fee is subject to periodic
adjustments to reflect changes in the special energy index of the U.S. Consumer
Price Index, and the maximum total fee is subject to periodic adjustments to
reflect changes in the average of certain world crude oil prices. Since
commencement of operations, the adjusted maximum total fee has been cumulatively
less than the adjusted operating fee, resulting in no capital recovery fee. The
Company cannot predict the extent to which future maximum total fee adjustments
will provide for capital recovery components in the fees it receives, and has
recorded no income or asset for capital recovery fees.
Under the terms of the operating service agreement, Benton-Vinccler was
obligated to make certain capital and operating expenditures prior to December
31, 1995. Benton-Vinccler has satisfied all such obligations under the operating
service agreement and no further capital commitments are contractually required.
However, in order to expand operations, the Company will need to continue to
make capital expenditures. See "-- South Monagas Unit, Venezuela -- Drilling and
Development Activity."
Since 1992, when Venezuela solicited initial calls for indications of interest
related to the reactivation and further development of certain fields in
Venezuela, the country has continued to invite foreign assistance in Venezuelan
oil and gas exploration, development and production. Management believes that
Venezuela continues to provide potential business opportunities for the Company.
See "-- Delta Centro Block, Venezuela."
Location and Geology
The Unit is located in the southeastern part of the state of Monagas in eastern
Venezuela. The Unit is approximately 51 miles long and eight miles wide and
consists of 157,843 acres, of which the fields comprise approximately one-half.
At December 31, 1995, proved reserves attributable to the Company's Venezuelan
operations were 73,593 MBOE, which represented approximately 76% of the
Company's proved reserves. Benton-Vinccler is currently developing the Oficina
sands in the Uracoa Field, which contain 92.4% of the Unit's proved reserves.
The associated natural gas which is produced is currently being reinjected into
the field, as no ready market exists for the natural gas.
Drilling and Development Activity
Uracoa Field. Benton-Vinccler has been developing the Uracoa Field since 1992.
During May 1996, approximately 63 wells were producing an average of
approximately 33.6 MBbls of oil per day in the Uracoa Field. The following table
sets forth Uracoa drilling activity and production information for each of the
quarters presented:
<TABLE>
<CAPTION>
----------------------------------------------------------
WELLS DRILLED AVERAGE DAILY
VERTICAL HORIZONTAL PRODUCTION FROM FIELD (BBLS)
------------- ---------- ----------------------------
<S> <C> <C> <C>
1994:
First Quarter 5 0 3,400
Second Quarter 0 0 6,700
Third Quarter 3 0 7,200
Fourth Quarter 0 3 10,200
1995:
First Quarter 1 1 11,800
Second Quarter 1 2 11,300
Third Quarter 3 2 15,800
Fourth Quarter 1 8 20,800
1996:
First Quarter 1 9 29,000
</TABLE>
32
<PAGE> 33
Benton-Vinccler contracts with third parties for drilling and completion of
wells. Currently, Helmerich & Payne International Drilling Co. and Exeter
Drilling Co. are performing drilling services for Benton-Vinccler under
contract. The Company's technical personnel identify drilling locations, specify
the drilling program and equipment to be used and monitor the drilling
activities. To date, 14 previously drilled wells have been reactivated and 46
new wells have been drilled in the Uracoa Field using modern drilling and
completion techniques that had not previously been utilized on the field, with
45, or 98%, completed and placed on production. Two drilling rigs are currently
working in the field. In the Company's recent experience, each vertical deviated
well, drilled to an average depth of 5,600 feet, has been drilled in
approximately 10 days and completed in approximately 6 days, and each horizontal
well, drilled to an average depth of 6,500 feet, has been drilled in 20 days and
completed in 3 days. Benton-Vinccler plans to drill approximately 7 vertical and
26 horizontal wells, 2 injection wells and one step-out well adjacent to the
Uracoa Field during 1996, at an anticipated cost of $40-45 million.
In December 1993, Benton-Vinccler commenced drilling the first horizontal well
in the Uracoa Field. Since the completion of this well, the Company has
successfully integrated modern technology and modern drilling and completion
techniques to improve the ultimate recovery. The Company has conducted a 3-D
seismic survey and interpreted the seismic data over the Uracoa Field. As a
horizontal well is drilled, information regarding formations encountered by the
drill bit is transmitted to the Company. Geologists, engineers and geophysicists
at the Company can determine the location of the drill bit by comparing the
information about the formations being drilled with the 3-D seismic data. The
Company then directs the movement of the drill bit to more accurately direct the
well to the expected reservoir. The Company intends to continue this method of
horizontal drilling in the development of the field.
Once oil is produced in the Uracoa Field, it is transported to production
facilities, which were designed in the United States and installed by
Benton-Vinccler. These production facilities are of the type commonly used in
heavy oil production in the United States, but not previously used extensively
in Venezuela to process crude oil of similar gravity or quality. The current
production facilities are capable of processing 30-35 MBbls of oil per day.
Benton-Vinccler intends to expand the capacity of the production facilities in
1996 to a total capacity of 40-45 MBbls of oil per day. The Company anticipates
capital expenditures of $21 million during 1996 to complete such expansion.
Tucupita and Bombal Fields. Before becoming inactive, only Tucupita had been
substantially developed and produced; relatively few wells had been drilled at
Uracoa and Bombal. Benton-Vinccler has completed a 67-square mile 3-D seismic
survey over portions of the Unit and is currently interpreting the data. Based
on the interpretations of the seismic data, Benton-Vinccler may drill one or
more wells to extend the boundaries of the three known fields or to confirm the
existence of additional fields previously undetected in the area. Further
analysis of the Unit indicates that significant reserves may remain in the
Tucupita Field. Benton-Vinccler intends to evaluate the potential of the
Tucupita Field in 1996 by drilling one oil well, and will expand existing
production facilities in such field. Based on the performance of this pilot oil
well, and if the Company's assumptions prove to be correct, the production
facilities will be further expanded, and a pipeline to the Uracoa Field will be
installed. The pipeline will also be used for production from the Bombal Field
when it is developed. Benton-Vinccler currently plans to begin to reactivate and
develop the Bombal Field beginning later in 1996. During 1996, the Company
expects capital expenditures of $5-7 million for drilling and construction of
facilities in the Tucupita and Bombal Fields.
Customers and Market Information
Oil produced in Venezuela is delivered to Lagoven under the terms of an
operating service agreement for an operating service fee. Benton-Vinccler has
constructed a 25-mile oil pipeline from its oil processing facilities at Uracoa
to Lagoven's storage facility, which is the custody transfer point. The service
agreement specifies that the oil stream may contain no more than 1% base
sediment and water, and quality measurements are conducted both at
Benton-Vinccler's facilities and at Lagoven's storage facility. A continuous
flow measuring unit is installed at Benton-Vinccler's facility, so that quantity
is monitored constantly. Lagoven provides Benton-Vinccler with a daily
acknowledgment regarding the amount of oil accepted the previous day, which is
reconciled to Benton-Vinccler's measurement. At the end of each quarter,
Benton-Vinccler prepares an invoice to Lagoven for that quarter's deliveries.
Lagoven pays the invoice at the end of the second month after the end of the
quarter. Invoice amounts and payments are denominated in U.S. dollars. Payments
are wire transferred into Benton-Vinccler's account in New York.
Employees; Community Relations
Benton-Vinccler seeks to employ nationals rather than bring expatriates into the
country. Presently, there are five full-time expatriates working with
Benton-Vinccler and 121 local employees. Benton-Vinccler also conducts ongoing
community relations programs, providing medical care, training, equipment and
supplies, and support for local schools, in both states in which the South
Monagas Unit falls.
33
<PAGE> 34
DELTA CENTRO BLOCK, VENEZUELA
General
In January 1996, the Company and its bidding partners, LL&E and Norcen, were
awarded the right to explore and develop the Delta Centro Block in Venezuela.
The contract requires a minimum exploration work program consisting of
completing a 1,300 kilometer seismic survey and drilling three wells to depths
of 12,000 to 18,000 feet within five years. PdVSA estimates that this minimum
exploration work program will cost $60 million, and will require that the
Company, LL&E and Norcen each post a performance surety bond or standby letter
of credit for its pro rata share of the estimated work commitment expenditures.
The Company will have a 30% interest in the exploration venture, with LL&E and
Norcen each owning a 35% interest. Under the proposed terms of the operating
agreement, which establishes the management company for the project, LL&E will
be the operator of the field and therefore the Company will not be able to
exercise control of the operations of the venture. It is currently proposed that
Corporacion Venezolana del Petroleo, S.A. ("CVP"), an affiliate of the national
oil company, will have a 35% interest in the management company, which will
dilute the voting power of the partners on a pro rata basis.
If areas within the block are deemed to be commercially viable, then the group
has the right to enter into further agreements with CVP to develop those areas
during the next 20-25 years. CVP would participate in the revenues and costs
with an interest between 1-35%, at CVP's discretion. Any oil and gas produced by
the Delta Centro consortium will be sold at market prices and will be subject to
the oil and gas taxation regime in Venezuela and to the terms of a profit
sharing agreement with PdVSA. Under the current oil and gas tax law, a royalty
of up to 16.67% will be paid to the state. Under the contract bid terms, 41% of
the pre-tax income will be shared with PdVSA for the period during which the
first $1 billion of revenues is produced; thereafter, the profit sharing amount
may increase to up to 50% according to a formula based on return on assets.
Currently, the statutory income tax rate for oil and gas enterprises is 66.7%.
Royalties and shared profits are currently deductible for tax purposes.
Location and Geology
The Delta Centro block consists of approximately 2,100 square kilometers
(526,000 acres) located in the delta of the Orinoco River in the eastern part of
Venezuela. Although no significant exploratory activity has been conducted on
the block, PdVSA has estimated that the area may contain recoverable reserves of
as much as 820 MMBbls, and may be capable of producing up to 160 MBbls of oil
per day. The general area of Venezuela in which the Delta Centro Block is
located is known to be a significant source of hydrocarbons, evidenced by the
Orinoco tar sands to the south and the recently discovered El Furrial light oil
trend to the north. Based on its geological studies of the basins in this area,
the Company's technical staff believes that hydrocarbons have essentially
migrated over time from the deeper Maturin basin area of Venezuela southward
toward the shallower Orinoco tar belt area. If so, then potential trapping
structures and/or faults in the path of the migrating oil would serve as traps
for the migrating oil and have the opportunity to be filled to their spill
points. Delta Centro is directly in line with this migration path, making it an
attractive exploration area. The area is mostly swampy in nature, with terrain
ranging from forest in the north to savannah in the south. The marshlands in the
block are similar to the transition zone areas in the Gulf of Mexico in which
the Company has significant experience in seismic and drilling operations.
Drilling and Development Activity
The venture intends to conduct a 3-D seismic survey over the southwestern
portion of the Delta Centro Block beginning in 1996, at an expected total cost
to the Company of approximately $6-7 million, of which $2 million is expected to
be spent in 1996. Following the initial interpretation of the seismic data, the
venture intends to drill an initial exploration well during 1997, at a cost to
the Company of approximately $1.5-2 million. Seismic and drilling programs
during 1998-2000 will be based on the results of the 1996-1997 activity.
OVERVIEW OF VENEZUELAN OIL AND GAS INDUSTRY
Oil and gas is a vital industry in Venezuela, currently representing 25% of the
economy. Estimates by the Economist Intelligence Unit indicate that the oil
sector grew 6.0% in 1995 and 4.6% in 1994. Oil, gas and petroleum product
exports for 1995 reached $13.3 billion, accounting for almost 73% of total
exports. In addition, such estimates indicate that PdVSA expects oil and gas
product exports to total approximately $15.6 billion in 1996.
PdVSA is one of the largest oil companies in the world based on several factors,
including reserves, production capacity and product sales. At the end of 1995,
PdVSA's proved crude oil reserves were approximately 64 BBbls, more reserves
than any other company or country in the Western hemisphere. PdVSA is seeking to
double its current production capacity over the next ten years, with private
investment as a key source of capital to achieve such growth.
In 1992, Venezuela initiated a field re-activation program, which was an
important first step for the reentrance of private investment to the oil and gas
sector. Service contracts for 15 underdeveloped units were awarded, nine of
which currently produce
34
<PAGE> 35
a total of 100 MBbls per day. Benton-Vinccler currently provides approximately
30% of this total production. In the beginning of 1996, Venezuela opened the oil
and gas sector for profit sharing contracts. Ten areas were offered for auction
at the end of January, marking the first time that exploration and production
rights had been officially offered to the private sector since the
nationalization of the oil industry in 1976. The Delta Centro consortium was one
of the successful bidders.
NORTH GUBKINSKOYE, RUSSIA
General
In December 1991, the joint venture agreement forming GEOILBENT among the
Company (34% interest) and two Russian partners, Purneftegasgeologia and
Purneftegas (each having a 33% interest), was registered with the Ministry of
Finance of the USSR. In November 1993, the agreement was registered with the
Russian Agency for International Cooperation and Development. Although GEOILBENT
may only take action through the unanimous vote of the partners, the Company
believes that it has developed a good relationship with its partners and has not
experienced any disagreement with its partners on major operational matters. Mr.
A.E. Benton, Chief Executive Officer of the Company, serves as Chairman of the
Board of GEOILBENT.
Location and Geology
GEOILBENT develops, produces and markets crude oil from the North Gubkinskoye
Field in the West Siberia region of Russia, located approximately 2,000 miles
northeast of Moscow. The field, which covers an area approximately 15 miles long
and 4 miles wide, has been delineated with over 60 exploratory wells (which
tested 26 separate reservoirs) and is surrounded by large proven fields. Before
commencement of GEOILBENT's operations, North Gubkinskoye was one of the largest
oil and gas fields in the region not under commercial production. The field is a
large anticlinal structure with multiple pay sands. The development to date has
focused on the BP 8, 9, 10, 11 and 12 reservoirs. The natural gas which is
produced is currently being flared in accordance with environmental regulations.
Drilling and Development Activity
GEOILBENT commenced initial operations in the field during the third quarter of
1992 with the construction of a 37-mile oil pipeline and installation of
temporary production facilities. During May 1996, approximately 38 wells were
producing an average of approximately 6.4 MBbls of oil per day. The following
table sets forth drilling activity and production information for each of the
quarters presented:
<TABLE>
<CAPTION>
---------------------------------------
AVERAGE DAILY
PRODUCTION FROM FIELD
WELLS DRILLED (BBLS)
------------- ---------------------------
<S> <C> <C>
1994:
First Quarter 1 1,000
Second Quarter 1 2,400
Third Quarter 2 2,200
Fourth Quarter 5 4,900
1995:
First Quarter 4 4,300
Second Quarter 1 5,600
Third Quarter 9 7,800
Fourth Quarter 11 7,900
1996:
First Quarter 4 8,500
</TABLE>
GEOILBENT contracts with third parties for drilling and completion of wells.
Supervised by a joint American and Russian management team, GEOILBENT identifies
drilling locations, then uses Russian drilling rigs, upgraded by certain western
technology and materials including shaker screens, monitoring equipment and
drilling and completion fluids, to drill and complete a well. To date, 12
previously drilled wells have been reactivated and 38 wells have been drilled in
the field, with 37, or 97%, completed and placed on production. Four drilling
rigs are currently working on pads in the field, and once all wells on the pad
have been drilled, each such well will be tested for completion. Each well is
drilled to an average depth of approximately 10,000 feet measured depth and
8,000 feet true depth.
Once oil is produced from the North Gubkinskoye Field, it is transported to
production facilities constructed and owned by GEOILBENT. Oil is then
transferred to GEOILBENT's 37-mile pipeline which transports the oil from the
North Gubkinskoye Field south to the main Russian oil pipeline network.
35
<PAGE> 36
The current production facilities are operating at or near capacity and would
need to be expanded to accommodate any increased production. Subject to
obtaining financing, GEOILBENT has a 1996 capital expenditure budget of
approximately $35 million, of which $21 million would be used to drill
approximately 36 wells in the North Gubkinskoye Field and $14 million for
construction of production facilities. Although no assurance can be given that
such financing will be obtained, GEOILBENT and the Company continues discussions
with the European Bank for Reconstruction and Development ("EBRD") for a
proposed credit facility, which would be non-recourse to the Company, to be used
for development of the North Gubkinskoye Field, including the production
facility expansion. If EBRD or other financing is not completed, minimal capital
expenditures are anticipated and production from the field is expected to
experience a natural decline.
Customers and Market Information
GEOILBENT's 37-mile pipeline runs from the field to the main pipeline in the
area where GEOILBENT transfers the oil to Transneft, the state oil pipeline
monopoly. Transneft can transport the oil to the western border of Russia. All
oil production is for export and all oil sales are handled by trading companies
such as Russoil or NAFTA Moscow. During 1995, most of GEOILBENT's crude sales
were made to purchasers in Germany. All sales have been paid in U.S. dollars
into GEOILBENT's account in Moscow.
Employees; Community and Country Relations
Having access to the oilfield labor base in West Siberia, GEOILBENT employs
Russian nationals almost exclusively. Presently, there are three full-time
expatriates working with GEOILBENT and over 200 local employees. The Company
conducts an ongoing community relations program in Russia, providing medical
care, training, equipment and supplies in towns in which GEOILBENT personnel
reside and also for the nomadic indigenous population which resides in the area
of oilfield operations.
Alternatives for Natural Gas Reserves
The Company and GEOILBENT estimate that substantial recoverable associated gas
and condensate reserves exist in the North Gubkinskoye Field. In addition, there
are substantial non-associated natural gas reserves in the field. Currently,
there exists no ready market for these reserves, and therefore there are no
plans to produce these gas and condensate reserves. Associated gas and
condensate are flared in allowable amounts under permits with the Ministry of
Fuel and Energy. If no market develops for the gas and condensate, then over
time GEOILBENT plans to begin reinjecting them back into the reservoirs.
GEOILBENT currently has no rights to develop the gas caps in the field. However,
GEOILBENT has recently entered into discussions with Gazprom, the state natural
gas monopoly, for development and production of the solution gas, which is
estimated by the Company to be 550-600 Bcf. Implementation of such a development
plan would include construction of processing facilities and of a natural gas
pipeline from the field area to the main transmission pipeline. Feasibility
studies are currently in process and anticipated to be completed by year end
1996. Further development, subject to approval of all parties, will depend upon
available financing.
Importance of Russian Oil and Gas Industry
Although estimates vary widely, it is believed that a substantial amount of oil
and natural gas reserves are located in Russia. In 1994 and 1995, energy and
fuels (including primarily oil, oil products, natural gas, and hard coal)
accounted for approximately 45% and 41%, respectively, of total Russian exports,
as reported by the Economist Intelligence Unit. These fuel and energy exports
are important sources of hard currency. In the last several years, the Russian
oil and gas industry has attracted a notable amount of foreign investment,
including that of the Company.
OTHER PROPERTIES
Prior to 1996, the Company had successfully pursued acquisition and joint
venture opportunities in the United States as major oil and gas companies
continued to consolidate operations and focus exploration and development
activities outside the United States. Substantially all of the Company's
domestic activities were located in the Louisiana Gulf Coast at the West Cote
Blanche Bay, Rabbit Island and Belle Isle Fields. The Company entered into
agreements with Texaco, Inc. ("Texaco") and Oryx Energy Company ("Oryx") to
produce the fields by using 3-D seismic technology integrated with subsurface
geologic data from previously drilled wells. In addition, the Company entered
into certain agreements with Tenneco Ventures Corporation ("Tenneco") whereby
Tenneco purchased certain interests in the Company's operations in the three
fields and was given the right to participate as a 50% partner in certain of the
Company's future activities in the Gulf Coast for the next five years.
In March 1995, the Company and its affiliates and Tenneco sold to WRT Energy
Corporation a 43.75% working interest in the shallower depths (above
approximately 10,575 feet) in the West Cote Blanche Bay Field for an aggregate
purchase price of $20 million. Of this aggregate purchase price, the Company
received $14.9 million.
36
<PAGE> 37
On April 12, 1996, the Company sold to Shell all of its interests in the West
Cote Blanche Bay, Rabbit Island and Belle Isle Fields, effective December 31,
1995, for a purchase price of $35.4 million. Because the properties were held
for sale, the Company's reserve report excludes all reserves attributable to
these properties.
At December 31, 1995, the Company had proved reserves of 1 MBOE in the Scott
Field in Louisiana.
EVALUATION OF ADDITIONAL OPPORTUNITIES
The Company continues to evaluate and pursue additional international
opportunities which fit within the Company's business strategy. The Company is
currently evaluating certain development and/or acquisition opportunities, but
it is not presently known whether, or on what terms, such evaluations will
result in future agreements or acquisitions.
RESERVES
The following table sets forth information regarding estimates of proved
reserves at December 31, 1995 prepared by the Company and audited by Huddleston
& Co., Inc., independent petroleum engineers:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
CRUDE OIL AND CONDENSATE (MBBL) NATURAL GAS (MMCF)
-------------------------------------- -------------------------------------
DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL
--------- ----------- ------ --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Venezuela(1) 30,032 43,561 73,593 -- -- --
Russia(2) 3,475 19,143 22,618 -- -- --
United States(3) -- -- -- 6 -- 6
------ ------ ------ - - -
Total 33,507 62,704 96,211 6 0 6
====== ====== ====== = = =
</TABLE>
- ---------------
(1) Includes 100% of the reserve information, without deduction for minority
interest. All Venezuelan reserves are attributable to an operating service
agreement between Benton-Vinccler and Lagoven, under which all mineral
rights are owned by the Government of Venezuela. See "-- South Monagas Unit,
Venezuela."
(2) Although the Company estimates that there are substantial natural gas
reserves in the North Gubkinskoye Field, no natural gas reserves have been
recorded because of a lack of a ready market.
(3) The Company has entered into an agreement to sell substantially all of its
U.S. reserves and acreage positions. See "-- Other Properties." The table
excludes the reserves to be sold.
Estimates of commercially recoverable oil and gas reserves and of the future net
cash flows derived therefrom are based upon a number of variable factors and
assumptions, such as historical production from the subject properties,
comparison with other producing properties, the assumed effects of regulation by
governmental agencies and assumptions concerning future operating costs,
severance and excise taxes, export tariffs, abandonment costs, development costs
and workover and remedial costs, all of which may vary considerably from actual
results. All such estimates are to some degree speculative, and various
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of the commercially
recoverable reserves of oil attributable to any particular property or group of
properties, the classification, cost and risk of recovering such reserves and
estimates of the future net cash flows expected therefrom, prepared by different
engineers or by the same engineers at different times, may vary substantially.
The difficulty of making precise estimates is accentuated by the fact that 65%
of the Company's total proved reserves were non-producing as of December 31,
1995. Therefore, the Company's actual production, revenues, severance and excise
taxes, export tariffs, development expenditures, workover and remedial
expenditures, abandonment expenditures and operating expenditures with respect
to its reserves will likely vary from estimates, and such variances may be
material.
In addition, actual future net cash flows will be affected by factors such as
actual production, supply and demand for oil, availability and capacity of
gathering systems and pipelines, changes in governmental regulations or taxation
and the impact of inflation on costs. The timing of actual future net revenue
from proved reserves, and thus their actual present value, can be affected by
the timing of the incurrence of expenditures in connection with development of
oil and gas properties. The 10% discount factor, which is required by the
Commission to be used to calculate present value for reporting purposes, is not
necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the oil and gas industry.
Discounted present value, no matter what discount rate is used, is materially
affected by assumptions as to the amount and timing of future production, which
may and often do prove to be inaccurate.
37
<PAGE> 38
PRODUCTION, PRICES AND LIFTING COST SUMMARY
The following table sets forth by country net production, average sales prices
and average lifting costs of the Company for the three months ended march 31,
1995 and 1996 and the years ended December 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
--------------------------------------------------------
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31
1993 1994 1995 1995 1996
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
VENEZUELA
Net Crude Oil Production (Bbl) 160,425 2,519,514 5,456,473 1,062,093 2,623,444
Average Crude Oil Sales Price ($ per Bbl) $8.31 $8.52 $9.01 $9.02 $9.63
Average Lifting Costs ($ per Bbl) 7.26 1.51 1.19 1.22 .88
RUSSIA (1)
Net Crude Oil Production (Bbl) 28,263 294,364 490,960 118,864 223,397
Average Crude Oil Sales Price ($ per Bbl) $11.46 $11.93 $12.25 $13.12 $10.32
Average Lifting Costs ($ per Bbl) 16.22 9.62 5.63 2.93 6.72
UNITED STATES
Net Production:
Crude oil and condensate (Bbl) 292,266 225,954 68,975 32,317 5,163
Natural Gas (Mcf) 232,677 2,061,892 3,784,830 346,548 1,249,128
Average Sales Price:
Crude oil and condensate ($ per Bbl) $17.30 $14.46 $15.79 $17.10 $19.94
Natural Gas ($ per Mcf) 2.19 1.79 1.77 1.62 3.26
Average Lifting Costs ($ per BOE) 10.53 5.08 2.08 6.73 1.20
</TABLE>
- ---------------
(1) The December 31, 1995 presentation includes information for the nine months
ended September 30, 1995, the end of the fiscal period for GEOILBENT.
Similarly, the 1996 presentation includes information for the three months
ended December 31, 1995.
REGULATION
General
The Company's operations are affected by political developments and laws and
regulations in the areas in which it operates. In particular, oil and gas
production operations and economics are affected by price controls, tax and
other laws relating to the petroleum industry, by changes in such laws and by
changing administrative regulations and the interpretations and application of
such rules and regulations. In addition, various federal, state, local and
international laws and regulations covering the discharge of materials into the
environment, the disposal of oil and gas wastes, or otherwise relating to the
protection of the environment, may affect the Company's operations and costs.
Oil and gas industry legislation and agency regulation is periodically changed
for a variety of political, economic, environmental and other reasons. Numerous
governmental departments and agencies issue rules and regulations binding on the
oil and gas industry, some of which carry substantial penalties for the failure
to comply. The regulatory burden on the oil and gas industry increases the
Company's cost of doing business.
Venezuela
Venezuela requires environmental and other permits for certain operations
conducted in oil field development, such as site construction, drilling, and
seismic activities. As a contractor to Lagoven, Benton-Vinccler submits capital
and operating budgets to Lagoven for approval. Capital expenditures to comply
with Venezuelan environmental regulations relating to the reinjection of gas in
the field and water disposal are expected to approximate $7.8 million in 1996
and $14.4 million in 1997, respectively. Benton-Vinccler also submits requests
for permits for drilling, seismic and operating activities to Lagoven, which
then obtains such permits from the Ministry of Energy and Mines and Ministry of
Environment, as required. Benton-Vinccler is also subject to income, municipal
and value added taxes, and must file certain monthly and annual compliance
reports to SENIAT (the national tax administration) and to various
municipalities.
Russia
GEOILBENT submits annual production and development plans, which include
information necessary for permits and approvals for its planned drilling,
seismic and operating activities, to local and regional governments and to the
Ministry of Fuel and Energy, Committee of Geology and Ministry of Economy.
GEOILBENT also submits annual production targets and quarterly export
nominations for oil pipeline transportation capacity to the Ministry of Fuel and
Energy. GEOILBENT is subject to customs, value added, and municipal and income
taxes. Various municipalities and regional tax inspectorates are involved in the
assessment and collection of these taxes. GEOILBENT must file operating and
financial compliance reports with several bodies,
38
<PAGE> 39
including the Ministries of Fuel and Energy, Committee of Geology, Committee for
Technical Mining Monitoring, the Ministry of Ecology, and the State Customs
Committee.
DRILLING, ACQUISITION AND FINDING COSTS
During the years ended December 31, 1993, 1994 and 1995, the Company spent
approximately $26 million, $53 million, and $74 million, respectively, for
acquisitions of leases and producing properties, development and exploratory
drilling, production facilities and additional development activities such as
workovers and recompletions.
The Company has drilled or participated in the drilling of wells as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------
YEARS ENDED DECEMBER 31
1993 1994 1995
----------------- ----------------- -----------------
GROSS NET GROSS NET GROSS NET
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
WELLS DRILLED:
Exploratory:
Crude oil 1 .435 -- -- 3 1.020
Natural gas -- -- 2 .875 3 .970
Dry holes 2 .869 2 .869 1 .375
Development:(1)(2)(3)
Crude oil 13 5.693 20 11.860 41 22.680
Natural Gas -- -- 1 .435 1 .220
Dry Holes 2 .840 -- -- 1 .800
--- ------ --- ------ --- ------
TOTAL 18 7.837 25 14.039 50 26.065
=== ====== === ====== === ======
AVERAGE DEPTH OF WELLS (FEET) 5,100 7,266 7,847
PRODUCING WELLS (4):
Crude Oil 106 42.942 112 46.796 77 44.701
Natural Gas 6 1.271 4 .822 8 2.024
</TABLE>
- ---------------
(1) In addition to the activities set forth in the table, at the West Cote
Blanche Bay Field during the year ended December 31, 1994, the Company
participated in the successful recompletion of 13 gross (4.247 net) oil
wells and one gross (.327 net) gas well. During the year ended December 31,
1993, the Company participated in the recompletion of 13 gross (5.650 net)
oil wells, of which 11 gross (4.781 net) were completed as producers, and
one gross (.435 net) gas well, which was completed as a producer. In March
1995, the Company sold certain of its interests in the field, a result of
which was to substantially eliminate the Company's future participation in
recompletion and redrilling activities and in April 1996, the Company sold
the remainder of its interests in the field. See "-- Other Properties."
(2) In addition to the activities set forth in the table, the Company
participated in the successful recompletion of five gross (4.0 net) oil
wells in Venezuela during the year ended December 31, 1994. The Company
participated in the successful reactivation of nine gross (4.5 net) oil
wells in Venezuela during the year ended December 31, 1993.
(3) In addition to the activities set forth in the table, the Company
participated in the successful reactivation of one gross (.34 net) oil well
in Russia during the year ended December 31, 1995. The Company participated
in the successful reactivation of six gross (2.04 net) oil wells in Russia
during the year ended December 31, 1994. The Company participated in the
successful reactivation of four gross (1.36 net) oil wells in Russia during
the year ended December 31, 1993.
(4) The information related to producing wells reflects wells the Company
drilled, wells the Company participated in drilling and producing wells the
Company acquired.
At December 31, 1995, the Company was participating in the drilling of 2 wells
in Venezuela, and 4 wells in Russia.
All of the Company's drilling activities are conducted on a contract basis with
independent drilling contractors. The Company does not own any drilling
equipment.
From commencement of operations through December 31, 1995, the Company added,
net of production and property sales, approximately 96,180 MBOE of proved
reserves through purchases of reserves-in-place, discoveries of oil and natural
gas reserves, extensions of existing producing fields and revisions of
previously estimated reserves. The Company's finding and development costs for
its proved reserves from inception to December 31, 1995 were $1.75 per BOE. The
Company's estimate of future development costs for its undeveloped proved
reserves at December 31, 1995 was $1.80 per BOE. The estimated future
development costs are based upon the Company's anticipated cost of developing
its non-producing proved reserves, which costs are calculated using historical
costs for similar activities.
39
<PAGE> 40
ACREAGE
The following table summarizes the developed and undeveloped acreage owned,
leased or under concession as of December 31, 1995. See "-- Other Properties."
<TABLE>
<CAPTION>
----------------------------------------------
DEVELOPED UNDEVELOPED
GROSS NET GROSS NET
------ ------ ------- -------
<S> <C> <C> <C> <C>
Venezuela 7,480 5,984 150,363 120,290
Russia 16,080 5,467 149,680 50,891
United States(1) 5,002 1,689 10,000 6,862
------ ------ ------- -------
Total 28,562 13,140 310,043 178,043
====== ====== ======= =======
</TABLE>
- ---------------
(1) The Company sold substantially all of its U.S. reserves and related acreage
positions. The table excludes the acreage sold. See "-- Other Properties."
COMPETITION
The Company encounters strong competition from major oil and gas companies and
independent operators in acquiring properties and leases for exploration for
crude oil and natural gas. The principal competitive factors in the acquisition
of such oil and gas properties include the staff and data necessary to identify,
investigate and purchase such leases, and the financial resources necessary to
acquire and develop such leases. Many of the Company's competitors have
financial resources, staffs and facilities substantially greater than those of
the Company.
EMPLOYEES AND CONSULTANTS
At December 31, 1995, the Company had 43 employees and one independent
consultant. Benton-Vinccler had 109 employees and GEOILBENT had 220 employees.
TITLE TO DEVELOPED AND UNDEVELOPED ACREAGE
All Venezuelan reserves are attributable to an operating service agreement
between Benton-Vinccler and Lagoven, under which all mineral rights are owned by
the Government of Venezuela. With regard to Russian acreage, GEOILBENT has
obtained certain documentation from appropriate regulatory bodies in Russia
which the Company believes is adequate to establish GEOILBENT's right to
develop, produce and market oil and gas from the North Gubkinskoye Field in
Russia.
At the time of acquisition of undeveloped acreage in the United States, the
Company conducted a limited title investigation. A title opinion from a
qualified law firm was obtained prior to drilling any given U.S. prospect. Title
to presently producing properties had been investigated by a qualified law firm
prior to purchase. The Company believes its method of investigating the title to
these domestic properties was consistent with general practices in the oil and
gas industry and was designed to enable the Company to acquire title which was
generally considered to be acceptable in the oil and gas industry.
LEGAL PROCEEDINGS
On June 13, 1994, Charles Agnew and other limited partners in several limited
partnerships formed by the Company brought an action in the Superior Court of
California, County of Ventura, against the Company for alleged actions and
omissions of the Company in operating the partnerships and alleged
misrepresentations made by the Company in selling the limited partnership
interests. The claimants seek an unspecified amount of actual and punitive
damages. On May 17, 1995, the Company agreed to a binding arbitration proceeding
with respect to such claims, which is currently in the discovery stage. The
Company will be forced to spend time and financial resources to defend or
resolve these matters. In January 1996, the Company acquired all of the
interests in three of the limited partnerships which are the subject of the
arbitration, in exchange for shares of, and warrants to purchase shares of, the
Company's common stock. In the arbitration proceeding, if any liability is found
to exist, the arbitrator will determine the amount of any damages, and may
consider all distributions made to the partners, including the consideration
received in the exchange offer, in determining the extent of damages, if any.
However, there can be no assurance that an arbitrator will consider such factors
in his or her determination of damages if the allegations are found to be true
and damages are awarded.
The Company is also subject to ordinary litigation that is incidental to its
business.
40
<PAGE> 41
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the directors and executive officers of the Company
is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- -------------------------------------
<S> <C> <C>
A.E. Benton 53 Chairman of the Board, Chief
Executive Officer and Director
Michael B. Wray 60 President, Chief Financial Officer
and Director
William H. Gumma 47 Senior Vice President -- Operations,
Managing Director of Benton-Vinccler
and Director
David H. Pratt 46 Vice President -- International
Finance
Joseph C. White 64 Vice President -- Operations
Clarence Cottman, III 40 Vice President -- Business
Development
E. Sven Hagen 38 Vice President -- Exploration and
Development
Gregory S. Grabar 41 Vice President -- Corporate
Development and Administration
Chris C. Hickok 38 Vice President -- Controller and
Chief Accounting Officer
Bruce M. McIntyre 67 Director
Richard W. Fetzner 66 Director
Garrett A. Garrettson 52 Director
</TABLE>
A.E. BENTON
A.E. Benton, founder of the Company, was first elected Chief Executive Officer
and Chairman of the Board of the Company in September 1988. He has served as
director of the Company since September 1988. From 1986 to October 1988, Mr.
Benton was employed as president and director of Benton Petroleum Company. From
1981 to 1986, Mr. Benton was employed by May Petroleum, Inc., becoming its
senior vice president of exploration. From 1979 to 1981, Mr. Benton was employed
by TransOcean Oil Company and, upon TransOcean's acquisition by Mobil Oil
Corporation, he was employed by another subsidiary of Mobil Oil Corporation as
manager of geophysics. He was employed from 1968 to 1979 by Amoco Oil Company in
various positions, including director of applied geophysical research. Mr.
Benton has a B.S. degree in geophysics from California State University. Mr.
Benton serves as a director of First Seismic Corporation.
MICHAEL B. WRAY
Michael B. Wray was first elected President and Chief Financial Officer of the
Company in January, 1996. He has served as director of the Company since
November 1988. From January 1994 to December 1995, Mr. Wray served as a
consultant to the Company. From January 1992 until July 1993, Mr. Wray served as
vice president -- finance and administration of Del Mar Operating, Inc. From
1985 through 1991, Mr. Wray was an independent financial consultant to oil and
gas exploration and production companies. From 1979 to 1985, Mr. Wray served as
a senior financial officer of Guardian Oil Company, Huffco Petroleum Corporation
and May Petroleum, Inc. Prior to that time, Mr. Wray worked for over 15 years in
New York as an investment banker, security analyst and officer in various
investment firms including Donaldson, Lufkin & Jenrette, Inc., Drexel & Co. and
L.F. Rothschild & Co. Mr. Wray began his career as an attorney with Morgan,
Lewis & Bockius in Philadelphia. Mr. Wray holds a B.A. degree from Amherst
College and a law degree from Columbia Law School.
WILLIAM H. GUMMA
William H. Gumma was first elected Vice President -- Gulf Coast Operations in
August 1989 and was elected Senior Vice President -- Operations of the Company
in September 1990. In December 1995, Mr. Gumma was elected Managing Director of
41
<PAGE> 42
Benton-Vinccler. In September 1994, Mr. Gumma was appointed a director of the
Company to fill a vacancy on the Board of Directors. From 1988 to 1989, Mr.
Gumma was chief geophysicist-international for Maxus Energy Corp. (formerly
Diamond Shamrock, Inc.), where he directed geophysical exploration in Europe,
South America and North Africa. From 1986 to 1988, Mr. Gumma served as vice
president of exploration for BHP Petroleum, Inc. From 1983 to 1986, Mr. Gumma
served as chief geophysicist and later as Gulf Coast exploration manager for May
Petroleum, Inc. From 1980 to 1983, Mr. Gumma served as chief geophysicist for
Spectrum Oil and Gas Company. From 1978 to 1980, he was district geophysicist
for Inexco Oil Company. From 1972 to 1978, Mr. Gumma was employed by Amoco Oil
Company in various positions. Mr. Gumma received his B.S. from the Colorado
School of Mines and his M.S. in geophysics from Oregon State University.
DAVID H. PRATT
David H. Pratt was first elected Vice President -- International Finance in
January, 1996. From April 1989 to December 1995, Mr. Pratt served as Vice
President -- Finance, Chief Financial Officer and Treasurer of the Company. From
1987 to 1989, Mr. Pratt was a consultant in the accounting services and systems
industry. From 1982 to 1987, Mr. Pratt was employed by May Petroleum, Inc.,
becoming assistant treasurer. He also served as budget and planning manager, and
managed corporate and partnership investor relations and other administrative
areas. From 1974 to 1982, Mr. Pratt was employed by Arthur Andersen & Co. and he
became a Certified Public Accountant in 1975. Mr. Pratt holds B.S. and M.B.A.
degrees from Texas Christian University.
JOSEPH C. WHITE
Joseph C. White was elected Vice President -- Operations of the Company in
February 1993. Previously, Mr. White was president of J.C. White and Associates,
Inc., an independent consulting firm that prepared the Company's independent
reserve reports from 1988 through 1992. Mr. White was employed by Texaco for 30
years in a variety of engineering and management positions. In 1968, he was
appointed assistant to the vice president for Latin America and Trinidad in
Texaco's New York City executive office and in 1971 was appointed assistant to
the senior vice president for Texaco's worldwide producing operations. In 1972,
he was appointed assistant division manager to Texaco's Denver Division in
Colorado. In this position, he was responsible for all engineering and
operational matters for Texaco's operations in the Rocky Mountain area.
CLARENCE COTTMAN, III
Clarence Cottman, III was first appointed Land Manager in June 1989, was elected
Vice President -- Land of the Company in September 1990 and was elected Vice
President -- Business Development in July 1993. Mr. Cottman, a Certified
Petroleum Landman, was previously employed by Oryx Energy Company (formerly Sun
Exploration and Production Company) from June 1982 to May 1989. Mr. Cottman had
held a variety of exploration and production land positions in Oryx's Dallas,
Houston, and Denver offices. Most recently, he was district landman for Oryx in
Ventura, California, and responsible for all land activity on the West Coast.
Mr. Cottman holds a B.A. degree from Rochester Institute of Technology and an
M.B.A. from the University of Rhode Island. Mr. Cottman is the son-in-law of
Richard W. Fetzner.
E. SVEN HAGEN
E. Sven Hagen was first appointed Gulf Coast Geologist in March 1990 and was
elected Vice President -- Exploration and Development in July 1995. From March
1987 to February 1990, Mr. Hagen was employed by Shell Oil Company as an
exploration geologist responsible for the technical evaluation of the oil and
gas potential of West Africa salt basins including Angola, Congo, Gabon and
Namibia. From December 1985 to February 1987, Mr. Hagen was employed by Standard
Oil Production Company as an Exploration Geologist. Mr. Hagen holds a B.A.
degree in geology from the University of California at Santa Barbara and a Ph.D.
in geology from the University of Wyoming.
GREGORY S. GRABAR
Gregory S. Grabar was first elected Vice President -- Corporate Development and
Administration in April 1993 and was first appointed Manager of Administration
in October 1990. From 1989 to 1990, Mr. Grabar was in the corporate finance
department of Citicorp Real Estate, Inc. From 1988 to 1989, Mr. Grabar was a
consultant in the accounting services industry. From 1981 to 1988, Mr. Grabar
was a vice president in the corporate finance department at Bateman Eichler,
Hill Richards, Inc., a Kemper Securities Inc. company. From 1977 to 1981, Mr.
Grabar was in both the audit and tax departments of Arthur Andersen & Co. and
became a Certified Public Accountant. Mr. Grabar graduated cum laude from
California State University with a B.A. in business administration and received
his M.B.A. from the University of California at Los Angeles.
42
<PAGE> 43
CHRIS C. HICKOK
Chris C. Hickok was first appointed Controller in November 1991 and was elected
Vice President -- Controller and Chief Accounting Officer in January 1995. From
March 1979 to September 1991, Mr. Hickok was employed by Mission Resources, Inc.
and held various positions in the accounting and finance department including
financial analyst, assistant controller and controller. Mr. Hickok holds a B.S.
degree in business administration from California State University at Hayward
and is a Certified Management Accountant.
BRUCE M. MCINTYRE
Bruce M. McIntyre has served as director of the Company since November 1988. Mr.
McIntyre is a private investor and a consultant in the oil and gas industry, in
which he has been involved since 1952. He also serves in a management capacity
with several small, private companies in the energy field. He currently serves
as a director of MSC Corp., a private company which manages oil wells in
Illinois. From 1981 to 1984, Mr. McIntyre served as president of Rocky Mountain
Exploration Company, ultimately negotiating its merger into Carmel Energy, Inc.,
on whose board of directors he served until March 1986. Prior to that time, Mr.
McIntyre held various management positions with C&K Petroleum, Inc. (now ENSTAR
Petroleum, Inc.), Jenney Oil Company and Sinclair Oil & Gas Company. Mr.
McIntyre is a graduate of Harvard College and the Harvard University Graduate
School of Business Administration.
RICHARD W. FETZNER
Richard W. Fetzner has served as director of the Company since May 1990. Since
1989, Dr. Fetzner has been an associate professor of business administration at
California Lutheran University in Thousand Oaks, California. From 1984 to 1989,
Dr. Fetzner served in various academic capacities at the University of Singapore
and California Lutheran University and was a consultant to the World Bank. From
1979 to 1984, Dr. Fetzner served as group vice president of Sun Company, Inc.
and president of Sun Exploration and Production Company in Dallas, Texas. From
1958 to 1979, he served in various management and professional positions with
Sun Oil Company and its subsidiaries including president of Sun International,
Inc. and Sun Marine Transport, Inc. Dr. Fetzner holds a B.A. from Augustana
College, an M.S. in geology from the University of Wisconsin, a Ph.D. in geology
and economics from the University of Wisconsin and an M.B.A. from Drexel
University. Dr. Fetzner is the father-in-law of Clarence Cottman, III, an
officer of the Company.
GARRETT A. GARRETTSON
Garrett A. Garrettson has served as director of the Company since January 1996.
In 1995, Mr. Garrettson was elected as chairman, chief executive officer and
president of Contract Recording Technology, Inc. In addition, since 1993 he has
served as president and chief executive officer of Censtor Corporation. From
1986 to 1989, Mr. Garrettson served as vice president of Imprimis Technology.
Prior to that time, after serving in the United States Navy and Naval Reserves,
Mr. Garrettson held various positions with Hewlett Packard Company, including
laboratory director, department manager, project manager, and research engineer.
Mr. Garrettson graduated from Stanford University with a B.S. and M.S. in
engineering physics, and a Ph.D. in mechanical engineering.
43
<PAGE> 44
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes, the Company entered into the
Registration Rights Agreement with the Initial Purchaser, pursuant to which the
Company agreed to use its best efforts to file with the Commission a
registration statement with respect to the exchange of the Old Notes for debt
securities with terms identical in all material respects to the terms of the Old
Notes, except that (i) the offer and sale of the New Notes have been registered
under the Securities Act and therefore the New Notes will not be subject to
certain restrictions on transfer applicable to the Old Notes, will not contain
certain legends relating thereto and will not be entitled to registration and
other rights under the Registration Rights Agreement, and (ii) the New Notes
will not provide for any increase in the interest rate thereon. In that regard,
the Old Notes provide, among other things, that, if the Exchange Offer is not
consummated by August 31, 1996, the interest rate borne by the Old Notes from
May 1, 1996 will increase by 0.50% per annum until the Exchange Offer is
consummated. Upon consummation of the Exchange Offer, holders of Old Notes will
not be entitled to any increase in the rate of interest thereon or any further
registration rights under the Registration Rights Agreement. See
"Summary -- Certain Consequences of a Failure to Exchange Old Notes" and
"Description of the Old Notes."
The Exchange Offer is not being made to, nor will the Company accept tenders for
exchange from, holders of Old Notes in any jurisdiction in which the Exchange
Offer or the acceptance thereof would not be in compliance with the securities
or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $125 million aggregate principal amount of New Notes for a like
aggregate principal amount of Old Notes properly tendered on or prior to the
Expiration Date (as defined below) and not properly withdrawn in accordance with
the procedures described below. The Company will issue, promptly after the
Expiration Date, an aggregate principal amount of up to $125 million of New
Notes in exchange for a like principal amount of outstanding Old Notes tendered
and accepted in connection with the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of Old
Notes being tendered. As of the date of this Prospectus $125 million aggregate
principal amount of Old Notes is outstanding.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Old Notes which are not tendered for
exchange or are tendered but not accepted in connection with the Exchange Offer
will remain outstanding and be entitled to the benefits of the Indenture, but
will not be entitled to any further registration rights under the Registration
Rights Agreement.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof promptly after the Expiration Date.
Holders who tender Old Notes in connection with the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes in connection with the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See " -- Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER AFTER
READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
44
<PAGE> 45
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on August 23,
1996 unless the Exchange Offer is extended by the Company (in which case the
term "Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended).
The Company expressly reserves the right in its sole and absolute discretion,
subject to applicable law, at any time and from time to time, (i) to delay the
acceptance of the Old Notes for exchange, (ii) to terminate the Exchange Offer
(whether or not any Old Notes have theretofore been accepted for exchange) if
the Company determines, in its sole and absolute discretion, that any of the
events or conditions referred to under "-- Certain Conditions to the Exchange
Offer" have occurred or exist or have not been satisfied, (iii) to extend the
Expiration Date of the Exchange Offer and retain all Old Notes tendered pursuant
to the Exchange Offer, subject, however, to the right of holders of Old Notes to
withdraw their tendered Old Notes as described under "-- Withdrawal Rights," and
(iv) to waive any condition or otherwise amend the terms of the Exchange Offer
in any respect. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, or if the Company waives a material
condition of the Exchange Offer, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Old Notes, and the Company will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company may choose to make any public announcement and
subject to applicable law, the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to the Dow Jones News Service.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the Company
will exchange, and will issue to the Exchange Agent, New Notes for Old Notes
validly tendered and not withdrawn (pursuant to the withdrawal rights described
under "-- Withdrawal Rights") promptly after the Expiration Date.
In all cases, delivery of New Notes in exchange for Old Notes tendered and
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) Old Notes or a book-entry
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at The Depositary Trust Company ("DTC"), (ii) the Letter of Transmittal
(or facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and (iii) any other documents required by the Letter of
Transmittal.
The term "book-entry confirmation" means a timely confirmation of a book-entry
transfer of Old Notes into the Exchange Agent's account at DTC.
Subject to the terms and conditions of the Exchange Offer, the Company will be
deemed to have accepted for exchange, and thereby exchanged, Old Notes validly
tendered and not withdrawn as, if and when the Company gives oral or written
notice to the Exchange Agent of the Company's acceptance of such Old Notes for
exchange pursuant to the Exchange Offer. The Exchange Agent will act as agent
for the Company for the purpose of receiving tenders of Old Notes, Letters of
Transmittal and related documents, and as agent for tendering holders for the
purpose of receiving Old Notes, Letters of Transmittal and related documents and
transmitting New Notes to validly tendering holders. Such exchange will be made
promptly after the Expiration Date. If for any reason whatsoever, acceptance for
exchange or the exchange of any Old Notes tendered pursuant to the Exchange
Offer is delayed (whether before or after the Company's acceptance for exchange
of Old Notes) or the Company extends the Exchange Offer or is unable to accept
for exchange or exchange Old Notes tendered pursuant to the Exchange Offer,
then, without prejudice to the Company's rights set forth herein, the Exchange
Agent may, nevertheless, on behalf of the Company and subject to Rule 14e-1(c)
under the Exchange Act, retain tendered Old Notes and such Old Notes may not be
withdrawn except to the extent tendering holders are entitled to withdrawal
rights as described under "-- Withdrawal Rights."
Pursuant to the Letter of Transmittal, a holder of Old Notes will warrant and
agree in the Letter of Transmittal that it has full power and authority to
tender, exchange, sell, assign and transfer Old Notes, that the Company will
acquire good, marketable and unencumbered title to the tendered Old Notes, free
and clear of all liens, restrictions, charges and encumbrances, and the Old
Notes tendered for exchange are not subject to any adverse claims or proxies.
The holder also will warrant and agree that it will, upon request, execute and
deliver any additional documents deemed by the Company or the Exchange Agent to
be necessary or desirable to complete the exchange, sale, assignment, and
transfer of the Old Notes tendered pursuant to the Exchange Offer.
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PROCEDURES FOR TENDERING OLD NOTES
Valid Tender. Except as set forth below, in order for Old Notes to be validly
tendered pursuant to the Exchange Offer, a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, must be received by the Exchange
Agent at one of its addresses set forth under "-- Exchange Agent," and either
(i) tendered Old Notes must be received by the Exchange Agent, or (ii) such Old
Notes must be tendered pursuant to the procedures for book-entry transfer set
forth below and a book-entry confirmation must be received by the Exchange
Agent, in each case on or prior to the Expiration Date, or (iii) the guaranteed
delivery procedures set forth below must be complied with.
If less than all of the Old Notes are tendered, a tendering holder should fill
in the amount of Old Notes being tendered in the appropriate box on the Letter
of Transmittal. The entire amount of Old Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER, AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED, PROPERLY
INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Exchange Agent will establish an account with respect
to the Old Notes at DTC for purposes of the Exchange Offer within two business
days after the date of this Prospectus. Any financial institution that is a
participant in DTC's book-entry transfer facility system may make a book-entry
delivery of the Old Notes by causing DTC to transfer such Old Notes into the
Exchange Agent's account at DTC in accordance with DTC's procedures for
transfers. However, although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other required documents, must in any
case be delivered to and received by the Exchange Agent at its address set forth
under "-- Exchange Agent" on or prior to the Expiration Date, or the guaranteed
delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for the Old Notes need not be endorsed and
signature guarantees on the Letter of Transmittal are unnecessary unless (a) a
certificate for the Old Notes is registered in a name other than that of the
person surrendering the certificate or (b) such registered holder completes the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
in the Letter of Transmittal. In the case of (a) or (b) above, such certificates
for Old Notes must be duly endorsed or accompanied by a properly executed bond
power, with the endorsement or signature on the bond power and on the Letter of
Transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as an "eligible guarantor institution," including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association (an "Eligible Institution"),
unless surrendered on behalf of such Eligible Institution. See Instruction 1 to
the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Old Notes pursuant to the
Exchange Offer and the certificates for such Old Notes are not immediately
available or time will not permit all required documents to reach the Exchange
Agent on or before the Expiration Date, or the procedures for book-entry
transfer cannot be completed on a timely basis, such Old Notes may nevertheless
be tendered, provided that all of the following guaranteed delivery procedures
are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is received by
the Exchange Agent, as provided below, on or prior to the Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all tendered
Old Notes, in proper form for transfer, together with a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three New York Stock
Exchange trading days after the date of execution of such Notice of Guaranteed
Delivery.
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The Notice of Guaranteed Delivery may be delivered by hand, or transmitted by
facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Notes in
exchange for Old Notes tendered and accepted for exchange pursuant to the
Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Old Notes, or of a book-entry confirmation with respect to
such Old Notes, and a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees and any
other documents required by the Letter of Transmittal. Accordingly, the delivery
of New Notes might not be made to all tendering holders at the same time, and
will depend upon when Old Notes, book-entry confirmations with respect to Old
Notes and other required documents are received by the Exchange Agent.
The Company's acceptance for exchange of Old Notes tendered pursuant to any of
the procedures described above will constitute a binding agreement between the
tendering holder and the Company upon the terms and subject to the conditions of
the Exchange Offer.
Determination of Validity. All questions as to the form of documents, validity,
eligibility (including time of receipt) and acceptance for exchange of any
tendered Old Notes will be determined by the Company, in its sole discretion,
whose determination shall be final and binding on all parties. The Company
reserves the absolute right, in its sole and absolute discretion, to reject any
and all tenders determined by it not to be in proper form or the acceptance of
which, or exchange for, may, in the view of counsel to the Company, be unlawful.
The Company also reserves the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer as set forth under "-- Certain
Conditions to the Exchange Offer" or any condition or irregularity in any tender
of Old Notes of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) will be final
and binding. No tender of Old Notes will be deemed to have been validly made
until all irregularities with respect to such tender have been cured or waived.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in tenders or incur any liability for failure to give any
such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or any
other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and unless waived by the Company, proper
evidence satisfactory to the Company, in its sole discretion, of such person's
authority to so act must be submitted.
A beneficial owner of Old Notes that are held by or registered in the name of a
broker, dealer, commercial bank, trust company or other nominee or custodian is
urged to contact such entity promptly if such beneficial holder wishes to
participate in the Exchange Offer.
RESALES OF NEW NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Commission as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, the Company has not sought its own interpretive letter and there can be
no assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and subject
to the two immediately following sentences, the Company believes that New Notes
issued pursuant to this Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business and that
such holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. However, any holder of Old Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing New Notes, or any broker-dealer who purchased
Old Notes from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of Corporation Finance of the
Commission set forth in the above-mentioned interpretive letters, (b) will not
be permitted or entitled to tender such Old Notes in the Exchange Offer and (c)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of such Old Notes
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Old Notes acquired for
its own account as a result of market-making or other trading activities and
exchanges
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such Old Notes for New Notes, then such broker-dealer must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resales of
such New Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in the
Exchange Offer will be required to represent that (i) it is not an "affiliate"
of the Company, (ii) any New Notes to be received by it are being acquired in
the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company believes that broker-dealers who acquired Old
Notes for their own accounts as a result of market-making activities or other
trading activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
New Notes received in exchange for Old Notes where such Old Notes were acquired
by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities.
Subject to certain provisions set forth in the Registration Rights Agreement,
the Company has agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such New Notes for a period ending 180 days after the
Expiration Date (subject to extension under certain limited circumstances
described below) or, if earlier, when all such New Notes have been disposed of
by such Participating Broker-Dealer. See "Plan of Distribution." Any
Participating Broker-Dealer who is an "affiliate" of the Company may not rely on
such interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Notes pursuant to this Prospectus until the Company has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be. If the Company gives such notice to suspend the
sale of the New Notes, it shall extend the 180-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Notes by the number of days during the period
from and including the date of the giving of such notice to and including the
date when Participating Broker-Dealers shall have received copies of the amended
or supplemented Prospectus necessary to permit resales of the New Notes or to
and including the date on which the Company has given notice that the sale of
New Notes may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn at
any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth under "-- Exchange Agent"
on or prior to the Expiration Date. Any such notice of withdrawal must specify
the name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if certificates for such Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the Old Notes, if different from that of the person who tendered
such Old Notes. If Old Notes have been delivered or otherwise identified to the
Exchange Agent, then prior to the physical release of such Old Notes, the
tendering holder must submit the serial numbers shown on the particular Old
Notes to be withdrawn and the
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signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Old Notes tendered for the account of an
Eligible Institution. If Old Notes have been tendered pursuant to the procedures
for book-entry transfer set forth in "-- Procedures for Tendering Old Notes,"
the notice of withdrawal must specify the name and number of the account at DTC
to be credited with the withdrawal of Old Notes, in which case a notice of
withdrawal will be effective if delivered to the Exchange Agent by written,
telegraphic, telex or facsimile transmission. Withdrawals of tenders of Old
Notes may not be rescinded. Old Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time on or prior to the Expiration Date by following any of the
procedures described above under "-- Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Notes which have been tendered
but which are withdrawn will be returned to the holder thereof promptly after
withdrawal.
INTEREST ON THE NEW NOTES
Each New Note will bear interest at the rate of 11 5/8% per annum from the most
recent date to which interest has been paid or duly provided for on the Old Note
surrendered in exchange for such New Note or, if no interest has been paid or
duly provided for on such Old Note, from May 1, 1996. Interest on the New Notes
will be payable semiannually on May 1 and November 1 of each year, commencing on
the first such date following the original issuance date of the New Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
accrued interest on such Old Notes for any period from and after the last
Interest Payment Date to which interest has been paid or duly provided for on
such Old Notes prior to the original issue date of the New Notes or, if no such
interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and will be deemed to have waived the right to
receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after May 1, 1996.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension of
the Exchange Offer, the Company will not be required to accept for exchange, or
to exchange, any Old Notes for any New Notes, and, as described below, may
terminate the Exchange Offer (whether or not any Old Notes have theretofore been
accepted for exchange) or may waive any conditions to or amend the Exchange
Offer, if any of the following conditions have occurred or exists or have not
been satisfied:
(a) the Exchange Offer, or the making of any exchange by a holder, violates any
applicable law or any applicable interpretation of the staff of the Commission;
(b) any action or proceeding shall have been instituted or threatened in any
court or by or before any governmental agency or body with respect to the
Exchange Offer which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer;
(c) any law, statute, rule or regulation shall have been adopted or enacted
which, in the Company's judgment, would reasonably be expected to impair the
ability of the Company to proceed with the Exchange Offer;
(d) a banking moratorium shall have been declared by United States federal or
California or New York state authorities which, in the Company's judgment, would
reasonably be expected to impair the ability of the Company to proceed with the
Exchange Offer;
(e) trading on the New York Stock Exchange or generally in the United States
over-the-counter market shall have been suspended by order of the Commission or
any other governmental authority which, in the Company's judgment, would
reasonably be expected to impair the ability of the Company to proceed with the
Exchange Offer; or
(f) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration Statement
or proceedings shall have been initiated or, to the knowledge of the Company,
threatened for that purpose.
If the Company determines in its sole and absolute discretion that any of the
foregoing events or conditions has occurred or exists or has not been satisfied,
the Company may, subject to applicable law, terminate the Exchange Offer
(whether or not any Old Notes have theretofore been accepted for exchange) or
may waive any such condition or otherwise amend the terms of the Exchange Offer
in any respect. If such waiver or amendment constitutes a material change to the
Exchange Offer, the Company
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will promptly disclose such waiver by means of a prospectus supplement that will
be distributed to the registered holders of the Old Notes, and the Company will
extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
EXCHANGE AGENT
First Trust Company of New York, National Association, has been appointed as
Exchange Agent for the Exchange Offer. Delivery of the Letters of Transmittal
and any other required documents, questions, requests for assistance, and
requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent as follows:
By Mail:
First Trust National Association
P.O. Box 64485
St. Paul, Minnesota 55164-9549
Attn: Specialized Finance
By Overnight Delivery or Hand:
First Trust of New York, National Association
100 Wall Street
New York, New York 10005
Attn: Cathy Donohue
To Confirm by Telephone or for Information:
(612) 244-1197
Attn: Phyliss Meath
Facsimile Transmissions:
(612) 244-1145
Delivery to other than one of the above addresses or facsimile numbers will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket expenses
in connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Notes, and in handling or tendering for their
customers.
Holders who tender their Old Notes for exchange will not be obligated to pay any
transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes in connection with the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
The Company will not make any payment to brokers, dealers or others soliciting
acceptances of the Exchange Offer.
DESCRIPTION OF OUTSTANDING INDEBTEDNESS
The summaries contained herein of certain provisions of the indebtedness of the
Company do not purport to be complete and, except in the case of the short term
debt, are qualified in their entirety by the provisions of the various
agreements and indentures related thereto.
CREDIT AGREEMENT
On May 30, 1996, the Company entered into a Credit Agreement with Morgan
Guaranty. The Credit Agreement provides for the issuance of a letter of credit
in the amount of $18,000,000 to be used to secure the Company's performance
under its agreements related to the development of the Delta Centro Block in
Venezuela. The letter of credit will be secured by cash collateral in the form
of a time deposit from the Company. Morgan Guaranty will receive an arrangement
fee and will receive a fee of .25% per annum computed on the daily average
maximum available amount of the letter of credit. In addition, the Credit
Agreement provides for a $20,000,000 unsecured revolving credit facility which
must be repaid on or before March 14, 1998. Borrowings under such facility
accrue interest at per annum rate equal to the sum of the Euro-Dollar margin
plus the Adjusted London Interbank Offered Rate for such interest period. The
Euro-Dollar margin will be 3% until September 14, 1997 and 3.75% per annum
thereafter. The revolving credit facility is secured by a guarantee by the
Company's subsidiary Benton-Vinccler, C.A. and a security interest in all
payments made to Benton-Vinccler, C.A. under its Service Agreement with Fagoven,
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S.A. The Credit Agreement contains covenants and restrictions that are
substantially the same as those provided in the Indenture.
SHORT-TERM DEBT
The Company, through Benton-Vinccler, has entered into a six month loan
arrangement with Morgan Guaranty which has subsequently been renewed on a
monthly basis. Under such arrangement, Benton-Vinccler may borrow up to $25
million, $10 million of which may be borrowed on a revolving basis. Borrowings
under this loan arrangement are secured by cash collateral in the form of a time
deposit from the Company. The loan arrangement contains no restrictive covenants
and no financial ratio requirements. The principal amount of such loan
outstanding at March 31, 1996 was $19.3 million. Benton-Vinccler can borrow an
additional $5.7 million under the loan arrangement if the Company provides a
time deposit to secure such additional borrowings. Interest on borrowings under
the loan facility accrues, at the borrower's option, at either a fixed rate or a
floating rate. The borrower also has the option to change or continue the type
of interest rate borne by the loan. Floating rate borrowings (domestic loans)
accrue interest at the higher of Morgan Guaranty's prime rate or the sum of .50%
plus the Federal Funds Rate and may be prepaid at any time without penalty.
Fixed rate borrowings (Eurodollar loans) accrue interest at an adjusted LIBOR
rate plus a margin of .75%. A Eurodollar loan may not be repaid at the Company's
option on a date other than the last day of an interest period. Events of
default include failure to pay principal and interest when due, failure to pay
principal or interest on any other indebtedness of Benton-Vinccler or any of its
subsidiaries when due or upon acceleration thereof and insolvency of
Benton-Vinccler or any subsidiary thereof.
In October 1995, the Company and GEOILBENT entered into a loan arrangement with
Morgan Guaranty for working capital requirements. Under such arrangement,
GEOILBENT may borrow up to $10 million on a revolving basis. Borrowings under
this loan arrangement are secured by cash collateral in the form of a time
deposit by the Company. The loan arrangement contains no restrictive covenants
and no financial ratio requirements. The principal amount of such loan
outstanding at March 31, 1996 was $2.1 million.
8% CONVERTIBLE SUBORDINATED DEBENTURES DUE MAY 1, 2002
In May 1992, the Company issued $6,428,000 principal amount of publicly offered
8% Convertible Subordinated Debentures due May 1, 2002, convertible into Common
Stock at the option of the holder at any time prior to maturity at 101.157
shares per $1,000 principal amount of Debentures with interest payments due May
1 and November 1. On May 18, 1996 the Company called all of its outstanding
Debentures at a redemption price of 103% of the principal amount, together with
accrued interest, payable in cash. Prior to July 23, 1996, holders may elect to
convert their Debentures into Common Stock. As of June 4, 1996, approximately
55.4% of the outstanding Debentures have been converted into Common Stock,
resulting in the issuance of 263,283 shares of the Company's Common Stock.
The Indenture does not contain any restrictions on the payment of dividends, the
repurchase of any securities of the Company or any financial covenants nor does
the Indenture require any sinking fund or reserves for payment of the
Debentures. The Indenture does not contain any limitation on senior indebtedness
or any other indebtedness, secured or unsecured.
Events of default include failure to pay principal and interest when due, breach
of covenants, failure to pay principal of or interest on or any material
indebtedness of the Company when due or upon acceleration thereof and bankruptcy
or insolvency of the Company. At March 31, 1996, the aggregate principal amount
outstanding was $4.3 million.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes were issued and the New Notes are to be issued pursuant to an
Indenture (the "Indenture") between the Company and First Trust of New York,
National Association, as trustee (the "Trustee") dated as of May 2, 1996. The
terms of the New Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). The Old Notes and New Notes are subject to all such
terms, and holders of Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. A copy of the Indenture will be made
available to holders upon request. The following summary of certain provisions
of the Indenture does not purport to be complete and is qualified in its
entirety by reference to the Indenture including the definitions therein of
certain terms used below. The definitions of certain terms used in the following
summary are set forth below under "-- Certain Definitions" or are otherwise
defined in the Indenture.
The Old Notes and the New Notes will constitute a single series of debt
securities under the Indenture. If the Exchange Offer is consummated, holders of
the Old Notes who do not exchange their Old Notes for New Notes will vote
together with the holders of New Notes for all relevant purposes under the
Indenture. In that regard, the Indenture requires that certain actions by the
holders thereunder (including acceleration following an Event of Default) must
be taken, and certain rights must be exercised, by specified minimum percentages
of the aggregate principal amount of the outstanding debt securities. In
determining whether holders of the requisite percentage in principal amount have
given any notice, consent or waiver or taken any other action permitted under
the Indenture, any Old Notes which remain outstanding after the Exchange Offer
will be aggregated with the New Notes and the holders of such Old Notes and New
Notes will vote together as a single series for all such purposes. Accordingly,
all references herein to specified percentages in aggregate principal amount of
the outstanding Notes shall be deemed to mean, at any time after the Exchange
Offer is consummated, such percentage in aggregate principal amount of the Old
Notes and New Notes then outstanding.
The New Notes and the Old Notes are sometimes referred to as, collectively, the
"Notes" and, individually, a "Note."
The New Notes will mature on May 1, 2003, will be limited to $125 million
aggregate principal amount at maturity and will be unsecured senior debt
obligations of the Company. The principal amount at maturity of each New Note
will be $1,000 or any integral multiple thereof. The New Notes will be presented
for registration of transfer or exchange at the office of the registrar, which
initially will be the Trustee. No service charge will be made for any
registration of transfer or exchange of a New Note. However, the Company may
require payment by a holder of a sum sufficient to cover any tax or other
governmental charge payable in connection with the registration of such transfer
or exchange.
Interest on the New Notes will be payable semi-annually on May 1 and November 1
to holders of record on the close of business on the immediately preceding April
15 and October 15. Interest on the New Notes will accrue at the rate of 11 5/8%
per annum from the most recent date to which interest has been paid or duly
provided for on the Old Note surrendered in exchange for such New Note or, if no
interest has been paid or duly provided for on such Old Note, from May 1, 1996,
payable semianually on May 1 and November 1 of each year (each, an "Interest
Payment Date"), commencing with the first Interest Payment Date occurring after
the date of original issuance of such New Note, to the person in whose name such
New Note is registered at the close of business on the April 15 or October 15
next preceding such Interest Payment Date. Any overdue principal, premium, if
any, or interest will bear interest, to the extent lawful, at 13 5/8% per annum.
Interest will be computed on a basis of a 360-day year consisting of twelve
30-day months. Principal and interest will be payable at the office or agency of
the Company maintained for that purpose within the City and State of New York
or, at the option of the Company, payment of interest may be made by check
mailed to the holders of the New Notes. The New Notes will not provide for any
increase in the interest rate thereon. For a discussion for the circumstances
under which the interest rate on the Old Notes may be temporarily increased, see
"Description of the Old Notes."
RANKING
The New Notes will be senior unsecured debt obligations of the Company and will
rank senior in right of payment to all existing and future Subordinated
Indebtedness and pari passu with all other Senior Indebtedness.
The New Notes are obligations exclusively of the Company. Because the Company's
operations are conducted almost entirely through its Subsidiaries and joint
ventures, the cash flow and the consequent ability of the Company to service its
debt, including the New Notes and the Old Notes, are dependent upon the earnings
of the Company's Subsidiaries and joint ventures and the distribution of those
earnings to the Company. The Subsidiaries and joint ventures are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the Notes or to make funds available therefor,
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<PAGE> 53
whether by dividends, loans or other payments. In addition, the payment of
dividends and the making of loans and advances to the Company by its
Subsidiaries and joint ventures may be subject to statutory or contractual
restrictions and subject to various business considerations. Currently, the
Company only has one operating subsidiary, Benton-Vinccler, that may be expected
to make funds available to the Company to pay any amounts due pursuant to the
Notes.
The New Notes will be effectively subordinated to secured indebtedness of the
Company and all liabilities of the Company's Subsidiaries, including trade
payables and the liquidation value of Preferred Stock, if any, except to the
extent that the Company is itself recognized as a creditor of such Subsidiary,
in which case the claims of the Company would still be subordinate to any
security interest in the assets of such Subsidiary and any indebtedness of such
Subsidiary senior to that held by the Company. At March 31, 1996, after giving
pro forma effect to the U.S. Property Sale and the issuance of the Old Notes and
the use of proceeds received from each such transaction, $37.2 million of
consolidated indebtedness and trade payables would have been liabilities of the
Company's subsidiaries or secured indebtedness of the Company and ranked
effectively senior to the Notes and the Company would have had $6.4 million of
outstanding indebtedness and trade payables that would have ranked pari passu
with the Notes. In addition, the Company could have incurred up to $38.0 million
of secured indebtedness under its revolving letter of credit and loan facility
which would have ranked effectively senior to the Notes.
OPTIONAL REDEMPTION
Commencing May 1, 2000, the New Notes will be subject to redemption at the
option of the Company, in whole or in part, at any time and from time to time,
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed in percentages of the principal amount) set forth below plus accrued
and unpaid interest to the redemption date, if redeemed during the 12-month
period beginning on May 1 of the year indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000 105.813%
2001 102.906%
2002 100.000%
</TABLE>
No sinking fund is provided for the New Notes.
At any time before May 1, 1999, the Company may also redeem up to 25% of the
aggregate principal amount of Notes then outstanding with the proceeds of a
public offering of Capital Stock (other than Disqualified Stock and a public
offering pursuant to a registration statement on Form S-8) of the Company within
90 days of such public offering at a redemption price equal to 111.625% of the
principal amount of such Notes, plus accrued and unpaid interest to the
redemption date; provided that at least $93.75 million in aggregate principal
amount of Notes remain outstanding immediately after giving effect to such
redemption.
If less than all the Notes are to be redeemed, the particular Notes or portions
thereof to be redeemed shall be selected by the Trustee from the outstanding
Notes not previously called for redemption, either pro rata, by lot or by any
other method the Trustee shall deem fair and reasonable, and the aggregate
principal amount to be redeemed must be equal to $1,000 or any integral multiple
thereof.
CERTAIN COVENANTS
The Indenture contains a number of covenants which restrict the ability of the
Company and its Restricted Subsidiaries to engage in certain activities. For
purposes of such covenants and the related definitions, the term Company shall
mean Benton Oil and Gas Company only, and shall not refer to any Subsidiary or
Affiliate of Benton Oil and Gas Company. In addition, whenever such covenants or
related definitions require any calculation of the income, interest expense,
discounted future net revenues attributable to proved oil and gas reserves or
other financial data of the Company or any Restricted Subsidiary, such
calculation shall, except to the extent that such covenants or definitions
provide to the contrary, exclude the income, interest expense, discounted future
net revenues attributable to proved oil and gas reserves or other financial data
of any Unrestricted Subsidiary or Affiliate of the Company (including GEOILBENT)
or such Restricted Subsidiary, as the case may be.
GEOILBENT, which is only 34%-owned by the Company, does not qualify as a
Subsidiary as defined in the Indenture and, consequently, the Indenture does not
restrict the Incurrence of Indebtedness by GEOILBENT. However, Indebtedness of
the Company and its Restricted Subsidiaries includes Indebtedness of any other
person, including GEOILBENT, to the extent that such Indebtedness is guaranteed
by, or secured by the assets of, the Company or any of its Restricted
Subsidiaries and, as a result, the Incurrence of any such guaranteed or secured
Indebtedness by GEOILBENT will, to the extent of the amount so guaranteed or
secured, be subject to the provisions of the Indenture described under
"Limitation on Indebtedness." In the event of any liquidation of GEOILBENT, the
claims of GEOILBENT's creditors would have to be satisfied prior to the
Company's receiving any distributions with respect to its 34% ownership interest
in GEOILBENT.
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<PAGE> 54
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. The Company will not, and will not permit any of
its Restricted Subsidiaries to, Incur any Indebtedness (including any Acquired
Indebtedness) unless (i) no Default or Event of Default under the Indenture
shall have occurred and be continuing at the time or as a consequence of the
Incurrence of such Indebtedness, (ii) after giving effect thereto (including, in
connection with any acquisition being financed through the Incurrence of such
Indebtedness, any Acquired Indebtedness and any proved oil and gas reserves
being acquired in connection therewith) the EBITDA/Interest Ratio would be
greater than 3.0 to 1.0, (iii) in the event such Indebtedness would be Incurred
by the Company but would not be Permitted Company Secured Indebtedness, such
Indebtedness would have an Average Life greater than the Average Life of the
Notes and a stated maturity later than the Stated Maturity of the Notes, and
(iv) in the event such Indebtedness would be Incurred by a Restricted
Subsidiary, such Indebtedness would also qualify as Permitted Restricted
Subsidiary Indebtedness.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may
Incur Permitted Indebtedness if no Default or Event of Default under any other
provision of the Indenture shall have occurred and be continuing at the time or
as a consequence of the Incurrence of such Indebtedness.
For purposes of calculating the amount of any Indebtedness of the Company and
its Restricted Subsidiaries, (i) any Indebtedness of a Restricted Subsidiary
that is fully and unconditionally guaranteed by the Company or secured by a
deposit of cash or Cash Equivalents of the Company shall be deemed to be
Indebtedness of such Restricted Subsidiary, and (ii) the Vinccler Notes shall be
deemed to be Indebtedness of the Company.
Limitation on Indebtedness of Unrestricted Subsidiaries. The Company will not
permit any Unrestricted Subsidiary to Incur any Indebtedness (including Acquired
Indebtedness) other than Non-Recourse Indebtedness.
Limitation on Restricted Payments. 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 such Restricted Payment or after giving
effect to such Restricted Payment (i) the Company would not be able to Incur at
least $1.00 of additional Indebtedness (excluding Permitted Indebtedness)
pursuant to the provisions of the Indenture described above under "Limitation on
Indebtedness," and (ii) the aggregate amount expended for all Restricted
Payments (excluding any payments permitted by clauses (ii) through (ix) of the
immediately succeeding paragraph) (the amount of any such Restricted Payment, if
other than cash, as determined by the Board of Directors, whose determination
shall be evidenced by a board resolution) exceeds the sum of:
(a) 50% of the aggregate Consolidated Net Income of the Company and its
Restricted Subsidiaries (or, if such aggregate Consolidated Net Income
shall be a loss, minus 100% of such loss) accrued for the period (taken as
one accounting period) beginning on July 1, 1996 and ending on the last day
of the Company's last fiscal quarter ending prior to the date of such
proposed Restricted Payment, plus
(b) 100% of the aggregate Net Proceeds received by the Company after
June 30, 1996 from the issuance and sale (other than to a Subsidiary of the
Company) of (1) Capital Stock (including options, warrants or other rights
to acquire Capital Stock) other than any such Capital Stock convertible
into or exchangeable for (whether at the option of the Company or the
holder thereof) a security other than Capital Stock and other than any such
Capital Stock issued for any purpose specified in clauses (vi) or (vii) of
the succeeding paragraph and (2) Indebtedness convertible into or
exchangeable for Capital Stock but only to the extent such Indebtedness has
been converted or exchanged, plus
(c) the aggregate amount of any Repaid Investments and Restricted
Subsidiary Investments but only to the extent such amount did not otherwise
increase the amount available for Restricted Payments pursuant to (a) above
or clause (iv) of the immediately succeeding paragraph, plus
(d) $15,000,000.
The foregoing provisions shall not be violated by reason of (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at the
date of declaration such payment would comply with the foregoing provision, (ii)
any Investment in the Company by any Restricted Subsidiary and any Investment in
any Restricted Subsidiary or any person which concurrently with such Investment
becomes a Restricted Subsidiary by the Company or another Restricted Subsidiary,
(iii) any dividend payable to the Company by any Restricted Subsidiary or to any
Restricted Subsidiary by another Restricted Subsidiary, (iv) any dividend
payable to a holder (other than the Company or another Restricted Subsidiary) of
Capital Stock (other than Preferred Stock) of a Restricted Subsidiary; provided
that such dividend is paid concurrently with the payment of a dividend by such
Restricted Subsidiary to the Company or another Restricted Subsidiary and the
amount of such dividend does not exceed such holder's pro rata share (based on
such holder's percentage ownership of the outstanding Capital Stock (other than
Preferred Stock) of such Restricted Subsidiary) of the aggregate amount of the
dividend payable to all holders of Capital Stock of such Restricted Subsidiary,
(v) any dividend, distribution or other payment on or with respect to Capital
Stock of the Company
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<PAGE> 55
to the extent payable solely in shares of Capital Stock of the Company, (vi) any
purchase, redemption or other acquisition or retirement for value or any
defeasance of any Subordinated Indebtedness, in exchange for, by conversion into
or from the Net Proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of Capital Stock of the Company or new Subordinated
Indebtedness; provided the Average Life of such new Subordinated Indebtedness is
greater than the Average Life of the Notes, the stated maturity of such new
Subordinated Indebtedness is later than the Stated Maturity of the Notes and the
new Subordinated Indebtedness is subordinated to the Notes to at least the
extent that the Subordinated Indebtedness being purchased, redeemed, acquired,
retired or defeased was subordinated to the Notes, (vii) any purchase,
redemption or other acquisition or retirement for value of any shares of Capital
Stock of the Company in exchange for, by conversion into or from the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of Capital Stock of the Company, (viii) any Investment in a person that
represents the portion of the consideration for an Asset Sale that is not, and
is not required to be pursuant to the provisions of the Indenture described
below under "Disposition of Proceeds of Asset Sales," cash or Cash Equivalents
and (ix) payments or distributions pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the provisions of
the Indenture described below under "Consolidation, Merger, Conveyance, Transfer
or Lease"; provided that, in the case of any of the foregoing, no Default or
Event of Default has occurred and is continuing or shall occur as a consequence
thereof.
Limitation on Transactions with Affiliates. The Company will not, and will not
permit any Subsidiary to, directly or indirectly, enter into any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) (such a transaction
or series of related transactions, an "Affiliate Transaction") with (i) any
Affiliate of the Company or any Subsidiary or (ii) any officer, director or
employee of the Company or any Subsidiary or any Affiliate thereof unless (i)
such Affiliate Transaction is on terms that are no less favorable to the Company
or such Subsidiary, as the case may be, than those that would have been
available in a comparable arm's-length transaction with an unaffiliated third
party, and (ii) (a) with respect to any Affiliate Transaction involving
aggregate payments equal to or in excess of $1 million (or, in the case of any
loan or advance to any officer, director or employee of the Company or its
Restricted Subsidiaries, $100,000), but less than $5 million, such Affiliate
Transaction shall have received the approval of a majority of the Disinterested
Directors (as evidenced by a board resolution of such Disinterested Directors)
and (b) with respect to any Affiliate Transaction involving aggregate payments
equal to or greater than $5 million, the Company shall have obtained a written
opinion of an Independent Financial Advisor stating that the terms of such
Affiliate Transaction is fair to the Company or the Subsidiary, as the case may
be, from a financial point of view.
The foregoing limitations shall not apply to (i) any transaction between the
Company and any Restricted Subsidiary or between Restricted Subsidiaries, (ii)
the payment of reasonable and customary regular fees to directors of the Company
who are not employees of the Company, (iii) any employment contract to which any
officer, director or employee is a party or stock option plan or grant of any
option thereunder to any officer, director or employee; provided that any such
agreement or arrangement (or series of related agreements or arrangements)
involving aggregate payments (or in the case of any option grant, with an
aggregate exercise price) equal to or in excess of $100,000 shall have received
the approval of the Compensation Committee of the Board of Directors (as
evidenced by a resolution of such Committee) which Committee shall be comprised
of Disinterested Directors, or (iv) any Permitted Investment or any Restricted
Payments not prohibited by the provisions of the Indenture described above under
"Limitation on Restricted Payments."
Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any Restricted Subsidiary to, make any Asset Sale unless (i) such Asset
Sale is for not less than the fair market value of the properties and assets
sold, (ii) at least 85% of the consideration (not including the assumption of
any Indebtedness of the Company or any Restricted Subsidiary (other than
Subordinated Indebtedness)) consists of cash, Cash Equivalents or Publicly
Traded Stock (so long as prior to such Asset Sale the Board of Directors has
made a determination as evidenced by a board resolution, to sell such Publicly
Traded Stock for cash within ten Business Days after the date of such Asset Sale
and such Publicly Traded Stock does not constitute more than 30% of such 85%),
except (a) in the case of an Asset Sale involving oil and gas properties, the
consideration may consist solely or in part of tangible properties or direct or
indirect interests in tangible properties to be used in the Company's or its
Restricted Subsidiaries' Oil and Gas Business ("Tangible Business Properties")
having a fair market value at least equal to the fair market value of the assets
exchanged and (b) the Company and its Restricted Subsidiaries may enter into
farm-out transactions consistent with industry standards and otherwise in
accordance with the terms of the Indenture including, but not limited to, the
provisions described above under "Limitation on Transactions with Affiliates"
above, (iii) unless prior to the date of such Asset Sale the Board of Directors
has made a determination, as evidenced by a board resolution, to use all of the
Net Cash Proceeds of such Asset Sale that consist of cash and Cash Equivalents
to permanently repay or prepay Senior Indebtedness or Indebtedness of a
Restricted Subsidiary within thirty days after the date of such Asset Sale, the
Company could Incur an additional $1.00 of Indebtedness (other than Permitted
Indebtedness) pursuant to the provisions of the Indenture described above under
"Limitation on Indebtedness," (iv) within ten Business Days after the date of
such Asset Sale, any Publicly Traded Stock
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<PAGE> 56
required by a board resolution to be sold for cash, is sold for cash, and (v)
the requirements set forth below are met. For purposes of the foregoing, in the
case of any required fair market value determination with respect to any Asset
Sale or Tangible Business Properties or Publicly Traded Stock acquired in
connection with such Asset Sale having a fair market value in excess of $5
million, such determination shall be made by the Board of Directors as evidenced
by a board resolution.
Subject to clause (iii) above, within twelve months of any Asset Sale, the
Company shall either (x) apply or cause the application of an amount equal to
the Net Cash Proceeds of such Asset Sale, or a portion thereof, to the permanent
repayment or prepayment of Senior Indebtedness or Indebtedness of any Restricted
Subsidiary or (y) invest such Net Cash Proceeds, or a portion thereof, in the
acquisition or development of Tangible Business Properties. The amount of such
Net Cash Proceeds not applied, used or invested as set forth in clause (x) or
(y) above shall constitute "Excess Proceeds."
If the aggregate amount of Excess Proceeds, together with any remaining Excess
Proceeds from any prior Asset Sale, equals or exceeds $25 million, the Company
shall so notify the Trustee in writing and shall offer to purchase from all
holders of the Notes (an "Asset Sale Offer"), and shall purchase from holders
accepting such Asset Sale Offer on the date fixed for such Asset Sale Offer (the
"Asset Sale Offer Date"), the maximum amount (expressed in integral multiples of
aggregate principal amount of $1,000) of Notes that may be purchased out of the
Excess Proceeds, in accordance with the procedures set forth in the Indenture,
at an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the Asset Sale Offer Date.
To the extent that the aggregate amount of Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds relating thereto (such shortfall
constituting a "Deficiency"), then the Company may use such Deficiency, or a
portion thereof, for general corporate purposes. Upon completion of an Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Limitation on Liens Securing Indebtedness. The Company will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any Lien of any kind upon any of their respective assets or properties now owned
or acquired after the date of the Indenture, or any income or profits therefrom,
securing any Indebtedness of the Company or any Restricted Subsidiary (other
than Permitted Liens) without making provision for all of the Notes to be
equally and ratably secured with (or prior to) such Indebtedness, provided,
however that if such Lien securing such Indebtedness ceases to exist, such equal
and ratable (or prior) Lien for the benefit of the holders of the Notes shall
cease to exist; provided, further, that the Lien securing any Subordinated
Indebtedness shall be subordinated to the Lien securing the Notes to at least
the extent that such Subordinated Indebtedness is subordinated to the Notes.
Limitation on Conduct of Business. The Company will operate and will cause its
Restricted Subsidiaries to be operated in a manner such that their business
activities will be the Oil and Gas Business.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on Capital Stock
of any Restricted Subsidiary or any Redeemable Stock of any Restricted
Subsidiary owned by the Company or any Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Company or any Restricted Subsidiary, (iii) make any
Investment in the Company or any Restricted Subsidiary or (iv) transfer any of
its property or assets to the Company or any Restricted Subsidiary, except (a)
any encumbrance or restriction pursuant to an agreement in effect on the date of
the Indenture, (b) any encumbrance or restriction with respect to any person
that is not a Restricted Subsidiary on the date of the Indenture, in existence
at the time such person becomes a Restricted Subsidiary and not created in
connection with, or in contemplation of, such person becoming a Restricted
Subsidiary so long as such encumbrance or restriction is not applicable to any
person or the property or assets of any person other than the person becoming a
Restricted Subsidiary, (c) any encumbrance or restriction pursuant to any
agreement that extends, refinances, renews or replaces any agreement containing
any encumbrance or restriction described in the foregoing clauses (a) and (b),
provided, however, that the terms and conditions of any such encumbrance or
restriction are not less favorable to the holders of the Notes than those
contained in the agreement evidencing the restriction or encumbrance so
extended, refinanced, renewed or replaced, (d) any encumbrance or restriction
arising under law and (e) any restriction arising under customary non-assignment
and nonsubletting clauses in leases. Nothing contained in the provisions of the
Indenture described in this paragraph shall prevent the Company or any
Restricted Subsidiary from entering into any agreement permitting the incurrence
of Liens otherwise permitted under the provisions of the Indenture described
above under the "Limitation on Liens Securing Indebtedness."
Limitation on Guarantees. The Company will not permit any Restricted
Subsidiary, directly or indirectly, to assume, guarantee or in any other manner
become liable with respect to the payment of any Indebtedness of the Company
unless such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a guarantee of the payment
of the Notes by such Restricted Subsidiary; provided, however, in the case of
such Restricted Subsidiary's assumption, guarantee, or other liability with
respect to Subordinated Indebtedness, such guarantee, assumption or other
liability shall be
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<PAGE> 57
subordinated to such Restricted Subsidiary's guarantee of the Notes to at least
the extent that such Subordinated Indebtedness is subordinated to the Notes; and
provided, further, that the provisions of the Indenture described in this
paragraph shall not be applicable to any guarantee, assumption or other
liability with respect to the payment of any Indebtedness of the Company by any
Restricted Subsidiary (i) in existence on the date of the Indenture, (ii) to the
extent such Indebtedness of the Company could be Incurred by such Restricted
Subsidiary as Permitted Restricted Subsidiary Indebtedness, or (iii) that (x)
existed at the time such person became a Restricted Subsidiary of the Company
and (y) was not Incurred in connection with, or in contemplation of, such person
becoming a Restricted Subsidiary. Notwithstanding the foregoing, any such
guarantee of the Notes by a Restricted Subsidiary shall provide by its terms
that it shall be automatically and unconditionally released and discharged upon
the release or discharge of such guarantee of such Indebtedness, other than a
release or discharge by, or as a result of, any payment under such guarantee by
such Restricted Subsidiary.
CHANGE IN CONTROL
If there shall have occurred a Change in Control, Notes shall be purchased by
the Company, at the option of the holder thereof, in whole or in part in
integral multiples of aggregate principal amount of $1,000, on a date that is
not earlier than 45 days nor later than 60 days from the date the Change in
Control Notice is given to holders or such later date as may be necessary for
the Company to comply with requirements under the Exchange Act (such date or
such later date, being the "Change in Control Purchase Date"), at a purchase
price in cash (the "Change in Control Purchase Price") equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to any Change
in Control Purchase Date subject to satisfaction by or on behalf of the holder
of the requirements established pursuant to the Indenture. The Company shall
comply with any applicable tender offer rules then in effect, including Section
14(e) of the Exchange Act and Rule 14e-1 promulgated thereunder (or any
successor provisions), in connection with a Change in Control offer. In the
event of any conflict between such tender offer rules and the provisions set
forth in the Indenture, such tender offer rules shall control.
"Change in Control" of the Company means the occurrence of any of the following:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) (or any
successor provisions) of the Exchange Act) is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 (or any successor provisions) under the
Exchange Act) of 50% or more of the total voting power of the Voting Stock of
the Company, (ii) there shall be consummated any consolidation or merger of the
Company (a) in which the Company is not the continuing or surviving corporation
or (b) pursuant to which the outstanding Voting Stock of the Company would be
converted into cash, securities or other property, in each case other than a
consolidation or merger of the Company in which (1) the outstanding Voting Stock
of the Company is changed into or exchanged for Voting Stock of the continuing
or surviving corporation and (2) the holders of the Company's Voting Stock
immediately prior to the consolidation or merger own, directly or indirectly, at
least a majority of the Voting Stock of the continuing or surviving corporation
immediately after the consolidation or merger, (iii) the Company sells,
transfers or otherwise disposes of all or substantially all of its assets, (iv)
the cessation of Continuing Directors for any reason to constitute a majority of
the Board of Directors then in office, (v) so long as any Indebtedness remains
outstanding under the Convertible Debenture Indenture, a Fundamental Change as
defined therein, (vi) the Company ceases to own on a fully diluted basis,
directly or indirectly through one or more Restricted Subsidiaries that are
Wholly Owned Subsidiaries of the Company, 51% of the outstanding Voting Stock of
Benton-Vinccler, and (vii) Benton-Vinccler sells, transfers or otherwise
disposes of a substantial part of its assets; provided that neither of the
events described in clause (vi) or (vii) will constitute a "Change in Control"
if (x) during the four full fiscal quarters ended immediately prior to the
occurrence of such event, the EBITDA of the Company and its Restricted
Subsidiaries attributable to Benton-Vinccler, as a percentage of the EBITDA of
the Company and its Restricted Subsidiaries, was less than 20% and (y)
immediately prior to such event, the Oil and Gas Reserve Estimate of the Company
and its Restricted Subsidiaries attributable to Benton-Vinccler as a percentage
of the Oil and Gas Reserve Estimate of the Company and its Restricted
Subsidiaries, is less than 20%.
In connection with clause (vii) of the preceding paragraph, a sale, transfer or
other disposition of assets of Benton-Vinccler shall be deemed to be a sale,
transfer or other disposition of a "substantial part" of the assets of
Benton-Vinccler if such assets, when added to all other assets of
Benton-Vinccler sold, transferred or otherwise disposed of (other than the
disposition of hydrocarbons or other mineral products in the ordinary course of
business) during the immediately preceding twelve months either (i) exceed
(based on the book value of all assets so sold, transferred or otherwise
disposed of during such twelve months) 25% of the net tangible assets of
Benton-Vinccler as of the end of its most recently completed full fiscal quarter
for which financial information is available determined in accordance with GAAP
or (ii) contributed more than 25% of the net income of Benton-Vinccler during
its most recently completed four full fiscal quarters for which financial
information is available determined in accordance with GAAP.
The Company's ability to repurchase the Notes will be dependent upon the
availability of cash and other financing sources to consummate such a
repurchase. The Company currently expects to incur additional Indebtedness to
finance its capital
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expenditure requirements and, therefore, the Company's ability to incur
additional Indebtedness to repurchase the Notes may be adversely affected by
what might then be a higher debt to equity ratio. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Capital
Resources and Liquidity." The failure of the Company to repurchase all Notes
tendered will constitute an Event of Default.
The Change in Control provisions of the Indenture may make more difficult or
discourage a takeover of the Company and the removal of incumbent management.
The Change in Control provision is not the result of management's knowledge of
any specific effort to accumulate shares of Common Stock or to obtain control of
the Company by means of a merger, tender offer, solicitation or otherwise, nor
is it part of a plan by management to adopt an anti-takeover provision.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Company may not, without the consent of the holders of all Notes then
outstanding, consolidate with, merge into or convey, sell, transfer, lease,
exchange or otherwise dispose of all of its assets and properties substantially
as an entirety to, any other person unless (i) the successor is a corporation or
partnership organized under the laws of the United States or any political
subdivision thereof or therein, (ii) the successor assumes all obligations of
the Company under the Indenture and the Notes, (iii) after giving effect to such
consolidation, merger, conveyance, sale, transfer, lease, exchange or other
disposition, no Default or Event of Default, shall have occurred and be
continuing, (iv) the successor would have a pro forma Consolidated Net Worth
after giving effect to such consolidation, merger, conveyance, sale, transfer,
lease, exchange or other disposition and prior to any purchase accounting
adjustments at least equal to the Consolidated Net Worth of the Company prior to
such consolidation, merger, conveyance, sale, transfer, lease, exchange or other
disposition, and (v) the Company could Incur, immediately prior to such
consolidation, merger, conveyance, sale, transfer, lease, exchange or other
disposition, and the successor would be able to Incur, after giving effect to
such consolidation, merger, conveyance, sale, transfer, lease, exchange or other
disposition, an additional $1.00 of Indebtedness (excluding Permitted
Indebtedness) pursuant to the provisions of the Indenture described above under
"Certain Covenants -- Limitation on Indebtedness."
Upon any consolidation or merger or any conveyance, sale, transfer, lease,
exchange or other disposition of the properties and assets of the Company
substantially as an entirety to any person in accordance with the provisions
described above, the successor formed by such consolidation or into which the
Company is merged or to which such conveyance, sale, transfer, lease, exchange
or other disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture with the same
effect as if such successor had been named as the Company in the Indenture; and
thereafter, except in the case of a conveyance, sale, transfer, lease, exchange
or other disposition of properties to another person, the predecessor person
shall be released from all obligations and covenants under the Indenture and the
Notes.
PROVISION OF FINANCIAL INFORMATION
To the extent permitted under the Exchange Act, whether or not the Company is
required to comply with Section 13(a) or 15(d) (or any successor provision) of
the Exchange Act, the Company will file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13(a) or 15(d) (or any
successor provision) if the Company were so required, such documents to be filed
with the Commission on or prior to the respective dates (the "Required Filing
Dates") by which the Company would have been required to file such documents if
the Company were so required. The Company will also in any event (i) within 15
days of each Required Filing Date transmit by mail to all holders of New Notes,
without cost to such holders, copies of the annual reports, quarterly reports
and other documents which the Company would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) (or any successor provision)
and (ii) if filing such documents by the Company with the Commission is not
permitted under the Exchange Act, promptly upon written request supply copies of
such documents to any holder of New Notes.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means, with respect to any person, Indebtedness of such
person (i) existing at the time such person becomes a Restricted Subsidiary or
(ii) assumed in connection with the acquisition of assets from another person,
including Indebtedness Incurred in connection with, or in contemplation of, such
person becoming a Restricted Subsidiary or such acquisition, as the case may be.
"Affiliate" means, with respect to any person, any other person directly or
indirectly controlling, controlled by, or under common control with, such
person, or any other person that owns, directly or indirectly, 5% or more of
such person's Voting Stock or any Affiliate of any such 5% or more owner. For
the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling", "controlled by" and "under common control
with"), as applied to any person, means the possession,
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directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of Voting
Stock, by contract or otherwise.
"Affiliate Transaction" has the meaning provided under "Certain
Covenants -- Limitation on Transactions with Affiliates."
"amount" means, (i) with respect to any Indebtedness outstanding at any time
other than Preferred Stock, the principal amount thereof; provided that the
amount of any such Indebtedness outstanding at any time that was issued at a
price less than the principal amount thereof shall equal the amount of the
liability in respect thereof at such time determined in accordance with GAAP and
(ii) with respect to any Indebtedness outstanding at any time that is Preferred
Stock, the aggregate liquidation value thereof at such time.
"Asset Acquisition" means (i) an Investment by the Company or any Restricted
Subsidiary in any other person pursuant to which such person shall become a
Restricted Subsidiary of the Company or any Restricted Subsidiary or shall be
merged into or consolidated with the Company or any Restricted Subsidiary or
(ii) an acquisition by the Company or any Restricted Subsidiary of the assets of
any person other than the Company or any Restricted Subsidiary that constitute
substantially all of a division or line of business of such person.
"Asset Disposition" means the sale or other disposition by the Company or any
Restricted Subsidiary (other than to the Company or another Restricted
Subsidiary) of (i) all or substantially all of the Capital Stock of any
Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any Restricted
Subsidiary.
"Asset Sale" means any conveyance, transfer, lease or other disposition
(including, without limitation, by way of any merger, consolidation or other
similar transaction), directly or indirectly, in one or a series of related
transactions, of any Capital Stock or Redeemable Stock of any Restricted
Subsidiary (other than the sale and issuance of directors' qualifying shares) or
any other properties or assets of the Company or any Restricted Subsidiary
(other than any such conveyance, transfer, lease or other disposition (i) that
is permitted under the provisions of the Indenture described under
"Consolidation, Merger, Conveyance, Transfer or Lease" above, (ii) that involves
any transfer of Capital Stock, Redeemable Stock or other property or assets of a
Restricted Subsidiary to the Company or any other Restricted Subsidiaries or of
the Company to a Restricted Subsidiary, (iii) of (1) hydrocarbon or other
mineral products or (2) other assets in an amount not to exceed $10 million in
any twelve month period, in each case in the ordinary course of business or (iv)
that involves the abandonment of any lease of non-producing acreage).
"Average Life" means, as of any date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the product of
(i) the number of years from such date of determination to the date of each
successive scheduled principal payment of such Indebtedness and (ii) the amount
of such principal payment by (b) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of such Board.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
such person's capital stock or partnership interests whether now outstanding or
issued after the date of the Indenture, except Redeemable Stock.
"Capitalized Lease Obligation" means, with respect to any person, any obligation
relating to any property (whether real, personal or mixed) of that person as
lessee which, in conformity with GAAP, is required to be accounted for as a
capital lease for financial reporting purposes, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with a
maturity of 180 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof), (ii) repurchase obligations for investments of the
type described in clause (i) for which delivery of the investment is made
against payment, (iii) demand or time deposits, bankers' acceptances and
certificates of deposit or acceptances with a maturity of 180 days or less of
any financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than
$300,000,000, and (iv) commercial paper with a maturity of 180 days or less
issued by a corporation (except any Affiliate or Subsidiary of the Company)
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by Standard & Poor's Corporation and at least
P-1 by Moody's Investors Service, Inc.
"Change in Control" has the meaning provided in "Change in Control."
"Commodity Swap Agreement" means any commodity swap agreement or other similar
agreement or arrangement.
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"Consolidated Interest Expense" means, for any period, the aggregate amount
(without duplication) of (i) interest expense in accordance with GAAP
(including, in accordance with the following sentence, interest attributable to
Capitalized Lease Obligations and the undischarged balance of production
payments) during such period in respect of all Indebtedness of the Company and
its Restricted Subsidiaries (including (a) amortization of original issue
discount on any Indebtedness, (b) the interest portion of all deferred payment
obligations, calculated in accordance with GAAP, and (c) all commissions,
discounts and other fees and charges owed with respect to bankers' acceptance
financings and Currency Agreements, Interest Rate Agreements and Commodity Swap
Agreements, in each case to the extent attributable to such period), and (ii)
dividend requirements of the Company and its Restricted Subsidiaries with
respect to Redeemable Stock and with respect to all other Preferred Stock of any
Restricted Subsidiaries (in each case whether in cash or otherwise (except
dividends payable solely in shares of Capital Stock of the Company or any
Restricted Subsidiary)) paid, declared, accrued or accumulated during such
period, in each case to the extent attributable to such period and excluding
items eliminated in consolidation. For purposes of this definition, (a) interest
with respect to a Capitalized Lease Obligation or a production payment shall be
deemed to accrue at an interest rate reasonably determined by the Company to be
the rate of interest implicit in such Capitalized Lease Obligation or production
payment in accordance with GAAP and (b) interest expense attributable to any
Indebtedness represented by the guarantee by the Company or a Restricted
Subsidiary of an obligation of another person shall be deemed to be the interest
expense attributable to the Indebtedness guaranteed.
"Consolidated Net Income" means, for any period, the aggregate net income (or
loss) of the Company and its Restricted Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP; provided that the
following items shall be excluded from Consolidated Net Income (without
duplication): (i) the net income of any person in which the Company or any of
its Restricted Subsidiaries has an interest (which interest does not cause the
net income of such person to be consolidated with the net income of the Company
in accordance with GAAP) except to the extent of the amount of dividends or
distributions actually paid to the Company or its Restricted Subsidiaries by
such person in such period; (ii) solely for the purposes of calculating the
amount of Restricted Payments that may be made pursuant to the Indenture (and in
such case, except to the extent includible pursuant to the foregoing clause (i)
above), the net income (or loss) of any person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or any of its Restricted Subsidiaries or all or substantially all of the
property and assets of such person are acquired by the Company or any of its
Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation; and (iv) all
extraordinary gains and losses or gains or losses attributable to Asset Sales.
If the Consolidated Net Income for any fiscal quarter of the Company includes a
ceiling limitation writedown (a "Writedown Quarter") in accordance with the full
cost accounting method rules of the Commission (such writedown, an "Actual
Writedown") but such Actual Writedown would have been less or would not have
been required had such ceiling limitation been calculated using oil and gas
prices in effect on the last day of either of the two fiscal quarters of the
Company immediately succeeding such Writedown Quarter (such Actual Writedown, as
so recalculated, a "Hypothetical Writedown"), then Consolidated Net Income for
such Writedown Quarter, shall be increased by the amount by which such Actual
Writedown exceeds such Hypothetical Writedown; provided that in no event shall
any such increase singly, or in the case of any such increases for both quarters
immediately succeeding such Writedown Quarter, in the aggregate, exceed the
amount of such Actual Writedown).
"Consolidated Net Worth" means, with respect to any person, as at any date of
determination, the consolidated stockholders' equity (or like balance sheet
designation) of such person as determined in accordance with GAAP.
"Continuing Directors" means any member of the Board of Directors on the date of
the Indenture, any director elected after the date thereof in any annual meeting
of the stockholders upon the recommendation of the Board of Directors and any
other member of the Board of Directors who is elected to succeed a Continuing
Director by a majority of Continuing Directors who are then members of the Board
of Directors.
"Convertible Debenture Indenture" means the Indenture dated as of May 15, 1992
between the Company and Bank of New York.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or both
would be, an Event of Default.
"Disinterested Director" means, with respect to an Affiliate Transaction, a
member of the Board of Directors who has no direct or indirect financial
interest, and whose employer has no direct or indirect financial interest, in
such Affiliate Transaction.
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"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date on which the Notes mature.
"EBITDA" means, for any period, without duplication, Consolidated Net Income for
such period, increased (to the extent deducted in determining Consolidated Net
Income) by the sum of (i) Consolidated Interest Expense, (ii) income taxes
(other than income taxes (either positive or negative) attributable to
extraordinary and non-recurring gains or losses or gains or losses attributable
to asset sales not in the ordinary course of business), (iii) depreciation and
depletion expense, (iv) amortization expense and (v) all other non-cash items
reducing Consolidated Net Income less all non-cash items increasing Consolidated
Net Income (other than, in each case, minority interests which shall, in all
cases, be excluded from the calculation of EBITDA) all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in conformity
with GAAP.
"EBITDA/Interest Ratio" means the ratio of (i) EBITDA for the Reference Period
immediately prior to the date of the transaction giving rise to the need to
calculate the EBITDA/Interest Ratio (the "Transaction Date") to (ii)
Consolidated Interest Expense for the Reference Period. In making the foregoing
calculation, (a) pro forma effect shall be given to (1) any Indebtedness
Incurred subsequent to the end of such Reference Period, (2) any Indebtedness
Incurred during such Reference Period to the extent such Indebtedness is
outstanding on the Transaction Date and (3) any Indebtedness to be Incurred on
the Transaction Date, in each case as if such Indebtedness had been Incurred on
the first day of such Reference Period and after giving effect to the
application of the proceeds thereof; (b) Consolidated Interest Expense
attributable to interest or dividends on any Indebtedness (whether existing or
being Incurred) computed on a pro forma basis and bearing a floating interest or
dividend rate shall be computed as if the rate in effect on the date of
computation (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months) had been the applicable rate for the entire period; (c) there shall
be excluded from Consolidated Interest Expense any Consolidated Interest Expense
related to any amount of Indebtedness that was outstanding during such Reference
Period or thereafter but that is not outstanding or is to be repaid on the
Transaction Date, except for Consolidated Interest Expense accrued (as adjusted
pursuant to clause (b)) during such Reference Period under a revolving credit or
similar arrangement to the extent of the commitment thereunder (or under any
successor revolving credit or similar arrangement) on the Transaction Date; and
(d) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions
that occur during such Reference Period or thereafter and on or prior to the
Transaction Date as if they had occurred on the first day of such Reference
Period.
"Event of Default" has the meaning provided in "Events of Default."
"Excess Proceeds" has the meaning provided in "Certain Covenants -- Disposition
of Proceeds of Asset Sales."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means, with respect to any determination pursuant to the terms of the
Indenture, such accounting principles as are generally accepted in the United
States at the time of such determination.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of any part or all of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
"Incur" means with respect to any Indebtedness, to incur, create, issue, assume,
guarantee or otherwise become liable for or with respect to or extend the
maturity of or become responsible for, the payment of, contingently or
otherwise, such Indebtedness; provided that neither the accrual of interest
(whether such interest is payable in cash or kind) nor the accretion of original
issue discount shall be considered an Incurrence of Indebtedness; provided
further that (i) in the case of any Indebtedness of the Company to any
Restricted Subsidiary, such Indebtedness shall be deemed to have been Incurred
by the Company for purposes of the provisions of the Indenture described under
"Certain Covenants -- Limitation on Indebtedness" at the time such Indebtedness
is sold, transferred or otherwise disposed of by such Restricted Subsidiary or
such Restricted Subsidiary is designated as an Unrestricted Subsidiary or
otherwise ceases to be a Restricted Subsidiary, (ii) in the case of any
Indebtedness of a Restricted Subsidiary to the Company or another Restricted
Subsidiary, such Indebtedness shall be deemed to have been Incurred by such
Restricted Subsidiary for purposes of the provisions of the Indenture described
under "Certain Covenants -- Limitation on Indebtedness" at the time such
Indebtedness is sold, transferred or otherwise disposed of by the Company or
such other Restricted Subsidiary or the Restricted Subsidiary holding such
Indebtedness is designated as an Unrestricted Subsidiary or otherwise ceases to
be a Restricted Subsidiary and (iii) any Indebtedness of an Unrestricted
Subsidiary that ceases to be Non-Recourse Indebtedness shall be deemed to have
been Incurred by such Unrestricted Subsidiary at the time of such cessation.
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"Indebtedness" means, without duplication, with respect to any person, (i) all
obligations of such person (a) in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such person or only to a
portion thereof), (b) evidenced by bonds, notes, debentures or similar
instruments, (c) representing the balance deferred and unpaid of the purchase
price of any property or services (excluding accounts payable or other
obligations arising in the ordinary course of business), (d) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (e) for
the payment of money relating to a Capitalized Lease Obligation, or (f)
evidenced by a letter of credit or reimbursement obligation of such person with
respect to any letter of credit (regardless of whether such reimbursement
obligation is to the issuer of the letter of credit or another person); (ii) all
net obligations of such person under Interest Rate Agreements, Commodity Swap
Agreements and Currency Agreements; (iii) the undischarged balance of any
production payments as to which such person is obligated or its property is
dedicated; (iv) all liabilities of others of the kind described in the preceding
clause (i), (ii) or (iii) that such person has guaranteed or that are otherwise
its legal liability; (v) Indebtedness (as otherwise defined in this definition)
of others secured by a Lien on any asset of such person, whether or not such
Indebtedness is assumed by such person (provided that if the obligations so
secured have not been assumed in full by such person or are not otherwise such
person's legal liability in full, then such obligations shall be deemed to be in
an amount equal to the greater of (a) the lesser of (1) the full amount of such
obligations, and (2) the fair market value of such asset, as determined in good
faith by the board of directors of such person, which determination shall be
evidenced by a board resolution, and (b) the amount of obligations as have been
assumed by such person or which are otherwise such person's legal liability);
and (vi) the liquidation preference and any mandatory redemption payment
obligations in respect of (a) all Redeemable Stock of such person and its
Subsidiaries and (b) all Preferred Stock of such Subsidiaries.
"Independent Financial Advisor" means a nationally recognized investment banking
firm (i) which does not (and whose directors, officers, employees and Affiliates
do not) have a direct or indirect material financial interest in the Company and
(ii) which, in the sole judgment of the Board of Directors, is otherwise
independent and qualified to perform the task for which such firm is being
engaged.
"Independent Petroleum Engineers" means, with respect to any person, a
nationally recognized petroleum engineering firm (i) which does not (and whose
directors, officers, employees and Affiliates do not) have a direct or indirect
material financial interest in such person and (ii) which, in the sole judgment
of the board of directors of such person, is otherwise independent and qualified
to perform the task for which such firm is being engaged.
"Interest Rate Agreements" means any interest rate swap agreement, interest rate
collar agreement or other similar agreement or arrangement designed to protect
the Company or any of its Restricted Subsidiaries against fluctuations in
interest rates.
"Investment" means, with respect to any person, any investment in another
person, whether by means of a share purchase, capital contribution, loan,
advance (other than advances to customers in the ordinary course of business
that are recorded as accounts receivable on the balance sheet of such person) or
similar credit extension constituting Indebtedness of such other person and any
guarantee of obligations of any other person.
"Lien" means any mortgage, lien, security interest, charge or encumbrance of any
kind (including any conditional sale or other title retention agreement, any
lease in the nature thereof, and any agreement to give any security interest).
"Material Subsidiary" means, at the time of determination, any Restricted
Subsidiary that, together with its Subsidiaries, (i) accounted for more than 5%
of (a) the revenues of the Company and its Restricted Subsidiaries, on a
consolidated basis, or (b) EBITDA, in each case for the most recently completed
fiscal year of the Company for which financial information is available or (ii)
owned more than 5% of the assets of the Company and its Restricted Subsidiaries,
on a consolidated basis, as at the end of such fiscal year, all as shown on or
derived from the consolidated financial statements of the Company for such
fiscal year.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof
in the form of cash or Cash Equivalents (including proceeds from the sale of
Publicly Traded Stock and payments in respect of deferred payment obligations
when received in the form of cash or Cash Equivalents), net of (i) brokerage
commissions and other reasonable fees and expenses (including fees and expenses
of counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes payable as a result of such Asset Sale, (iii) payments made to
retire Indebtedness where payment of such Indebtedness is required in connection
with such Asset Sale, (iv) obligations and expenses incurred in connection with
the repatriation to the United States of any proceeds of such Asset Sale, (v) in
the case of any Asset Sale made by a Restricted Subsidiary, any dividend or
distribution of a portion of the proceeds of such Asset Sale to a holder (other
than the Company or another Restricted Subsidiary) of Capital Stock (other than
Preferred Stock) of such Restricted Subsidiary; provided that such dividend is
paid or distribution is made concurrently with the payment of a dividend or
making of a distribution of a portion of such proceeds by such Restricted
Subsidiary to the Company or another Restricted Subsidiary and the amount of
such dividend or distribution does not exceed
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such holder's pro rata share (based on such holder's percentage ownership of the
outstanding Capital Stock (other than Preferred Stock) of such Restricted
Subsidiary) of the aggregate amount of the proceeds of such Asset Sale being
dividended or distributed and (vi) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reserve, in
accordance with GAAP, against any liabilities associated with such Asset Sale
and retained by the Company or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"Net Proceeds" means, in the case of any sale by the Company of Capital Stock,
the aggregate net cash proceeds received by the Company, after payment of
expenses, commissions, discounts and any other transaction costs incurred in
connection therewith.
"Non-Recourse Indebtedness" means, with respect to any Unrestricted Subsidiary,
Indebtedness of such Unrestricted Subsidiary as to which (i) neither the Company
nor any Restricted Subsidiary (a) provides credit support including any
undertaking, agreement or instrument which would constitute Indebtedness or (b)
is directly or indirectly liable for such Indebtedness and (ii) no default with
respect to such Indebtedness (including any rights which the holders thereof may
have to take enforcement action against such Unrestricted Subsidiary) would
permit (upon notice, lapse of time or both) any holder of any other Indebtedness
of the Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Oil and Gas Business" means the exploration for and the development,
acquisition, production, processing, marketing, storage and transportation of
hydrocarbons and other related energy and natural resources businesses and any
activity necessary, appropriate or incidental to the foregoing.
"Oil and Gas Reserve Estimate" means, as of any date of determination, the
estimated discounted future net revenues attributable to proved oil and gas
reserves of the Company and its Restricted Subsidiaries calculated in accordance
with the Commission's guidelines (before any state or federal income taxes) as
set forth in the most recently prepared reserve report of the Company and its
Restricted Subsidiaries that has been audited by Independent Petroleum Engineers
(which report shall be prepared as of a date no earlier than the end of the most
recently completed fiscal year of the Company for which financial information is
available) (the "Audited Report"), decreased, in the case of clause (i) below,
and increased or decreased, as appropriate, in the case of clauses (ii) and
(iii) below, by the Company's petroleum engineers to reflect, as of such date of
determination, the estimated discounted future net revenues attributable to (i)
the ownership interest of any holder (other than the Company or another
Restricted Subsidiary) of Capital Stock (other than Preferred Stock) of any
Restricted Subsidiary (based on such holder's percentage ownership of such
Capital Stock as of such date of determination), but only to the extent such
ownership interest is not otherwise deducted from the discounted future net
revenues of the Company and its Restricted Subsidiaries set forth in the Audited
Report, (ii) proved oil and gas reserves acquired or disposed of since the date
of the Audited Report and (iii) increases or decreases in proved oil and gas
reserves of the Company and its Restricted Subsidiaries due to exploration,
development or exploitation activities or changes in geological conditions since
the date of the Audited Report; provided that such adjustments are calculated in
accordance with the Commission's guidelines by the Company's petroleum engineers
utilizing the prices utilized in, and on a basis otherwise consistent with, the
Audited Report. Notwithstanding the foregoing, (1) if the estimated discounted
future net revenues from any proved oil and gas reserves acquired since the date
of the Audited Report have been audited by Independent Petroleum Engineers and a
report with respect thereto as of a date no earlier than the end of the most
recently completed fiscal year of the person from whom such reserves were
acquired has been prepared, such report (or, if a more recent audited reserve
report is available, the most recent of such reports) shall be utilized for
purposes of calculating the adjustment to discounted future net revenues of such
person attributable to such acquired reserves, (2) if the estimated discounted
future net revenues of the Company and its Restricted Subsidiaries, as adjusted
pursuant to clauses (ii) and (iii) of the preceding sentence (excluding any
adjustments calculated pursuant to clause (1) of this sentence) would vary by
more than 10% from the discounted future net revenues of the Company and its
Restricted Subsidiaries set forth in the Audited Report, such adjustments shall
be audited by Independent Petroleum Engineers and (3) so long as Benton-Vinccler
is a Restricted Subsidiary, for purposes of calculating the Oil and Gas Reserve
Estimate of the Company and its Restricted Subsidiaries attributable to
Benton-Vinccler as of any date of determination, the proportionate share of the
Company and its Restricted Subsidiaries (based on their percentage ownership
interest of Benton-Vinccler, C.A. as of such date of determination) of the
estimated discounted future net revenues attributable to the proved oil and gas
reserves subject to the operating service agreement dated as of July 31, 1992
with Lagoven, S.A. (as amended or supplemented from time to time and including
any successor agreements or arrangements) shall be included in such Oil and Gas
Reserve Estimate on the same basis as such net revenues would be included if
such proved oil and gas reserves were owned by Benton-Vinccler.
"Performance Letter of Credit" means, with respect to any person, a letter of
credit or bond to secure the performance in any country of any obligations of
such person under any contract entered into in the ordinary course of such
person's Oil and Gas
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Business; provided that the provision of any such letter of credit or bond is
required by local law or, in the case of any such letter of credit or bond
securing the performance of obligations outside the United States, is
customarily required in connection with contracts relating to the Oil and Gas
Business in such country and, in either case, such letter of credit or bond
requires that any payment thereunder by the issuer thereof be immediately repaid
by such person.
"Permitted Benton-Vinccler Indebtedness" means Indebtedness of Benton-Vinccler
in an aggregate amount not to exceed $25 million at any time outstanding.
"Permitted Commodity Swap Agreements" means Commodity Swap Agreements entered
into in order to protect the Company or its Restricted Subsidiaries against
fluctuations in oil or gas prices with respect to their current or good faith
estimated future oil and gas production irrespective of whether such production
is owned by the Company or a Restricted Subsidiary or is produced by the Company
or a Restricted Subsidiary pursuant to an arrangement under which the Company or
a Restricted Subsidiary acts as a contractor for a third party that owns such
production.
"Permitted Company Secured Indebtedness" means secured Indebtedness of the
Company Incurred after the date of the Indenture (other than pursuant to clause
(xi) of the definition of Permitted Indebtedness) in an aggregate amount not to
exceed $20 million outstanding at any time less the aggregate amount of
Permitted Restricted Subsidiary Indebtedness outstanding at such time.
"Permitted GEOILBENT Indebtedness" means Indebtedness of GEOILBENT which is
non-recourse to the Company and its Restricted Subsidiaries except to the extent
of the pledge of equity interests in GEOILBENT.
"Permitted Indebtedness" means (i) the Old Notes and the New Notes; (ii)
Indebtedness of the Company (other than the Vinccler Notes) and its Restricted
Subsidiaries (other than Benton-Vinccler) outstanding on the date of the
Indenture; (iii) obligations of the Company and its Restricted Subsidiaries
pursuant to Interest Rate Agreements, Currency Agreements and Permitted
Commodity Swap Agreements and compensation payable thereunder; (iv) Indebtedness
of the Company to a Restricted Subsidiary or of a Restricted Subsidiary to the
Company or another Restricted Subsidiary (but only so long as such Indebtedness
is held or owned by the Company or a Restricted Subsidiary); (v) Indebtedness of
the Company Incurred for the purpose of financing the working capital
requirements of the Company or any Restricted Subsidiary in an aggregate amount
not to exceed the greater of $10 million or 4% of the Oil and Gas Reserve
Estimate, in each case at any time outstanding; (vi) Indebtedness (excluding
Acquired Indebtedness) of the Company in addition to Indebtedness permitted by
clauses (i) through (v) in an aggregate amount not to exceed $20 million at any
time outstanding; (vii) (a) Indebtedness of Benton-Vinccler not in excess of $25
million in aggregate principal amount outstanding which is cash collateralized
and (b) Permitted Benton-Vinccler Indebtedness; (viii) Permitted GEOILBENT
Indebtedness; (ix)(a) one or more letters of credit having an aggregate face
amount not exceeding $18 million issued in support of performance obligations in
respect of the Delta Centro block in Venezuela and (b) Performance Letters of
Credit with respect to which the account party is the Company or any Restricted
Subsidiary; provided that the reimbursement obligation of the Company or such
Restricted Subsidiary thereunder is unsecured; (x) unsecured obligations of the
Company or any Restricted Subsidiary to reimburse any other person for all or a
portion of such other person's reimbursement obligations with respect to any
Performance Letter of Credit; provided that such Performance Letter of Credit
secures the performance of obligations of the Company or a Restricted Subsidiary
(in addition to any performance obligations of such other person which such
Performance Letter of Credit may secure) under any contract entered into by the
Company or such Restricted Subsidiary in the ordinary course of its Oil and Gas
Business; (xi) the Vinccler Notes; and (xii) Indebtedness of the Company or any
Restricted Subsidiary the proceeds of which are used to renew, extend, refinance
or repurchase, or Indebtedness of the Company or any Restricted Subsidiary
exchanged for, Indebtedness permitted by clause (i) or (ii) above so long as (a)
the aggregate amount of such new Indebtedness (or, if such new Indebtedness will
be issued at a price less than the principal amount thereof, the aggregate issue
price thereof) would not be greater than the sum of the aggregate amount of the
Indebtedness being renewed, extended, refinanced, repurchased or exchanged and
any premium, accrued interest expense, commissions and other transaction costs
incurred in connection with such renewal, extension, refinancing, repurchase or
exchange (but only if such costs are of a kind and in an amount that would
customarily be incurred in connection with such types of transactions), (b) if
the Indebtedness being renewed, extended, refinanced, repurchased or exchanged
is Indebtedness of the Company, such new Indebtedness would be Indebtedness of
the Company and, unless the Indebtedness being renewed, extended, refinanced,
repurchased or exchanged is fully secured, such new Indebtedness would have an
Average Life greater than the Average Life of the Notes and a stated maturity
later than the Stated Maturity of the Notes and (c) such new Indebtedness would
be Subordinated Indebtedness if the Indebtedness renewed, extended, refinanced,
repurchased or exchanged is Subordinated Indebtedness and such new Subordinated
Indebtedness would be subordinated to the Notes at least to the extent that the
Subordinated Indebtedness being renewed, extended, refinanced, repurchased or
exchanged is subordinated to the Notes.
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"Permitted Investment" 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 a person to
share risks or costs, comply with regulatory requirements regarding local
ownership or satisfy other objectives customarily achieved through the conduct
of the Oil and Gas Business jointly with third parties, including, without
limitation, (i) ownership interests in oil and gas properties or gathering
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 Liens" means Liens upon any real or tangible personal property
securing (i) any Indebtedness of the Company or any Restricted Subsidiary
existing on the date of the Indenture and any renewals, extensions, refinancings
or exchanges of such Indebtedness permitted under the Indenture; provided that
any such Lien securing any renewed, extended, refinanced or exchanged
Indebtedness shall only attach to the property that secured such Indebtedness
prior to such renewal, extension, refinancing or exchange; (ii) any Permitted
Benton-Vinccler Indebtedness; (iii) any Permitted GEOILBENT Indebtedness,
limited to the non-recourse pledge of equity interests in GEOILBENT; (iv) any
Permitted Restricted Subsidiary Indebtedness; (v) any Permitted Company Secured
Indebtedness; (vi) Permitted Commodity Swap Agreements; (vii) reimbursement
obligations in respect of the letters of credit referred to in clause (ix)(a) of
the definition of Permitted Indebtedness; (viii) Indebtedness of Benton-Vinccler
referred to in clause (vii)(a) of the definition of Permitted Indebtedness,
limited to cash collateral; and (ix) any other Indebtedness of the Company or
any Restricted Subsidiary required by its terms to be secured in the event that
the Notes are required to be secured pursuant to the terms of the Indenture;
provided that (a) if such other Indebtedness is Subordinated Indebtedness, the
Lien securing such other Indebtedness shall be subordinated to the Lien securing
the Notes to at least the extent that such Subordinated Indebtedness is
subordinated to the Notes, (b) in no event shall the Lien securing such other
Indebtedness be prior to the Lien securing the Notes and (c) if the Lien
securing the Notes ceases to exist, the Lien securing such other Indebtedness
shall also cease to exist.
"Permitted Restricted Subsidiary Indebtedness" means Indebtedness of any
Restricted Subsidiary (including Permitted Benton-Vinccler Indebtedness but
excluding Indebtedness of Benton-Vinccler referred to in clause (vii)(a) of the
definition of Permitted Indebtedness) Incurred after the date of the Indenture
(other than pursuant to clause (xii) of the definition of Permitted
Indebtedness) in an aggregate amount for all such Restricted Subsidiaries not to
exceed $20 million, in each case outstanding at any time less the aggregate
amount of Permitted Company Secured Indebtedness outstanding at such time.
"person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof; provided that the term
joint venture shall not include any contractual arrangement between the Company
or any Restricted Subsidiary and one or more third parties pursuant to which the
Company or such Restricted Subsidiary and such third party or parties agree to
share the costs and benefits of exploring and developing oil and gas properties
so long as (i) the interest of the Company or such Restricted Subsidiary in such
properties and the hydrocarbons or other mineral products derived therefrom is
owned directly by the Company or such Restricted Subsidiary, (ii) such
contractual arrangement does not grant any Lien on the Company's or such
Restricted Subsidiary's ownership interest in such properties or products
derived therefrom or permit such third party or parties to restrict in any
manner the ability of the Company or such Restricted Subsidiary to use,
transfer, sell or otherwise dispose of such ownership interest (excluding, in
each case, any agreement to sell such products to such third party or parties so
long as such agreement was negotiated on an arm's-length basis) and (iii) no
independent legal entity is created by such contractual arrangement.
"Preferred Stock" means, with respect to any person, Capital Stock or Redeemable
Stock of such person of any class or classes (however designated) whether now
outstanding or issued after the date of the Indenture, that ranks prior, as to
the payment of dividends or as to the distribution of assets upon any voluntary
or involuntary liquidation of such person, to any other class of Capital Stock
of such person and includes, without limitation, all classes and series of
preferred or preference stock.
"Publicly Traded Stock" means, with respect to any person, Voting Stock of such
person which is registered under Section 12 of the Exchange Act and which is
actively traded on The New York Stock Exchange or American Stock Exchange or in
the Nasdaq -- National Market.
"Redeemable Stock" means, with respect to any person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
such person's capital stock or partnership interests whether now outstanding or
issued after the date of the Indenture that by their terms or otherwise are or
may be required to be redeemed prior to the Stated Maturity of the Notes or are
redeemable at the option of the holder thereof (including, without limitation,
upon the happening of any specified event or with the passage of time) at any
time prior to the Stated Maturity of the Notes; provided that if the only event
that could require
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redemption of any such securities prior to the Stated Maturity of the Notes is a
change in control of the Company (defined in a manner substantially identical to
the definition of Change in Control in the Indenture) and such right of
redemption is expressly subordinated to the right of the holders of the Notes to
require repurchase of the Notes upon the occurrence of a Change in Control
pursuant to the terms of the Indenture, then such securities shall not be deemed
to be Redeemable Stock.
"Reference Period" means, with respect to any determination to be made pursuant
to the terms of the Indenture, the four full fiscal quarters for which financial
information is available immediately preceding any date upon which such
determination is to be made.
"Repaid Investment" means (i) the amount of any Investment in a person (which is
a Restricted Payment) made by the Company or a Restricted Subsidiary after the
date of the Indenture (a) to the extent such amount has been unconditionally
repaid in cash to the Company or such Restricted Subsidiary (including any such
repayment in the form of a dividend but excluding any payments of interest) or
(b) to the extent of the net proceeds received in cash or Cash Equivalents from
the sale thereof and (ii) the amount of any Indebtedness of a person guaranteed
by the Company or a Restricted Subsidiary after the date of the Indenture (which
guarantee is a Restricted Payment) to the extent such amount has been
unconditionally released from such guarantee; provided that in each case such
amount shall not exceed the amount of such Investment as recorded on the books
of the Company or such Restricted Subsidiary in accordance with GAAP at the time
such Investment was made.
"Restricted Payment" means, with respect to any person, (i) the declaration or
payment of any dividend or other distribution in respect of Capital Stock or
Redeemable Stock of such person or any Subsidiary of such person, (ii) any
payment on account of the purchase, redemption or other acquisition or
retirement for value of Capital Stock or Redeemable Stock of such person or any
Subsidiary of such person (including options, warrants or other rights to
acquire such Capital Stock or Redeemable Stock), (iii) any payment on account of
the purchase, redemption or other acquisition or retirement for value of, or any
payment in respect of any amendment of the terms of, or any defeasance of, any
Subordinated Indebtedness, directly or indirectly, by such person or a
Subsidiary of such person prior to the scheduled maturity, any scheduled
repayment of principal or any scheduled sinking fund payment, as the case may
be, of such Subordinated Indebtedness and (iv) any Investment by such person
other than any Investment in Cash Equivalents or any Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary; provided that so long as Benton-Vinccler is a direct or
indirect Subsidiary of the Company it shall remain a Restricted Subsidiary.
"Restricted Subsidiary Investment" means, with respect to any person that
becomes a Restricted Subsidiary, the amount of any Investment in such person
(which is a Restricted Payment) made by the Company or a Restricted Subsidiary
after the date of the Indenture but prior to the time such person becomes a
Restricted Subsidiary; provided that such amount shall not exceed the amount of
such Investment as recorded on the books of the Company or such Restricted
Subsidiary in accordance with GAAP at the time such Investment was made.
"Senior Indebtedness" means any Indebtedness of the Company (whether outstanding
on the date hereof or hereinafter incurred), unless such Indebtedness is
Subordinated Indebtedness.
"Stated Maturity," when used with respect to any Note, means the date specified
in such Note as the fixed date on which the principal of such Note is due and
payable.
"Subordinated Indebtedness" means any Indebtedness (whether outstanding on the
date hereof or hereinafter incurred) which is by its terms expressly subordinate
or junior in right of payment to the Notes.
"Subsidiary" of any person means (i) a corporation a majority of whose Voting
Stock is at the time, directly or indirectly, owned by such person, by one or
more Subsidiaries of such person or by such person and one or more Subsidiaries
of such person or (ii) any other person (other than a corporation) in which such
person, directly or indirectly, at the date of determination thereof, has (x) at
least a majority ownership interest or (y) the power to elect or direct the
election of a majority of the directors or other governing body of such person.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company or of a
Restricted Subsidiary (other than Benton-Vinccler) that is designated as an
Unrestricted Subsidiary by a resolution adopted by the Board of Directors in
accordance with the requirements of the following sentence and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Company may designate any
Subsidiary of the Company or of a Restricted Subsidiary (excluding any
Restricted Subsidiary that had been designated as an Unrestricted Subsidiary
prior to its designation as a Restricted Subsidiary but including a newly
acquired or newly formed Subsidiary of the Company or any Restricted Subsidiary)
to be an Unrestricted Subsidiary by a resolution of the Board of Directors, if
immediately after giving effect to such designation, (i) the Company could Incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the Indenture provisions described under the caption "Certain
Covenants -- Limitation on Indebtedness," (ii) the Company could make an
additional Restricted Payment of $1.00 pursuant
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to the Indenture provisions described in the first paragraph under the caption
"Limitation on Restricted Payments," (iii) such Subsidiary does not own or hold
any Capital Stock or Redeemable Stock of, or any Lien on any property of, the
Company or any Restricted Subsidiary and (iv) such Subsidiary is not liable,
directly or indirectly, with respect to any Indebtedness other than Non-Recourse
Indebtedness. The Board of Directors may designate any Unrestricted Subsidiary
(excluding any Unrestricted Subsidiary that had been a Restricted Subsidiary
prior to its designation as an Unrestricted Subsidiary) to be a Restricted
Subsidiary; provided that, immediately after giving effect to such designation,
the Company could Incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the Indenture provisions described under the
caption "Certain Covenants -- Limitation on Indebtedness." Upon any such
designation by the Board of Directors, the Company shall promptly file with the
Trustee a copy of a board resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing. As of the date of the Indenture, the Company has no Unrestricted
Subsidiaries.
"Vinccler Notes" means the promissory notes in an aggregate original principal
amount equal to $10 million issued to Vinccler by the Company and guaranteed by
Benton-Vinccler.
"Voting Stock" means, with respect to any person, securities of any class or
classes of Capital Stock in such person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the board of
directors or other governing body of such person but not including Capital Stock
having the right to vote thereon solely upon the happening of a contingency
unless and until such contingency has occurred, and then only so long as such
Capital Stock has voting rights with respect thereto.
"Wholly Owned Subsidiary" means, with respect to any person, any Subsidiary of
such person if all of the Capital Stock (excluding Preferred Stock) in such
Subsidiary (other than any director's qualifying shares) is owned directly or
indirectly by such person.
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture with respect to the Notes if
any one of the following events occurs:
(a) default in the payment of any installment of interest on the Notes
as and when the same becomes due and payable, and the continuance of such
default for 30 days; or
(b) default in the payment of the principal of the Notes, the amount
payable upon the redemption of any Notes, Change in Control Purchase Price
or Asset Sale Offer Price when the same becomes due and payable as provided
under the Indenture, whether at Stated Maturity, upon redemption, upon
declaration of acceleration, when due for purchase by the Company or
otherwise; or
(c) default in the performance or breach of any covenant or agreement of
the Company under the Indenture (other than a default in the performance or
breach of a covenant or agreement that is specifically dealt with elsewhere
herein), and continuance of such default or breach for a period of 30 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 Notes a written notice
specifying such default or breach and stating that such notice is a "Notice
of Default" under the Indenture; or
(d) default in the payment of any principal, premium, if any, or
interest when due or after the expiration of any applicable grace period in
respect of any Indebtedness of the Company or any Restricted Subsidiary
(including, without limitation, reimbursement obligations with respect to
Performance Letters of Credit) having an outstanding principal amount (or
with an outstanding reimbursement obligation) of $2.5 million or more
individually or in the aggregate or the acceleration of the maturity of any
such Indebtedness; or
(e) one or more final judgments or orders rendered against the Company
or any Restricted Subsidiary which require the payment in money, either
individually or in an aggregate amount, of more than $500,000 shall remain
unsatisfied or unstayed for 30 consecutive days after any such judgment or
order becomes final and nonappealable; or
(f) the entry of a decree or order by a court having jurisdiction in the
premises (i) for relief in respect of the Company or any Material
Subsidiary in an involuntary case or proceeding under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
(ii) adjudging the Company or any such Material Subsidiary as bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any such Material Subsidiary
under any such law, or (iii) appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Company
or any such Material Subsidiary or of any substantial part of any of their
properties, or ordering the winding up or liquidation of any of their
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
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(g) the institution by the Company or any Material Subsidiary of a
voluntary case or proceeding under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or the consent by the Company
or any Material Subsidiary to the entry of a decree or order for relief in
respect of the Company or any Material Subsidiary in any involuntary case
or proceeding under any such law or to the institution of bankruptcy or
insolvency proceedings against the Company or such Material Subsidiary, or
the filing by the Company or any Material Subsidiary of a petition or
answer or consent seeking reorganization or relief under any such law, or
the consent by the Company or any Material Subsidiary to the filing of any
such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of any of the Company or such Material Subsidiary or any
substantial part of any of their properties, or the making by the Company
or any Material Subsidiary of an assignment for the benefit of creditors,
or the admission by the Company or any Material Subsidiary in writing of an
inability to pay any of their debts generally as they become due or the
taking of corporate action by the Company or any Material Subsidiary in
furtherance of any such action.
If an Event of Default with respect to the Notes (other than as specified in
clauses (f) and (g) above) occurs and is continuing, either the Trustee or the
holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by holders) may, and the Trustee at the request of such holders shall,
declare the Notes and the accrued interest thereon to be immediately due and
payable, as specified below. Upon a declaration of acceleration, such amount
shall be due and payable immediately after receipt by the Company of such
written notice. If an Event of Default specified in clause (f) or (g) above
occurs and is continuing, then the Notes and the accrued interest thereon shall
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holder. At any time after such declaration of
acceleration has been made and before a judgment or decree for payment of the
money due has been obtained by the Trustee, the holders of a majority in
aggregate principal amount of the Notes outstanding, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if: (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and (ii) the amounts payable in respect of any Notes
which have become due otherwise than by such declaration of acceleration and
overdue interest thereon (to the extent of such overdue interest at the rate
borne by the Notes) and (b) the rescission would not conflict with any judgment
or decree and (c) all existing Events of Default, other than the nonpayment of
the principal amount of the Notes which have become due solely by such
declaration of acceleration, have been cured or waived. No such rescission shall
affect any subsequent Default or impair any right consequent thereon provided in
the following paragraph.
The holders of not less than a majority in aggregate principal amount of the
outstanding Notes, by notice to the Trustee (and without notice to any other
holder) on behalf of the holders of all the Notes may waive any past default or
Event of Default under the Indenture with respect to such Notes and its
consequences, except (i) an Event of Default described in clause (b) of the
first paragraph under this section or (ii) a default in the payment of interest
on any Notes or in respect of a covenant or provision that under the terms of
the Indenture cannot be modified or amended without the consent of the holder of
each outstanding Note affected thereby. 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 the Indenture; but no such waiver shall
extend to any subsequent or other default or impair any right consequent
thereto.
In the Indenture, (i) the Company will covenant that (to the extent that it may
lawfully do so) it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of the Indenture and the Company will expressly
waive (to the extent that it may lawfully do so) all benefit or advantage of any
such law and (ii) the Company will covenant that it will not hinder, delay or
impede the execution of any power granted to the Trustee under the Indenture and
will suffer and permit the execution of every such power as though no such law
had been enacted.
DEFEASANCE; SATISFACTION AND DISCHARGE
The Indenture will provide that (i) the Company may be discharged from any and
all obligations in respect of the outstanding Notes or (ii) the Company may omit
to comply with certain restrictive covenants and that such omission shall not be
deemed to be an Event of Default under the Indenture and the Notes in the case
of either clause (i) or (ii) upon irrevocable deposit with the Trustee, in
trust, of money and/or U.S. government obligations which will provide money in
an amount sufficient in the opinion of a nationally recognized firm of
independent certified accountants to pay the principal of and each installment
of interest, if any, on the outstanding Notes. With respect to clause (ii), the
obligations under the Indenture other than with respect to such covenants and
the Events of Default other than the Event of Default relating to such covenants
shall remain in full force and effect. Such trust may only be established if,
among other things (a) with respect to clause (i), the Company has delivered to
the Trustee an Opinion of Counsel stating that the Company has received from, or
there has been published by, the Internal
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Revenue Service a ruling or there has been a change in law, and based thereon
such Opinion of Counsel confirms 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 had not occurred or, with respect to
clause (ii), the Company has delivered to the Trustee an Opinion of Counsel to
the effect that the holders of the Notes will not recognize gain or loss for
federal income tax purposes as a result of such deposit and defeasance 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 had
not occurred; (b) no Event of Default or Default shall have occurred or be
continuing; (c) the Company has delivered to the Trustee an Opinion of Counsel
to the effect that such deposit shall not cause the Trustee or the trust so
created to be subject to the Investment Company Act of 1940, as amended; and (d)
certain other customary conditions precedent are satisfied.
The Indenture will cease to be of further effect (except as to surviving rights
of registration of transfer or exchange of Notes, substitution of apparently
mutilated, defaced, destroyed, lost or stolen Notes, rights of holders to
receive payments of principal and interest and rights of holders of Notes to
funds deposited with the Trustee) as to all outstanding Notes when either (i)
all such Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid) have been delivered to the
Trustee for cancellation, (ii) the Company has paid the principal of and
interest on all Notes outstanding under the Indenture as and when the same shall
have become due and payable, or (iii) all such Notes not theretofore delivered
to the Trustee for cancellation (a) have become due and payable, or (b) will
become due and payable within one year, or (c) are to be called for redemption
within one year, and (x) the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay the entire
indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest to the date of
deposit (if such Notes are then due and payable) or to the applicable maturity
or redemption date (as the case may be), (y) no default or Event of Default
shall have occurred or be continuing and (z) such deposit would not result in a
breach or violation of, or constitute a default under, the Indenture or any
other agreement or instrument to which the Company is a party or by which it is
bound, and the Company has paid all sums payable by it under the Indenture.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of New
York.
MODIFICATION OF INDENTURE
The Indenture contains provisions permitting the Company and the Trustee in
limited circumstances, and otherwise, with the consent of the holders of not
less than a majority in aggregate principal amount of Notes at the time
outstanding, to execute supplemental indentures adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
any supplemental indenture or modifying in any manner the rights of the holders
of the Notes; provided that no such supplemental indenture shall (i) extend the
final maturity of any Note, or reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest thereon, or reduce any amount
payable on redemption of any Notes or upon an Event of Default, or reduce the
Change in Control Purchase Price of the Asset Sale Offer Price, or impair or
affect the right of any holder to institute suit for the payment thereof without
the consent of the holder of each Note so affected, or (ii) reduce the aforesaid
percentage of Notes, the consent of the holders of which is required for any
supplemental indenture, without the consent of the Holders of all Notes then
outstanding.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
THE GLOBAL NOTES
Upon the issuance of the Regulation S Global Note and the Restricted Global Note
(each a "Global Note" and together the "Global Notes"), DTC or its custodian
will credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Note to the accounts
of persons who have accounts with such depositary. Such accounts initially will
be designated by or on behalf of the Initial Purchaser. Ownership of beneficial
interests in a Global Note will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. Ownership
of beneficial interests in a Global Note will be shown on, and the transfer of
that ownership will be effected only
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through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Qualified institutional buyers may hold their
interests in a Global Note directly through DTC if they are participants in such
system, or indirectly through organizations which are participants in such
system.
Investors may hold their interests in the Regulation S Global Note directly
through Cedel or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants in such system. Beginning
40 days after the later of the commencement of the offering and the Closing Date
(but not earlier), investors may also hold such interests through organizations
other than Cedel or Euroclear that are participants in the DTC system. Cedel and
Euroclear will hold interests in the Regulation S Global Note on behalf of their
participants through DTC.
So long as DTC, or its nominee, is the registered owner of holder of a Global
Note, DTC or such nominee, as the case may be, will be considered the sole owner
or holder of the Notes represented by such Global Note for all purposes under
the Indenture and the Notes. No beneficial owner of an interest in a Global Note
will be able to transfer that interest except in accordance with the procedures
provided for under "Notice to Investors," as well as DTC's applicable
procedures, and, if applicable, those of Euroclear and Cedel.
Payments of the principal of, and interest on, the Global Notes will be made to
DTC or its nominee, as the case may be, as the registered owner thereof. None of
the Company, the Trustee or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the name of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way in
accordance with DTC rules and will be settled in same-day funds. If a holder
requires physical delivery of a Certificated Note for any reason, including to
sell Notes to persons in states which require such delivery of such Notes or to
pledge such Notes, such holder must transfer its interest in the Global Note in
accordance with the normal procedures of DTC and the procedures set forth in
"Transfer Restrictions." Transfers between participants in Euroclear and Cedel
will be effected in the ordinary way in accordance with their respective rules
and operating procedures.
DTC has advised the Company that it will take any action permitted to be taken
by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
accounts the DTC interests in the Global Notes is credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default (as defined below) under the Notes, DTC will exchange the
Global Notes for Certificated Notes, which it will distribute to its
participants and which, if representing interests in the Restricted Global Note
or the Temporary Regulation S Global Note, will be legended as set forth under
the heading "Notice to Investors."
DTC has advised the Company as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly ("indirect participants").
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures in
order to facilitate transfers of interests in the Global Notes among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
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CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for the
Global Notes and a successor depositary is not appointed by the Company within
90 days, the Company will issue Certificated Notes in exchange for the Global
Notes which, in the case of Notes issued in exchange for the Restricted Global
Note will bear the legend referred to under the heading "Notice to Investors."
DESCRIPTION OF THE OLD NOTES
The terms of the Old Notes are identical in all material respects to the New
Notes, except that (i) the sale of the Old Notes was not registered under the
Securities Act, therefore the Old Notes are subject to certain restrictions on
transfer, contain certain legends relating thereto and are entitled to certain
registration rights under the Registration Rights Agreement (which rights will
terminate upon consummation of the Exchange Offer); and (ii) the New Notes will
not provide for any increase in the interest rate thereon. In that regard, the
Old Notes provide that, in the event that the Exchange Offer is not consummated
or a shelf registration statement (the "Shelf Registration Statement") with
respect to the resale of the Old Notes is not declared effective on or prior to
August 31, 1996, or if the Exchange Offer is not consummated on or prior to
August 31, 1996, the interest rate on the Old Notes will increase by 0.50% per
annum until the Exchange Offer is consummated. Upon the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after August 31, 1996, the interest rate on any Old Notes which
remain outstanding will be reduced, from the date of such consummation or
effectiveness, as the case may be, to 11 5/8% per annum and the Old Notes will
not thereafter be entitled to any increase in the interest rate thereon. The New
Notes are not entitled to any such increase in the interest rate thereon. In
addition, the Old Notes and the New Notes will constitute a single series of
debt securities under the Indenture. See "Description of the New
Notes -- General." Accordingly, holders of Old Notes should review the
information set forth under "Summary -- Certain Consequences of a Failure to
Exchange Old Notes" and "Description of the New Notes."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States Federal income tax
considerations to holders of the New Notes who are subject to U.S. net income
tax with respect to the New Notes ("U.S. persons") and who will hold the New
Notes as capital assets. There can be no assurance that the U.S. Internal
Revenue Service (the "IRS") will take a similar view of the purchase, ownership
or disposition of the New Notes. This discussion is based upon the provisions of
the Internal Revenue Code of 1986, as amended, and regulations, rulings and
judicial decisions now in effect, all of which are subject to change. It does
not include any description of the tax laws of any state, local or foreign
governments or any estate or gift tax considerations that may be applicable to
the New Notes or holders thereof. It does not discuss all aspects of U.S.
Federal income taxation that may be relevant to a particular investor in light
of his particular investment circumstances or to certain types of investors
subject to special treatment under the U.S. Federal income tax laws (for
example, dealers in securities or currencies, S corporations, life insurance
companies, tax-exempt organizations, taxpayers subject to the alternative
minimum tax and non-U.S. persons) and also does not discuss New Notes held as a
hedge against currency risks or as part of a straddle with other investments or
as part of a "synthetic security" or other integrated investment (including a
"conversion transaction") comprised of a New Note and one or more other
investments, or situations in which the functional currency of the holders is
not the U.S. dollar.
Holders of Old Notes contemplating acceptance of the Exchange Offer should
consult their own tax advisors with respect to their particular circumstances
and with respect to the effects of state, local or foreign tax laws to which
they may be subject.
EXCHANGE OF NOTES
The exchange of Old Notes for New Notes should not be a taxable event to holders
for federal income tax purposes. The exchange of Old Notes for the New Notes
pursuant to the Exchange Offer should not be treated as an "exchange" for
federal income tax purposes because the New Notes should not be considered to
differ materially in kind or extent from the Old Notes. If, however, the
exchange of the Old Notes for the New Notes were treated as an exchange for
federal income tax purposes, such exchange should constitute a recapitalization
for federal income tax purposes. Accordingly, a holder should have the same
adjusted basis and holding period in the New Notes as it had in the Old Notes
immediately before the exchange.
INTEREST ON THE NEW NOTES
A holder of a New Note will be required to report as ordinary interest income
for U.S. Federal income tax purposes interest earned on the New Note in
accordance with the holder's method of tax accounting.
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DISPOSITION OF NEW NOTES
A holder's tax basis for a New Note generally will be the holder's purchase
price for the Old Note. Upon the sale, exchange, redemption, retirement or other
disposition of a New Note, a holder will recognize gain or loss equal to the
difference (if any) between the amount realized and the holder's tax basis in
the New Note. Such gain or loss will be long-term capital gain or loss if the
New Note has been held for more than one year (including the period the Old Note
was held) and otherwise will be short-term capital gain or loss (with certain
exceptions to the characterization as capital gain if the New Note was acquired
at a market discount).
BACKUP WITHHOLDING
A holder of a New Note may be subject to backup withholding at the rate of 31%
with respect to interest paid on the New Note and proceeds from the sale,
exchange, redemption or retirement of the New Note, unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates that fact or (b) provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A holder
of a New Note who does not provide the Company with his correct taxpayer
identification number may be subject to penalties imposed by the IRS.
A holder of a New Note who is not a U.S. person will generally be exempt from
backup withholding and information reporting requirements, but may be required
to comply with certification and identification procedures in order to obtain an
exemption from backup withholding and information reporting.
Any amount paid as backup withholding will be creditable against the holder's
U.S. Federal income tax liability.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by
Participating Broker-Dealers during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes if such Old Notes
were acquired by such Participating Broker-Dealers for their own accounts as a
result of market-making activities or other trading activities. The Company has
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
such New Notes for a period ending 180 days after the Expiration Date (subject
to extension under certain limited circumstances described herein) or, if
earlier, when all such New Notes have been disposed of by such Participating
Broker-Dealer. See "The Exchange Offer -- Resales of New Notes."
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. New Notes received by broker-dealers for their own
accounts in connection with the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account in connection with the Exchange Offer and any broker-dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer other than commissions or concessions of any brokers or dealers
and will indemnify the holders of Old Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the Notes will be passed upon for the Company by
Emens, Kegler, Brown, Hill & Ritter, Co., L.P.A., Columbus, Ohio.
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EXPERTS
The financial statements incorporated in this registration statement by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The information appearing herein or incorporated herein with respect to proved
oil and gas reserves of the Company at December 31, 1994 and 1995, to the extent
stated herein, was estimated by the Company and audited by Huddleston & Co.,
Inc., independent petroleum engineers, and is included herein on the authority
of such firm as experts in petroleum engineering.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports and other information with the Commission. Reports,
proxy statements and other information statements filed by the Company with the
Commission pursuant to the informational requirements of the Exchange Act may be
inspected and copied at the public reference facilities maintained by the
Commission, at Room 1024, Judiciary Plaza Building, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the following regional offices of the Commission: 7
World Trade Center, New York, New York 10048 and 500 West Madison Street, 14th
Floor, Chicago, Illinois 60661. Copies of such material may be obtained at
prescribed rates from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Company with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference, except as
superseded or modified herein (i) the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, as amended on Form 10-K/A filed on June
14, 1996; and (ii) the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
termination of the offering of the Notes shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the respective dates
of filing of such documents. Any statement contained herein or 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 herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement or document so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document,
copies of which are available from the Company as described below, each such
statement qualified in all respects by such reference.
The Company undertakes to provide, without charge, to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any and all of the documents or
information referred to above that has been or may be incorporated by reference
in this Prospectus (excluding exhibits to such documents unless such exhibits
are specifically incorporated by reference). Requests should be directed to
Benton Oil and Gas Company, 1145 Eugenia Place, Suite 200, Carpinteria,
California 93013 (the principal executive offices of the Company), telephone
(805) 566-5600, Attn.: Corporate Secretary.
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GLOSSARY
When the following terms are used in the text they have the meanings indicated.
MCF. "Mcf" means thousand cubic feet. "Mmcf" means million cubic feet. "Bcf"
means billion cubic feet. "Tcf" means trillion cubic feet.
BBL. "Bbl" means barrel. "MBbl" means thousand barrels. "MMBbl" means million
barrels. "BBbl" means billion barrels.
BOE. "BOE" means barrels of oil equivalent, which are determined using the
ratio of one barrel of crude oil, condensate or natural gas liquids to six Mcf
of natural gas so that six Mcf of natural gas is referred to as one barrel of
oil equivalent or "BOE". "MBOE" means thousands of barrels of oil equivalent.
"MMBOE" means millions of barrels of oil equivalent.
CAPITAL EXPENDITURES. "Capital Expenditures" means costs associated with
exploratory and development drilling (including exploratory dry holes);
leasehold acquisitions; seismic data acquisitions; geological, geophysical and
land-related overhead expenditures; delay rentals; producing property
acquisitions; and other miscellaneous capital expenditures.
COMPLETION COSTS. "Completion Costs" means, as to any well, all those costs
incurred after the decision to complete the well as a producing well. Generally,
these costs include all costs, liabilities and expenses, whether tangible or
intangible, necessary to complete a well and bring it into production, including
installation of service equipment, tanks, and other materials necessary to
enable the well to deliver production.
DEVELOPMENT WELL. A "Development Well" is a well drilled as an additional well
to the same reservoir as other producing wells on a lease, or drilled on an
offset lease not more than one location away from a well producing from the same
reservoir.
EXPLORATORY WELL. An "Exploratory Well" is a well drilled in search of a new
and as yet undiscovered pool of oil or gas, or to extend the known limits of a
field under development.
FINDING COST. "Finding Cost", expressed in dollars per BOE, is calculated by
dividing the amount of total capital expenditures related to acquisitions,
exploration and development costs (reduced by proceeds for any sale of oil and
gas properties) by the amount of total net reserves added or reduced as a result
of property acquisitions and sales, drilling activities and reserve revisions
during the same period.
FUTURE DEVELOPMENT COST. "Future Development Cost" of proved nonproducing
reserves, expressed in dollars per BOE, is calculated by dividing the amount of
future capital expenditures related to development properties by the amount of
total proved non-producing reserves associated with such activities.
GROSS ACRES OR WELLS. "Gross Acres or Wells" are the total acres or wells, as
the case may be, in which an entity has an interest, either directly or through
an affiliate.
LIFTING COSTS. "Lifting Costs" are the expenses of lifting oil from a producing
formation to the surface, consisting of the costs incurred to operate and
maintain wells and related equipment and facilities, including labor costs,
repair and maintenance, supplies, insurance, production, severance and windfall
profit taxes.
NET ACRES OR WELLS. A party's "Net Acres" or "Net Wells" are calculated by
multiplying the number of gross acres or gross wells in which that party has an
interest by the fractional interest of the party in each such acre or well.
PRODUCING PROPERTIES OR RESERVES. "Producing Reserves" are Proved Developed
Reserves expected to be produced from existing completion intervals now open for
production in existing wells. "Producing Properties" are properties to which
Producing Reserves have been assigned by an independent petroleum engineer.
PROVED DEVELOPED RESERVES. "Proved Developed Reserves" are Proved Reserves
which can be expected to be recovered through existing wells with existing
equipment and operating methods.
PROVED RESERVES. "Proved Reserves" are the 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 oil and gas reservoirs under existing economic and operating conditions,
that is, on the basis of prices and costs as of the date the estimate is made
and any price changes provided for by existing conditions.
PROVED UNDEVELOPED RESERVES. "Proved Undeveloped Reserves" are Proved Reserves
which can be expected to be recovered from new wells on undrilled acreage, or
from existing wells where a relatively major expenditure is required for
recompletion.
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RESERVES. "Reserves" means crude oil and natural gas, condensate and natural
gas liquids, which are net of leasehold burdens, are stated on a net revenue
interest basis, and are found to be commercially recoverable.
ROYALTY INTEREST. A "Royalty Interest" is an interest in an oil and gas
property entitling the owner to a share of oil and gas production (or the
proceeds of the sale thereof) free of the costs of production.
STANDARDIZED MEASURE OF FUTURE NET CASH FLOWS. The "Standardized Measure of
Future Net Cash Flows" is a method of determining the present value of Proved
Reserves. The future net revenues from Proved Reserves are estimated assuming
that oil and gas prices and production costs remain constant. The resulting
stream of revenues is then discounted at the rate of 10% per year to obtain a
present value.
3-D SEISMIC. "3-D Seismic" is the method by which a three dimensional image of
the earth's subsurface is created through the interpretation of seismic data.
3-D surveys allow for a more detailed understanding of the subsurface than do
conventional surveys and contribute significantly to field appraisal,
development and production.
UNDEVELOPED ACREAGE. "Undeveloped Acreage" is oil and gas acreage (including,
in applicable instances, rights in one or more horizons which may be penetrated
by existing wellbores, but which have not been tested) to which Proved Reserves
have not been assigned by independent petroleum engineers.
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[BENTON OIL & GAS COMPANY LOGO]
<PAGE> 77
LETTER OF TRANSMITTAL
BENTON OIL AND GAS COMPANY
OFFER TO EXCHANGE ITS
11 5/8% SENIOR NOTES DUE 2003
(REGISTERED UNDER THE SECURITIES ACT OF 1933)
FOR ANY AND ALL OF ITS OUTSTANDING
11 5/8% SENIOR NOTES DUE 2003
PURSUANT TO THE PROSPECTUS
DATED JULY 12, 1996
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON AUGUST 23, 1996, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
By Mail:
First Trust National Association
P.O. Box 64485
St. Paul, Minnesota 55164-9549
Attn: Specialized Finance
To Confirm by Telephone
or for Information:
(612) 244-1197
Attn: Phyliss Meath
By Overnight Delivery or Hand:
First Trust of New York,
National Association
100 Wall Street
New York, New York 10005
Attn: Cathy Donohue
Facsimile Transmissions:
(612) 244-1145
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) either if Old Notes are to be forwarded herewith or if tenders of
Old Notes are to be made by book-entry transfer to an account maintained by
First Trust of New York, National Association (the "Exchange Agent") at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in "The
Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates and
all other required documents to the Exchange Agent on or prior to the Expiration
Date (as defined in the Prospectus) or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The Exchange Offer --
Procedures for Tendering Old Notes" in the Prospectus. SEE INSTRUCTION 1.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
1
<PAGE> 78
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES TENDERED
- ---------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) OLD NOTES TENDERED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF OLD NOTES
CERTIFICATE PRINCIPAL AMOUNT TENDERED (IF LESS
NUMBER(S) OF OLD NOTES* THAN ALL)**
<S> <C> <C> <C>
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
TOTAL AMOUNT
TENDERED
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000 and
integral multiples thereof. All Old Notes held shall be deemed tendered
unless a lesser number is specified in this column.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution ----------------------------------------------
DTC Account Number ---------------------------------------------------------
Transaction Code Number ----------------------------------------------------
/ / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) -----------------------------------------------
Window Ticket Number (if any) ----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery -------------------------
Name of Institution which Guaranteed Delivery ------------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution ----------------------------------------------
DTC Account Number ---------------------------------------------------------
Transaction Code Number ----------------------------------------------------
/ / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ---------------------------------------------------------------------
Address: ------------------------------------------------------------------
2
<PAGE> 79
Ladies and Gentlemen:
The undersigned hereby tenders to Benton Oil and Gas Company, a Delaware
corporation (the "Company"), the above described aggregate principal amount of
the Company's 11 5/8% Senior Notes due 2003 (the "Old Notes") in exchange for a
like aggregate principal amount of the Company's 11 5/8% Senior Notes due 2003
(the "New Notes"), upon the terms and subject to the conditions set forth in the
Prospectus dated July 12, 1996 (as the same may be amended or supplemented from
time to time, the "Prospectus"), receipt of which is acknowledged, and in this
Letter of Transmittal (which, together with the Prospectus, constitute the
"Exchange Offer"). The Exchange Offer has been registered under the Securities
Act of 1933, as amended (the "Securities Act").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes, (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered by
book-entry transfer, such Old Notes will be credited to an account maintained at
DTC), without expense to the tendering holder, promptly following the expiration
or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer -- Procedures for Tendering
Old Notes" in the Prospectus and in the instructions hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Notes be issued
in the name(s) of the undersigned or, in the case of a book-entry transfer of
Old Notes, that such New Notes be credited to the account indicated above
maintained at DTC. If applicable, substitute Certificates representing Old Notes
not exchanged or not accepted for exchange will be issued to the undersigned or,
in the case of a book-entry transfer of Old Notes, will be credited to the
account indicated above maintained at DTC. Similarly, unless otherwise indicated
under "Special Delivery Instructions," please deliver New Notes to the
undersigned at the address shown below the undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (II) ANY NEW NOTES TO BE RECEIVED BY THE UNDERSIGNED
ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED
HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE
3
<PAGE> 80
RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A
BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE
IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES.
BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER
OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER REPRESENTS AND
AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE
DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO
THIRD PARTIES, THAT (A) SUCH OLD NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY
AS A NOMINEE, OR (B) SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES
AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO
TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY
RESALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN
CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES, WHERE
SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR
A PERIOD ENDING 180 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION UNDER
CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER, WHEN
ALL SUCH NEW NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING BROKER-DEALER. IN
THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING
BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF
TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE
OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT
CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL
RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE
THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE
REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE
SALE OF NEW NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR
SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS
FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING
BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY
BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE
SALE OF THE NEW NOTES, IT SHALL EXTEND THE 180-DAY PERIOD REFERRED TO ABOVE
DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN
CONNECTION WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD
FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE
DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE
SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES
OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE
OF NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the New Notes or, if no
such interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and the undersigned waives the right to receive any
interest on such Old Notes accrued from and after such Interest Payment Date or,
if no such interest has been paid or duly provided for, from and after May 1,
1996.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
4
<PAGE> 81
- --------------------------------------------------------------------------------
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s)
on Certificate(s) for the Old Notes hereby tendered or on a security
position listing, or by any person(s) authorized to become the registered
holder(s) by endorsements and documents transmitted herewith (including
such opinions of counsel, certifications and other information as may be
required by the Company or the Trustee for the Old Notes to comply with
the restrictions on transfer applicable to the Old Notes). If signature is
by an attorney-in-fact, executor, administrator, trustee, guardian,
officer of a corporation or another acting in a fiduciary capacity or
representative capacity, please set forth the signer's full title. See
Instruction 5.
--------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Date ---------------------------------------------------------------, 1996
Name(s)
------------------------------------------------------------------
--------------------------------------------------------------------------
(PLEASE PRINT)
Address
------------------------------------------------------------------
--------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number -------------------------------------------
--------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
Authorized Signature
----------------------------------------------------
Name
--------------------------------------------------------------------
--------------------------------------------------------------------------
(PLEASE PRINT)
Date ---------------------------------------------------------------, 1996
Capacity or Title
--------------------------------------------------------
Name of Firm
-------------------------------------------------------------
Address
------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
-------------------------------------------
5
<PAGE> 82
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be complete ONLY if the New Notes are to be issued in the name of
someone other than the registered holder of the Old Notes whose name(s)
appear(s) above.
Issue New Notes to:
Name
---------------------------------------------------------------------------
(PLEASE PRINT)
- --------------------------------------------------------------------------------
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if New Notes are to be sent to someone other than the
registered holder of the Old Notes whose name(s) appear(s) above, or to such
registered holder(s) at an address other than that shown above.
Mail New Notes to:
Name
---------------------------------------------------------------------------
(PLEASE PRINT)
- --------------------------------------------------------------------------------
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
SEE IMPORTANT INSTRUCTIONS
6
<PAGE> 83
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes" in the Prospectus. Certificates, or
timely confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at one of its addresses set forth herein on or
prior to the Expiration Date. Old Notes may be tendered in whole or in part in
the principal amount of $1,000 and integral multiples of $1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Old Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer -- Procedures
for Tendering Old Notes" in the Prospectus. Pursuant to such procedures: (i)
such tender must be made by or through an Eligible Institution (as defined
below); (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company, must be
received by the Exchange Agent on or prior to the Expiration Date; and (iii) the
Certificates (or a book-entry confirmation (as defined in the Prospectus))
representing all tendered Old Notes, in proper form for transfer, together with
a Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
within five business days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in "The Exchange Offer -- Procedures for
Tendering Old Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein and in the Prospectus, "Eligible Institution" means a firm
or other entity identified in Rule 17Ad-15 under the Exchange Act as "an
eligible guarantor institution," including (as such terms are defined therein)
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any participant
in DTC whose name appears on a security position listing as the owner of
the Old Notes) of Old Notes tendered herewith, unless such holder(s) has
completed either the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the Certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in the principal amount of $1,000 and integral multiples thereof.
If less than all the Old Notes evidenced by any Certificate submitted are to be
tendered, fill in the principal amount of Old Notes which are to be tendered in
the box entitled "Principal Amount of Old Notes Tendered (if less than all)." In
such case, new Certificate(s) for the remainder of the Old Notes that were
evidenced by your old Certificate(s) will only be sent to the holder of the Old
Note, promptly after the Expiration Date. All Old Notes represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
7
<PAGE> 84
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to be
effective on or prior to that time, a written, telegraphic, telex or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth above or in the Prospectus on
or prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if Certificates for Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the Certificate for the Old Notes, if different from that of the
person who tendered such Old Notes. If Certificates for the Old Notes have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Certificates for the Old Notes, the tendering holder
must submit the serial numbers shown on the particular.
Certificates for the Old Notes to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Old Notes tendered for the account of an Eligible Institution. If
Old Notes have been tendered pursuant to the procedures for book-entry transfer
set forth in "The Exchange Offer -- Procedures for Tendering Old Notes," the
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawal of Old Notes, in which case a notice of
withdrawal will be effective if delivered to the Exchange Agent by written,
telegraphic, telex or facsimile transmission. Withdrawals of tenders of Old
Notes may not be rescinded. Old Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time on or prior to the Expiration Date by following any of the
procedures described in the Prospectus under "The Exchange Offer -- Procedures
for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Notes which have been tendered
but which are withdrawn will be returned to the holder thereof without cost to
such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons' authority
to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) are required unless New Notes are to be issued in the
name of a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the Trustee for the Old Notes may require in accordance with the
restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Old Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for, may, in the view of
counsel to the Company, be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the Exchange
Offer set forth in the Prospectus under "The Exchange Offer -- Certain
Conditions to the Exchange Offer" or any conditions or irregularity in any
tender of Old Notes of any particular holder whether or not similar conditions
or irregularities are waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will be
final and binding. No tender of Old Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. Neither the Company, any affiliates or assigns of the Company, the
Exchange
8
<PAGE> 85
Agent, nor any other person shall be under any duty to give notification of any
irregularities in tenders or incur any liability for failure to give such
notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Old Notes are accepted for exchange is required
to provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service (the "IRS") may
subject the holder or other payee to a $50 penalty. In addition, payments to
such holders or other payees with respect to Old Notes exchanged pursuant to the
Exchange Offer may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to the
steps that must be taken in order to replace the Certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Certificate(s) have been followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, New Notes are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of the Old Notes
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Notes in connection with the Exchange Offer, then the amount of any such
transfer tax (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF)
AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY
THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
9
<PAGE> 86
TO BE COMPLETED BY ALL
TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME: FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
<TABLE>
<S> <C> <C>
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT -------------------------
Form W-9 AND CERTIFY BY SIGNING AND DATING BELOW Social Security Number or
Employer Identification
Number
Department of the Treasury Part 2
Internal Revenue Service Awaiting TIN //
</TABLE>
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the number
shown on this form is my correct taxpayer identification number (or I am waiting
for a number to be issued to me), (2) I am not subject to backup withholding
either because (i) I am exempt from backup withholding, (ii) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or
(iii) the IRS has notified me that I am no longer subject to backup withholding,
and (3) any other information provided on this form is true and correct.
<TABLE>
<S> <C>
Payer's Request for Taxpayer SIGNATURE
Identification Number (TIN) -------------------------------------
and Certification DATE
------------------------------------------
</TABLE>
You must cross out item (iii) in Part (2) above if you have been notified by the
IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return and you have not been notified by the
IRS that you are no longer subject to backup withholding.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments made to me on account of the New Notes shall be retained until I
provide a taxpayer identification number to the Exchange Agent and that, if I do
not provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
<TABLE>
<S> <C>
Signature Date
------------------------------- -----------------------------------------
</TABLE>
<PAGE> 87
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
11 5/8% SENIOR NOTES DUE 2003
OF
BENTON OIL AND GAS COMPANY
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 11 5/8% Senior Notes due 2003
(the "Old Notes") are not immediately available, (ii) Old Notes, the Letter of
Transmittal and all other required documents cannot be delivered to First Trust
of New York, National Association (the "Exchange Agent") on or prior to the
Expiration Date (as defined in the Prospectus referred to below) or (iii) the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery may be delivered by hand, overnight
courier or mail, or transmitted by facsimile transmission, to the Exchange
Agent. See "The Exchange Offer -- Procedures for Tendering Old Notes" in the
Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
<TABLE>
<S> <C>
BY MAIL: BY OVERNIGHT DELIVERY OR HAND:
First Trust National Association First Trust of New York,
P.O. Box 64485 National Association
St. Paul, Minnesota 55164-9549 100 Wall Street
Attn: Specialized Finance New York, New York 10005
Attn: Cathy Donohue
</TABLE>
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(612) 244-1197
Attn: Phyllis Meath
FACSIMILE TRANSMISSIONS:
(612) 244-1145
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE
TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF
A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN
"ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE
MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER
OF TRANSMITTAL.
1
<PAGE> 88
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Old Notes to the Exchange Agent's account at The Depository
Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set
forth in the Prospectus, in either case together with one or more properly
completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and
any other required documents within five business days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of Transmittal
and the Old Notes tendered hereby to the Exchange Agent within the time period
set forth above and that failure to do so could result in a financial loss to
the undersigned.
<TABLE>
<S> <C>
Name of
Firm: ------------------------------------------- -------------------------------------------------
(Authorized Signature)
Address: ---------------------------------------- Title: ------------------------------------------
Name: -------------------------------------------
- -------------------------------------------------
(Zip Code) (Please type or print)
Area Code and
Telephone
Number: ----------------------------------------- Date: -------------------------------------------
</TABLE>
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS.
2
<PAGE> 89
OFFER TO EXCHANGE
11 5/8% SENIOR NOTES DUE 2003
FOR ANY AND ALL OUTSTANDING
11 5/8% SENIOR NOTES DUE 2003
OF
BENTON OIL AND GAS COMPANY
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer by
Benton Oil and Gas Company (the "Company"), a Delaware corporation, to exchange
its 11 5/8% Senior Notes due 2003 (the "New Notes"), pursuant to an offering
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of its issued and outstanding 11 5/8% Senior Notes
due 2003 (the "Old Notes") upon the terms and subject to the conditions set
forth in the Company's Prospectus, dated July 12, 1996, and the related Letter
of Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated July 12, 1996;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder and/or Book-Entry Transfer participant from
Owner; and
5. Letter which may be sent to your clients for whose account you hold Old Notes
in your name or in the name of your nominee, to accompany the instruction
form referred to in 4 above, for obtaining such client's instruction with
regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the Offer will
expire 5:00 p.m., New York City time, on August 23, 1996, unless extended.
The Offer is not conditioned upon any minimum number of Old Notes being
tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will represent
to the Company that (i) the holder is not an "affiliate" of the Company, (ii)
any New Notes to be received by the holder are being acquired in the ordinary
course of its business, (iii) the holder has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of New Notes to be received in the Exchange Offer, and (iv) if
the holder is not a broker-dealer, the holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such New Notes. If the tendering holder is a broker-dealer that will receive
New Notes for its own account in exchange for Old Notes, you will represent on
behalf of such broker-dealer that the Old Notes to be exchanged for the New
Notes were acquired by it as a result of market-making activities or other
trading activities, and acknowledge on behalf of such broker-dealer that it will
deliver a prospectus meeting the requirements of the Act in connection with any
resale of such New Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Act in connection with
any resale of such New Notes, such broker-dealer is not deemed to admit that it
is an "underwriter" within the meaning of the Act.
The enclosed Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner contains an authorization by the beneficial owners of the
Old Notes for you to make the foregoing representations.
1
<PAGE> 90
The Company will not pay any fee or commission to any broker or dealer or to any
other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Offer. The Company will pay
or cause to be paid any transfer taxes payable on the transfer of Old Notes to
it, except as otherwise provided in Instruction of the enclosed Letter of
Transmittal.
Additional copies of the enclosed material may be obtained from the undersigned.
Very truly yours,
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF BENTON OIL AND GAS COMPANY OR FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR
BEHALF IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH
AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE> 91
OFFER TO EXCHANGE
11 5/8% SENIOR NOTES DUE 2003
FOR ANY AND ALL OUTSTANDING
11 5/8% SENIOR NOTES DUE 2003
OF
BENTON OIL AND GAS COMPANY
To Our Clients:
We are enclosing herewith a Prospectus, dated July 12, 1996, of Benton Oil and
Gas Company (the "Company"), a Delaware corporation, and a related Letter of
Transmittal (which together constitute the "Exchange Offer") relating to the
offer by the Company to exchange its 11 5/8% Senior Notes due 2003 (the "New
Notes"), pursuant to an offering registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of its issued and
outstanding 11 5/8% Senior Notes due 2003 (the "Old Notes") upon the terms and
subject to the conditions set forth in the Exchange Offer.
Please note that the Offer will expire at 5:00 p.m., New York City time, on
August 23, 1996, unless extended.
The Offer is not conditioned upon any minimum number of Old Notes being
tendered.
We are the holder of record and/or participant in the book-entry transfer
facility of Old Notes held by us for your account. A tender of such Old Notes
can be made only by us as the record holder and/or participant in the book-entry
transfer facility and pursuant to your instructions. The Letter of Transmittal
is furnished to you for your information only and cannot be used by you to
tender Old Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of the Old
Notes held by us for your account pursuant to the terms and conditions of the
Exchange Offer. We also request that you confirm that we may on your behalf make
the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes will represent
to the Company that (i) the holder is not an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act of 1933, as amended, (ii) any
New Notes to be received by the holder are being acquired in the ordinary course
of its business, (iii) the holder has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of New Notes to be received in the Exchange Offer, and (iv) if the holder
is not a broker-dealer, the holder is not engaged in, and does not intend to
engage in, a distribution (within the meaning of the Securities Act) of such New
Notes. If the tendering holder is a broker-dealer (whether or not it is also an
"affiliate") that will receive New Notes for its own account in exchange for Old
Notes, we will represent on behalf of such broker-dealer that the Old Notes to
be exchanged for the New Notes were acquired by it as a result of
marketing-making activities or other trading activities, and acknowledge on
behalf of such broker-dealer that it will deliver a prospectus meeting the
requirements of the Act in connection with any resale of such New Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Act in connection with any resale of such New Notes, such
broker-dealer is not deemed to admit that it is an "underwriter" within the
meaning of the Act.
Very truly yours,
<PAGE> 92
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER
OF
BENTON OIL AND GAS COMPANY
11 5/8% SENIOR NOTES DUE 2003
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated July 12,
1996 (the "Prospectus") of Benton Oil and Gas Company, a Delaware corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount of the Old Notes held by you for the account of the
undersigned is (fill in amount):
$ ______________ of the 11 5/8% Senior Notes due 2003.
With respect to the Exchange Offer, the undersigned hereby instructs you (check
appropriate box):
/ / To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, (if any):
$ ______________ of the 11 5/8% Senior Notes due 2003.
/ / NOT to TENDER any Old Notes held by you for the account of the undersigned.
If the undersigned instructs you to tender the Old Notes held by you for the
account of the undersigned, it is understood that you are authorized to make, on
behalf of the undersigned (and the undersigned, by its signature below, hereby
makes to you), the representation and warranties contained in the Letter of
Transmittal that are to be made with respect to the undersigned as a beneficial
owner, including but not limited to the representations, that (i) the holder is
not an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act of 1933, as amended, (ii) any New Notes to be received by the
holder are being acquired in the ordinary course of its business, (iii) the
holder has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of New Notes to be
received in the Exchange Offer, and (iv) if the holder is not a broker-dealer,
the holder is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such New Notes. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
New Notes for its own account in exchange for Old Notes, it represents that such
Old Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
1
<PAGE> 93
SIGN HERE
Name of beneficial owner(s):
--------------------------------------------------
Signature(s):
-----------------------------------------------------------------
Name(s) (please print):
-------------------------------------------------------
Address:
----------------------------------------------------------------------
- -------------------------------------------------------------------------------
Telephone Number:
-------------------------------------------------------------
Taxpayer identification or Social Security Number:
----------------------------
Date:
-------------------------------------------------------------------------
2
